At some point in the small business growth cycle, many business owners toy with the idea of developing export markets for their products and services.
There are many valid reasons for deciding to pursue the 'growth via exporting' route, including:
- Securing first-mover advantage in an emerging market;
- Achieving pricing advantages by scaling up your production capacity to meet new market
demand; and
- Exploiting currency exchange differences to enhance profit margins;
The decision to enter the export market should not be taken lightly. While there is clear scope for growing your business and enhancing profitability, there
are a number of potential downside risks associated with exporting, such as:
- Costs associated with establishing a presence in each overseas market (new staff, premises
etc.);
- Compliance issues and similar 'red tape' that must be navigated to ensure you meet all the
criteria for transacting in each offshore market;
- Cashflow stress resulting from unanticipated costs and other outlays associated with
servicing offshore customers.
Before you take the plunge, you should undertake rigorous and exhaustive planning, to ensure that your new market entry strategy has the best chance of
success.
As a minimum, you should take the following steps:
- Choose your new market wisely
Identify which market(s) are of potential interest
to you, and why. Avoid jumping on the 'flavour of the month' export bandwagon, and conduct your own investigation into which markets are the most promising.
Do not allow your thinking to become clouded by the sheer numbers involved. It is not relevant that a specific market has, say, 100 million consumers. What
is more relevant is understanding how many of them are potential customers of your business. For instance, India may have a population of just over 1.1
Billion people, but approximately 25% of the population lives below the poverty line, and its average per capita income is less than $US1000 per annum - an
important consideration for vendors of most Western goods.
- Understand your new market
There are a number of reputable sources of solid
economic, legal, political and regulatory information about the various export markets open to you. It is important that you take the time to digest this
information, and understand how it impacts upon your proposed export strategy. Beyond these tangible issues, however, it is also important to understand the
cultural and other social factors that may affect the business environment for your products and services.
- Grow relationships
Many potential overseas business partners will prefer to
invest time to grow a trusting business relationship, and will be reluctant to commit to any form of commerce until they are satisfied with the strength of
the relationship. For this reason, it is important to start building relationships with business representatives (both partners and potential customers) as
soon as possible after you have chosen the market(s) of interest. You should be prepared to make several trips for face-to-face meetings as part of the
rapport-building process.
- Learn from others
In any given market, there will be hundreds, if not thousands
of expatriate workers whom you could tap for both local knowledge and assistance in helping your business gain its first customers. There are a range of
expatriate networking organisations with an online presence, which should simplify the process of identifying suitable contacts.
- Document your plans
The discipline involved in not only assessing but also
committing to writing the various aspects of your export planning is very useful. It will often help you to identify gaps in your knowledge as well as flaws
in your assumptions. More importantly, it creates a set of documents that you can ask a trusted 3rd party to review. At the end of your investigation, you
should have documents covering the following issues:
- Export readiness analysis - Assessment of how your business is placed to commence
exporting.
- Market Research - High-level summary of key characteristics of your target markets,
including current and potential competitors.
- Trade Barriers Assessment - List of issues that may impact your export activities,
and plans for overcoming them.
- Export Strategy - A detailed, step-by-step of how you plan to successfully enter
new markets.
- Pricing - Your proposed local market pricing (and the reasoning underlying the
chosen pricing points).
- Terms of trade - The basis upon which you plan to trade with offshore partners
(including details of how you plan to enforce these terms).
- Logistics plan - How you plan to make your products or services available in
offshore markets (e.g. shipping physical products etc.).
- Financing - The anticipated costs associated with entering offshore markets, and
how you plan to finance it.
- Implementation plan - An overarching plan and timeline for successfully entering
each new market.
- Find a translator
Even in markets where there is a high level of English
speaking individuals, it pays to find a translator with experience in working with export-oriented businesses. In the early days of your rapport building
with potential customers and partners, even minor slights and misunderstandings can be catastrophic. Equally, it is during these early stages that you often
find yourself negotiating (formally or informally) the terms of your proposed business relationship, and it is crucial that you take every step possible to
ensure a common understanding among all concerned.
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