“It’s not a matter of if, rather when
you go international.”
What strategy will you choose?
• Exporting ( Most common, least risky)
• Licensing
– Licensor offers know-how, technology, brand name in exchange for
royalties
– Lower risk but also lower profits
• Franchising
– Franchisor provides standard package of products, systems and
management services while franchisee provides capital, market
knowledge personal involvement
• Joint Venture
– Foreign company and local company establish a jointly owned new
company
• Wholly Owned Subsidiary (Most costly, Most risky)
– Greenfielding build from ground up
– Purchase existing facility
Choosing Exporting
• Exporting is selling goods
in foreign markets as a way
to earn profits.
• An Export Business is a
venture where a firm buys
or represents products or
services produced in one
country and sells them in
other countries
• Exporting (most common, least risky)
– Direct to customer (agent, retailer, internet) in
another country
– Indirect to buyer (WalMart, Sears, or
intermediary*) in home country who exports
product
Why Export?
• Increase Sales
– Extend the market for a product that has proved popular at the
domestic level.
– Respond to overseas buyer with whom a profitable business
relationship has emerged.
– Lengthen a product's life cycle by selling in foreign markets once
a product's popularity declines in the home market and wanting
to take advantage of seasonal differences (e.g., when it is
summer in America, it is winter in Australia!)
• Avoid Changing Domestic Conditions
– Turn to different markets when a company feels the regulations
on its product become too strict at home. (cigarette industry in
the U.S.)
Disadvantages of Exporting
1. Increased costs.
E.g. Traveling abroad to obtain orders; High management fees,
shipping charges, agent's fees, etc.,
2. Understanding and following import laws and regulations, which
vary and change rapidly and dramatically in some cultures.
3. Transportation policy.
Shipping rules and regulations complicated
4. Currency.
The earlier advantage of a strong currency in exchange for a weak
dollar might, in alternative circumstances, prove detrimental to the
exporter.
5. Collecting long-standing payments and debts can prove difficult.
Advantages of Exporting
1. Increased market size and brand (global brand)
awareness
2. Currency benefits -Changes in exchange rates can prove
advantageous when selling to a customer whose currency is
stronger than your own.
3. Protection against a downturn in the domestic market.
4. Protection in the event of world recession - it is unlikely
that all countries will be equally affected by an economic
downturn.
5. Economies of scale from manufacturing in larger batches.
Types of Export Businesses
Export-Manufacturers
Manufacturers, producers, assemblers and processors who export their
own goods.
Export-Traders*
– Export Management Company*
• “Typically involved in the whole international trade process,
including sales, marketing, invoicing, shipping, foreign
receivable risks, customer training and support and even
warranty issues. Often the arrangement is on an exclusive
basis. A particular EMC will likely focus on specific industries
and regions of the world. Most common way of indirect
exporting
– Export Trading Company
• “Similar to EMCs…distinction often lies in the size of the company. ETCs
are large and more like to represent competing products.”
– Export Commission Agents and Brokers
• “Basic difference between an agent or broker and EMCs and ETCs is that
agents typically don’t fulfill the order; they simply pass it on to the
manufacturer. They act as sales reps but don’t invoice the customer or
coordinate the logistics.”
Export Management Company
EMC
• EMC - Companies which act as your
export department
– Market research
– Travel overseas to examine markets and visit
clients
– Appoint overseas distributors
– Exhibit at international trade shows
– Handle shipping, export documentation,
shipping, insurance, financing...
Export Management Company
• May or may not take title
• Commissions range from 7.5 - 20
percent
• May require 3-5 year contract
– Source: Dept. of Commerce or Supt. Of Documents, U.S.
Govt. Office, Washington, D.C. 20402
Is Exporting the Business for You?
•
•
•
•
•
Contacts (Buyers)
Business Know How/Sales Experience
Capital to Invest
Attention to detail
International Economics and Product
Knowledge
• Foreign Languages & Foreign Culturer
• Persistence, tempered by Judgment
To Be Successful
• You must have at least one of the
following:
– Foreign Buyer that needs a U.S.
Agent/Product/Service
– Domestic Product/Service/Company that is
viable for international Sales
– Niche/Knowledge/ Advantage in a Particular
Industry or Market
Failures
Many fail. For example, story of an insurance salesman
from South Dakota who abandoned his insurance business
for the pot of gold. He incorporated himself as an ETC,
packed his bag for a four-day stay, and took off for Hong
Kong, expecting to land several orders for whatever anyone
wanted to buy. On the flight over, his seat partner asked
what product lines he represented. His response typified
the naivete of the new traders. “Any product you want.
I’m going to get the order first and then source out a
supplier back in the States.”
Setting Up the Business involves…
•
•
•
•
•
•
•
•
•
Legal organization
Name Logo
Bank accounts & insurance
Office, Computer & other equipment
Accounting & taxes
Finance
Loans or investors
Personal Financial goals
BUSINESS PLAN
Two Key Decisions Before Going Global…if
you are manufacturer
1. Should you enter foreign market directly
or indirectly?
2. Should you adapt your product and if so,
how much?
Two Key Decisions Before Going Global…if
you are export trading company
1. Which manufacturer should you
represent?
2. In which market(s) should you sell the
product?
Do You Have what It takes to
Become an Exporter?
Important Entrepreneurial Qualities
• Drive (1-6) - Responsibility, vigor, initiative
and perseverance.
• Patience (7) - Essential to coping with
delays, strikes, & revolutions.
• Tact (8) - Necessary to deal with people
whom you may never meet and represent
different cultures
• Imagination (9) - Necessary to adapt
product & selling approach in changing
environment
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What is Exporting?