Exports are increasingly becoming more important to the success of the Canadian economy and individual companies. And if you're responsible for any international activity, chances are your company's success at exporting will impact your personal job performance -- and your value to your organization.

Consequently, identifying, assessing and choosing the right foreign markets to pursue can result in your company's exceeding their profit expectations. However, selecting the wrong markets can result in great expense, frustration and even your job, says Mike Carroll, President of Canusa Trade Services and a customs, transportation and distribution consultant, based in Fort Erie, Ontario.

Approaches Differ

Depending on your company's level of resources, objectives and product competitiveness, the number of foreign markets to target simultaneously and the selection process used to determine what markets to pursue will differ considerably. For example, if your company is small and new to international trade, your staff and level of resources allocated to pursuing international trade will likely be limited. As a result, it may be wise to focus on fewer foreign markets -- one to three -- rather than many. This will hopefully prevent the spreading of your resources too thin.

Determining the criteria to use when assessing what foreign markets to pursue can be an arduous task -- and expensive if pursued in a non-effective manner. Venessa Hammond, Vice President of Business Development at the Canadian Exporters Association in Ottawa, says "If you don't have $10,000 burning a hole in your pocket, you'll need to do plenty of research here at home where it's relatively inexpensive,"

Hammond suggests companies call upon Canadian government agencies dedicated to assisting exporters (i.e., International Trade Centres located in each province and the Export Development Corp.), seek the advice of the international branch of your local bank, speak with trade associations, and read as many publications on international trade as possible. "The more work done in advance, the more effective you'll be when traveling abroad," she says.

When visiting the foreign country, learn as much as possible about your competition, Hammond says. And "allow two days at the end of a foreign business trip for follow-up meetings and to think things over."

Step-By-Step

Brian Russell of Dalhousie University in Nova Scotia, assists companies seeking to export. Like Hammond, he strongly advises companies to do plenty of research in determining the markets to pursue. However, even before the research process is begun, he suggests companies should seriously analyze whether or not they are ready to export and have the necessary level of commitment to do so successfully.

Russell categorizes the export process into five phases. These, he suggests, involve analyzing your product demand in each potential export market and entail your developing a reasonable comfort level considering country proximity, political risk, cultural differences, language familiarity, currency convertibility, and the availability of labor.

Phase one, Russell says, is to do your research. The Canadian government, he says, is a good source of information. Second, "visit each country and get a first hand look and a sense of their markets." Third, Russell highly recommends that small and medium-size companies find a partner in these markets and establish a joint venture, strategic alliance or licensing agreement. "It just isn't economical or feasible to go it alone," he says.

The fourth step is to "follow-up on a regular basis and make sure the arrangement works." "It's important to maintain a very close working relationship and not to take a hands-off approach." In fact, he suggests companies visit their foreign partner no less than two months after a relationship has commenced.

The fifth and last phase is crucial to the success of the exporting venture. This phase, Russell contends, will continue for the duration of the endeavor. It involves the continuous learning, fine tuning and refinement of the partnership, the marketing strategy, and the never ending changes and responses to the dynamic market environment.

Selection Criteria

In selecting the best foreign markets, Hammond, Russell and many other trade experts have identified the following selection criteria as very important. You may wish to consider a few of these factors or many, depending on your company's level of resources, objectives, product competitiveness, type of product, etc.

"Don't be surprised if you have to reassess your criteria from time to time," Carroll says. "At first, the factors you choose to consider may seem fine, but once you have traveled to a particular country and learned a lot more about the market, your perspective can change considerably."

Market Demand

Rank the top 10 foreign countries by the quantity or value of your product they import from the Canada. Upon completion, you may wish to re-rank these markets by their total demand (domestic production plus world imports) for your product. Go one step further and complete this process for the previous three years. The data will allow you to calculate the total market size, its rate of growth, the percentage of Canadian market share, whether or not it is increasing or decreasing, and the level of competition and receptivity toward your product.

Level of Competition

Based on the degree of competition, you may decide to pursue or pass on a given market. Learn as much as possible about your competition, including their product price points, quality, distribution methods, consumer loyalty and their ability to provide after-sales service.

If a great deal of competition already exists, it may be more advantageous to target a smaller, growing market, with less intense competition. Keep in mind that smaller markets may be unprofitable for multinationals, but more than adequate for small and mid-size manufacturers.

Country Performance

Perform an assessment of the macro-economic conditions and trends of each selected country. Population, per capita income, and consumer demographics are important indicators. If the demand for your product has consecutively increased in a particular country, but the country's overall economic performance has decreased, it's likely that the product demand will eventually fall. If the product demand has risen along with the country's economic performance, the country may offer greater long-term opportunity.

Trade Barriers

It's essential to identify all the tariff and non-tariff barriers (standards, regulations, quotas, import licenses, etc.), necessary adaptations, and packaging and labeling regulations of each country you select to target. In some cases, formidable trade barriers may effectively bar your products from the market and necessary adaptations may require a greater investment than you are willing to make. If packaging and labeling requirements are not met, for example, foreign customs agents have been known to seize merchandise.

Carroll says, "It's essential that exporters are not only familiar with trade barriers, but also the many other logistical aspects that can kill a sale. For example, a client of ours recently shipped several containers of goods abroad and found that their product labels did not meet the requirements. Consequently, the goods sat in storage for weeks until arrangements could be made to change the labels."

According to Carroll, although political and economic structures are becoming decentralized in China, Communism remains intact. As a result, the system continues to erect roadblocks that are difficult to overcome, he says.

In The Spotlight

In addition to quotas and high tariffs, many of which are scheduled to come down or will be eliminated, the country imits access to its retail sector, maintains foreign exchange controls, operates under an inefficient banking system, and sometimes applies unreasonable standards and quality control requirements.

Additionally, it's important to become familiar with changing logistical demands and penalties for nonconformance. For example, in order to ship over-sized packages to China, approval must be given from the airlines before delivery. This is especially important for inland shipments.

Political Risk

It is important to keep abreast of your export destination's level of political stability, especially if its a developing country. Should a military coup take place, for example, a succeeding government may reverse policy; should social turmoil envelop a nation, the disruption of activities can effectively put you out of business.

Additionally, new governments have been know to reverse policy with regard to a whole range of investment issues. These changes can adversely affect your ability to generate profits and repatriate them.

Distribution Accessibility

Although a particular sector may appear to be open based on liberal trade barriers, a few families or companies may control the distribution channels effectively barring your product from retail shelves. "This is especially prevalent in developing countries", Carroll says. If you cannot gain access to lucrative distribution channels, other favorable factors will have no bearing, he says.

Kodak, based in Rochester, New York, claims that although Japanese tariffs of its film products are low, through unfair influence by Fuji film, Kodak's main Japanese competitor, Kodak film is not making it to the Japanese retail shelves. This has become a contentious issue in the United States and one that is revealing how factors other than traditional trade barriers can deny a product distribution.

Climate and Location

If, for example, your product is sensitive to moisture and will not operate effectively in humid conditions, it may be wise to pursue markets in dryer climates. The shipping costs of heavy or hazardous materials to distant destinations may eliminate profit margins. Consequently, it may be wise to license your technology in these markets.

Infrastructure

Many high-technology products often require a skilled support staff, also referred to as human infrastructure, to keep the product operating smoothly. If the export market does not have affordable access to qualified people, providing the support from the home office may be too expensive. The lack of physical infrastructure, such as roads, utilities and telecommunications facilities may also curtail exports. The inability to deliver perishables in a timely fashion, for example, or inaccessibility to refrigerated storage equipment may be an effective deterrent.

Environmental Concerns

Environmental standards greatly differ from country to country. Machinery, for example, may not meet stringent foreign environmental pollution standards that could prevent product importation. On the other hand, some developing countries may not provide adequate facilities to treat or store toxic by-products generated by the manufacturing process, creating a serious health risk and legal problems.

Intellectual Property Protection

Strong and enforced patent and trademark laws will better deter foreign companies from stealing your technology. If an export market's patent or trademark laws are generally weak or unenforced, an exporter of software, for example, may prefer to avoid this market.

China and many other developing countries have repeatedly been identified by several governments as major violators of intellectual property rights. As a result, prior to exporting artistic or knowledge-intensive products, closely examine reports issued by the United Nations and the new World Trade Organization.

Currency Convertibility

Countries with soft currencies that are not easily convertible or do not have sufficient currency reserves may not be able to pay you in Canadian dollars. In these situations, you may consider barter trade -- if you have access to an expert in the field.

Should you accept a foreign currency as payment, bear in mind that currency fluctuations may eliminate your profit margins or cause a loss. And should you barter, be familiar with Canadian tax laws that apply.

Cultural Knowledge

Understanding the buyer's culture and tastes is very important. Behavior considered friendly in one country may be considered offensive in another. Product design not adapted to suit cultural preferences may not be accepted. Be aware that many foreigners believe that to be polite is to agree, not considering the ramifications or their ability to perform.

Having a bi- or multi-lingual staff person demonstrates goodwill and helps to reduce common misunderstandings caused by inaccurate translators.

Legal Environment

In countries where the accused is presumed guilty until proven innocent, courts may unfairly favor domestic agents terminated over poor performance or favor domestic consumers who are injured by the inappropriate use of a product. It is wise to be familiar with foreign laws and trends before entering a given market.

One of the most pressing issues in doing business in Russia, for example, is the lack of commercial legislation. The absence of civil, commercial and criminal codes is a major constraint.

A confusing tax system has become a major problem for foreign businesses operating in Russia. And bureaucratic requirements are often confusing and burdensome, and bureaucratic discretion may be capricious in awarding tenders or development rights to companies.

This article appeared in Hemisphere Magazine, March 1997.
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John Manzella
About The Author John Manzella [Full Bio]
John Manzella is a world-recognized author and speaker on global business, competitive strategies and the latest economic trends. He also is CEO of World Trade Center BN, chair of the Upstate New York District Export Council, and founder of The Manzella Report and Manzella Trade Communications Inc. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




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