Exporting is crucial to America’s economic health. Increased exports mean business growth, and business growth means bigger profits for U.S. companies — all of which ultimately results in more jobs for American workers. Yet only a small percentage of potential exporters take advantage of these opportunities. It is critical for more U.S. businesses to think globally.
Your decision to read this publication shows you are interested in exporting. You may have already discovered that your company is competing internationally because foreign-owned companies are competing with you in your “domestic” markets. The division between domestic and international markets is becoming increasingly blurred. In a world of 6.1 billion people, global communication networks, next-day airfreight deliveries worldwide and CNN, it no longer makes sense to limit your company’s sales to the local or even the national market. Your business cannot ignore these international realities if you intend to maintain your market share and keep pace with your competitors.
Making the decision to export requires careful assessment of the advantages and disadvantages of expanding into new markets. Once the decision is made to export, an international marketing plan is essential. This chapter presents the advantages and disadvantages of exporting, and offers a method to evaluate your company’s readiness to export. The remaining chapters in this publication guide you through the steps necessary to master the “trade game.”
Consider some of the specific advantages of exporting. Exporting can help your business:
In comparison, there are certain disadvantages to exporting. Your business may be required to:
These disadvantages may justify a decision to forego direct exporting at the present time, although your company may be able to pursue exporting through an intermediary. If your company’s financial situation is weak, attempting to sell into foreign markets may be ill-timed. The decision to export needs to be based on careful analysis and sound planning.
Behind most export success stories is a plan. Whether formally written or sketched out informally at a meeting with your management team, an international marketing plan is an essential tool to properly evaluate all the factors that would affect your company’s ability to go international.
An international marketing plan should define your company’s:
Creating an international marketing plan helps to define your company’s present status, internal goals and commitment, and it is also required if you plan to seek export financing assistance. Preparing the plan in advance of making export loan requests from your bank will save time and money. Completing and analyzing an international marketing plan helps you anticipate future goals, assemble facts, identify constraints and create an action statement. The plan also should set forth specific objectives, an implementation timetable and milestones to gauge your success.
The purpose of the International Marketing Plan Workbook is to prepare your business to enter the international marketplace. Ask yourself: Should I expand my company through exporting? Do I have any products or services I can export? This workbook will lead you step by step through the process of exporting your product to an international market.
The workbook is divided into sections. Each section should be completed before you start the next. After you have completed the entire workbook, you will be ready to develop an international marketing plan to export your product. The remaining chapters of this Guide will assist you in determining where and how to find the resources to begin exporting successfully.
Why complete this workbook and write a plan? Six reasons it will be worth your time and effort are:
No! Nobody will do your thinking or make decisions for you. This is your business. If the marketing plan is to be useful, it must reflect your ideas and efforts.
The planning process forces you to look at your future business operations and anticipate what will happen. This process better prepares you for the future and makes you more knowledgeable about your business. Planning is vital for marketing your product in an international marketplace and at home.
Any firm considering entering into international business transactions must understand that doing business internationally is not a simple task. It is stimulating and potentially profitable in the long-term but requires much preparation and research prior to the first transaction.
Entry into the international market may take as long as two years of cash outflow to generate profit. In considering products or services for the international market, a business needs to be:
Approach your export operations in the same way you would your domestic operations — using sound business fundamentals. Developing an international marketing plan helps you assess your present market situation, business goals and commitment, which will increase your opportunities for success.
A marketing plan is a process, not a product. Planning is a continuous process. Your marketing plan must be revised on a continual basis as your knowledge increases about international markets. You will be surprised how much easier it is to update a marketing plan after the first one is written. Plus, after a revision or two, you will know more about your international business market opportunities.
Identifying business goals can be an exciting and often challenging process. It is, however, an important step in planning your entry into the international marketplace. The following exercise is an additional step to help clarify your short- and long-term business goals.
List the products or services your company sells. Then, write the reason you believe it has export potential and why it will be successful in the international marketplace. The reasons should be based on your current knowledge rather than research. Based on reasons for export success, select one or more products you believe might have the best prospects for exporting.
To identify products with export potential, you need to consider products that are successfully sold in the domestic market. The product should fill a targeted need for the purchaser in export markets according to price, value to customer/country and market demand. What are the major products your business sells? What product(s) do you feel have the best potential for international trade?
What makes your product(s) attractive for an overseas market? Why do you believe international buyers will purchase your company’s products?
Brainstorm a list of pros and cons for expanding your market internationally. Based on your current assumptions about your company and products, and any market knowledge, determine your probability of success in the international market.
Give specific reasons. What is your company’s annual growth rate?
How much preparation time, planning and resources are you willing to commit to implementing an export program?
Talk to people in the same business or industry, research industry-specific magazines, attend trade fairs and seminars; use the National Trade Data Bank (NTDB) (www.stat-usa.gov).
Utilize the NTDB; obtain import/export statistics from the Bureau of the Census, contact the U.S. Small Business Administration (SBA), the U.S. Export Assistance Center (EAC) (www.sba.gov/oit/export/useac.html) or the U.S. Department of Commerce (DOC) district office in your area.
Contact a U.S. EAC, Small Business Development Center (SBDC) or DOC country or industry desk in Washington, D.C.
Use the resources identified above.
Contact your SBA district office, the SBDC or Service Core of Retired Executives (SCORE) representative (www.score.org), or a U.S. Export Assistance Center.
(Read chapters 2 and 3 of this guide before completing this section).
Since the number of country markets to be considered by a company is very large, it is neither possible nor advisable to research them all. Your firm’s time and money are spent most efficiently by using a sequential screening process.
Your first step in this process is to select the most commercially attractive countries for your product. Preliminary screening involves defining the physical, political, economic and cultural environment. Research the NTDB for DOC Country Commercial Guides for each country in which there is a Foreign Commercial Service presence. In addition, the NTDB has Department of State country reports and the Central Intelligence Agency world report.
Using the categories below, select 3 countries you think have the best market potential for your product.
Demographic/Physical Environment (Country/Rating)
Political Environment (Country/Rating)
Competitive Environment (Country/Rating)
Economic Environment (Country/Rating)
Social/Cultural Environment (Country/Rating)
Market Access (Country/Rating)
Product Potential (Country/Rating)
Local Distribution and Production (Country/Rating)
Indicators of population, income levels and consumption patterns should be considered. In addition, statistics on local production trends, along with imports and exports of the product category, are helpful for assessing industry market potential. Often, an industry will have a few key indicators or measures that will help determine the industry strength and demand within an international market. A manufacturer of medical equipment, for example, may use the number of hospital beds, the number of surgeries and public expenditures for health care as indicators to assess the potential for its products. At this point, ask yourself what the projected growth rates for the three countries selected over the next 3-5 years will be.
Much of this information can be obtained from a trade association for your particular industry. What is your present U.S. market percentage? What are the projected sales for similar products in your chosen international markets for the coming year? What sales volume will you project for your products in these international markets for the coming year? What is the projected growth in these international markets over the next five years?
What companies, agents or distributors have purchased similar products? What companies, agents or distributors have made recent requests for information on similar products? What companies, agents or distributors would most likely be prospective customers for your export products?
How do other U.S. firms sell in the markets you have chosen? Will you sell direct to the customer? Who will represent your firm? Who will service the customers’ needs?
Plan to travel to the country in question as many times as is necessary to build a successful relationship. Will you appoint an agent or distributor to handle your export market? Consider legal advice from the Export Legal Assistance Network (ELAN) (www.fita.org/elan). A free initial consultation is available by request through an SBA District Office, SBDC, SCORE or U.S. Export Assistance Center. At this point, there are a number of questions that must be answered. For example:
To achieve efficient sales offerings to buyers in the targeted markets, you should address several concerns regarding products, literature and customer relations.
Can the potential buyer see a functioning model or sample of your product that is substantially the same? What product labeling requirements must be met? (Metric measurements, AC or DC electrical, voltage, etc.) Keep in mind that the European Community requires three languages on all new packaging and Mexico requires labels in Spanish under the North American Free Trade Agreement. When and how can product conversion requirements be obtained? Can product be delivered on time as ordered? This is especially important since letters of credit are unforgiving when it comes to delivery promise dates.
If required, can you produce product literature in a language other than English? Do you need a product literature translator to handle the technical language? What special concerns should be addressed in sales literature to ensure quality and informative representation of your product? Keep in mind that translations should reflect the linguistic nuances of the country where the literature will be used.
What is delivery time and method of shipment? What are payment terms? What are the warranty terms? Will inspection/acceptance be required? Who will service the product when needed? How will you communicate with your customer (through a local agent, fax, e-mail)? Are you prepared to give the same order and delivery preference to your international customers that you give to your domestic customers?
In international sales, the chosen “terms of sale” are very important. Where should you make the product available: at your plant, at the port of departure, landed at the port of importation or delivered free and clear to the customer’s door? The answer to this question involves determining what the market requires and how much risk you are willing to take.
Pricing strategy depends on “terms of sale” and also considers the value-added services of bringing the product to the international market.
How do you calculate the price for each product? What factors have you considered in setting prices? Which products are very sensitive to price changes? How important is pricing in your overall marketing strategy? What are your discount policies? What terms of sales are most appropriate for your export product?
What advertising materials will you use? What trade shows or trade missions will you participate in, if any? What time of year and how often will representatives travel to foreign customer markets?
What special customer services do you offer? What types of payment options do you offer? How do you handle merchandise that customers return?
Forecasting sales of your product is the starting point for your financial projections. The sales forecast is extremely useful, so it is important you use realistic estimates. Remember that sales forecasts show the expected time the sale is made. Actual cash flow will be affected by delivery date and payment terms.
The cost of goods sold internationally will differ from cost of goods sold domestically if significant product alterations are required. These changes will affect costs in terms of material, and direct and indirect labor costs.
To ascertain the costs associated with the different terms of sale, it will be necessary to consult an international freight forwarder. For example, a typical term of sale offered by a U.S. exporter is cost, insurance and freight (CIF) to the port of destination. Your price can include all the costs to move the product to the port of destination and other costs necessary to complete the export transaction. However, many of these costs are incurred by the exporter. For example, you can price your product Ex Works and let your customer worry about getting the product to their destination from your factory or warehouse. However, most exporters arrange many of the details (transportation, insurance, etc.) for their customers. These costs should be identified separately on the invoice and passed through with little or no markup.
A typical cost work sheet will include some of the following factors. These costs are in addition to the material and labor used in the manufacture of your product:
To complete this section, you will need to use data from sales forecasts. Certain costs related to your terms of sale may also have to be considered. For example, include cost of capital if you are extending payment terms.
To determine marketing costs for your export products, you should include costs that apply only to international marketing efforts. For example, costs for domestic advertising that do not pertain to the international market should not be included. Examples of most typical expense categories for an export business are listed below. Some of these expenses will be first-year start-up expenses; others will occur annually.
Legal fees, accounting fees, promotional material, travel, communication, equipment/fax/PC modem, advertising allowances and promotional expenses (e.g., trade shows, etc.). If there are other expense categories not listed, identify them as “other expenses.”
Subtract these from the international expenses.
Total expenses less domestic expenses (if any) = total international marketing expenses.
You are now ready to assemble the data for your projected income statement. This statement will calculate your net profit or net loss (before income taxes) for each year.
This would include international’s portion of lighting, office floor space, secretarial pool, etc.
The break-even is the level of sales at which your total sales exactly cover your total costs, which includes non-recurrent fixed costs and variable costs. This level of sales is called the break-even point (BEP) sales level. In other words, at the BEP sales level, you will not make a profit. If you sell more than the BEP sales level, you will make a net profit. If you sell less than the BEP sales level, you will have a net loss.
To calculate the break-even point, costs must be identified as being either fixed or variable. Fixed expenses are those that the business will incur regardless of its sales volume — they are incurred even when a business has no sales — and include expenses such as rent, office salaries and depreciation. Variable expenses change directly and proportionately with a company’s sales and include such expenses as cost of goods sold, sales commissions, etc. Some expenses are semi-variable in that they vary somewhat with sales activity but are not directly proportionate to sales. Semi-variable expenses include utilities, advertising and administrative salaries. Semi-variable expenses ideally should be broken down into their fixed and variable components for an accurate break-even analysis. Once a company’s expenses have been identified as either fixed or variable, the following formula is used to determine its break-even point:
Note: In addition to a break-even analysis, it is highly recommended that a profit and loss analysis be generated for the first few actual international transactions. Since there are a great number of variables relating to costs of goods, real transactions are required to establish actual profitability and minimize the risk of losses.
You will need to work on your timetable periodically as you progress in the workbook. The purpose is to ensure that key tasks and objectives are identified and completed to ensure accomplishment of your stated goals.
Review other portions of your marketing plan to compile a list of tasks that are vital to the successful operation of your business. Be sure to include travel to your chosen market as applicable.
For each identified activity, assign primary responsibility for the completion of that activity to one person.
For each activity, determine the date when work will begin. You should consider how the activity fits into your overall plan as well as the availability of the person responsible.
For each activity, determine when the activity must be completed.
You should have finished all the other sections in the workbook before continuing any further. You are now ready to summarize the workbook into an exporting plan for your company.
What type of person are you intending to satisfy with this plan? A banker? The company’s chief executive officer? The summary should briefly address all the major issues that are important to this person. You may want to have several different summaries, depending on who will read the marketing plan.
You will now need to write no more than a page summarizing all the previous work you have completed in this workbook. Determine which sections are going to be most interesting to your reader. Write one to three sentences that summarize each of the important sections. Keep in mind that this page will probably be the first read by this person. It is extremely important the summary be brief yet contain the information most important to the reader. This section should make the reader want to read the rest of your plan. Summarize the sections in the order that they appear in the workbook.
Setting proper export prices is crucial to a successful international sales program; prices must be high enough to generate a reasonable profit, yet low enough to be competitive in overseas markets. Basic pricing criteria — costs, market demand and competition — are the same for domestic and foreign sales. However, a thorough analysis of all cost factors going into producing goods for export, plus operating expenses, result in prices that are different from domestic ones (remember freight costs, insurance, etc., are pass-through costs identified separately and include little or no markup).
“Marginal cost” pricing is an aggressive marketing strategy often used in international marketing. The theory behind “marginal cost” concludes that if the domestic operation is making a profit, the non-recurrent annual fixed costs are being met. Therefore, only variable costs and profit margin should be used to establish the selling price for goods that will be sold in the international market. This strategy is used for domestic pricing as well. This results in a lower price for international goods yet maintains the profit margin. The risk of this strategy becomes apparent when the domestic operation becomes unprofitable and cannot cover the fixed costs, as each incremental sale could result in a larger loss for the company. This is a complex issue that can yield substantial benefits to a company with manageable risks. Some effort should be made by management to understand this pricing strategy.
In calculating an export price, be sure to take into account all the cost factors for which you, the exporter, are liable.
*These items will typically represent the expenses of the total operation, so be sure to prorate these to reflect only the operating expenses associated with your export operation.
As in the domestic market, product demand is the key to setting prices in a foreign market. What will the market bear for a specific product or service? What will the estimated consumer price for your product be in each foreign market? If your prices seem out of line, try some simple product modifications to reduce the selling price, such as simplification of technology or alteration of product size to conform to local market norms. Also keep in mind that currency valuations alter the cost of goods. A good pricing strategy should accommodate fluctuations in currency, although your company should quote prices in dollars to avoid the risks of currency devaluations.
As in the domestic market, few exporters are free to set prices without carefully evaluating their competitors’ pricing policies. The situation is further complicated by the need to evaluate the competition’s prices in each foreign market an exporter intends to enter. In a foreign market that is serviced by many competitors, an exporter may have little choice but to match the going price or even go below it to establish a market share. If, however, the exporter’s product or service is new to a particular foreign market, it may be possible to set a higher price than normally charged domestically.
This chapter appeared in the book Breaking Into the Trade Game. 2004.Understand dynamic global markets.
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