Dear Betty Sue,
Howdy from Bumblebee, Arizona. You’ve got us so excited about exporting that we’ve started our very own, Betty Sue Export Club. People from all over the area come together to share ideas on how we can export our products successfully. Like you, I have a food product Desert Dip spice mix; Barbara Jean has designed driftwood tables and lamps with turquoise insets (eager that some big international Dubai hotel will purchase a large order); Mel has a unique patented corrosion inhibitor for machine parts (perfected here in the dry heat of Arizona, home to several aircraft graveyards). He has is convinced he can expand to global markets
Our next monthly meeting focuses on ways to enter international markets. Can you give us some direction on how to expand globally? We have so many different types of products.
Norma and the Betty Sue Export Club Members
Dear Norma and Members of the Betty Sue Export Club,
My, oh my, there are some really industrious people in Arizona. Guess that desert air brings out the entrepreneur in ya. Figuring out how to get your product to market can be as befuddling as trying to find your boyfriend at the Texas State Fair when you’re at one end and he’s way far at the other.
As my Mama says, if you’re missing a step in your plan, find an expert who can plan your steps. A good friend and colleague is Mr. Lee Mulkey, CEO of ALM Company, an advisory firm serving global manufacturers and distributors. Mr. Mulkey’s resume of success is packed like a mule horse heading out for a long trip. Lee has served as President and CEO of three global companies. He earned his BBA from University of Texas at Arlington and MBA in International Business from the University of Dallas . He’s usually on the road dealing with some big company but as a favor to Betty Sue, he said he would love to help you prepare for next month’s meeting. Due to the complex answer, Lee will answer your question in two parts.
Signing off and tuning in to learn from Lee
*Disclaimer: The names of exporters and their stories have been changed to protect their identity. The names and expertise of our advisors are very real and often understated. The story is funny, the advice is authentic.
Dear Betty Sue, Norma and the Betty Sue Export Club,
Last time we talked about some key things that must be thought through before deciding on the best market entry strategy. This week in Part 2, we will talk about the multiple ways to enter each product’s market.
Let’s recap first before we begin. Your export club has picked three very good product examples to talk about. Food products are typically thought of as a consumer product and have special requirements that the other two products don’t have. Specialty furniture as you describe is ultimately a consumer product, but has a marketing channel through big box retail distributors, wholesale distributors or interior designers. And finally, the corrosion inhibitor for machine parts would be an industrial product with marketing channels through big box retailers and industrial wholesale distributors.
Ok, now lets talk about market entry strategy. There are lots of ways to expand your business into foreign markets. We will start with the easiest first, and then expand into the more complicated:
E-Commerce – This is the easiest, but it may not be the best way to grow your international business. Developing a digital commerce website is very common today and there are companies that can help you develop country specific websites. By using US Dollar transactions you can take payments by credit cards, PayPal, wire transfers and LC’s. Small business social media marketing sites like Etsy and Pentrist are ideal for small companies to get started with e-commerce, including export sales.
Here are some of the drawbacks for export focused e-commerce: to be the most effective and target your customer base you need to have a website with a front end designed for that country or region. Freight costs have to be calculated while the transaction is being made and warranty and returns can get complicated.
Industry Trade Group – Many companies belong to one or more industry trade groups. These can be a good way to connect with foreign distributors or possible partners within your industry. Check with your industry trade group(s) to see if they have connection with trade groups in your target countries.
Foreign Distributor or Licensee – Finding the right foreign distributor, manufacturer’s rep or licensee is more complicated, but does not require a full time presence in the targeted country(s). It may not even require a foreign corporation be set up. Foreign distributors, reps and licensees must be carefully vetted and performance measurements clearly defined and enforceable. Cultural differences and personal relationships will play a big part in selecting the right company to represent you and the legal system must be in place to enforce the contract. You should get help from a global business expert to find the right foreign partner and to develop and negotiate the contract. You will also have to regularly do on-site visits to develop personal relations, refine marketing plans and conduct performance reviews.
Resident Sales Office – If your strategy requires a physical presence in the targeted countries think first of a residence sales office. These are generally easy to set up in your target country(s) and most importantly; they can be closed quickly if things don’t work out. You can only conduct sales related functions in these offices. You can advertise, make sales calls and quote projects, but you can’t manufacturer, perform value added functions or keep inventory in country. This is a great way to build momentum for your product without a lot of financial risk.
Establish Foreign Subsidiary, Acquire Foreign Company or Joint Venture with a Partner – This option involves jumping in with both feet into the target foreign country(s). You establish a foreign company and operate a business in the targeted country or you acquire a foreign company already doing business in the targeted country or find a joint venture partner to start or acquire a company in the country of choice. All of these options are complicated and have much higher risks than the others discussed previously. This set of options should only be taken if you have the firm knowledge that your product will be successful and you have the financial and management resources to risk in the venture. You will have a foreign company(s), foreign employees, bank accounts, and foreign assets including property, equipment and inventory. You will have foreign currency translation, accounting and tax issues and be subject to the FCPA. You should get help from a global business expert before undertaking this option.
Greenfield Manufacturing Project – This takes the options just discussed and adds more complication and risk by setting up manufacturing in the target company. When you build or acquire manufacturing facility(s) there is significantly more local government involvement and financial investment which increases both political and economic risk. You should get help from a global business expert before undertaking this option.
So now we have discussed the primary types of market entry strategies. Which strategy or strategies are right for you?
Based on my experience I can offer some suggestions:
- First option to explore would be to find a distributor in your target market. The distributor already knows the market and can help you with the packaging design and government requirements. The right distributor agreement with clear performance matrix will be critical.
- Second option to explore would be an E-commerce website targeted for the country of choice. Depending on the customers, inventory could be shipped from the US at time of order or stored in country and shipped by a local 3PL service.
Custom Furniture and Lamps:
This is a product normally sold through wholesale distributors and interior designers (The Trade) and through big box retailers. The marketing channel options here are limited by geographics. US, Europe and Middle East have established networks of distributors and designers. Asia for the most part does not. There are also great distances involved in the Asian market making it difficult to serve by a direct sales force, so the E-commerce website could be the best option here.
Corrosion Inhibitor for Machine Parts:
This product has multiple channels for entry into foreign markets and more than one can be used at the same time. The options for first consideration are:
1.Foreign distributor or licensee
2.E-commerce website targeted for the country
3.Residence Sales Office
I think the first two options could both be done at the same time.
Well that’s it; I hope your export club has some useful information and options to consider.
Lee Mulkey is the Founder and CEO of ALM Company, an advisory firm serving global manufacturers, distributors and marketing companies. Lee has served as President and CEO of three global companies. He earned his BBA from University of Texas at Arlington and MBA in International Business from the University of Dallas.,