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,
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.
First there are some key things that must be thought through before deciding on the best market entry strategy. This is Part 1. There are multiple ways to enter each product’s market and I will give you some ideas on that in Part 2 next week.
Food products are different and more complicated than most other products to export. Most foreign countries have special regulatory requirements for the importation of food products including certification and inspection of the food manufacturing; product labeling that discloses country of origin, ingredients and nutritional information, packaging and shelf life. From a commercial standpoint, you will be exporting to a foreign country that probably has different cultural norms. In many cases these countries have very different customs. Great care has to be taken with package design and colors and even the brand name and marketing literature to avoid an unintended catastrophe. Sometimes packaging has to be designed for each country or region. For example, a package design for EU countries could be different from Middle East or Asian countries.
Other key items that must be considered depending on how you choose to enter foreign markets:
- Market research: which countries would most like your product, which countries have the lowest trade barriers to entry, lowest political and economic risk, best legal systems and protection of intellectual property, best employment regulations, lowest tax rates and best to repatriate your investment and profits. Set strategy as to the order of countries to be entered.
- Corporate structure: depending on your market entry strategy you may require a foreign legal entity or multiple entities. It is especially important to have an experienced international attorney and tax attorney set these up.
- Transaction currency: can you require transactions in US Dollars or must you sell in local currency. Will you need to have a foreign currency-hedging regimen?
- Foreign Partners or Joint Ventures: depending on your market entry strategy and target country (countries) some countries require you to have a local partner and in some cases that local partner must have at least 50-51% ownership. Finding the right foreign partner/JV partner can be difficult and time consuming. Foreign partner/JV agreements need special skills to write and negotiate
- Accounting Systems and Government Reporting: depending on your market entry strategy you may be required to keep the foreign company’s books in compliance with IFRS (International Financial Reporting Standards) and file host country regulatory and tax reports.
- Foreign Corrupt Practices Act (FCPA), the US government and many foreign governments (e.g. UK Bribery Act) have laws regarding the bribery of foreign officials and conducting business in a foreign country. Generally speaking, if you are doing business in a foreign country or with foreign leaders you need to understand the law’s requirement.
Now that we have covered these important points, stay tuned for next time when we talk about market entry strategies in Part 2.
Best of luck,
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.