Tuesday, December 20, 2011

International Marketing - Taking the Plunge

International trade is a curious kaleidoscope of common sense, personal relationships and practical knowledge that is completely reasonable yet incredibly illogical at times. For example, try the following quiz:

1.  Where would a Chinese buyer purchase mandarin oranges?
            A. From a Chinese vendor in the market.
            B. Anywhere but China due to quality and health concerns
            C. The Chinese don’t buy mandarin oranges
            D. In the US, despite the cost of transport and the product comes from China

2. Where would an exporter ship baking potatoes?
            A. Nowhere, too bulky and perishable
            B. Ship them by air to high cost markets, such as Japan or the Persian Gulf
            C. Russia since they eat a lot of potatoes
            D. Ship French fries instead, more value added

3.  A buyer is Kazakhstan wants to buy a convection oven.  It is made in the Netherlands. Where does he buy it?
            A. In Iran, they must have one somewhere to buy or smuggle
            B. Nowhere, use some old wood in a stove
            C. Obviously in the Netherlands
            D. In Pokomoke, Maryland—no particular reason

Are the answers obvious?
  1. D—Products were packed in China, exported to the US, re-exported to China, about 75 miles from the manufacturing plant!
  2. C—Actually shipped by air to Russia—a major potato producer!
  3. D—The oven was imported into the US and re-exported to Kazakhstan via Rotterdam, Netherlands.  The manufacturer claimed it was more cost effective than shipping it directly from the Netherlands to Kazakhstan.
The answers are real because each situation was real.  I know, I was the exporter in each case!  Each exporter has amusing and sometimes horror stories in trade, so why bother and how to start if you are interested?

Why Bother?
The true, classic response is that import and export activities can be and frequently are profitable.  The profit motive is a legitimate and real incentive in our free market, entrepreneurial country to engage in trade.  In addition to profitability, consider these reasons to engage in trade:
  • Increase sales by selling to a larger customer base (Everyone will remind you that 93% of the consumers are outside the US.)
  • Smooth seasonal sales
  • More stability and predictable earnings through domestic recessions (such as now!)
  • Prestige, bragging rights and the occasional trade show (a deductible overseas vacation— not really, not even close, but it sounds good.)
  • Quantity discounts in purchasing raw materials & inputs
  • Markets for discontinued and obsolete products—not really, overseas consumers want the same products that we do.  Thank the internet for that!
  • Longer production runs, employing capital equipment and fixed costs over more units.
The above responses are real reasons to export and explore new markets.  However, a salient reason rarely mentioned is that a careful foray overseas can help you defend your domestic market by understanding the competition overseas.  In reality, a well researched overseas market or trade show can make you a better company even if you never export.  Why? You may be exposed to superior packaging, design, marketing or pricing that is instructive to your future business sustainability.  Certainly, your competitors scout and scour the US market for product ideas and any element which they learn here or sometimes copy gives them a competitive edge. US companies should have the same advantages and knowledge by exploring overseas markets.

Finally I will mention a word about imports, sort of the inverse of exporting though somewhat different.  Traditionally, importing was thought to be almost unpatriotic. After all, we manufacture everything we need in the US.  Why ship our dollars overseas? The truth is that the US does not and never did manufacture or produce everything that we need.  In some areas, we are just not competitive and we need to import to offer our customers what they need or for components for products we are producing.  If you do not import, your competitor will.  While exporting adds more value to our economy than importing, importing has been and remains a critical element of our economy to offer customers what they want and to keep costs as low as possible.

How to Start

While there is no easy or one path to international trade, there are multiple entry points for successful, profitable and sustainable business.  If you already export to another market or if you have overseas inquiries (even from the internet), you already have a head start.  Expanding to a second overseas market or replying to a qualified inquiry indicates overseas interest and acceptance of your products or services.  Local, Pennsylvania and US service providers have many programs, seminars and resources to help a company prepare for exporting. 

Even a start up, a new entrepreneur, a laid-off executive, a graduating student can and routinely do enter some aspect of international trade and succeed. While it is relatively easy to set up a business and start an international business, here are a couple concepts to consider so that you can sustain the business and be profitable:

  1. Self-assessment—honestly evaluate your skills, where you add value, your contacts and capital needed to launch and sustain a business.  This applies to any business.  A SWOT (Strengths, Weaknesses, Opportunities and Threats) is a more structured way to assess your potential.
  2. Business Plan—at least create a marketing plan of how and to whom you will sell your goods or services along with a budget, timeframes, obstacles and some key objectives.  This sounds like a daunting task and a time waster but the reality is that a plan is your key to success.  Without a plan, even flawed, you are simply reacting and not leading the business.  It’s hard work and an imperfect process but valuable.  How many of us would plan a vacation without making plans? Is your company less valuable than a vacation?
  3. Network—trade is an old fashion business, depending on personal relationships to succeed.  You will likely need a freight forwarder, international lawyer and trade bank to help navigate the nuances and barriers in trade.  Contact potential services providers early to learn of their talents, expertise and yes, costs.  Consider also forming an informal board of advisors from people you respect for input on your concept, self assessment and business plan.  Finally, private consultants and public sector service providers, such as the Kutztown University Small Business Development Center, World Trade Center of South-central Pennsylvania can assist companies in understanding and accessing Pennsylvania and US government export programs.
  4. Test the Concept—Start small, test the relationship with a modest sale and low risk.  Prior to the sale, understand the overseas customers’ needs, shipping costs, tariffs, labeling, standards, product modifications, any required translation and local pricing.
Trade may be viewed as an adventure, yet a market, customer or sale may not follow the expected sequence or timeframe, even with careful planning.  Sounds a lot like life!  However the adventure may prove profitable and enlightening.  With some planning and luck, you may also make some unexpected new friends, part of life’s unplanned adventure.  Where will your next sale be?

To Learn more about International Trade, visit the KU SBDC website - International Trade.