Foreign Market Entry

Having determined the best international markets for your products,
you now need to evaluate the most profitable way to get your products to
potential customers in these markets.
There are several methods of foreign market entry including exporting,
licensing, joint venture and off-shore production. The method you choose
will depend on a variety of factors including the nature of your particular
product or service and the conditions for market penetration which exist in
the foreign target market.
Exporting can be accomplished by selling your product or service
directly to a foreign firm, or indirectly, through the use of an export
intermediary, such as a commissioned agent, an export management or trading
company.
International joint ventures can be a very effective means of market
entry. Joint ventures overseas are often accomplished by licensing or
off-shore production. Licensing involves a contractual agreement whereby
you assign the rights to distribute or manufacture your product or service
to a foreign company. Off-shore production requires either setting up your
own facility or sub-contracting the manufacturing of your product to an
assembly operator.
Licensing and off-shore production are discussed in Chapter 7,
"Strategic Alliances and Foreign Investment Opportunities."

EXPORTING

Of the various methods of foreign market entry, exporting is most
commonly used by small businesses. Start-up costs and risks are limited,
and profits can be realized early on.
There are two basic ways to export: direct or indirect. The direct
method requires your company to find a foreign buyer and then make all
arrangements for shipping your products overseas. If this method seems
beyond the scope of your business' in-house capabilities at this time, do
not abandon the idea of exporting. Consider using an export intermediary:

American Cedar, Inc., a Hot Springs, Arkansas, producer of cedar
products reports that 30 percent of its product sales now comes from
exporting: "We displayed our products at a trade show, and an export
management company found us. They helped alleviate the hassles of
exporting directly. Our products are now being distributed throughout the
European Community from a distribution point in France," says American
Cedar President Julian McKinney.

INDIRECT EXPORTING

Many small businesses like American Cedar have been exporting
indirectly by using an export intermediary. There are several kinds of
export intermediaries you should consider.

Commissioned agents
Commissioned agents act as "brokers," linking your product or service
with a specific foreign buyer. Generally, the agent or broker will not
fulfill the orders, but rather will pass them to you for your acceptance.
However, they may assist, in some cases, with export logistics such as
packing, shipping and export documentation.

Export Management Companies (EMCs)
EMCs act as your "off-site" export department, representing your
product -- along with the products of other companies -- to prospective
overseas purchasers. The management company looks for business on behalf
of your company and takes care of all aspects of the export transaction.
Hiring an EMC is often a viable option for smaller companies that lack the
time and expertise to break into international markets on their own.
EMCs will often use the letterhead of your company, negotiate export
contracts and then provide after-sales support. EMCs may assist in
arranging export financing for the exporters but they do not generally
assure payment to the manufacturers. Some of the specific functions an EMC
will perform include:

. conducting market research to determine the bestforeign markets
for your products;
. attending trade shows and promoting your productsoverseas;
. assessing proper distribution channels;
. locating foreign representatives and/or distributors;
. arranging export financing;
. handling export logistics, such as preparing invoices,arranging
insurance, customs documentation, etc.; and
. advising on the legal aspects of exporting and othercompliance
matters dealing with domestic and foreign trade regulations.

EMCs usually operate on a commission basis, although some work on a
retainer basis and some take title to the goods they sell, making a profit
on the markup. It is becoming increasingly common for EMCs to take title
to goods.

Export Trading Companies (ETCs)
ETCs perform many of the functions of EMCs. However, they tend to be
demand-driven and transaction-oriented, acting as an agent between the
buyer and seller. Most trading companies source U.S. products for their
overseas buyers. If you offer a product that is competitive and popular
with the ETC buyers, you are likely to get repeat business. Most ETCs will
take title to your goods for export and will pay your company directly.
This arrangement practically eliminates the risks associated with exporting
for the manufacturer.

ETC Cooperatives
ETC cooperatives are United States government-sanctioned co-ops of
companies with similar products who seek to export and gain greater foreign
market share. Many agricultural concerns have benefited from ETC
cooperative exporting, and many associations have sponsored ETC
cooperatives for their member companies. The National Machine Tool
Builders' Association, the Outdoor Power Equipment Institute and the
National Association of Energy Service Companies are a few examples of
associations with ETC co-ops. Check with your particular trade association
for further information.

The Export Trading Company Act of 1982
This legislation encourages the use and formation of EMCs/ETCs by
changing the antitrust and banking environments under which these companies
operate. The Act increases access to export financing by permitting bank
holding companies to invest in ETCs and reduces restrictions on trade
finance provided by financial institutions. Under the Act, banks are
allowed to make equity investments in qualified ETCs.

Foreign Trading Companies
Some of the world's largest trading companies are located outside the
United States. They can often be a source of export opportunity. U.S. &
Foreign Commercial Service (US&FCS) representatives in embassies around the
world can tell you more about trading companies located in a given foreign
market.

Exporting through an Intermediary -- Factors to Consider
Working with an EMC/ETC makes sense for many small businesses. The
right relationship, if structured properly, can bring enormous benefits to
the manufacturer, but no business relationship is without its potential
drawbacks. The manufacturer should carefully weigh the pros and cons
before entering into a contract with an EMC/ETC. Some advantages include:


. Your product gains exposure in international markets --with
little or no commitment of staff and resources from your company.
. The EMC/ETC's years of experience and well-establishednetwork of
contacts may help you to gain faster access to international markets than
you could through establishing a relationship with a foreign-based partner.

. Using an intermediary lowers or eliminates your exportstart-up
costs, and, therefore, the risks associated with exporting. You can
negotiate your contract with an EMC so that you pay nothing until the first
order is received.
. Your intermediary will guide you through the exportprocess
step-by-step. Over time, you will develop your own export skills.

Some disadvantages of exporting through an intermediary include:
. You lose some control over the way in which yourproduct is
marketed and serviced. Your company's image and name are at stake. You
will want to incorporate any concerns you may have into your contract, and
you will want to monitor closely the activities and progress of your
intermediary.
. You may lose part of your export-sales profit margin
bydiscounting your price to an intermediary. However, you may find that
the economies of scale realized through increased production offset this
loss.
. Using an intermediary can result in a higher pricebeing passed on
to the overseas buyer or end-user. This may or may not affect your
competitive position in the market. The issue of pricing should be
addressed at the outset.

Export Merchants/Export Agents
Export merchants and agents will purchase and then re-package products
for export, assuming all risks and selling to their own customers. This
export intermediary option should be considered carefully, as your company
could run the risk of losing control over your product's pricing and
marketing in overseas markets.

Piggyback Exporting
Allowing another company, which already has an export distribution
system in place, to sell your company's product in addition to its own is
called "piggyback" exporting.
Piggyback exporting has several advantages. This arrangement can help
you gain immediate foreign market access. Also, all the requisite
logistics associated with selling abroad are borne by the exporting
company. Oklahoma-based DP Manufacturing's winches were attached to
another product and sold abroad by another company. DP Manufacturing now
handles its own exports and reports that 15 percent of its sales comes from
international markets.

How to Find Export Intermediaries
Small businesses often report that intermediaries find them -- at
trade fairs and through trade journals where their products have been
advertised -- so it can often pay to get the word out that you are
interested in exporting.
One way to begin your search for a U.S.-based export intermediary is
in the Yellow Pages of your local phone directory. In just a few initial
phone calls, you should be able to determine whether indirect exporting is
an option you want to pursue further.
The National Association of Export Companies (NEXCO) and the National
Federation of Export Associations (NFEA) are two associations that can
assist in your efforts to find export intermediaries. The Directory of
Leading Export Management Companies is another useful source (see Part II,
The ExporterÕs Directory).
DOC's Office of Export Trading Company Affairs (OETCA) can also assist
in providing information on how to locate ETCs and EMCs, as well as ETC
cooperatives in the U.S. The office, under a joint public/private
partnership, compiles the Export Yellow Pages, which provides the names and
addresses of EMCs/ETCs, as well as other export service companies, such as
banks and freight forwarders. Manufacturers, or producers, can also be
listed in the guide free of charge; 50,000 copies are distributed worldwide
annually. Contact your local U.S. Department of Commerce district office
for information on being listed or for a free copy of the directory.
Locating the best export intermediary to represent you overseas is
important. Do your homework before signing an agreement.

DIRECT EXPORTING

While indirect exporting offers many advantages, direct exporting also
has its rewards: although initial outlays and the associated risks are
greater, so too can be the profits.

California exporter Bayley Suit, Inc. reports that 80 percent of its
sales come from exporting. The company president says that "40 percent of
sales come from the Pacific Rim and 40 percent from the UK and Europe. In
just a few years, exports have pushed our gross sales from $1 million to $4
million."

Direct exporting signals a commitment on the part of company
management to fully engage in international trade. It may require that you
dedicate a staff person or even several personnel to support your export
efforts, and company management may have to travel abroad frequently.
Selling directly to an international buyer means that you will have to
handle the logistics of moving the goods overseas. But, as the case of
Ekegard, Inc. reveals, the extra efforts can pay off:

Using agents based in Pakistan and Thailand, Iowa-based Ekegard, Inc.
states that 80 percent of its sales now come from exporting -- quite an
achievement in just three years. According to Ekegard President Janne
Ekstam, "Exporting helps to offset fluctuations in the United States
economy."

Different Approaches to Direct Exporting

Sales Representatives/Agents
Like manufacturers' representatives in the United States,
foreign-based representatives or "agents" work on a commission basis to
locate buyers for your product. Your representative most likely will
handle several complementary, but non-competing product lines. An agent
is, generally, a representative with authority to make commitments on
behalf of your firm. Be careful, therefore, about using the terms
interchangeably. Your agreement should specify whether the agent/rep. has
legal authority to obligate the firm.

Distributors
Foreign distributors, in comparison, purchase merchandise from the
U.S. company and re-sell it at a profit. They maintain an inventory of
your product, which allows the buyer to receive the goods quickly.
Distributors often provide after-sales service to the buyer.
Your agreement with any overseas business partner -- whether a
representative, agent or distributor -- should address whether the
arrangement is exclusive or non-exclusive, the territory to be covered, the
length of the association, and other issues. (See Chapter Four, The Export
Transaction, for additional information on negotiating agent/distributor
agreements.)
Kansas-based Airparts Companies has been extremely successful using
overseas distributors:

"We employ 1,200 distributors worldwide," says Marta E. Maxwell,
president of Airparts Companies, Inc. of Wichita, Kansas. With over $13
million in sales and 38 employees, Maxwell attributes 70 percent of her
sales to exporting.

Finding overseas buyers for your products need not be more difficult
than locating a representative here in the United States. It may require,
however, an investment of time and resources to travel to your target
market to meet face-to-face with prospective partners. One way to
identify those interested in your product is to tap the DOC's
Agent/Distributor Service. This program provides a customized search to
identify agents, distributors and representatives for United States
products based on the foreign companies' examination of the United States
product literature.

"The Commerce Department Agent/Distributor Search located a
distributor for us in India, and we've had a good working relationship for
three years," says Shirley Wright, a representative of the Wisconsin
biotechnology firm Promega. Promega derives more than 30 percent of its
sales from exporting.]

Other sources of leads to find foreign agents and distributors are
trade associations, foreign chambers of commerce in the United States and
American chambers of commerce located in foreign countries.
Many publications can be useful. The Standard Handbook of Industrial
Distributors lists agents and distributors in more than 90 countries. The
Manufacturers' Agents National Association also has a roster of agents in
Europe (see Part II, The Exporter's Directory).

Foreign government buying agents
Foreign government agencies or quasi-governmental agencies are often
responsible for procurement. In some instances, countries require an
in-country agent to access these procurement opportunities. This can often
represent significant export potential for U.S. companies, particularly in
markets where U.S. technology and know-how are valued. Foreign country
commercial attaches in the United States can provide you with the
appropriate in-country procurement office.
Retail Sales
If you produce consumer goods, you may be able to sell directly to a
foreign retailer. You can either hire a sales representative to travel to
your target market with your product literature and samples and call on
retailers, or you can introduce your products to retailers through
direct-mail campaigns. The direct-marketing approach will save commission
fees and travel expenses. You may want to combine trips to your target
markets with exploratory visits to retailers. Such face-to-face meetings
will reinforce your direct marketing.

Direct Sales to End-User
Your product line will determine whether direct sales to the end-user
are a viable option for your company. A manufacturer of medical equipment,
for example, may be able to sell directly to hospitals. Other major
end-users include foreign governments, schools, businesses and individual
consumers.

HOW TO FIND BUYERS

Advertise in Trade Journals
Many small businesses report that foreign buyers often find them. An
ad placed in a trade journal or a listing in the DOC's Commercial News USA
can often yield innumerable inquiries from abroad. Commercial News USA is
a catalog-magazine featuring U.S. products and distributed to 125,000
business readers in over 140 countries around the world and to over 650,000
Economic Bulletin Board users in 18 countries. Fees vary with the size of
the listing. Many U.S. companies have had enormous success in locating
buyers through this vehicle:

"When overseas buyers contacted us we were thrilled," says Maryland's
Marine Enterprises Vice President Brenda Dandy, discussing the results of
a listing her company bought in Commercial News USA. Exports now represent
20 percent of Marine Enterprises' sales.

Participate in Catalog and Video/Catalog Exhibitions
Catalog and Video/Catalog exhibitions are another low-cost means of
advertising your product abroad. Your products are introduced to potential
partners at major international trade shows -- and you never have to leave
the United States. For a small fee, the US&FCS officers in embassies show
your catalogs or videos to interested agents, distributors and other
potential buyers.
A number of private sector publications also offer U.S. companies the
opportunity to display their products in catalogs sent abroad. A few
include Johnston International's Export Magazine, The Journal of Commerce
and the Thomas Publishing Company's American Literature Review.

Pursue Trade Leads
Rather than wait for potential foreign customers to contact you,
another option is to search out foreign companies looking for the
particular product you produce. Trade leads from international companies
seeking to buy or represent U.S. products are gathered by US&FCS officers
worldwide and are distributed through the DOC's Economic Bulletin Board.
There is a nominal annual fee and a connect-time charge. The leads also
are published daily in The Journal of Commerce under the heading, "Trade
Opportunities Program" and in other commercial news outlets.
Another source of trade leads is the World Trade Centers (WTC)
Network, where you can advertise your product or service on an electronic
bulletin board transmitted globally.
If your product is agricultural, the U.S. Department of Agriculture
(USDA) Foreign Agricultural Service (FAS) disseminates trade leads
collected by their 80 overseas offices. These leads may be accessed through
the AgExport FAX polling system, the AgExport Trade Leads Bulletin, The
Journal of Commerce or on several electronic bulletin boards.

Exhibit at Trade Shows
Trade shows also are another means of locating foreign buyers. DOC's
Foreign Buyer Program certifies a certain number of U.S. trade shows each
year. Foreign buyers are actively recruited by DOC commercial officers,
and special services -- such as meeting areas and translators -- are
provided to encourage and facilitate private business discussions.
International trade shows are another excellent way to market your
product abroad. Many U.S. small businesses find that going to a foreign
trade show once just is not enough:

"You have to hang in there," said Allen-Edmonds Shoe Corporation
President John Stollenwerk. "In the beginning, in many countries where we
displayed our products at foreign trade shows, we saw no results. But
gradually people began to take our product, American made shoes, seriously.

We market our shoes as `the world's finest.' That's one way American
companies can compete." Twelve percent of Wisconsin-based Allen-Edmonds
sales are derived from exporting.

Through a certification program DOC also supports about 80
international fairs and exhibitions held in markets worldwide. U.S.
exhibitors receive pre- and post-event assistance. The USDA FAS sponsors
about 15 major shows overseas each year.

Participate in Trade Missions
Participating in overseas trade missions is yet another way to meet
foreign buyers. Public/private trade missions are often organized
cooperatively by federal and state international trade agencies and trade
associations. Arrangements are handled for you so that the process of
meeting prospective partners or buyers is simplified.
Matchmaker Trade Delegations are DOC-sponsored trade missions to
select foreign markets. Your company is matched carefully with potential
agents and distributors interested in your product. Tennessee-based
Shaffield Industries, a futon manufacturer, reaped excellent returns as a
result of a 1991 Matchmaker trade mission to Asia:

"I was especially surprised at the high-level of appointments
scheduled for us during the Matchmaker trade mission. Each was a true
prospect," stated David Goff, comptroller for Shaffield Industries. As a
result of the mission, his company negotiated the sale of three containers
of his product to South Korea and two containers to Taipei.

Being properly prepared for the kinds of inquiries you might encounter
on overseas trade missions is important. The SBA offers pre-mission
training sessions through its district offices and the SCORE program.
Contact your local SBA office for a schedule of upcoming "How to
Participate Profitably in Trade Missions" seminars.

Contact Multilateral Development Banks
In developing countries, large infrastructure projects are often
funded by multilateral development banks such as the World Bank, the
African, Asian, Inter-American Development Banks and the European Bank for
Reconstruction and Development.Multilateral development bank (MDB) projects
often represent extensive opportunities for U.S. small businesses to
compete for project work. DOC estimates that MDB projects could amount to
at least $15 billion dollars in export contracts for United States
businesses.
One U.S. small business that successfully entered the international
marketplace by bidding on a World Bank project is DSI of Poestenkill, New
York:

"As a result of World Bank loans to the People's Republic of China,
DSI received over $1 million dollars in contracts for laboratory
equipment," reports DSI President Dave Ferguson. Exports now account for
60-70 percent of DSI's business.

Development bank projects can be an excellent way to start exporting.
Many U.S. small business exporters have benefited from large MDB projects
through subcontracting awards from larger corporations.
A list of MDBs is included in Part II, The Exporter's Directory. From
their Washington, D.C. headquarters, many MDBs hold monthly seminars to
acquaint businesses with the MDB procurement process. Additionally, the
DOC's Office of Major Projects can be of assistance in identifying
contracting and subcontracting opportunities.

QUALIFYING POTENTIAL BUYERS OR REPRESENTATIVES
Once you locate a potential foreign buyer or representative, the next
step is to qualify them by reputation and financial position. First,
obtain as much information as possible from the company itself. Here are
a few sample questions you will want to ask:
. What is the company's history and what are the qualifications and
backgrounds of the principal officers?
. Does the company have adequate trained personnel, facilities,
resources to devote to your business?
. What is their current sales volume?
. What is the size of their inventory?
. How will they market your product (retail, wholesale or direct)?
. Which territories or areas of the country do they cover?
. Do they have other U.S. or foreign clients? Are any of these
clients your competitors? It is important to obtain references from
several current clients.
. What types of customers do they serve?
. Do you publish a catalogue?
. What is their sales force?

When you have this background information and are comfortable about
proceeding, then obtain a credit report about their financial position.
DOC's World Trade Data Reports (WTDRs), available from your local District
ITA Office, are compiled by US&FCS officers. A WTDR can usually provide an
in-depth profile of the prospective company you are investigating.
There are also several commercial services for qualifying potential
partners, such as Dun & Bradstreet's Business Identification Service and
Graydon reports. U.S. banks and their correspondent banks or branches
overseas, and foreign banks located in the United States can provide
specific financial information.
In this chapter we have discussed methods of market entry, how to find
potential foreign buyers and representatives and how to qualify whom you
will be doing business with overseas. Advance market research and
preparation is the best way for a small business to define a potential
export market.
The next question that needs to be explored involves how to accomplish
the business of exporting -- that is, how the deal should be structured,
the topic of, "The Export Transaction."

Source : foreign-trade.com