Overseas market entry—areas for awareness (to help prevent failure/mistakes)

Entering foreign markets is often impeded by the uncertainties or fears of many unknown factors in those markets, such as cultural differences, dozens of foreign languages, foreign currencies and many other issues. Further, when managers take their first trips overseas, they are not conditioned to observe what is really going on in those countries, nor are they conditioned to deal effectively with business people in those countries.

The following are some of the factors that could immediately prevent a company from starting into foreign markets: 

* Legal aspects of representation in a market

* Standards and regulatory issues

* Export controls

* Patent and trademark concerns

* Product adaptations

* Production capacity and equipment restraints

* Financial resources required.

Compliance with Standards and Regulations

Often the greatest obstacle to getting into foreign markets is the array of standards and regulations with which it must comply if the company is to market its products or services in that country. Identify which standards and regulations affect the company, then begin to lay the groundwork for complying with those standards and regulations.

Key points overlooked often include: what product labelling requirements must be met? (Metric measurements, AC/DC electrical, voltage, etc.) The European Community now requires 3 languages on all new packaging. Language barriers – the literature may be required in a language other than English, and a product literature translator to handle the technical language may be required. There may be problems in the handling of initial correspondence and communications, including phone calls and letters.

EXPORT FINANCING- Because of the competitiveness of international trade, the exporter’s ability to offer buyers credit can often determine whether that exporter wins a sale. To offer liberalised credit terms the exporter often seeks outside financing for his credit sales in order to avoid restricting working-capital availability. The extent of credit offered will depend upon the exporter’s cost of outside financing, the ability to pass this cost on to the buyer and importance of the sale.

To avoid problems with payment, you can make it a matter of course to require all foreign customers to obtain a letter of credit from a U.K, U.S. (or well-established foreign) bank that guarantees that no matter what happens to your customer’s business operations down the road, you’ll be paid. Given that currency swings also present a risk, they can wipe out your profit margins if they move against you it’s also a good idea to require all payments in U.K or U.S. dollars. If foreign customers can’t, or won’t, comply with those requirements, then the safest course is simply to turn down their orders.

Accounting and taxation -These laws vary from country to country. It is advisable for the exporter to find out the applicable laws specific to the countries of interest.

Foreign Governments – Foreign governments, particularly in developing countries, often sponsor special agencies to aid and facilitate foreign direct investment. Some examples include the Mexican Investment Board (MIB), the Portuguese Trade Commission and the Bahrain Marketing and Promotions Office. These foreign investment promotion agencies can provide detailed market information, joint venture leads and make contacts with key officials.

Self-Inflicted Risks-These include acting out of haste or inexperience, pursuing too many or the wrong markets; use sales literature that unwittingly offends; applying U.K. marketing methods in countries with different business practices; appoint incompetent overseas representatives that cannot be terminated; agreeing to unfavourable payment methods or terms; trying to handle all the shipping and documentation without training. By seeking export counselling/training, attending export seminars, doing extensive market research, adapting and diversifying to the market, and using specialists to handle the details, the company will be eleviating some of the more obvious problem areas within the export trade.

Financial Risks- The main concern is non-payment after you’ve shipped the goods, either because the importer can’t or won’t pay, you can however protect yourself with export credit insurance. Many foreign buyers want delayed payments say by sight draft within 30-120 days after the goods arrive. These are customary terms when you know and trust the buyer. You might also extend credit if your competitors are offering these terms. That increases your risk, particularly if, by payment time, the buyer’s local purchase costs have increased due to depreciation against the pound.

Legal Risks- Every country has its own business laws and regulations, and you’re expected to know them. Many are similar to U.K. laws or follow international standards, and pose no particular problem. Some vary widely by country, affecting import procedures, agent/distributor agreements; rights to own businesses or land; tax liability; currency trading; health and technical standards; and what you can eat, drink or wear. Failure to comply could trigger fines or worse. Information about these matters is readily available from the Foreign Office or DTI. Take the time to do market research, and seek legal advice as needed.

Political Risks – Political upheavals occur less frequently now than before, but could still erupt. Dramatic changes could result, including major economic shake-ups, nationalisation, expropriations, loss of personal rights, and physical dangers. These could prompt foreign reactions in the form of economic sanctions, boycotts and embargoes. You have no control over events. If you’re caught in the middle, recourse is limited and slow, so be alert to what’s happening in the world. More common are the shifts to the economic right or left that often come with periodic elections. These can be “good” for U.K. exporters, not necessarily bad. For example, the shift toward privatisation and freer trade in Latin America, Eastern Europe and the former Soviet Union offer major new opportunities for U.S. exporters.

Your business may also be required to: -

develop new promotional material

* subordinate short-term profits to long-term gains

* incur added administrative costs

* allocate personnel for travel

* wait longer for payments

* modify your product or packaging

* apply for additional financing

* obtain special export licenses.

If your company’s financial situation is weak, attempting to sell into foreign markets may be ill-timed. There are however no hard-and-fast rules as to which businesses should export, and which should not.

Trade/Market Barriers

Limitations on trade – these are barriers often used by Governments to limit entry to the home markets for various reasons. The methods used vary but generally act with the same outcome – protecting the home market.

Methods include,

* tariff levels

* quotas

* Documentation and import regulations

* Local standards, practices, and other non-tariff barriers

* Patents and trademarks

* Preferential treaties

* Legal considerations investment, taxation, repatriation, employment and code of laws.

Tariffs

Tariffs are taxes imposed on imported goods. In many cases, tariffs raise the price of imported goods to the level of domestic goods. Often tariffs become barriers to imported products because the amount of tax imposed makes it impossible for exporters to profitably sell their products in foreign markets. Non-tariff barriers are laws or regulations that a country enacts to protect domestic industries against foreign competition. Such non-tariff barriers may include subsidies for domestic goods, import quotas or regulations on import quality.

Export License

Export controls are based on the type of goods being shipped and their ultimate destination. Most exports do not require a license. Technically, most exports are shipped under a “general” license which does not require an application. However, should your particular export be subject to export controls, then a “validated” license must be obtained.

Widely differing laws and business practices exist in other countries. These encompass trade, monetary and fiscal policy; pricing, distribution and promotion; treatment of intellectual property; health, safety and technical standards; and the like. They affect what you’re allowed to or should do to protect yourself in the market. Although many are business friendly and compatible with the U.K., some pose obstacles and risks for exporters. It’s best to research potential problems in each country and seek advice from an international law firms if needed.

The Government maintains export controls to prevent the export of goods and technologies contrary to its policies. These policies include preventing the proliferation of weapons of mass destruction and the build-up of destabilising stocks of conventional weapons, strategic and foreign policy concerns, compliance with international treaty commitments, the operation of United Nations trade sanctions and UN and EU embargoes. If goods or technologies are subject to UK export controls, you will need a licence to give you legal authority to export them.

Trade sanctions and arms embargoes imposed by the UK in accordance with resolutions of the United Nations Security Council are implemented in the UK by way of Orders in Council made under the United Nations Act 1946.

The main types of goods which need a licence are:

* Military equipment such as arms, ammunition, bombs, tanks, imaging devices, military aircraft and warships

* Nuclear-related goods including nuclear materials, nuclear reactors and nuclear processing plant.

* Dual-use goods, designed for civil use but which may be used for military purposes such as certain materials, machine tools, electronic equipment, computers, telecommunication equipment, cryptographic goods, sensors and radar, navigation and avionics equipment, marine equipment and space and propulsion equipment.

* Chemical weapons precursors, and related equipment and technology.

* Certain micro-organisms, biological equipment and technology.

* Goods used in programmes involved in weapons of mass destruction and missiles used for their delivery.

* Goods to be exported or supplied to destinations which are the subject of United Nations trade sanctions.

The WTO is the only international agency overseeing the rules of international trade. It helps trade to flow smoothly, settles trade disputes between governments, and organises trade negotiations. The WTO was set up in 1995 and was preceded by another international organisation known as the General Agreement on Tariffs and Trade (GATT). The WTO believes protectionism leads to bloated inefficient companies. GATT was formed in 1948 in the Cuban capital of Havana and was the result of 23 countries getting together to sign an agreement to reduce customs tariffs. Membership of the WTO has now mushroomed.

SELECTING THE BEST COUNTRIES TO MARKET THE PRODUCT -

Any company, must determine how ready it is to make that move. This involves a global assessment of the industry to determine the best country or regional markets for the company’s products, and an assessment of the best strategies for entering those markets. At the same time, an assessment must be made of the principal competitors throughout the world. Information is gathered on those global competitors present in the U.K. market, but it’s necessary to look elsewhere in the world to determine who else must be dealt with either `defensively’ because of the threat that company might hurt the company in the U.K. market, or in the `offensive’ arena when the company goes into foreign markets.

Strategies for developing your business overseas

The Need For an International Business Plan – An international business plan is an essential tool to properly evaluate all the factors that would affect the company’s ability to go international.

It should define:

* commitment to international trade;

* export pricing strategy;

* reason for exporting;

* potential export markets and customers;

* methods of foreign market entry;

* exporting costs and projected revenues;

* export financing alternatives;

* legal requirements;

* transportation method; and

* overseas partnership and foreign investment capabilities.

Since the number of world markets to be considered by the company is very large, it is neither possible nor advisable to research them all. Thus, time and money are spent most efficiently by using a sequential screening process. The first step in this sequential screening process for the company is to select the more attractive countries for the product. Preliminary screening involves defining the physical, political, economic and cultural environment and the financial resources required to execute this plan.

What is more important than a massive global strategic planning effort is an initial sense of direction regarding the attempt to enter foreign markets and to assist in this step, the company may be put in contact with various agencies that provide information on key markets throughout the world, such as: Department of Trade and Industry, United Nations and the European Community, or JETRO for Japan. The company should be planning to attend overseas trade shows as a very effective means of developing a global overview of their business in a short time. Some of this information can be gathered from secondary sources, but invariably it’s necessary for a company to do primary research. Information can be gathered at a very low cost, even free, however, it’s necessary to pay for important information, and the company must budget for this expense or investment. When the company has made its global assessment and has chosen its means for entering the global market and has selected its initial target markets, it is ready to move to the next stage, where it will develop specific foreign market entry plans.

When going into international markets, it must earn a niche in new markets and it will only do that if it has some competitive advantages in the new markets. Therefore, the company must identify the strengths which has made it viable in the home market, and transfer those strengths overseas. If it doesn’t know why it has been successful in the home market, it won’t know how to penetrate foreign markets successfully.

Market Demand – 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 affordability of goods. A good pricing strategy should accommodate fluctuations in currency.

Competition – As in the domestic market, few exporters are free to set prices without carefully evaluating their competitor’s 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. Monitoring how other U.K. firms sell in the markets chosen are also key factors, as well determining whether the customer will be approached direct or by a representative.

Companies that succeed in foreign markets have established a strong, viable position in the home market. The company should ensure that they have a business plan for the next three to four years for domestic operations. That plan should address some of the issues described earlier, and develop the strategies and action programs that will ensure domestic market success. For each target market, the market entry plan should include such items as: The company’s objectives for that market, including target market share, sales targets for the first few years, profit objectives, targeted breakeven period, and other quantitative and qualitative objectives.

Background material on the country relating to the economy, politics, cultural issues, trends in the economy, and other country related matters that will affect the company’s performance in that country. The opportunities and obstacles in the country for the company in its business sector. Strategy for the method of entering the market, whether it be through an agent or distributor relationship, licensing, joint venture, acquisition or some other method. An important determinant of that strategy will be the company’s value adding chain and its selection of the activities it wants to perform in a country and those it wants to retain in the U.K.