Market Entry strategies
A discussion of different approaches that companies can take in Exporting goods and services.
Methods and Channels
The most common methods of exporting are indirect selling and direct selling. In indirect selling, an export intermediary, such as an export management company (EMC) or an export trading company (ETC), assumes responsibility for finding overseas buyers, shipping products, and getting paid. A variation on this method is an agent that you engage on a commission basis who finds the buyer for you. U.S. wholesalers can play the role of intermediary, buying goods from the producer and selling them to an end-user outside the United States. The wholesaler takes legal possession of the goods. The benefit for the producers is that their responsibility ends at their delivery dock. The negative is that the wholesaler may receive a better profit margin and the benefits of acquiring valuable expertise from selling to an array of international markets. If the wholesaler only sells to distributors in Canada but there’s a bigger demand for your product in Mexico, you’ll never know that, and sales that could be won’t happen.
Using large online marketplaces such as eBay, Amazon, and Alibaba is another variation of indirect selling that’s gaining popularity. Increasingly, these and other big players are offering distribution centers in other countries where your products can be closer to customers. In such cases, these big sellers offer to handle all the paperwork, customs, and logistics—for a fee.
In direct selling, the U.S. producer deals directly with a foreign buyer. The paramount consideration in determining whether to market indirectly or directly is the level of resources your company is willing to devote to your international marketing effort. Other factors to consider when deciding whether to market indirectly or directly include:
- The size of your company
- Your tolerance for risk
- Resources available to develop the market
- Opportunity costs
- The nature of your products or services
- Previous export experience and expertise
- Business conditions in the selected overseas markets
We are agnostic on the question of which method is the best for you. Indeed, you may use more than one—selling directly to end-users via your website, selling on a major B2B or B2C e-commerce platform, engaging an agent to find buyers in a particular geographic area of the world, and selling to an EMC. There is no one “best” way.
Approaches to Exporting
The way or ways you choose to export your products can have a significant effect on your export plan and specific marketing strategies. The various approaches to exporting relate to your company’s level of involvement in the export process. Four general approaches may be used alone or in combination:
1. Passively filling orders from domestic buyers, who then export the product.
These sales are indistinguishable from other domestic sales as far as the original seller is concerned. Another party has decided that the product in question meets foreign demand. That party assumes all the risks and handles all the exporting details, in some cases even without the original seller being aware of it. (Many companies take a stronger interest in exporting when they discover that their product is already being sold overseas.) A little-known fact is that companies that don’t make the products exported comprise the majority of exporting companies. Unlike the exporting companies profiled in this book, many companies make products for export but do not actually export the products themselves.
2. Seeking out domestic buyers who represent foreign end-users or customers.
Many U.S. and foreign corporations, general contractors, foreign trading companies, foreign government agencies, foreign distributors, retailers, and others in the United States purchase for export. These buyers constitute a large market for a wide variety of goods and services. In this approach, your company may know that its product is being exported, but the domestic buyer still assumes the risks and handles the details of exporting.
3. Exporting indirectly through intermediaries.
With this approach, your company engages the services of an intermediary company that is capable of finding foreign markets and buyers for your products. EMCs, ETCs, international trade consultants, and other intermediaries can give you access to wellestablished expertise and trade contacts, but you retain considerable control over the process and can realize some of the other benefits of exporting, such as learning more about foreign competitors, new technologies, and other market opportunities. A variation on this channel is the use of e-commerce platforms such as those described above. They offer to handle the logistics in return for fees. As your product sells via their e-commerce site, you get notification to restock and they send you payment. Another option is that they sell via the site and you do the shipping. Another form of indirect exporting is when you hire an agent on a commission and the agent uses his or her contacts to sell your products in other countries.
4. Exporting directly
This approach is the most ambitious and challenging because your company handles every aspect of the exporting process from market research and planning to foreign distribution and payment collections. A significant commitment of management time and attention is required to achieve good results. However, this approach may also be the best way to achieve maximum profits and long-term growth. With appropriate help and guidance from the U.S. Department of Commerce, state trade offices, freight forwarders, shipping companies, international banks, and others, even small or medium-sized companies can export directly. If you have a website that processes credit cards, you can engage in exporting directly. If you choose to franchise a business model, the act of finding and supporting a master franchiser in a different country is direct exporting. If you get a contract from a U.S. or other national government agency, you are exporting directly to another country and potentially developing contacts that can lead to more sales independent of the government contract that got you to the new market in the first place. The exporting process today is easier and has fewer steps than ever before. For those who cannot make that commitment, the services of an EMC, ETC, trade consultant, or other qualified intermediary can be of great value.
Most U.S. exports rely on the first two approaches. Neither of the first two approaches, however, require active involvement by the company who creates a product or service. As a result, they will not directly contribute to a surge in future exports, even if international business does increase.
Consequently, this book concentrates on the latter two approaches. If your company’s goals and resources make indirect exporting your best choice, little further planning may be needed. In such a case, your main task is to find a suitable intermediary company that can handle most export details, or wait until they find you. Companies that are new to exporting or are unable to commit staff and funds to more complex export activities may find indirect methods of exporting more appropriate.
However, using an EMC or other intermediary does not exclude the possibility of direct exporting for your company. For example, your company may try exporting directly to nearby markets such as the Bahamas, Canada, or Mexico, while letting an EMC handle more challenging sales to Egypt or Japan. You may also choose to gradually increase the level of direct exporting once you have gained enough experience and sales volume to justify added investment. This approach is common and can lead to impressive sales growth such that international sales surpass domestic sales, as reported by the exporter profiles in this book.
Before deciding, you may want to consult trade specialists such as those at the U.S. Commercial Service. They can be helpful in determining the best approach or mix of approaches for you and your company.
Choose an approach that fits your company’s desired level of involvement in the export process—but be aware of the benefits and pitfalls of each.
The method(s) you choose to export can significantly impact your export plan and marketing needs.