Presentation on theme: "“It’s not a matter of if, rather when you go international.” What strategy will you choose? Exporting ( Most common, least risky) Licensing –Licensor offers."— Presentation transcript:
“It’s not a matter of if, rather when you go international.” What strategy will you choose? Exporting ( Most common, least risky) Licensing –Licensor offers know-how, technology, brand name in exchange for royalties –Lower risk but also lower profits Franchising –Franchisor provides standard package of products, systems and management services while franchisee provides capital, market knowledge personal involvement Joint Venture –Foreign company and local company establish a jointly owned new company Wholly Owned Subsidiary (Most costly, Most risky) –Greenfielding build from ground up –Purchase existing facility
Choosing Exporting Exporting is selling goods in foreign markets as a way to earn profits. An Export Business is a venture where a firm buys or represents products or services produced in one country and sells them in other countries
Exporting (most common, least risky) –Direct to customer (agent, retailer, internet) in another country –Indirect to buyer (WalMart, Sears, or intermediary*) in home country who exports product
Why Export? Increase Sales –Extend the market for a product that has proved popular at the domestic level. –Respond to overseas buyer with whom a profitable business relationship has emerged. –Lengthen a product's life cycle by selling in foreign markets once a product's popularity declines in the home market and wanting to take advantage of seasonal differences (e.g., when it is summer in America, it is winter in Australia!) Avoid Changing Domestic Conditions –Turn to different markets when a company feels the regulations on its product become too strict at home. (cigarette industry in the U.S.)
Disadvantages of Exporting 1. Increased costs. E.g. Traveling abroad to obtain orders; High management fees, shipping charges, agent's fees, etc., 2. Understanding and following import laws and regulations, which vary and change rapidly and dramatically in some cultures. 3. Transportation policy. Shipping rules and regulations complicated 4. Currency. The earlier advantage of a strong currency in exchange for a weak dollar might, in alternative circumstances, prove detrimental to the exporter. 5. Collecting long-standing payments and debts can prove difficult.
Advantages of Exporting 1. Increased market size and brand (global brand) awareness 2. Currency benefits -Changes in exchange rates can prove advantageous when selling to a customer whose currency is stronger than your own. 3. Protection against a downturn in the domestic market. 4. Protection in the event of world recession - it is unlikely that all countries will be equally affected by an economic downturn. 5. Economies of scale from manufacturing in larger batches.Economies of scale
Types of Export Businesses Export-Manufacturers Manufacturers, producers, assemblers and processors who export their own goods. Export-Traders* –Export Management Company* “Typically involved in the whole international trade process, including sales, marketing, invoicing, shipping, foreign receivable risks, customer training and support and even warranty issues. Often the arrangement is on an exclusive basis. A particular EMC will likely focus on specific industries and regions of the world. Most common way of indirect exporting –Export Trading Company “Similar to EMCs…distinction often lies in the size of the company. ETCs are large and more like to represent competing products.” –Export Commission Agents and Brokers “Basic difference between an agent or broker and EMCs and ETCs is that agents typically don’t fulfill the order; they simply pass it on to the manufacturer. They act as sales reps but don’t invoice the customer or coordinate the logistics.”
Export Management Company EMC EMC - Companies which act as your export department –Market research –Travel overseas to examine markets and visit clients –Appoint overseas distributors –Exhibit at international trade shows –Handle shipping, export documentation, shipping, insurance, financing...
Export Management Company May or may not take title Commissions range from 7.5 - 20 percent May require 3-5 year contract –Source: Dept. of Commerce or Supt. Of Documents, U.S. Govt. Office, Washington, D.C. 20402
Is Exporting the Business for You? Contacts (Buyers) Business Know How/Sales Experience Capital to Invest Attention to detail International Economics and Product Knowledge Foreign Languages & Foreign Culturer Persistence, tempered by Judgment
To Be Successful You must have at least one of the following: –Foreign Buyer that needs a U.S. Agent/Product/Service –Domestic Product/Service/Company that is viable for international Sales –Niche/Knowledge/ Advantage in a Particular Industry or Market
Failures Many fail. For example, story of an insurance salesman from South Dakota who abandoned his insurance business for the pot of gold. He incorporated himself as an ETC, packed his bag for a four-day stay, and took off for Hong Kong, expecting to land several orders for whatever anyone wanted to buy. On the flight over, his seat partner asked what product lines he represented. His response typified the naivete of the new traders. “Any product you want. I’m going to get the order first and then source out a supplier back in the States.”
Setting Up the Business involves… Legal organization Name Logo Bank accounts & insurance Office, Computer & other equipment Accounting & taxes Finance Loans or investors Personal Financial goals BUSINESS PLAN
Two Key Decisions Before Going Global…if you are manufacturer 1.Should you enter foreign market directly or indirectly? 2.Should you adapt your product and if so, how much?
Two Key Decisions Before Going Global…if you are export trading company 1.Which manufacturer should you represent? 2.In which market(s) should you sell the product?
Do You Have what It takes to Become an Exporter?
Important Entrepreneurial Qualities Drive (1-6) - Responsibility, vigor, initiative and perseverance. Patience (7) - Essential to coping with delays, strikes, & revolutions. Tact (8) - Necessary to deal with people whom you may never meet and represent different cultures Imagination (9) - Necessary to adapt product & selling approach in changing environment