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Developing Export Strategy 2/3

Government Assistance Programs
Go to section Finding Trade Leads - Government Agencies and Sources on previous page for information referenced earlier in this chapter.

Private Agencies and Sources
Go to section Finding Trade Leads – Private Agencies and Sources on previous page for information referenced earlier in this chapter.

Electronic Resources and Other Media
Several programs can be accessed through the Web and will be instrumental in your distributor search. You may also have some success using directories at a library with an extensive international business section. Have the librarian locate directories of importers for the specific countries you are interested in and scan them for products for your particular industry.

Contacting Potential Representatives
Having obtained a list of contacts of potential representatives, the next step is to establish contact to determine those who might be available and have interest in acting in that capacity. The best method is the face to face contact which is available during trade shows, trade missions, and foreign travel. If this is not practical, communicate remotely utilizing the latest technologies available to you.

Use this sample as a guide in developing your own communications under the review of your legal counsel. If the communications can be drafted in the language of the foreign country, that will be even better. Initial communications should convey the following, at a minimum.

  • Background information on your firm

  • Information regarding your product

  • Type of sales representative you are seeking

  • Available information regarding your target market and/or end user

  • Deadline for securing representation in the local market

Don't make an offer or imply a contract; instead your communication should be a solicitation for a proposal. Keep track of your communications and responses. If you do not have a response from your contact within a few days of your first efforts, send a reminder.

Evaluating Potential Representatives
The arrangements you make with your representative are critical to the success of your marketing efforts. You want to know as much as possible about your contacts to make informed decisions and assure mutual compatibility. You should consult the following information when available:

Background Information on the Representative
The more information available to you on a prospective representative, the better. At least, you should find out about the following, which is mostly available in their web site if they have one:

  • Company letterhead and web site

  • History and experience, particularly with similar products or industry

  • Qualifications of principals and/or officers

  • Adequacy of personnel, facilities, and resources

  • Availability of the resources to meet your requirements

  • Current sales volume and size of inventories

  • Territories they cover

  • Product lines they carry (including competing or complimentary products)

  • Customer base

  • Current clients

  • Past performance

  • Familiarity with U.S. business practices

  • Nature of sales force

  • Media resources

Third Party Evaluations
Often, evaluations are made by independent companies and agencies. Several reports are published by Dun and Bradstreet and Graydon.

Bank and Trade References
The relationship a contact has with his bank, as well as the extent and nature of credit availability, types of accounts, and history, are often indicative of the prospect's business practices and history. Additionally, trade contacts such as suppliers, shipping agents, customs brokers, etc. can provide valuable background regarding the history, strength, integrity, and reliability of the contact.

Current Business References
One of the best ways to explore how you might expect a relationship to proceed can be indicated by those that your prospective representative has current business relationships with. These can be other exporters currently utilizing this source, accountants and legal firms, and industry and trade associations.

World Traders Data Report and Commercial Credit Reports
Credit reports are often available from commercial sources such as TRW Credit Report They can provide information regarding your contact's financial strength, payment histories, and other relevant financial data. The DOC prepares the World Traders Data Report which focuses on the background, number of employees, types of product handled, and years in business.

Draft and Execute Agreements
After selecting your representative, the next step is to draft and execute a definitive contract or agreement as a basis of documenting your understandings and responsibilities. This must be done in concert with your legal counsel due to its importance to the relationship with your representative and your legal liabilities both in the U.S. and in the foreign country.

As a general rule, the following items should be included in every agreement:

  • Names, addresses, nature and relationship of parties

  • Product description

  • Definition of territory

  • Exclusivity conditions

  • Basis for compensation

  • Product pricing agreements

  • Sales goals and market share expectations

  • Nontransferability of assigned rights

  • Confidentiality agreements and understandings regarding prohibitions in dealing with competing products

  • Jurisdiction regarding agreements and their enforcement

  • Responsibilities for advertising, ordering, inventories and delivery, maintenance, warranty work, and other relevant operating concerns

  • Term of the agreement and provisions for modification, cancellation, extensions, or renewal

Consultation with your legal counsel is critical in any written contract. Since legal systems, customs, and regulations differ throughout the world, co-counsel knowledgeable in the practices of the foreign country may also be necessary. Contracts and agreements can be quite extensive but must be as thorough as possible to preclude misinterpretation of intent and subsequent controversy. Due to the dynamics of relationships as well as marketplaces and global politics, modifications will probably be required over the life of the agreement and you should be prepared for that necessity.

Managing and Motivating Distributors
Successfully managing your distributors is a top priority for profitable international trade. If your linkage to international commerce is through your distributor, he or she represents your company. When your distributor prospers, you prosper, if you provide quality products with profit potential. The key components outlined below motivate the distributor to work with you. Always keep in mind that it is a two-way relationship with reciprocal expectations.

Quality Products
If a product is defective after it is sold, the distributor incurs both a monetary cost and an opportunity cost. The inconvenience goes beyond the time involved to ameliorate return and replacement factors. Regardless of the fact that you will replace the product at no cost, handling defective parts can be very costly in foreign trade due to shipping and duty fees.

Your quality products should be:

  1. Trouble free and carry warranties.

  2. Unique to the intended target market.

    • Modify when necessary and stay ahead of competitors within the target market.

  3. Delivered with appropriate, quality packaging.

    • Use proper language, colors, symbols and designs that are suitable and inoffensive in your market.

  4. Supplied with high quality advertising and sales promotion techniques.

    • For example, catalogs, brochures, display cases, banners, window cards, illuminated signs and fliers can be provided in lieu of advertising dollars.

  5. Accompanied by easy to understand user manuals, information or instructions.

  6. Patent or trademark protected.

    • It is your responsibility to take legal action against counterfeit merchandise brought into the target market and ensure your product will not be illegally imitated.

Exclusivity
Your distributor will want exclusive rights to your product with full control over his or her geographic territory. However, you cannot guarantee that sales to third or fourth parties in the U.S. will not find their way into foreign markets. You cannot terminate an agreement with a U.S. customer simply because they resold your product in a foreign market.

One way to counter the inability to guarantee absolute exclusivity is to offer lower, preferential prices. You can also make a commitment to work with the foreign distributor to resolve problems of interference from competitors while discussing exclusivity of your product in advance.

Sales, Prices and Profit Potential
A good distributor will have business expansion plans. Focus on the distributor's sales, not his purchases from you. Increasing sales and profit growth are essential to business expansion. Accurate sales records signal market trends and slumps that help you stay ahead of the rest of the competitors in the marketplace. Compare sales growth records to other market indicators such as inflation, GNP, and data on consumer purchases.

Motivate your distributor with reasonable payment terms that include periodic requests for payment delays. Temporary payment terms during an economic slump or natural disaster is an effective way to build good will and establish loyalty.

Managing advertising and sales promotions is also a critical factor of basic planning and forecasting. With your assistance, your distributors should develop periodic marketing plans. A marketing plan is necessary from your distributor so you can properly plan for advertising, sales promotions, and seasonal buying patterns. You can help your distributor plan for special sales and new product introductions as well as competitive trade-in programs.

Pricing
Sales and profit potential are the responsibility of the distributor. It is his responsibility to know the unique characteristics of his territory and be able to sell your product profitably within the existing system and methods of his market. In return, the distributor expects you will offer him the lowest price possible because:

  1. The best competitive advantage in the market place is the lowest price.

  2. He will have to take on some of your normal selling costs.

  3. Your product accumulates additional price increases as a direct result of overseas transportation, duty and distribution fees.

  4. Price discounts can be based upon the annual sales volume by the distributor, a single, large purchase order, cash payments, or large contract/sales opportunities.

Effective Communications
Build strong overseas relationships through effective communication. Two important communication factors should be considered when managing and motivating your international distributor are:

  • Your personal relationship with the distributor. Establish a relationship with the top person. That person has the power to make major decisions and effect change.

  • The cultural differences between countries, including socially acceptable practices, work ethics, language, religion, business ethics, attitudes, and values.

Periodic Visits
Overseas travel is the only way to fully understand your foreign target market and foreign distributor. Relying on electronic or written communication can negate the factual evidence provided by on-site visits, research and interviews.

Distributors expect you, your technical experts, developers, and managers to visit their market. Spend several days learning about the problems and opportunities in that particular market. Utilize direct sources of information, attend trade shows, visit with top management, and be sure to include some contact with the end customer.

Updates
Establish a communication plan that:

  • Keeps your distributor informed.

  • Provides periodic new information about your product, company or industry.

  • Follows the 24 or 48 hour rule of responding. Always get back to inquiries and complaints within two days.

  • Avoids miscommunication by providing frequent information regarding invoicing, commissions, competitive updates and market analysis.

  • Informs your distributor of primary sources of help and information for opportunities with specific products.

Correspondence
A vital component of communication is quick response. The worst action you can take in international trade is no action. Timely and accurate administration of correspondence is expected not only with you but also your co-workers and managers. It can be in the form of:

  • Personal visits

  • Phone/fax

  • Email and regular mail

  • Online collaboration tools, social networks and other electronic communications

  • Telecommunications

The most widely accepted language is English, however for most of your distributors English will be a second language. This makes effective communication a requirement to overcome language differences.

Training
Training support and materials will be expected by your distributor for the operation and sales features of your product. These materials can take many forms: pamphlets, brochures, catalogs, fliers, manuals, videos, onsite training visits, and slide presentations. Sales force training should include product and application knowledge, sales skills, and basic market research elements that identify customer profiles and product competition.

The same support expectations apply towards after-sales service and repair methods. Technical training to support after-sales service in the exporting country should include:

  • Troubleshooting

  • Repair and Testing Procedures

  • Repair and Complaint Reporting

  • Warranty Program

After-Sale Service
There are three basic options for providing after-sales support:

  1. Train and assist your distributor to provide service.

  2. Train an independent agency to provide service.

  3. Relocate your own staff to service the foreign market.

These after-sales service departments cfan be structured to be profitable depending on market factors. However, a fast and efficient service operation will reduce additional costs to the end user while keeping a competitive advantage in the foreign market.

It is to your benefit to have a flexible and swift repair system. Plan for spare parts and replacement items which may cost your distributor in the form of additional freight and/or duty fees.

Collaborative Work Effort
Motivating and managing your distributor should generate a two-way relationship, in which both parties expect certain services and responsibilities from each other. Working together or "partnering" can be beneficial from both sides. Use the following managing and motivating themes to build a collaborative relationship.

  • Work with the distributor on a regular basis. Avoid surprises, review sales figures and inventory data on a regular basis.

  • Develop a marketing plan every year with your distributor. Jointly work on periodic reviews and revisions of the marketing plan.

  • Schedule international sales meetings when necessary for new product launching or other special events.

  • Ask for new product ideas from your distributor. Modify your product accordingly to stay competitive within the market.

  • Try to work out differences. Changing distributors can be costly and lead to the end of product representation in that market.

  • Be flexible, blend your management style with your distributor's when necessary.

  • Be honest and sincere when interacting with your distributor.

Recognition and Sales Conferences

Recognition
Methods of motivating and encouraging your sales staff require special consideration for your overseas distributor. Rewards, incentives and recognition may take many forms, but consistent periodic recognition is essential for a positive overseas sales environment.

Depending on the nature of your foreign market, some methods of recognition might include:

  • Print based recognition in the form of a prestigious plaque or certificate, announcement in the company newsletter, or recognition in the annual report or company profile. Use first names and business titles in the recognition.

  • Trips could include travel awards, a visit to the company headquarters, or to trade shows, conferences and/or sales meetings.

  • Bonuses might include a cash award for personal recognition or an annual increased based on performance.

  • Entertainment, inclusion of family, and gifts of value might be an appropriate recognition in some countries. Keep a record of gifts presented in the past to avoid future duplication.

Notes on proper protocol will serve as the basis of your personal recognition program for your distributor. You must be very careful to set up rewards that are acceptable to the culture, customs and preferences of the foreign market your distributor represents. Sensitivity to the unique cultural attitudes towards a reward system will help build a sincere relationship of trust and friendship.

Sales Conferences
Sales conferences are an excellent source of motivation. They serve to inform, recognize sales efforts, and create new energy and enthusiasm. Your distributor will want to learn market updates, current product information, competitive sales programs, and new sales techniques. It also allows the distributor to meet with other sales staff or distributors of your product and exchange ideas and useful tips.

Pursuing International Bid Opportunities
One area that is frequently overlooked by U.S. businesses, except for our multinational giants, is the opportunity for bidding on international projects. As these become more prevalent and technology oriented, the aware manufacturer and service provider will find the arena quite profitable. The contacts and sources used here are also useful for finding trade leads, locating potential purchasers and partners, and obtaining market information. Therefore, they should not be overlooked by anyone seeking to enter the export market.

The primary organizations that are involved in the international bid forum are multilateral development banks (MDBs), the U.S. Agency for International Development, the United Nations, and a number of miscellaneous agencies and programs.

Multilateral Development Banks (MDB)s
A Multilateral Development Bank (MDB) is partially a development agency and partially a bank. It obtains its funding from contributions from a number of nations. The U.S. government is a substantial contributor to most of the active MDB's. The purpose of the MDB is to provide a funding source for Less Developed Countries (LDC) that otherwise may not have the ability to borrow for needed projects.

As a lender to the LDCs, a multilateral development bank can promote long-term and stable growth in those countries, coordinate sound financial decisions and provide oversight to the LDCs and the developments that are the basis of the MDB loans. Therefore, an MDB is both a contact and conduit for you to research and bid on those contracts and subcontracts. The five main MDBs are:

The MDB Project Cycle
Become involved in the MDB project cycle to establish your interest and explore opportunities. The following are the cycle phases which are similar for all MDBs and require approximately a two-year process where detailed plans are developed and also is a time when bid participants and contractors start their initial involvement including possible contracts for design and engineering work.

Appraisal - is the stage where the MDB staff fine tunes the projected loan documents are executed. At this point the MDB continues its oversight and encourages the competitiveness of international bidding by the prime contractors.

Evaluation - is the final stage for the MDB. It is a review of the project and has some impact on the direction of determining future projects.

Participation in MDB Financed Developments
To participate in a MDB project, keep track of the MDB publications, relevant private sector publications, and maintain contact with DOC facilities and liaisons. You can also locate bidding agencies in targeted markets since it is the local entity that provides bid details. Get involved as soon as possible, no later than the time the MDB loan is authorized.

Previously, typical MDB-financed projects were for large infrastructure development. This has now shifted to those more concerned with technology, health, communications, and the environment.

United States Agency for International Development (USAID)
The U.S. Agency for International Development (USAID) administers a range of economic assistance programs that combine support to foreign countries with definite needs and at the same time, promotes U. S. national interests. These include promoting open and democratic societies and the improvement of lifestyles and healthy standards.

Most USAID activities are centered around USAID missions which identify specific areas of need which is then reported to the Mission Director, then Ambassador, and eventually the Secretary of State. Firms interested in working with USAID should obtain The Guide for Doing Business With USAID from the government printing office. This gives a detailed description of their programs and procedures.

Opportunities exist for commodity sales, contracts for project consulting services, and a variety of products. As with MDB programs, USAID projects are either financed or under oversight by the agencies and the actual contracting is done by the foreign country or agency. Go to section Finding Trade Leads - United States Agency for International Development (USAID) on previous page for  information referenced earlier in this chapter.

Other Agencies and Programs

United States Trade and Development Agency (USTDA)
The Trade and Development Agency (USTDA) is is the only agency providing feasibility study grants for overseas projects. These grants are made to the foreign country with the condition that the contracts given out be with U. S. companies. Often the projects investigated for feasibility by this agency can turn out to be quite substantial, such as communication networks and airports. Go to section Finding Trade Leads - United States Trade and Development Agency (USTDA) on previous page for information referenced earlier in this chapter.

United Nations (UN)
The many subgroups and advisory groups within the United Nations are of themselves a large customer. Some of the more prominent are the United Nations International Children's fund (UNICEF), UN Educational, Scientific, and Cultural Organization (UNESCO), the World Health Organization (WHO), and many more. You should obtain the General Business Guide to the United Nations if you are interested in pursuing this avenue.

Defense Security Cooperation Agency (DSCA)
Additional opportunities are available for defense and military oriented exporters which are under the Defense Security Cooperation Agency (DSCA) if U.S. funds are utilized. This agency's procedure can be found in Department of Defense publications: Security Cooperation Management Manual (DOD 5105.65) and FMS Reinvention Goals for 2001 and Beyond.

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