Assessing Export Readiness
Assessing your readiness is your start point to determine if exporting is a viable option for your company, product or service and it helps you make effective decisions based on logical, systematic thinking.
Many motivational and organizational factors are to be considered when determining export readiness, before answering the questions:
- Is Your Company Ready to Export?
- Is Your Product Ready to Export?
These are normally the motivational reasons why companies decide to engage in exporting:
- Contribute to general long-term expansion
If your objectives are to expand your business over the long-term without necessarily looking for immediate returns, exporting may be for you. Successful exporting is built upon plans that are well laid, and that take time to develop and execute. Building an international sales and marketing program involves taking time to identify market opportunities, develop working relationships with overseas partners, and engage in profitable transactions in alignment with the overall goals of your company.
- Enhance competitiveness
Generally, global trade provides opportunities for companies to improve their overall competitiveness. By selling internationally, a company can gain insights on customer requirements, competitor activity, and different ways of doing business (management know-how). Additionally, by competing internationally, companies may acquire new technologies, and new ideas for products, as well as partnerships.
- Exploit unique technology and expertise
Exporting technologies in the global marketplace may help lead to success. Superiority in product quality and expertise can give a company an edge over competitors who may not possess such advantages. Other advantages your company may choose to offer may include product packaging, after-sale servicing, delivery and of course, competitive pricing.
- Improve return on investment
If your reason for exporting is to see immediate return on investment, then exporting may not be for you. Generally, exporting successfully requires long-term objectives, where short-term gains and profitability may not be an immediate benefit. Exporting programs that are most likely to succeed are those that are well planned for the long term, including market research, international relationships, and logistics arrangements. Companies should seek multiple benefits from exporting, such as expanded customer networks, exposure to new ideas and technology, and ideas for global sourcing.
These are normally the organizational factors that influence a company's decision to export. Which scenario(s) best match your reasons?
- Management Team Commitment
Experts agree that commitment from the management team is the number one determining factor of export success. The Management Team shows its commitment to an international sales program by setting aside funding, allotting time to manage the program, and assigning personnel to perform its tasks. Participation from management early and often in the export development process can facilitate market entry and expansion. Management must be willing to sacrifice near-term profits for long-term sales. Reluctance to do so during the period of establishing international customer relationships may hinder export success and market penetration. Also, the team must identify the level and rate of return on investment expected from the program.
- Funding Support
Management must be willing to allocate sufficient funds and create an adequate budget for export activities. Funds are required for working capital, product modification, medium term credits to overseas customers, and operations such as staffing, communications, and travel budgets. If internal funds are not available, think about securing funds through commercial banks, the Small Business Administration, and other financial service providers who can help you meet your long-term objectives.
- Personal Expertise and Commitment
Having in-house staff with international experience can facilitate your entry into the global marketplace. If you do not have such a person, you can either hire one or train present staff to assume the responsibilities. This person will need to be aware of rules and regulations regarding exporting your class of product. It is helpful if your employees were also knowledgeable of your target market's language and culture. Though English is accepted as the business language, the ability to communicate in a customer's native language will give you an advantage over your competitors.
- Production Capabilities
Conducting international and domestic sales requires the ability to produce or manufacture the product. Does your company possess the space and equipment needed to manufacture for the specific countries you are selling to (who have their own product standards and regulations)? What minimum order quantity will you require of your customers? If you are already selling domestically, do you have the production capacity to handle and store additional orders? Expanding into the global marketplace will result in a higher number of units to manufacture and store. Ask yourself if this increase in production will affect quality of output.
- Company's Exporting Goals
Increasing profits and growth are the main reasons to export. However, exporting pays off when you take a long-term approach in developing an export plan, building international relationships and organizing export functions internally. Boosting competitiveness, extending product life and balancing revenue deviations occurring in domestic markets are other goals for exporting. Whatever the goal, consider if the expected benefits outweigh the costs. If costs do outweigh benefits, perhaps your company should focus on domestic business instead, or look at exporting at another time, when it is a more viable option.
Is Your Product Ready to Export?
My Product is Already a Success in Domestic Markets
Research shows products that enjoy or have enjoyed a healthy market response in the U.S. may do just as well in other countries, given similar conditions and markets. If you feel this applies to you, the next step is to identify why it sells or has sold so well here. Keep in mind that if conditions abroad are significantly different (socially, culturally, economically, politically and environmentally), the success of exporting might meet obstacles. Investigate these issues while conducting your market research.
My Product Has Not Been Sold Domestically, Focus is on International Sales
Beginning to sell your product in the international marketplace might be a good decision, even if the product does not have a selling record at home. If you decide to focus solely on exporting your product, take time to consider social, cultural, economic, political and environmental characteristics your target market possesses. Plan on investigating these factors more in depth during your market research. Once you've considered the target market, you need to consider the product itself.Do you actually have an exportable product? Answering these questions objectively will help you determine if the actual product is ready for export.
Does Your Product Require Modifications?
You may sell your product without modifications to international markets, as long as it meets standards and regulations set by the respective countries. Some countries have strict governmental regulations that require special testing, safety, quality and technical conformity measures. Others impose tariffs and taxes on certain product classifications, while still others enforce non-tariff barriers, such as certification, inspections and quota limitations. Consider the costs of adapting and modifying your product for international sales, and ensure that the benefits of exporting outweigh the costs.
Does Your Product Require Extensive Training to Operate or Use?
Products that require training to operate place a greater responsibility on your company and distributor or agent, therefore you must decide how to support it. If users of your product do not require extensive training, the exportability of your product is stronger.
Does Your Product Require Considerable Support After the Sale?
Products that require considerable after-sales support must be handled by a distributor or agent who is well positioned to provide such a service, which may include maintenance, parts inventory, training and warranty. Maintenance issues may involve technical assistance costs, whereas parts inventory may involve additional storage and shipping costs. As for training, consider the additional costs of travel, solid design and delivery techniques.
Is Your Product Versatile Enough to Fulfill Different Needs?
A product that has multiple applications has great potential in the international marketplace. While exploring your product potential in a new market, remember that a flexible product can appeal to a number of diverse customers.
Is Your Product Unique or Differentiated?
Products that have unique features such as patents, superior quality, cutting edge technology, or adaptability enjoy a competitive advantage and better reception in foreign markets. If your product has competition in a foreign market, it may be difficult to sell. You may want to ensure your product has significant advantages over its competitors by looking at its unique features, suitability, and enhanced after-sales service. If a product is new and unique, check if any low-cost market research exists to help assess market potential. See your local trade promotion service center for detailed information.
Does Your Product Require a Special U.S. License to Export?
Many classifications of products require special approval from the U.S. Department of Commerce before you export. Some of these products require export licenses (such as high tech goods). If you were able to satisfactorily factor in product considerations for foreign trade, chances are you could viably export your product.
A Case Study: Silicon Valley Computers (SVC)
Ever since Silicon Valley Computers' Vice President read about the demand for computer parts in overseas markets, she has enthusiastically supported the idea of exporting. A marketing manager with extensive international sales experience is heading up an international sales division, and the finance manager has set up a very generous budget for international trade activities. Once the sales start rolling in, the production department will hire a third shift to keep up with the extra orders.
Silicon Valley Computers (SVC) has identified their very successful motherboard line as the product they wish to export. Although motherboards are quite common in the targeted region (Southeast Asia) SVC's motherboards are unique in that they have won the coveted Best Motherboard Award from the Computer Parts Association of America. SVC has begun to research possible product modification issues, and has the support from production management to alter the product if it will increase its competitive advantage.
Is SVC ready to export? Let's assess the company's readiness and the product's readiness. First we'll examine the motivational and organizational factors inside the company.
SVC has identified many motivational factors that influence their export readiness. These include:
- The purpose of exporting is to contribute to company's general long-term expansion
- The process of readying itself for export may enhance company competitiveness
- SVC has a unique product that has been recognized by a prestigious association
SVC has also addressed many organizational factors that affect their readiness to export. To review, SVC has:
- Commitment from top management including the president, marketing manager, finance manager, and production managerA funding plan developed by the finance manager and signed off by CFO
- Experienced personnel ready to handle the international sales program SVC determined their product would sell successfully because:Product is already a success in the domestic market
- Product is unique and differentiated
- Potential product modifications are needed, and may be feasible
- Due to complex nature of product, it may require after-sales support and a special U.S. license to export We recognize that SVC's product and organization are ready to export.
We recommend that SVC look further into target market research, the exporting process and develop an export plan. You'll learn more of these processes as you move through the tutorial.
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