OBJECTIVE: International trade is increasingly important to many growing businesses. It is equally attractive to both B2B and B2C firms. This session will shed light on what you need to know when expanding internationally.
- International trade as a growth opportunity
- A tool for hollow corporations
- International franchising
- Advantages and Disadvantages of International Trade
- Common Mistakes Made in International Trade
- Top Ten Do's and Don'ts
- Session Feedback and Quiz
The importance of global expansion as a growth opportunity has been stated most clearly by Dr. Lucius Riccio, professor at Columbia Business School:
|"It is a time of global transformation and change made possible by logistics innovation. A time when the smallest companies can compete with the largest ones---sometimes with the advantage of being more nimble and quicker to seize opportunities."|
In most countries of the world, international trade represents an important share of gross domestic product. In considering alternatives to grow your company, it will be worth investigating this accelerating trend which is the outcome of increasing industrialization, transportation and communication tools. You can follow the footsteps of large corporations that are already looking more beyond their country borders for growth. In many cases such as General Electric, Coca Cola and Proctor and Gamble, offshore earnings are beginning to outstrip domestic profits.
International trade is increasingly important to many smaller growing businesses as well. It is equally attractive to either business-to-consumer or business-to-business firms. Your opportunities can lie either as a buyer or a seller.
- You may want to add cashmere sweaters to your line. As a buyer you will need to become an importer in order to compete in the marketplace.
- As a seller you may want to establish markets in other growing economies. (And as a buyer you may want to outsource manufacturing to a firm in Asia.)
- As a business-to-business manufacturing operation, you could utilize online conferencing and IT skills to expand your sources of supply as well as your customer base.
The purpose of this session is to enable you to review the highlights of international trade and provide you with helpful resources. Your global expansion will involve complexities including documentation, shipping, financial, legal, communications, governmental regulations, licensing and property rights. So you will also need to expand your knowledge beyond the scope covered here.
International trade is especially appropriate for the rapidly growing number of "hollow corporations." A hollow corporation is a business without a factory and with a minimum number of employees in which manufacturing is performed by outside suppliers. A hollow corporation might depend on outside suppliers for virtually all of its products, such as an American toy company importing product from China. Or, it might depend on outside suppliers for selected components in its overall product line, such as The Boeing Company.
Franchisors have been expanding globally for decades. As they saturate their domestic markets, they depend more on global expansion. Many franchisors avoided dealing with individual franchisees and instead have signed up area licensees or even country licensees.
Complying with taste and other preferences is important. South American countries have a taste for sweets and hence are a good expansion territory for Dunkin Donuts©. In other parts of the world, recipes as well as products have been tweaked to satisfy local tastes.
Advantages to consider:
- Enhance your domestic competitiveness
- Increase sales and profits
- Gain your global market share
- Reduce dependence on existing markets
- Exploit international trade technology
- Extend sales potential of existing products
- Stabilize seasonal market fluctuations
- Enhance potential for expansion of your business
- Sell excess production capacity
- Maintain cost competitiveness in your domestic market
- Expansion brought about by international trade could accelerate the advantages of taking your company public.
Disadvantages to keep in mind:
- You may need to wait for long-term gains
- Hire staff to launch international trading
- Modify your product or packaging
- Develop new promotional material
- Incur added administrative costs
- Dedicate personnel for traveling
- Wait long for payments
- Apply for additional financing
- Deal with special licenses and regulations
- You will need to set up specialized conferencing and communications tools.
Failure to obtain export counseling and to develop a master international marketing plan before starting an export business.
Utilize government and association resources for export counseling. Hire a lawyer to help you structure your export operations for the long run: Lawyers are concerned with issues of compliance on both ends of the transaction, therefore they are instrumental in helping you to make sure that your recordkeeping system is planned correctly, that your legal documents are structured correctly, and to advise you on a broad range of compliance issues before the sale, during the sale, and after the sale.
Insufficient commitment to overcome the initial difficulties and financial requirements of exporting.
To be successful in exporting, firms have to establish an export department to which they dedicate personnel and a budget, and for which they develop appropriate procedures, preferably in consultation with a qualified trade lawyer.
Failure to have a solid agent and or distributor's agreement.
Firms that intend to expand into exporting will likely need an agent or distributor at some point. The key legal distinctions between an agent and distributor are:
- A distributor takes title to the goods and accepts the risk of loss. A distributor makes profits by reselling the goods.
- Distributors cannot contractually bind the company producing the goods.
- Distributors establish the price and sales terms of the goods.
The first and most important consideration when drafting an agreement is to ensure that the agreement clearly states whether there is an agent or a distributor relationship.
Failure to understand Intellectual Property Rights (IPR).
Intellectual property rights refer to the legal system that protects patents, trademarks, copyrights, trade secrets. It is important for exporters to understand how and whether intellectual property rights are protected in different countries.
Insufficient attention to marketing and advertising requirements.
Trade Shows and Trade Missions: Trade shows and missions may be in the virtual form or entail traveling to the foreign country. For the source of information on upcoming trade shows visit the Internet Web site for Trade Show Central (www.tsnn.com) or the Trade Show Center (tradeshow.globalsources.com) Web site which lists trade shows around the world.
Lack of attention to product adaptation and preparation needs.
The selection and preparation of a firm's product for export requires not only knowledge of the product, but also knowledge of the unique characteristics of each market being targeted. Key considerations include:
Product Adaptation to standards requirements: As tariff barriers (tariffs, duties, and quotas) are eliminated around the world in accordance with the requirements of participation in the World Trade Organization (WTO), other non-tariff barriers, such as product standards, are proliferating. Exporters must understand conformity requirements to operate on an international basis.
Product Engineering and Redesign: The factors that may necessitate re-engineering or redesign of products to be exported may include differences in electrical and measurement systems.
Branding, Labeling and Packaging: Cultural considerations and customs may influence branding, labeling and package considerations.
- Are certain colors used on labels and packages attractive or offensive?
- Do labels have to be in the local language?
- Must each item be labeled individually?
- Are name brands important?
Installation: Another important element of product preparation is to ensure that the product can be easily installed in the foreign location. Importers and exporters need to know they may also consider providing training or providing manuals that have been translated into the local language along with the product.
Warranties: In order to compete with competitors in the market, firms may have to include warranties on their products.
Servicing: The service that exporting companies provide for their products is of concern to foreign consumers. Foreign consumers want to know whether they can access spare parts, technicians who can service the product, and distributors of the products in their countries.
- Consider international trade as a growth opportunity.
- Investigate franchising for global expansion.
- Evaluate your competition's international business.
- Develop a master international marketing plan.
- Dedicate personnel, a budget, and appropriate procedures.
- Create a solid agent or distributor's agreement.
- Understand importance of intellectual property rights.
- Research marketing and advertising requirements.
- Conform to the unique needs of each geographical market.
- Take advantage of free online resources.
- Minimize the complexities of global expansion.
- Overlook international trade as an asset for hollow corporations.
- Disregard taste and other global preferences.
- Fail to obtain export counseling.
- Blindly chase orders from around the world.
- Neglect to investigate country risks.
- Ignore the importance of legal advice.
- Fail to understand export licensing requirements.
- Forget to understand distinctions between an agent and a distributor.
- Ignore the importance of adapting to foreign markets.