This series challenges the common assumption that every company has a patriotic duty to export.
But we think more attention should be paid to the threshold question: should you be exporting?
Based on our experience, there are many companies that probably should not be exporting. They are simply not ready, and their approach to international expansion is likely to lose them money.
In our first episode, we looked at the “Hamsters on a Wheel” mindset. This time we focus on another:
Type #2: “Let’s Not Spend Much Money on This”
Many small companies, especially manufacturing companies, have grown thanks to very tight fiscal and operational controls. Instead of buying expensive tooling machines, these companies use their ingenuity to design and build their own. They negotiate hard with suppliers and monitor their cash flow very carefully. They are extremely proud of their creativity and their ability to “make do” — and rightfully so.
This “make do” mindset can be dangerous, however, when exporting. The complexities and the risks are much greater, the resources needed are more significant, and the paybacks are often longer. Jumping into exporting without realistically assessing each of these can be bad business for companies. Companies looking into exporting need to have an open mind about what is required.
One company came to us requesting a proposal to find and “vet” partners in Saudi Arabia with the help of in-country resources. They only did a little exporting, mostly to one small Middle East country, and were convinced (without any real market research, which they did not feel they needed) that they should head next for the biggest Middle East market: Saudi Arabia.
They wanted help locating several potential distributors, investigating them using multiple on-the-ground resources in different parts of the country, and interviewing them with translators. Their plan was to then select, with our assistance, the best 2 or 3 and negotiate distribution contracts. After much discussion, it turned out they felt a reasonable fee for this work should be about $3,000.
They simply could not accept that this would not even cover the costs of the local resources. They felt (without researching) that third-world countries have much cheaper labor rates (unfortunately not really true in much of the Middle East). They did not do enough homework to understand the time involved, the work required, or the difficulties of doing business in Saudi Arabia, much less whether this was even the best market for them to enter.
They ended up deciding they could just find the distributors they needed from the internet and doing phone interviews. We certainly hope it worked out well for them. It didn’t sound promising.
Other companies want to do their homework, but simply don’t have the resources to export properly. A beauty product company wanted to export to countries where there were minimal regulatory barriers to entry.
This company had a budget of $1,000 to check regulatory requirements in some 25 countries, collect and analyze market information to identify the best 2-3 prospect countries, and to locate and “vet” potential distributors, as well as select the best one in each target country. They turned to the U.S. Department of Commerce for low-cost help, but more than 15 months later, they are still not exporting; they just did not have the budget or internal resources to export.
If either of these sound a bit like your company, what should you do instead? Put together a realistic budget for your international expansion efforts. Recognize that exporting can be expensive, at least until you get all your resources and processes in place. Treat it as an investment that will take some time to pay off.
If you really don’t have the money to effectively develop an export business, that’s perfectly OK. Take what you have and invest it to grow your sales domestically until you can afford to make the necessary export investments.
In our next blog in this series, we’ll discuss another kind of company that probably should stay focused on domestic sales.
This one is called the “Alfred Neuman Fan Club Member.” Stay tuned to find out what we mean!
If you are already exporting but want to find better distributors, download our e-Book “10 Things to Look for in Your International Distributor.”
Doris Nagel is Managing Partner of Globalocity, helping companies in healthcare, nutrition, foods, chemicals, and manufacturing achieve sustainable growth in their indirect sales channels.
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