In my exporting challenge blog I set a series of questions. I now turn to the question of routes to market. Luckily Doug Mahoney, UKTI’s Director-West Midlands, recently blogged on the subject and promised more in the future but I thought it might be useful to consider why it’s important to have a carefully thought out plan for your route to market.
For many exporters, the first way they sell is directly to customers in overseas markets. This is fine except that the only way your customer can communicate with you directly is probably in English and only at certain times of the day to suit your working pattern. For a Chinese customer, assuming they finish work at 5.00pm inChina, unless you’ve spoken to them before 9.00am they will have gone home. That’s aside from the issues of providing valuable after sales service, fulfilling orders more quickly from stocks held in market, accessing useful local marketing research information, creating proper brand awareness in market and many more.
Doug talked about agents and distributors so I’ll only add one thing on that. I always found that thinking about whether I would have an exclusive, sole or non-exclusive agreement was worthwhile. Non-exclusive is obvious but let me explain about the difference between exclusive and sole. If you have an exclusive agreement you can only deal with any customer in the territory through your agent or distributor. If you have a sole agreement it means that the agent or distributor is the only one you will work through but it doesn’t stop you selling directly to particular customers. You may have one large customer with whom you have a great relationship and don’t need an agent but in addition have dozens of smaller customers that are better serviced by an agent. Given that commission rates may typically be from 10% to 15% it’s worth thinking about.
One of the best ways of dealing with servicing customers locally, and moving beyond agents and distributors, is to open an operation in the overseas market. Broadly there are three ways to do this:
- Set up a local office. This could be a trading office, a representative office or other vehicle, but importantly would be staffed by one of your employees.
- Register a local subsidiary company. This would be a new business in market and subject to local company law as well as employment and tax regulations.
- Set up a joint venture. Establish a new business with a local partner sharing the risk in proportion to ownership.
I’ve done all three and there is an obvious increase in cost and time but there are obvious advantages as well:
- You will have real control over your marketing and sales operation.
- You will be able to plan for the long term and build up a market presence, establishing your brand locally.
- You will get much better understanding of local market conditions, having your own employees to draw upon.
- If you hold stock and can deliver locally and quickly, your service levels will improve dramatically.
- You’ll be able to establish a better communications strategy, being able to deal with your customers in their own language and in their own time.
- It will be easier to extend your intellectual property to new territories.
To take this step does mean you will be taking on some important legal and financial obligations. I cannot stress too highly how vital it is to get appropriate advice from your solicitor, accountant and your bank. They should be able to point you in the direction of either their own people in market or trusted firms that will be able to offer good local services. Doing it on your own is a very risky venture. It’s not for beginners, nor can it be done without proper investment but the potential rewards of getting your overseas presence right can be enormous and as you develop your exporting expertise, it may well be worth investigating.