The first step abroad can be the toughest for aspiring exporters and can make or break an internationalisation plan.
Therefore making a decision on how to export is not a task to be taken lightly. Pick the wrong strategy and even the best product or service could end up a dud.
“Detailed knowledge of local business culture, regulatory requirements and potential partners is essential,” says Ben Digby, head of group, international, at the Confederation of British Industry. “Different models will work in different places and businesses need to adapt their approach to the market.”
Some ways of getting into new markets can demand a financial outlay and degree of maturity that new exporters hardly possess. But there are also options that are more accessible to the rookies. For example, smart use of the internet has been the “X factor” behind many a blossoming global firm.
“The web offers amazing new opportunities,” says Richard Lynch, an emeritus professor of strategic management at Middlesex University. “Some have not been exploited yet and even small companies can benefit from them.”
The internet has made it possible for Portsmouth-based Wiggle to evolve from a neighbourhood bike shop into a multinational retail business that has recently been acquired by a private equity fund.
Internet-based sales channels have also been one of the drivers behind the ascent of the Cambridge Satchel Company, which in 2008 was a kitchen-based manufacturer with capital of £600, but now is a booming luxury business with a turnover of £10 million a year.
The web can act as an invaluable tool to gather the information required to devise an export strategy. “For small companies, it is of essence to focus in the right markets in order to maximise the limited resources they have,” says Florence-Claire Deniel, director of Huddersfield’s Exportwise Consulting.
Smart use of the internet has been the ‘X factor’ behind many a blossoming global firm
Finding an unexpected niche in a foreign market could prove a winning play for any company. Who knew that French cheese lovers adore the UK’s cheddars and stiltons? Firms like Bruton-based Wyke Farms did and spotted the trend years ago.
LICENCES AND FRANCHISES
Other entry modes address the issue of finding the local partners that could help a company to succeed in a new market. Licensing and franchising enable companies to sell their products and services abroad via agreements with local business groups.
Firms can also set up joint-ventures with established companies who already know the way to riches. Or they can buy a business in the target country, thus acquiring a tested workforce and plenty of local expertise in addition to its physical facilities.
At the beginners’ level, however, many firms prefer to rely on specialised distributors, based either in the UK or in the destination markets, to deal with red tape and to contact potential clients. Such partners can find themselves in a better position to assess the true potential of a product.
Tableware producer Steelite has employed a mix of wholly owned subsidiaries and distributors to expand globally. Seating leather-maker Bridge of Weir has established joint ventures in Mexico and China to have greater access to growing markets in the Americas and the Asia-Pacific region.
Even though joint ventures are usually seen as the safest way to operate in China, London-based Cath Kidston has opted to set up a wholly owned operation in that country. In other Asian markets, Cath Kidston works with different models of partnership with distributors.
But it is worth keeping in mind that each entry mode has its drawbacks. Companies that work with licensing and franchising can have their intellectual property stolen, if they fail to put in place costly controls that can prevent infringements.
Firms that have entered into joint ventures in emerging markets have often been duped by local partners with powerful business or political connections. Others have purchased or set up units in foreign markets only to see their investments compromised by sudden regulatory changes.
Even the internet, for all its promise, creates particular challenges. Governments are increasingly looking for ways to tax online transactions, notes Kevin Smith, a senior partner at KPMG in London. Online fraud and hacker attacks can also haunt a business as it gains visibility on the web.
Deciding on the right entry mode can be a time-consuming job that delays the thrill of the first export sales. But when it comes to foreign markets, a firm should take its time to enter. Otherwise, it may be forced to make a quick exit in the future.