Export Marketing Concepts
Ball and Mcculloch (1999) refer to exporting as selling of firms’ regular product in overseas. This method requires little investment and is relatively free of risks. It is an excellent means of getting a feel for international business without committing any great amount of human or financial resources. It can be indirect or direct.
According to Albaum et al (1998) export marketing refers to active soliciting of overseas sales f existing pr ducts by a firm and its willingness t make limited modification in its products and marketing procedures to accommodate overseas buyers’ requirement.
Operating internationally not only contributes to the profits of the firms concerned, but also provides for the economic prosperity of the supplying countries and the welfare of the importing nations. In marketing terms, all parties to trade receive benefit from its development and maintenance. In order to encourage people to buy a particular pr duct r a specific brand f a pr duct it is necessary t show then why they should make the purchase in the first place and secondly why they should select a particular brand from among those available.
As in national marketing, the export marketing executive needs to know where his markets are located. He must therefore study the available information so that he becomes aware of the opportunities and obstacles, which may confront him. He recognizes that each opportunity and each obstacle will need investment. Where an opportunity is seen to exist, money will have to be spent on preparing the necessary facilities to provide f r that opportunity. Markets are researched to discover just what people want or need. The type o f organization best suited t satisfy that need at the l west practical cost will have t be selected and suitably equipped t pr vide the necessary level f service.
This deals with exports as if they were domestic sales. No specific overseas knowledge is required as the work is done by others. New opportunities can be opened up but control is limited and profitability generally low (others are taking the risk, doing the work).
Methods of Indirect Exporting
Various methods exist, below are some of them that we’ll be focusing on;
1. International Trading Companies (ITCs)
With their roots in the colonial era and consequently of fading importance, nevertheless ITCs are important in gaining access to many Third World Countries. United Africa Company, a Unilever subsidiary, is the largest trader in Africa. The advantages of ITCs are wide market coverage and fast, easy access to markets. However, they will carry a wide portfolio of products, often competitors, and therefore there will be a dilution of effort. Additionally, a feeling of resentment may persist in s me countries due to the historical legacy of colonialism. Burma and Egypt have nationalized ITCs to rid themselves of foreign influence.
2. Export Houses (Export Management Companies – EMCs).
This is by far the most important method of exporting. Ranging from generalist to specialist (by industry and country), they pr vide the performance of an export department without direct involvement and generally allow the company some (if small) degree of co-operation and control. Most suitable for the small to medium firm. Further advantages include: instant market contact and knowledge (particular local purchasing practices and government regulations). They are paid on commission and therefore are motivated to develop the business (ensuring that the pr duct is attractive to sell).
This is essentially a form of cooperation in exporting where one company uses its facilities to sell another’s product. It is more common between US multinationals and exporters than in Europe. Generally, piggy-backing involves longer-term involvement and it is certain that partner choice requires great care. The advantages are introductions to new markets via an organization established and respected in the country together with savings in infrastructure costs covering warehousing marketing and sales.
Note: Piggy-backing is often included under direct exporting as this utilizes the resources of an intermediary based in overseas countries.
This is exporting using intermediaries located in foreign markets. In doing so the exporter is becoming more involved and committed to the new market place, adding investment, time and management expertise. The benefits of greater involvement are more influence, greater strategic leverage (variable) control (also variable) and, of course profit. The step from indirect direct exporting should not be taken lightly as the costs and expertise levels rise sharply and therefore the company must be sure it has the capabilities of managing this significantly higher workload and knowledge requirement.
Factors for Success in Direct Exporting
- Top management commitment.
- International marketing skills.
- Detailed planning.
- Commitment to quality.
- Research and development.
- Reliability/ relationship building.
Factors for Failure in Direct Exporting
- Failure to research the market
- Inadequate funds/financial backing
- Failure of commitment/ perseverance
- Under representation in the market
- Failure t understand cultural reference
- Inexperienced management and personnel
Methods of Direct Exporting
Once individual countries have been selected the first decision is how the company will be represented. The size of the market, the nature of the product category, the level of involvement and contact with the consumer pre-and post-purchase will influence the degree of contact between the company and the market (e.g. a full time staff in residence at one end of the spectrum to a home based export sales manager liaising with intermediaries or alternatively, simply communicating by telephone, fax and e-mail at the other end).
Agents represent the lowest level of direct involvement in exporting. Their distinguishing feature is that they are country/territory bound (be sure your contract states this to avoid parallel exporting/importing). Paid on commission for orders obtained they, as a norm, represent non-competing manufacturers with sole rights. The critical fact to keep in mind is that agents do not take title to the goods (although there are exceptions).
Their advantage lies in that they are paid by results, there is limited risk involved, they can tap into existing contacts, and they have a cultural and linguistic affinity.
Furthermore, start-up costs are low.
Their disadvantages stem from quality of service, coverage of the market, conflict of interest (dilution fact r), lack of control over them. They are difficult to fire due to legal complexities, stretched resources, communication (both inward and out ward), motivation, distribution and their financial competence, i.e. you getting paid!
Great care needs to be taken in drafting the agreement and agents are usually chosen when high -price, low-volume goods are ordered -business- to -business or industrial products.
These differ considerably from agents in both the level of involvement and the relationship. Distributors represent the major (most popular) form of international distribution numerically. They are used by small and large firms alike for entering markets where marketing as well as a sales presence is required. This marketing input accounts largely for the deeper level of involvement. Distributors differ from agents also by buying the goods themselves and selling them on – usually at their own determined price (although company considerations and cooperation in pricing the product is important). In other words, distributors “take title to the goods”
It is apparent that success in the market is largely dependent on the performance of the chosen distributor (the selection process is critical). The challenge then becomes “how to motivate the distributor”.
The key is though building intercompany relationships; by continually rewarding the distributor to do as well, treating them as if they were in your own organization. Recognizing such perfection is unlikely, the company should take all necessary steps to create distributor loyalty, e.g. ensuring an adequate payment structure, developing training programs, determining agreed targets and other performance standards and evaluating those performance levels regularly at the same time as maintaining an efficient communication system.
The distributor is not your employee but your business partner and often your sole representation in a country. Treat the arrangement on a mutually (equally) beneficial one, for an unhappy or disgruntled distributor can inflict great damage, gaining success breeds confidence and greater cooperation. Finally the advantages and disadvantage of distribution broadly coincide with those for agents.
Export Sales Subsidiary
In attempting to divorce completely export marketing activities from domestic operations, some companies have established an export sales subsidiary as a separate firm. Although an export sales subsidiary is wholly owned and controlled by the parent company, it is essentially a quasi-independent firm an export sales subsidiary is attractive for the following reasons:
Unified Control: All authority relative to exporting resides in one organization.
Cost and Control: Since all revenues and expenses are separated from the domestic organization, exports costs and profits can be seen readily.
Ease of Financing: Since the subsidiary is a separate firm it is easier to ascertain its financial position. Therefore, financial institutions may be more willing to advance funds for export purposes.
Tax Advantages: Corporate income tax laws in some countries may result in savings in total corporate taxes.