Export Strategy

          ASSESSING A PRODUCT'S EXPORT POTENTIAL

          There are several ways to gauge the overseas market

          potential of products and services. (For ease of reading,

          products are mentioned more than services in this guide,

          but much of the discussion applies to both.) One of the

          most important ways is to assess the product's success in

          domestic markets. If a company succeeds at selling in the

          U.S.  market, there is a good chance that it will also be

          successful in markets abroad, wherever similar needs and

          conditions exist.

          In markets that differ significantly from the U.S. market,

          some products may have limited potential. Those differences

          may be climate and environmental factors, social and

          cultural factors, local availability of raw materials or

          product alternatives, lower wage costs, lower purchasing

          power, the availability of foreign exchange (hard

          currencies like the dollar, the British pound, and the

          Japanese yen), government import controls, and many other

          factors. If a product is successful in the United States,

          one strategy for export success may be a careful analysis

          of why it sells here, followed by a selection of similar

          markets abroad. In this way, little or no product

          modification is required.

          If a product is not new or unique, low-cost market research

          may already be available to help assess its overseas market

          potential. In addition, international trade statistics

          (available in many local libraries) can give a preliminary

          indication of overseas markets for a particular product by

          showing where similar or related products are already being

          sold in significant quantities.

          If a product is unique or has important features that are

          hard to duplicate abroad, chances are good for finding an

          export market. For a unique product, competition may be

          nonexistent or very slight, while demand may be quite high.

          Finally, even if U.S. sales of a product are now declining,

          sizeable export markets may exist, especially if the

          product once did well in the United States but is now

          losing market share to more technically advanced products.

          Countries that are less developed than the United States

          may not need state-of-the-art technology and may be unable

          to afford the most sophisticated and expensive products.

          Such markets may instead have a surprisingly healthy demand

          for U.S. products that are older or that are considered

          obsolete by U.S. market standards.

          MAKING THE EXPORT DECISION

          Once a company determines it has exportable products, it

          must still consider other factors, such as the following:

          *    What does the company want to gain from exporting?

          *    Is exporting consistent with other company goals?

          *    What demands will exporting place on the company's key

               resources -- management and personnel, production

               capacity, and finance -- and how will these demands be

               met?

          *    Are the expected benefits worth the costs, or would

               company resources be better used for developing new

               domestic business?

          A more detailed list of questions is shown later.  Answers

          to these questions can help a company not only decide

          whether or not to export but also determine what methods of

          exporting should be initially used.

          THE VALUE OF PLANNING

          Many companies begin export activities haphazardly, without

          carefully screening markets or options for market entry.

          While these companies may or may not have a measure of

          success, they may overlook better export opportunities. In

          the event that early export efforts are unsuccessful

          because of poor planning, the company may even be misled

          into abandoning exporting altogether. Formulating an export

          strategy based on good information and proper assessment

          increases the chances that the best options will be chosen,

          that resources will be used effectively, and that efforts

          will consequently be carried through to completion.

          The purposes of the export plan are, first, to assemble

          facts, constraints, and goals and, second, to create an

          action statement that takes all of these into account. The

          statement includes specific objectives; it sets forth time

          schedules for implementation; and it marks milestones so

          that the degree of success can be measured and help

          motivate personnel.

          The first draft of the export plan may be quite short and

          simple, but it should become more detailed and complete as

          the planners learn more about exporting and their company's

          competitive position. At least the following ten questions

          should ultimately be addressed:

          1.   What products are selected for export development?

               What modifications, if any, must be made to adapt them

               for overseas markets?

          2.   What countries are targeted for sales development?

          3.   In each country, what is the basic customer profile?

               What marketing and distribution channels should be

               used to reach customers?

          4.   What special challenges pertain to each market

               (competition, cultural differences, import controls,

               etc.), and what strategy will be used to address them?

          5.   How will the product's export sales price be

               determined?

          6.   What specific operational steps must be taken and

               when?

          7.   What will be the time frame for implementing each

               element of the plan?

          8.   What personnel and company resources will be dedicated

               to exporting?

          9.   What will be the cost in time and money for each

               element?

          10.  How will results be evaluated and used to modify the

               plan?

          One key to developing a successful plan is the

          participation of all personnel who will be involved in the

          exporting process. All aspects of an export plan should be

          agreed upon by those who will ultimately execute them.

          A clearly written marketing strategy offers six immediate

          benefits:

          1.   Because written plans display their strengths and

               weaknesses more readily, they are of great help in

               formulating and polishing an export strategy.

          2.   Written plans are not as easily forgotten, overlooked,

               or ignored by those charged with executing them. If

               deviation from the original plan occurs, it is likely

               to be due to a deliberate choice to do so.

          3.   Written plans are easier to communicate to others and

               are less likely to be misunderstood.

          4.   Written plans allocate responsibilities and provide

               for an evaluation of results.

          5.   Written plans can be of help in seeking financing.

               They indicate to lenders a serious approach to the

               export venture.

          6.   Written plans give management a clear understanding of

               what will be required and thus help to ensure a

               commitment to exporting. In fact, a written plan

               signals that the decision to export has already been

               made.

          This last advantage is especially noteworthy. Building an

          international business takes time; it is usually months,

          sometimes even several years, before an exporting company

          begins to see a return on its investment of time and money.

          By committing to the specifics of a written plan, top

          management can make sure that the firm will finish what it

          begins and that the hopes that prompted its export efforts

          will be fulfilled.

          THE PLANNING PROCESS AND THE RESULT

          A crucial first step in planning is to develop broad

          consensus among key management on the company's goals,

          objectives, capabilities, and constraints. Answering the

          questions listed in table 1-1 is one way to start.

          The first time an export plan is developed, it should be

          kept simple. It need be only a few pages long, since

          important market data and planning elements may not yet be

          available. The initial planning effort itself gradually

          generates more information and insight that can be

          incorporated into more sophisticated planning documents

          later.

          From the start, the plan should be viewed and written as a

          management tool, not as a static document. For instance,

          objectives in the plan should be compared with actual

          results as a measure of the success of different

          strategies. Furthermore, the company should not hesitate to

          modify the plan and make it more specific as new

          information and experience are gained.

          A detailed plan is recommended for companies that intend to

          export directly. Companies choosing indirect export methods

          may require much simpler plans. An outline of an export

          plan is presented later.

          APPROACHES TO EXPORTING

          The way a company chooses to export its products can have a

          significant effect on its export plan and specific

          marketing strategies. The basic distinction among

          approaches to exporting relates to a company's level of

          involvement in the export process. There are at least four

          approaches, which may be used alone or in combination:

          1.   Passively filling orders from domestic buyers who then

               export the product.

                  These sales are indistinguishable from other

                  domestic sales as far as the original seller is

                  concerned. Someone else has decided that the

                  product in question meets foreign demand.  That

                  party takes all the risk and handles all of the

                  exporting details, in some cases without even the

                  awareness of the original seller. (Many companies

                  take a stronger interest in exporting when they

                  discover that their product is already being sold

                  overseas.)

          2.   Seeking out domestic buyers who represent foreign end

               users or customers.

                  Many U.S. and foreign corporations, general

                  contractors, foreign trading companies, foreign

                  government agencies, foreign distributors and

                  retailers, and others in the United States

                  purchase for export. These buyers are a large

                  market for a wide variety of goods and services.

                  In this case a company may know its product is

                  being exported, but it is still the buyer who

                  assumes the risk and handles the details of

                  exporting.

          3.   Exporting indirectly through intermediaries.  With

                  this approach, a company engages the services of

                  an intermediary firm capable of finding foreign

                  markets and buyers for its products. Export

                  management companies (EMCs), export trading

                  companies (ETCs), international trade

                  consultants, and other intermediaries can give

                  the exporter access to well-established expertise

                  and trade contacts. Yet, the exporter can still

                  retain considerable control over the process and

                  can realize some of the other benefits of

                  exporting, such as learning more about foreign

                  competitors, new technologies, and other market

                  opportunities.

          4.   Exporting directly.  This approach is the most

                  ambitious and difficult, since the exporter

                  personally handles every aspect of the exporting

                  process from market research and planning to

                  foreign distribution and collections.

                  Consequently, a significant commitment of

                  management time and attention is required to

                  achieve good results. However, this approach may

                  also be the best way to achieve maximum profits

                  and long-term growth. With appropriate help and

                  guidance from the Department of Commerce, state

                  trade offices, freight forwarders, international

                  banks, and other service groups, even small or

                  medium-sized firms, can export directly if they

                  are able to commit enough staff time to the

                  effort. For those who cannot make that

                  commitment, the services of an EMC, ETC, trade

                  consultant, or other qualified intermediary are

                  indispensable.

          Approaches number 1 and 2 represent a substantial

          proportion of total U.S. sales, perhaps as much as 30

          percent of U.S. exports. They do not, however, involve the

          firm in the export process. Consequently, this guide

          concentrates on approaches 3 and 4. (There is no single

          source or special channel for identifying domestic buyers

          for overseas markets. In general, they may be found through

          the same means that U.S. buyers are found, for example,

          trade shows, mailing lists, industry directories, and trade

          associations.)

          If the nature of the company's goals and resources makes an

          indirect method of exporting the best choice, little

          further planning may be needed. In such a case, the main

          task is to find a suitable intermediary firm that can then

          handle most export details. Firms that are new to exporting

          or are unable to commit staff and funds to more complex

          export activities may find indirect methods of exporting

          more appropriate.

          Using an EMC or other intermediary, however, does not

          exclude all possibility of direct exporting for the firm.

          For example, a U.S.  company may try exporting directly to

          such "easy" nearby markets as Canada, Mexico, or the

          Bahamas while letting its EMC handle more ambitious sales

          to Egypt or Japan. An exporter may also choose to gradually

          increase its level of direct exporting later, after

          experience has been gained and sales volume appears to

          justify added investment.

          For more information on different approaches to exporting

          and their advantages and disadvantages, see chapter 4.

          Consulting advisers before making these decisions can be

          helpful. The next chapter presents information on a variety

          of organizations that can provide this type of help _ in

          many cases, at no cost.

                 Management Issues Involved in the Export Decision

          Management objectives

          *    What are the company's reasons for pursuing export

               markets?  Are they solid objectives (e.g., increasing

               sales volume or developing a broader, more stable

               customer base) or are they frivolous (e.g., the owner

               wants an excuse to travel)?

          *    How committed is top management to an export effort?

               Is exporting viewed as a quick fix for a slump in

               domestic sales? Will the company neglect its export

               customers if domestic sales pick up?

          *    What are management's expectations for the export

               effort? How quickly does management expect export

               operations to become self-sustaining? What level of

               return on investment is expected from the export

               program?

          Experience

          *    With what countries has business already been

               conducted, or from what countries have inquiries

               already been received?

          *    Which product lines are mentioned most often?

          *    Are any domestic customers buying the product for sale

               or shipment overseas? If so, to what countries?

          *    Is the trend of sales and inquiries up or down?

          *    Who are the main domestic and foreign competitors?

          *    What general and specific lessons have been learned

               from past export attempts or experiences?

          Management and Personnel

          *    What in-house international expertise does the firm

               have (international sales experience, language

               capabilities, etc.)?

          *    Who will be responsible for the export department's

               organization and staff?

          *    How much senior management time (a) should be

               allocated and (b) could be allocated?

          *    What organizational structure is required to ensure

               that export sales are adequately serviced?

          *    Who will follow through after the planning is done?

          Production Capacity

          *    How is the present capacity being used?

          *    Will filling export orders hurt domestic sales?

          *    What will be the cost of additional production?

          *    Are there fluctuations in the annual work load? When?

               Why?

          *    What minimum order quantity is required?

          *    What would be required to design and package products

               specifically for export?

          Financial Capacity

          *    What amount of capital can be committed to export

               production and marketing?

          *    What level of export department operating costs can be

               supported?

          *    How are the initial expenses of export efforts to be

               allocated?

          *    What other new development plans are in the works that

               may compete with export plans?

          *    By what date must an export effort pay for itself?

                       SAMPLE OUTLINE FOR AN EXPORT PLAN

          Table of Contents

          Executive Summary (one or two pages maximum)

          Introduction: Why This Company Should Export

          Part I   Export Policy Commitment Statement

          Part II   Situation/Background Analysis

          *    Product or Service

          *    Operations

          *    Personnel and Export Organization

          *    Resources of the Firm

          *    Industry Structure, Competition, and Demand

          Part III   Marketing Component

          *    Identifying, Evaluating, and Selecting Target Markets

          *    Product Selection and Pricing

          *    Distribution Methods

          *    Terms and Conditions

          *    Internal Organization and Procedures

          *    Sales Goals: Profit and Loss Forecasts

          Part IV   Tactics: Action Steps

          *    Primary Target Countries

          *    Secondary Target Countries

          *    Indirect Marketing Efforts

          Part V   Export Budget

          *    Pro Forma Financial Statements

          Part VI   Implementation Schedule

          *    Follow-up

          *    Periodic Operational and Management Review (Measuring

               Results Against Plan)

          Addenda: Background Data on Target Countries and Market

          *    Basic Market Statistics: Historical and Projected

          *    Background Facts

          *    Competitive Environment