Practical advice from an expert on how to get started selling your products and services internationally
Specialty Fabrics Review | May 2014
By James Chan, Ph.D
You don’t have to be a big company to do business internationally. What you need to succeed are high-quality, niche products or services, management commitment and good timing.
The hardest part of global expansion is the beginning. And it is tough to begin if you don’t know where to start. These are some questions I am often asked by aspiring or new-to-market exporters and globally minded executives, with some practical answers to get you on your way.
How do we know whether there is a market for our products or services internationally? There are three indications that your company’s products or services are in demand internationally. One: you receive unsolicited requests for quotations from prospects. Two: foreign delegations show up at your door. (I received a $127,000 prepaid check from a visiting foreign delegation.) Three: your domestic U.S. customers specify their overseas suppliers to use your specialty fabrics or specialty fabric products as parts of the final installation.
What if we don’t have any such indications? Manufacturers and service organizations expand globally because their owners or CEOs have realized that they’ve hit a growth ceiling in the American market. In cases like that, no indications are needed. In 1984, I worked with such a manufacturer, whose company management saw China’s market potential. It’s a small firm with 135 employees. Thirty years later, China has become one of the firm’s top 10 global customers. That firm has made two of its China agents millionaires in terms of U.S. dollars. Commitment from management is key to success in marketing and exporting overseas, despite lack of market indications in early years.
How do we generate leads in a foreign market? There are many ways, but the best one is also the simplest one: looking up relevant industry directories and contacting potential buyers. This desk research is relatively simple, but it can also be tedious—and the work must be done, or at the least carefully overseen, by the manager personally. You can’t delegate this work to assistants or interns because they may not have a thorough knowledge of your specialty fabrics products and services.
I began my international career in 1981 to open several Asian markets by poring over industry directories. I scrutinized more than 3,000 records in a dozen Asian countries and picked 500 of them as targets. I mailed personal letters and product catalogs to these overseas prospects. Within 11 months, I received my first pre-paid order from China in 1982 in the amount of $150,000 ($330,000 in 2013 dollars). Sales to South Korea, Taiwan, Singapore, Hong Kong and Thailand tripled.
Business directories are now usually accessible online. Subscribe to electronic databases that can alert you to prospects and help screen leads from your website and social media. Attend trade shows in your industry, which are a good way to generate leads face-to-face.
What if we don’t have any contacts in a target country? Contact the local international trade specialist of the U.S. Commercial Service (USCS) in your area. The USCS has the “Gold Key Matching Service” that helps U.S. small- and medium-sized firms find agents, distributors and partners. Both first-time and experienced exporters use this service. The fee to get a “Gold Key” service is $700. (First-time users may pay only $350 because the U.S. government encourages companies to expand globally.) I’ve used the “Gold Key” service a number of times for various clients through our local Senior International Trade Specialist, Samuel Cerrato. Contact Sam’s counterparts throughout the 50 states by visiting the International Trade Administration website and search for an office location in your local area; e-mail Sam at Samuel.Cerrato@trade.gov if you need guidance.
Are agents necessary in international expansion? Agents are essential to success. An agent talks to your customers while you sleep (due to time zone differences). They help negotiate with customers, work with suppliers, keep track of payments and shipments and help with troubleshooting on the spot. Agents and distributors often request exclusivity. You should not give it freely. However, after you find the right person, you might tell him or her that you don’t engage other people in that country, or market. Exclusivity means nothing if there is a lack of personal trust.
Are signed contracts reliable in overseas markets? You should work hard to research and write the best contracts; we take signed contracts seriously. But be prepared to deal with the fact that some customers will want to re-negotiate a contract—sometimes more than once.
There are ways to protect your business if people renege on a signed contract. Often, a contract is preceded by a Technical Agreement (TA). You should spend the most time and attention on the TA to achieve mutual agreement on all technical details and deliverables—the things that you will or will not offer. It is a grave mistake to hurry through the TA review process to get a contract, an error many salespeople tend to make. Once you’re happy with the TA, require payment before shipment. Don’t ship until you get paid.
Do most international customers agree to pre-pay? Some do, especially when they need your specialty product or service quickly. Most don’t want to pre-pay, and will seek credit terms from 30 to 180 days.
If you’re worried that you’ll lose business if you demand pre-payment, consider using the services of the Export-Import Bank of the United States (Ex-Im Bank). According to Stevan M. Horning, public affairs specialist in Washington, D.C., Ex-Im Bank supports exporters by underwriting export credit insurance policies, guaranteeing loans (buyer financing) or by writing a revolving loan facility for working capital. As an example, Ex-Im Bank has worked with a Colorado company, FiberLok Inc., manufacturer of Mouse Rugs, that has been featured on Exim Bank’s website. Ex-Im Bank has also supported exports by a number of 3-D and fabric printer manufacturers. Loan guarantees range from a few thousand dollars to less than $10 million, depending on the industry and situation. Exporters or lenders may consult advisors in regional Export Finance Centers. For assistance, contact Steve Horning at email@example.com.
How important are standards, codes and related regulations in entering international markets? They are important—but unlike aviation fuels that are globally standardized, codes and standards in the specialty fabrics industry vary greatly from country to country and region to region. There are some 400 standards bodies in the United States alone. Simply reading general guidelines is not sufficient to determine what you need. I called my friend Drew C. Azzara in Dubai, United Arab Emirates, who is executive director, Middle East and North Africa, with the National Fire Protection Association (NFPA). He says: “It drills down to a conversation between the buyer and seller. They must both be comfortable that the codes and standards they use meet scientifically determined criteria that can be verified by independent test laboratories in the buyer’s local government jurisdiction.” For details, e-mail Drew Azzara at firstname.lastname@example.org.
Do trade treaties such as the Trans-Pacific Partnership Agreement (TPP) really affect our business? The United States has 14 Free Trade Agreements (FTAs) in force with 20 countries. FTAs are tools to lower tariffs, reduce “non-tariff” barriers, make the trade process more transparent in some countries, and encourage them to open their markets to American-made products and services. The Trans-Pacific Partnership (TPP) is still being negotiated among 12 governments on both sides of the Pacific (China, surprisingly, is not included). In 33 years, I’ve never had to get involved with any FTA. We rely on our agents and customers to work out our hurdles.
How can we prevent the theft of our intellectual property? We can’t stop the theft of our intellectual property, but we can find ways to make a profit despite chronic and widespread abuse by pirates. First, in our business operations, we don’t sell to anyone and everyone in a foreign market. We pick the biggest and most prestigious companies in any market as our targets. These customers value quality and will pay our prices.
Second, we cultivate “insiders” (agents, customers, suppliers or end-users) to tell us the weaknesses of the pirates. Not all customers make purchasing decisions based on price. For more on this subject, and strategies to combat product piracy, download my article entitled “Dueling with the Pirates: Seven Successful Strategies” at www.AsiaMarketingManagement.com.
What are the key cultural aspects of dealing with people overseas? The single most important cultural attribute is to spend time meeting people face-to-face. You don’t need to spend all your time visiting your targeted clients and customers, but you should do so regularly—at least once a year. Often, there may be no expectation that the trip will bring in new orders, but the many face-to-face conversations with insiders yield valuable market knowledge. Orders will come. The quickest overseas order one of my clients ever received took 15 days … and the longest took 15 years.
In the latter case, the client’s products were being pirated. Over time, the former pirate company changed its tactics. By buying our quality specialty components, they ensured machine stability and consistent performance. Shut-downs cost hundreds of thousands of dollars per day. And by incorporating our products into their final assembly, they increased their international sales by telling global buyers that their machines use our quality parts.
For more details on the importance of local culture on business, my article “18 Practical Tips” is also available on my website.
James W. Chan, Ph.D., is president of Asia Marketing and Management, a Philadelphia-based consultancy he founded in 1983 to advise U.S. firms in expanding globally.