In my first post on this topic, I looked at the mindset preparation and also the desk work up front of how to make an export plan. There’s more to planning than just research though, so this post will be looking at the second part of the process you need to go through when entering new markets.
This kind of plan is one part of an international expansion strategy.
Table of Contents
The Concrete Planning
A lot of what I mentioned in part 1 is purely preparatory, whereas now we’re coming more to the “core” of making an export plan. Some people would include selecting markets in here, but I prefer to include that in the research section at the beginning. It’s not realistic to research every market in the world and they’re not all going to be relevant for you anyway so you need to make that decision early in your process.
Target Market and Goals
Specify WHY this is your target. What key reasons are especially relevant to your company and product?
Set your objectives for the market in terms of market share in 1, 3 & 5 years. This is quite an ambitious thing to forecast, so it’s essential to remember that these are goals, not immutable targets cast in stone where the universe will implode if they have to be amended due to circumstances. They are a basis for you to work on – not a stick to beat your teams with at a later date.
Specify Products when entering New Markets
Decide what you plan to launch and at which stage of your sales development – you need to carefully check the regulatory situation here so that you know if anything needs to be adapted, have new labels, instructions etc to meet requirements. Completely redesigning a product or recipe to fit specific legal requirements means you need to calculate enough investment and time for that project vs making just a couple of tweaks or preparing a new language version of the packaging or instruction book.
Think also about the other implications of the range chosen: eg products with a really short shelf life can only be transported to the other side of the world if you airfreight them. Is it worth doing this? Do your values & beliefs allow for this? Sending water around the world costs about 50% of the value – Evian does it and makes a profit but they already have a certain critical volume.
Route to Market
How do you plan on working in your chosen market? This will be dependent on your resources and also your product or service. There’s never a single one solution fits all in export so you have to choose the option which is best for your situation at the time.
On the face of it, online D2C (direct to customer) is the easiest option for product based businesses, however that may not be the best approach in the long term for everyone as you may be limiting your market opportunities.
Generally, for product based businesses starting out with entering new markets, I recommend to work with a local distributor as this gives you an insider view of the market & consumers as well as access to their network.
It’s not the only option out there though and if you are a service based business then a franchising or licensing agreement might be a better route to take. (Yes, a hairdresser or car washing service can go global too.)
Your options here include:
- appointing an agent (who sells for you, but the risk remains yours – it gives you perhaps more direct contact to the clients though)
- working with a distributor as I mentioned already
- selling online (this can be trickier than it appears at first glance as it can be harder to really use a localised approach)
- you can license a piece of IP or a process eg for a consultant or coach
- it’s possible to sell direct to retail (probably not the ideal place to start, unless you are already working with that retailer in your home market, as it can be hard to manage (lots of work) from far away whilst keeping tight delivery deadlines)
- you could make direct B2B sales (again, it’s a lot of work to manage individual clients from afar)
- forming a joint venture – this is probably more usual in technology transfer type scenarios or where you also might want to build a factory in an overseas market. Some countries might force this onto you for certain industries
- it’s possible to sell via an export consolidator in your home country (this is ok for spot sales to “other markets” but not usually the best approach for your target focus market as you have little control, but there are situations where it can be a useful route if you have a good partner)
- found a subsidiary – this is probably not the way of entering new markets as a smaller inexperienced exporter unless you have to for some specific reason
I probably could write a whole book on this topic…& I certainly will write a couple of posts on it in future, so I’ll keep it brief here. It’s a key component though of knowing how to make an export plan.
You need to know what are all the costs involved in the process of getting your products from your factory gate into the hands of your customer in Rome or Abuja. On the one hand you need to know what has to be calculated into your costing – which costs are you taking over? But on the other hand, in the end, the customer has to bear all the costs, so you need to know what that means. These costs include:
- specific export documentation
- additional packaging to be suitable for overseas
- customs duties and all costs associated with the clearance
- any additional inspections (eg lab analyses at import, pre-shipment inspections)
- exchange risk mitigation
- financial instruments & bank charges (eg for an L/C)
- margins for all stakeholders in the sales process (eg importer, sub-distributor, retail)
- marketing budgets (you may not choose to calculate this initially into the product pricing)
- retail conditions
- sales taxes
This will allow you to check that you are competitive and also set your own pricing.
Freight and Incoterms
Decide how you will transport your goods to market. Seafreight, road, air or even train are all options. Some kinds of products demand specialised transport conditions so you need to take care with this as it will also significantly impact your costs.
Select a suitable INCOTERM.
Managing the Financials
How to get paid is arguably the biggest concern of new importers (together with “how do I get my goods from A to B”) and is certainly a justified worry. Learning to manage the risk is critical to success. Export tends to be a longer sales process than domestic sales meaning that it’s essential to also keep an even closer eye on the cash flow.
Selecting the correct payment term and knowing how to manage the other financial risks is also a cost factor.
Risks can be divided into:
- Country or Political Risk
- Exchange rate fluctuations
- Changes of Government
- Law changes affecting imports
- Company or Commercial Risk
- non payment
- payment delays
- bankruptcy of a partner
- IP issues
- contractual disputes
- brand crises or reputational damage
As mentioned above, an export sales cycle is generally longer than a domestic one so you need to ensure that you have budgeted enough cash and time to manage this.
Making an export plan also means marketing planning. In addition to the question of pricing that I mentioned above, you also need to consider how you will sell your products or services. Don’t assume that what works at home will work equally well in a foreign market – you need to adapt in order to remain competitive.
Which activities do you need to plan in order to sell in your chosen market? Will your messaging need to change to remain relevant for consumers in a completely different country? Do you need to use different channels to reach your target audience?
Whilst the basic principles of marketing remain valid globally, the methods of delivering which have the greatest chances of success vary largely from one market to the next.
Team & Internal Processes
Exporting may require you to reexamine your internal processes or to add extra steps. This has to be planned for as it may encounter also a certain amount of internal resistance – humans don’t like change. A warehouse that is used to picking orders in full pallet quantities, might prove difficult to persuade of why they suddenly need to commission pallets with several SKUs on them…
Exporting is a professional skill – the nuts & bolts of it (how do I get my goods from here to there, how do I get paid etc) can be learnt relatively easily. What are more complex are the people skills which are required in order to be successful in the long term. Consequently you need to plan for your teams to have additional trainings on these topics to expand their knowledge and reduce your risks.
Also, do you need to arrange additional team trainings in order to be more aware about the cultural nuances of the market you are about to enter?
DO NOT neglect this question – it is often excluded from discussions about how to make an export plan but essential to take care of. How will you protect your brand?
Think about trademarks, patents, designs and copyright. There is no easy (or cheap) “tick one box worldwide” solution to this topic – it’s a complex issue that can destroy your business if you ignore it or get it wrong.
Plan enough time and budget to ensure you’re protected. Make sure you work with a professional here – if you don’t know who can help you for a particular market, reach out and ask – I’ll be happy to refer you to someone in my network.
Terms and Conditions
What terms will you offer your partners? What is usual in your chosen market?
Regardless of the reputation of your market, make sure that you record all agreements in a robust contract as this will at least prove mutual intention in the event of a dispute. Many markets are not as bad as their reputations when it comes to enforcing contracts so it always pays to have one in place.
It should regulate which activities you expect your distributor (if you’re going to be working with one) to do and under which circumstances the contract can be ended. Again, make sure you get professional advice on this one. Being cheap up front can turn out really expensive in the long run.
Budgeting and Goals is a Key Factor when Making an Export Plan
This is one of the hardest aspects of how to make an export plan. The following aspects should be budgeted:
- Sales targets in terms of volumes and market shares
- sales targets in value (this can be calculated as a profit and loss forecast)
- marketing costs (activities and materials as well as localisation or agency fees)
- travel costs (especially when travel is so expensive right now this should be carefully thought through). Don’t be tempted to cut this though as it can be a key differentiating factor to your competition if you visit regularly. It also helps you learn more deeply about your chosen market
- trade fair participation if relevant
- localisation of your website
- any other relevant costs
Don’t try and calculate how many boxes of biscuits or tubes of insect repellant you will sell in August in 5 years – you can drive yourself crazy trying to do too much detail too far into the future. You can try to be quite granular for one year ahead but after that the principle of “broad brush strokes” applies. You will replan next year anyhow and by that time you’ll have a deeper knowledge of the market.
Be sure to write down all of your assumptions. I know it sounds like common sense but sooooo many companies don’t do it, then when you ask why is the budget for marketing materials so high, or why did you budget €1000 for hotel costs they’re not able to tell you it’s because they need 2500 extra brochures for the trade fair or they reckoned with 10 nights @ €100 for travel over the year…
Defining a Timeline
If budgeting is one of the hardest parts of making an export plan then defining a realistic timeline has to have the no.1 spot! Remember timescales expand when you go abroad.
It takes longer for the goods to arrive in the country –> you usually get paid later than in your domestic market (unless you managed to agree prepayment) –> the distribution chain is longer –> it takes time to gain traction for the products in the beginning –> when the distributor misjudges the demand, it takes ages to replenish stocks – in the meantime you get problems with retailers as you don’t have a track record to sustain you…
These are just some examples of how things take longer in export. It’s why I mentioned that keeping an eye on the cash flow is essential as there are simply so many different factors that can result in delays. It’s also why I recommend that you agree in the distribution contract on activities so that you have a measurable check on whether your partner is implementing the steps you require. Controlling the outcomes is not 100% in your hands but at least you can manage the process.
In my experience in various sectors and markets, it usually takes 9-12 months to bring a new partner on board (from plan through to product on the shelf), unless you really hit a nerve with an urgently required product. It can often be longer. For most products (& I discussed this with many colleagues working with clients in various sectors) it’s only in years 3-5 that orders truly start to mount up and growth becomes more rapid.
Checks and Controls in an International Expansion Strategy
Having defined your goals, budgets and timelines you need to decide which monthly and quarterly reports and follow ups will be carried out. Track your figures at least monthly so that you can course correct as soon as possible if required.
Management reviews (plan vs results) should be carried out regularly to ensure you are on track and if necessary you need to adapt your plan. In Year 1 I prefer to focus more on activities that need to be carried out rather than turnover as this is nigh-on impossible to predict, but of course going forward you need to have the figures.
How to make an Export Plan
In essence making an export plan for entering new markets is a relatively simple framework, but it has a lot of moving pieces. That doesn’t mean that it’s easy to make things work, but is at least a start.
- Is your company ready to export? Do you have the right attitude and mindset as well as the commitment?
- ensure you have the relevant education and training in place
- Select an appropriate market
- Do all the background research
- create a business plan taking also the cultural aspects into account
- have a method of checking progress & be committed to implement changes as necessary
Yes, exporting needs resources and yes, exporting involves risks but these can be outweighed by the potential benefits, and with a little forethought and preplanning you can reduce many of the risks.
Whilst it’s not mentioned above, if you are a values driven company then your chosen market has to align with those principles. That is perhaps not immediately visible on most balance sheets but is increasingly important to consumers that the companies they buy from uphold their stated values wherever in the world they do business. So you don’t want to enter into a new market and then discover a major conflict with your company values that can also torpedo your business in your domestic market.
One final thought, the world is not black and white and each decision that we make has consequences. In export there are considerably more shades of grey between the “right” & “wrong” decisions than might be the case in your domestic environment. That makes it more vital than ever to weigh up all the options and scenarios in the research phase.
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