Sustainable Business/Exporting

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Exporting is an exciting and potentially profitable activity for both exporter and customer; advances in technology have made the process much easier for all parties involved.

However, your decision to export should not be made lightly; it ought to be part of a long-term vision and the result of an informed appraisal of the domestic and international market. Sound advice for most businesses is that you should not consider exporting until your business has achieved success and been in the domestic market for some time, because it is only after those in overseas markets see your commitment to the product or service that they will add their efforts to your venture.

An export plan is a must

Once you’ve decided you would like to consider exporting, success is more likely if you thoroughly research and plan the process. You then need to put together an export plan as an extension of your business plan. Your first contact for help with planning and research should be New Zealand Trade and Enterprise which offers a wide range of resources to help you. To make contact phone the Enterprise Hotline on 0800 555 888 or visit the www.nzte.govt.nz website. You’ll find a fuller profile of this government organisation at the end of this chapter.

The planning process will help you identify your weaknesses and threats and devise strategies to minimise their effect. Testing the product or service, as well as various marketing and distribution strategies in your home market will help your exporting efforts. Exporting is expensive so a strong domestic market will help to finance your entry into overseas markets and to sustain the company until exporting generates a profit.

Your initial export plan may consist of an informal proposal of what you want to achieve and how you will make those goals a reality. A more formal export plan will probably be required by your bank, financial institution or possible business partner to allow them to understand what you are trying to do and how their assistance will help achieve that vision.

If you are extending your existing business plan to include the export of your product or service, consider

How you will deal with agents, distributors, staff and even customers at a considerable distance.
What factors could lead to changes of your products or services (in form, function and/or distribution)?
How you will cope with cultural and language factors when you deal with overseas intermediaries, customers or consumers.
How you will assess the costs of pre-entry research, market entry, the cost of staying in the overseas market and growing that market.
Are there any unique trade or product expectations in the target country? For example, product or packaging ‘take-back’.

You should plan for success, but also have a plan to deal with foreseeable hurdles.

Which market should you target?

Knowing where to export to can sometimes be the hardest decision. Based on your knowledge of your products or services, and trends in the industry, you are likely to have some indication of target markets, or you may have a gut feeling. Once you have an idea of where you could export, it becomes necessary to test your beliefs.

Some people prefer a very formal analysis to test their assumptions. They may rank countries on a number of variables (such as political stability, proximity to domestic market, culture, etc.) from information gathered from the internet, New Zealand Trade and Enterprise and other professional organisations.

Others may conduct a more informal evaluation, which involves talking to business people and using market intelligence (information sourced from the world around them).

For many New Zealand exporters, Australia might seem the most logical first choice as an export market because of its similar business culture and the Closer Economic Relations (CER) agreement which makes New Zealand-made goods duty free.

However, Australia has proved a tougher market than expected for many exporters and it may well be that other markets are better suited to your product or service. It’s important to get expert help in identifying potential overseas markets and to be aware of the potential for diluting your focus by trying to penetrate too many markets at once.

Selecting markets may also include personal considerations, such as your preferences and knowledge of markets. Some exporters choose countries that they like to visit because frequent visits are necessary to develop an overseas market, not only to negotiate and finalise contracts, but also to swap knowledge and build relationships.

Finding trade information

An integral part of any export process is collecting and processing a lot of information. Use the internet first: you can gain much useful trade information from New Zealand Trade and Enterprise’s website www.nzte.govt.nz or from overseas government sites like the Australian Department of Foreign Affairs and Trade’s site www.dfat.gov.au where you’ll see how products and services are promoted offshore.

All overseas markets have regulations that you need to understand. Overseas regulations relevant to New Zealand exporters usually relate to:

import duties
sales and other taxes
legal requirements
sanitary, health and environmental requirements
standards (such as ISO 9000 or ISO 140001 compliance) that relate to quality and product recycling requirements
testing or other forms of certification
labelling and packaging.

Sources of help

To avoid shipment delays or expensive penalty and storage charges you need to comply with all local regulations. New Zealand Trade and Enterprise, international freight forwarders and the experiences of other exporters are the best sources of information on requirements for exporting goods into particular markets.

In addition to New Zealand Trade and Enterprise, New Zealand’s Chambers of Commerce help to facilitate international trade. They are an excellent source of help for export trade beginners as well as those well versed in exporting and/or importing.

The services are typically funded by membership levies, so it is well worth joining your local Chamber of Commerce. The services range from passing on trade enquiries, locating potential customers and identifying trade shows, right through to documentation enquiries, including the issuing of Certificates of Origin and advice on special documents and certification procedures.

Your local Chamber of Commerce can also help you with letters of introduction that can open doors in overseas markets. Such letters can form part of your market entry method and strategy.

Market research

A common cause of general business failure is lack of proper market research. If you intend to export, thorough market research is even more vital to your success. The two main reasons for market research are:

to understand your market as fully as possible
to minimise your risk, particularly important in the case of exporting, since you are dealing with a distant market.

Primary and secondary research

Use both primary and secondary market research before you begin your export drive.

Primary research involves direct contact with your market in the form of visits from you or a key staff member to the target market. You can also enlist the help of New Zealand Trade and Enterprise and possible agents or distributors (if you choose to make either of these part of your plan) to help investigate potential demand for your products and services.

Use the internet as much as possible for secondary market research (information about the target market, rather than direct contact with that market). Data is available from such sources as:

Overseas government departments and publications (try to find the local equivalent to Statistics New Zealand (www.stats.govt.nz) for demographic and population data). Use search engines to find their websites.

Your local library which should have overseas trade directories, international publications and a range of other useful resources.
The aim of both your primary and secondary market research is to answer these questions:

The aim of both your primary and secondary market research is to answer these questions:

Is there a demand for our products and services in the target market?
Is this demand sustainable?
What competition will we face?
What can we charge for our products and services?
Is there potential profit?
Where should we locate, or which areas of the target country should we concentrate on?

Reaching the market

Most New Zealand exporters will initially work through agents or distributors, eventually considering other options such as undertaking direct selling or promotion, or seeking alliances and agreements.

The internet is another means of entering a market, but is usually part of a wider strategy of how you enter the market. These decisions will be greatly influenced by market size, the type of goods or services you are offering and the amount of control you wish to maintain over a targeted overseas market. Options include:

Agents and distributors

You could choose a local representative, such as an agent or a distributor, to co-ordinate your export efforts. The difference between the two is that in the case of an agent you employ or contract the agent to work for you. The customers are yours but you must meet the agent’s costs. A distributor, however, buys your product from you and on-sells it, giving you less control over the whole process.

Direct control of the market

Establishing an office overseas is the best idea to gain control and increase the efficiency of your overseas operations, but this is an expensive undertaking and one not recommended for inexperienced exporters.

Some control can be gained using e-business techniques such as email and the use of the internet for ordering and purchasing. The downside of these technological applications is that they do not allow for personal selling, which is only achieved by face-to-face contact—an approach particularly valued in some Asian societies.

E-business also means orders have to be sent directly from New Zealand; with a permanent base overseas, economies can be achieved by sending over a bulk product shipment and storing the excess.

Distance selling

This method works best with specialised products. Some of the most common methods used for distance selling include selling goods from a catalogue, which are held in a centralised warehouse. Additionally, infomercials, financed by your company and screened on television can be used to display the features and benefits of your product.

E-business

The internet offers you numerous benefits, including an efficient means to communicate and co-ordinate your operations. E-business through the internet has considerable future potential.

Developing an export e-business means that your transactions and payments take place on line, supply and distribution are co-ordinated electronically, and the marketing function is performed over the internet. All exporters can make some use of e-business, but it is more suited to some products and services than others.

For example, e-business is very suitable for exporting intellectual property products such as software, where the customer anywhere in the world can download your product off the internet and pay you by credit card.

Other possibilities

Your export plan should include options beyond the conventional definition of exporting. That is, you should consider also the possibility of establishing contract manufacturing, selling franchises, participating in a joint venture, making licensing agreements, selling intellectual property or forming strategic alliances.

Contract manufacturing

This involves another firm making your product or part of your product under a contractual agreement. Essentially this is a customer – supplier relationship where you define and control the specifications. The job of selling the finished product still remains your responsibility.

A key reason for undertaking contract manufacturing is to reduce the cost of manufacture and/or your distribution costs. Manufacturing in the country you wish to sell your final product may also overcome bureaucratic barriers to trade, such as tariffs and quotas.

Franchising

This option should only be considered once you have a proven product or service concept with a good track record in New Zealand; it requires the sale of the product or service and the systems and training practises to make that product or service work.

A franchise allows you to expand your business at minimal capital cost because it is usually the franchisee that bears the majority of costs. However, there are development and on-going costs for such things as refining your business system so it can be duplicated and offering training and support to your franchisees.

Some of these costs can be recouped from franchise fees, but many business people still underestimate the management skills, time and commitment needed to establish a successful franchise chain.

Joint ventures

A joint venture involves you combining with an overseas enterprise for mutual benefit. This strategy is common between New Zealand companies and businesses overseas as a means of overcoming trade barriers.

Licensing

If your business owns inventions, technologies, software, manufacturing systems and artistic material, to name just a few examples, then licensing these products or services for production in other countries is a possibility.

Royalties

Royalties typically involve selling your intellectual property to someone else who will use it to make the product or enhance existing products. Every time a sale is made, the seller of the intellectual property receives an agreed amount, or royalty.

Strategic alliances

These are similar to joint ventures, but strategic alliances are usually entered on a less formal basis, for a shorter period of time and often focus on a niche part of the market. These alliances are particularly beneficial for small companies, who can align themselves with much larger companies with superior operations.

The exporter’s market mix

Branding

Branding is vital in overseas markets; it encompasses your product or service, packaging, promotion, price and distribution. Some of these aspects may need substantial alteration to those used in New Zealand. A very good way to see what works in the overseas environment is to assess what your competitors are doing – a little market research will help you here immensely.

Promotion

For many business people, promotion conjures up images of advertising, but this is often prohibitively expensive and does not reach the target market. Effective use of public relations may be more useful, particularly if you can gain mention in professional or specialist trade magazines.

A website is also a great way of informing your market about your products and/or services. But you should only use a website if you are prepared to regularly up-date by adding new content and changing any outdated content. Ease of use and interactive features are also a good idea. Assign a staff member to keep the site current and deal with emails at least once a day.

Some more traditional options include in-market promotion that allows customers to either see the product in use or try it out themselves. A consultant based in the targeted overseas market who understands the local culture and ways of doing business is the best person to advise you on effective promotion. Participation in trade shows is also a tried and tested method of promotion.

Pricing

New Zealand Trade and Enterprise advises the use of value-based pricing, that is, price your product or service at the price the market will bear. Again, market research is essential for finding out what your competitors are charging for similar offerings; don’t underestimate this task because it is not easy to increase price in a market or under a particular contract.

When you do finally decide on a price, it is a good idea to consider costs at home and anticipate other costs you may incur; make sure these costs are covered by the price you decide to charge. If your products or services have to be priced in the currency of the target overseas market, or in US dollars, make sure you consult your bank for protection against currency fluctuations, which can seriously erode the profitability of your exports.

Place (Distribution)

Understanding freight and delivery options may save you and your business a lot of money. Your chosen delivery method will depend on the type and value of your product, the urgency of the order and the market developments. Most large shipments and bulk exports travel by sea, but more products are leaving our shores by air. The increasing popularity of fresh or chilled, value added and specialised products has influenced this trend, as has the demand for fast delivery, however with the growing awareness around climate change you may need to consider the potential impact of ‘carbon miles’ on your distribution costs.

Negotiating in a different environment While luck undoubtedly has a place in business, it is usually knowledge of the potential market and clients that gives you an edge over competition. Knowing the idiosyncrasies of a culture can make all the difference to your sales pitch.

In different cultures, different people wield decision-making responsibility; your task is to identify exactly who these people are and how you can reach them. Often negotiations can be unlike what you are used to: they may be drawn out over several days, could involve meeting the boss’s family, an exchange of gifts and/or entertainment.

It is important that you have some understanding of local values and customs if you intend negotiating deals in overseas markets. For example, some cultures will never say ‘no’ directly, they may use a variety of ways to convey their lack of agreement; it is also possible that a person could say ‘yes’ to a deal, but actually mean ‘no’.

It is not unheard of, particularly in Eastern culture, to agree to a contract, meaning that the utmost will be done to achieve the terms, but in reality the people agreeing are all aware that the contract will never be fulfilled. This is not necessarily bad faith; it could simply be the accepted way in that culture not to hurt your feelings through outright rejection.

Failure to understand these cultural nuances could obviously lead to a general deterioration in the relationship because the two parties involved—yourself and the overseas party—could end up believing you’ve agreed to very different things.

Summary

There is enormous potential to grow New Zealand’s presence in the global market, but to make the most of your opportunities it’s important that your products and services have been well proven in the New Zealand domestic market.

You also need to undertake thorough research of the particular culture and industry which you have targeted since this will allow for the production of a better export plan.

Consider too the product or service itself and any possible adaptations that may need to be made to make it more appealing to the export market. Promotional methods abroad and even branding may have to be very different to those used at home.

You might need to alter your pricing not only to cover extra costs, but to pitch your goods at a level the market will bear. If such a price does not cover your costs then your target market may not in fact be the correct market to focus on.

Finally, the distribution method needs to be assessed, particularly in the case of products: how do you intend to get your products to market?

Plan for success, but consider also how you will overcome possible hurdles.

This section deals with how goods are to be produced. If you do not manufacture anything (for example, if you operate a pure service business) then you can skip this section. It is therefore concerned with organising and controlling the production function. The aim is to ensure that goods are made in the right quantities, at the right quality, at the right time and at the right cost.

The operations section helps you to answer the following questions:

What sort of product will you produce?
What plant or machinery do you require?
Where will you locate your business?
How will you organise the production sequence of the product to maximise profitability?
How will your staff impact on design and production?
What stocks of raw materials are needed?
How can you use resources more efficiently?
How do you make sure that you are in control?

As you work through these questions you will realise that they are interrelated and that the answer to one question impacts on all the others. The questions concern the operations section that, more than any other area, has the potential to dictate the profitability of the business.

Operations is about throughput. This involves the transformation of inputs such as raw materials into outputs, that is, sales. Remember that business is about generating sales. Producing inventory doesn’t make a successful business; producing, selling and getting paid does.