When exporting, importing, investing abroad or establishing strategic alliances with foreign producers, it’s critical to understand the hidden risks. If not, an unethical supplier can result in endless lawsuits and poor market opportunities can generate tremendous losses. On the other hand, correctly grasping foreign market wants, needs and abilities can lead to great success. To make your job easier, consider the following factors.
1. Emphasize the American Brand
As products become commoditized, customers worldwide appear to be increasingly brand conscious. In fact, many consumers in developing countries are motivated to pay relatively large sums for American branded products that reinforce their social status. This not only helps to sell American-made products abroad, it enhances long-term customer loyalty.
Today, there are approximately 1.8 billion middle class consumers. By 2030, the OECD estimates this figure will rise to 5 billion with the vast majority living in Asia.
2. Design Products for Specific Market Needs
In the past, U.S. manufacturers typically produced products for the domestic market, then later adapted them for developing country market needs. That’s changed. Due to their increasing greater market size, more and more U.S. firms are specifically designing products for emerging markets that are not likely to sell in the United States.
For example, General Electric designed a portable PC-based ultrasound machine for rural China, and a handheld electrocardiogram device for rural India — both small and relatively inexpensive, said Jeffrey Immelt, CEO of General Electric. International sales of these products, which were not offered in the United States, reportedly were very favorable.
3. Monitor Your Suppliers
Due to the ever-changing nature of international business, corporate global supply chains are becoming increasingly sophisticated. In turn, companies are optimizing their supply chains by controlling costs, updating infrastructure, implementing green practices, and offering more intense employee training. Unfortunately, too many are not closely monitoring who is supplying their products.
When U.S. firms delve deeply into their supply chains, it’s sometimes revealed that with successive production runs, low-cost country manufacturers have shifted to lower quality suppliers or simply cut corners to drive costs down without the knowledge of the buyer. A widely-reported example of this includes a U.S. toy manufacturer that reportedly had to recall millions of foreign-made toys because they were contaminated with lead paint.
4. Protect Against Currency and Political Risks
Importers from countries with soft currencies or insufficient reserves may find it difficult to pay for products delivered. Consequently, it’s essential to understand the risks and work closely with your banker to minimize them. Should your firm accept the importer’s currency, guard against wide fluctuations. And keep abreast of political risks.
Should a military coup take place, a succeeding government may reverse policy. And if social turmoil envelops a nation, the disruption of activities could put your company out of business. Keep in mind that new governments have been known to reverse policy with regard to a wide range of investment and trade issues.
5. Investigate Intellectual Property Protection and Environmental Laws
Many countries claim to enforce intellectual property laws, but have poor track records. If your products are intellectually rich, investigate how piracy is handled. If intellectual property protection isn’t a priority or very effective, it may be wise to steer clear of these markets.
Environmental standards greatly differ from country to country. Certain machinery may not meet stringent foreign environmental pollution standards, which could prevent product importation. On the other hand, some developing countries may not provide adequate facilities to treat or store toxic by-products generated by a manufacturing process, which could create a serious health risk and legal problems.
6. Understand the Legal System
In some countries, the accused is presumed guilty until proven innocent, and judges may unfairly favor domestic sales agents terminated over poor performance or consumers who are injured by the inappropriate use of a product. One of the most pressing issues in doing business abroad is the lack of civil, commercial and criminal codes.
Additionally, confusing and burdensome bureaucratic requirements can tie up valuable time. That’s why one must carefully assess each target country’s laws and practices, and determine if you wish to expose your company to them.
7. Study the Barriers To Trade
Identify each selected market’s trade barriers — tariffs, as well as standards, regulations, quotas, labeling requirements, etc. If excessive, these barriers may make your products too expensive and limit their exports. If manageable, investigate whether any vested interests can bar your product from the market.
It’s also important to know your competitors’ products, prices, distribution methods, commitments to after-sale service, and target customers. If intense competition exists, it may be wise to consider smaller markets which may be unattractive for multinationals, but big enough for your firm.
8. Be Familiar With Purchasing Trends
To determine how much of your product is imported by target markets, here’s what to do. First, rank each potential country market by the dollar value of your product it imports from the United States. Then rank each market by its total demand (domestic production plus world imports) for the previous three years. This will determine each country’s market size, its rate of growth, U.S. market share and whether it’s increasing or decreasing.
If total demand for your type of product is increasing, look at the country’s rate of growth and per capita income. If indicators are positive, it’s likely that your product demand will continue to rise. However, if these indicators are stagnant or down, it’s likely that the growth in demand for your product will slow and may not provide the market potential hoped for.
9. Consider Infrastructure Needs
If a firm’s product requires a skilled support staff (human infrastructure), it’s essential to make sure it’s available in your target markets. If not, an U.S. exporter may be forced to provide costly support from its home office.
The lack of physical infrastructure also can curtail exports. For example, the inability to quickly deliver perishables due to inoperable roads or inaccessibility to refrigerated storage can be a deterrent. The shipping costs of heavy merchandise to distant locations also may prove too expensive. In this case, a firm may wish to consider licensing its technology instead of exporting the product.
10. Be Culturally Savvy
Sensitivity to foreign cultures is not only polite, it’s good business. Become familiar with your customers’ cultures, language, and study their preferences. If your existing product designs are not suitable, you may need to adapt your products to satisfy different tastes. Products not adapted to suit cultural preferences may not be accepted.
In various cultures, employees sometimes will say yes to their willingness or ability to complete a task even though they have little intention of doing so. Why? In the employees’ eyes, saying no to a manager may be considered disrespectful or rude. And be cognizant of the fact that behavior considered friendly in one country may be considered offensive in another.
U.S. corporations operating in foreign countries often act as agents of change, bringing new operating standards, state-of-the-art technology, values, and best business practices. This, in turn, often contributes to the improvement of the host country’s social, labor, and environmental conditions.
© John Manzella All rights reserved.