Having developed your export statement and visited your target market, it’s time to start exporting.
You’ll need strategies and action plans in place to begin selling overseas and developing your exports.
Before you start making those first export sales, there are five key areas—the five Ps—you’ll need to be on top of to ensure exporting becomes a profitable reality for your business: partnering, product or service, place, price and promotion.
Partnering
Good working relationships are key to successful exporting, so finding the most suitable export partner in your chosen market is crucial.
Australian exporters will generally use a distributor or representative agent to enter a new market. But according to Dianne Katra, Export Market Development Grant (EMDG) director at export consultancy, Export Solutions, service-based businesses are more likely to set up a partnership or joint venture arrangement in the export market because it’s important to have somebody on the ground.
The country you’re going into will largely determine the type of partnership you engage in. For example, in China you can’t set up representative offices without getting certain documentation approved. “Different countries have different ways of going about business and you’ve got to take into account what the lay of the land is,” Katra says.
Once you’ve decided on the type of partnership arrangement that is both legally viable and best for your business, you’ll need to source potential partners. From visiting your export market, you may already have a number of interested distributors to choose from, or if you’re starting from scratch, Austrade, overseas trade development offices, industry associations, banks and other Australian exporters are good resources to use to get in touch with potential partners. Attending international trade fairs, either as an exhibitor or visitor, is another good way to source leads.
Before selecting your export partner, develop a profile of the ideal person/business you want to work with to help you assess potential candidates. Key things to look for in a partner include how well they understand the market, their financial stability, how well they understand your product or service, their management capabilities, how compatible they are with your existing operations, other products or services they sell, their location and facilities, distribution network, sales capabilities and promotional strengths.
Once you’ve made a short list of potential export partners, you will need to make initial contact with them. At this stage you may need to re-examine and prioritise your requirements and highlight key areas where you may need more information before making a final decision, and you will more than likely need to visit your export market again.
Once an agent or distributor has been chosen, a distribution agreement will need to be negotiated. This is a formal, signed document which outlines your mutually binding responsibilities and obligations.
It’s advisable to contact Austrade or an export consultant to establish whether there are any special conditions which may affect the agreement terms in your target market, and seek the advice of an international lawyer to check over the agreement.
Product or Service
While you should have already established that sufficient demand exists for your product or service in your chosen market, you need to consider and review the total product or service offering, including packaging, warranties, after-sales service, and intangible aspects such as branding.
Establishing the quality requirements of your export market is crucial, as many countries have developed strict standards for a range of products or services covering local and overseas producers. Product reliability and consistency over time is important to maintain your reputation and brand. Contamination, poor packaging, and performance failure are potential disasters in new and established markets, which is why Katra stresses the importance of planning. The critical points of export packing are to avoid breakage, minimise waste, keep moisture out, prevent pilferage, and comply with laws, standards and common usage.
In order to meet requirements of consumers in the importing country, you may need to make adjustments to your product/service. Market research, experience and local advice will help you determine the needs and preferences of the local market.
Different cultures use products in different ways so you may need to change the level of after-sales service being provided. You will also need to establish how generous you will be in terms of offering warranties to overseas customers, and have a returns policy in place.
And remember to protect your intellectual property: register all relevant trade marks and brand names with the relevant patent attorney’s office in your host country.
Place
The logistics involved in getting your products from Australia to your overseas customer can be quite complex, so engaging the services of a freight forwarder or Customs broker is highly recommended. In most markets your distributor will take responsibility for import clearance, warehousing and distribution to the retailer. However, you will still need to effectively monitor your distribution, sales and customer service. It’s vital to have an understanding of how the distribution channels function, and what the communication procedures and the stocking policies are at each link in the distribution chain.
In negotiations with your export partner, you should gain a clear understanding of minimum and maximum order quantities as well as the lead times required for orders. Having sufficient inventory in raw materials and finished product close to your markets is also crucial given Australia’s geographic isolation.
While sea freight is traditionally considered the most economical method of transporting your goods, the time involved has forced many exporters to use air freight, which has its own restrictions. Again, engaging the help of a freight forwarder will be worthwhile here. The forwarder acts on your behalf and will advise on which transport mode best suits your needs, and will seek the most economical rates and reserve space for your cargo. They will also be able to alert you to any special regulations you need to be aware of in your target market and assist with obtaining export licences.
Price
Having a clear pricing strategy is crucial to the success of your exports, and this begins with understanding the total cost of exporting your product or service.
Ian Rogers, trade services manager for HSBC Australasia, advises calculating how much it actually costs to manufacture the product or have it ready for export, including all administration costs, and then factor in shipment costs (packaging, container and transport—your freight forwarder will be able to provide these details).
“The next most important thing is the payment mechanism you’re going to use in order to receive payments,” Rogers says. You will need to decide if you’ll be using letters of credit, documentary collections or an open account basis, and you’ll need to consider the cost of using these different options. You then need to factor in the terms of payment: are they 30-day, 60-day, or 90-day terms?
Pricing will also depend on who is paying the cost of freight and insurance on the transaction. This will be decided between you and the overseas customer at the negotiation stage and, according to Mark Evans, head of trade for HSBC Australasia, will depend on the relative strengths of the buyer and seller. “If it’s a small exporter selling to a large importer overseas, it may well be that the importer is in a better position to negotiate on a shipping price than th
e smaller company is.”
Rogers suggests companies have a range of prices to offer potential customers, and stresses the importance of pricing exports going hand-in-hand with your risk management strategies. “Does the company who is exporting wish to take on all the risk; do they wish to wear buyer risk and credit risk; do they wish to wear overseas bank risk and country risk; do they wish to take on the transfer risk of the transactions? They need to have all these strategies done and in play so they can then ascertain what financial instruments they’re going to use to comply with their risk strategies, protect their income, and then add the costs of those risk strategies into the price.”
Once you’ve considered all the costs to export, prices are generally determined in one of two ways: a ‘cost plus’ approach, which involves taking the total cost of exporting the product/service and adding an agreed margin; or a ‘demand based’ approach, which involves determining what your product or service is worth to the end consumer, and working it back to determine if there’s a profit. “It comes down to what competition is in the market,” explains Rogers. “Is it a highly sought after product or is it something new?”
Bear in mind that cost fluctuations and other economic factors can significantly affect your pricing strategy. “You negotiate your sale price today but you may not be paid for 30, 60 or 90 days in a foreign currency,” explains Evans. “If the exchange rate moves against you, even though you’ve factored in all the other costs, you may find you’ve done the transaction at no profit whatsoever. So having a strategy that anticipates those sorts of movements is important.”
Promotion
In many cases the need to promote a product or service in an export market is even more important than in Australia. There are many promotional tools and techniques available to promote your product or service overseas but it’s important to remember that a promotional technique that is successful in one market may not work so well in all other markets. So doing thorough research, planning and working with your export partner to develop a promotional program is important.
Promotion should not be completely delegated to your local representative overseas. In fact, in Katra’s experience, the exporter drives a lot of the promotion, at least initially. But this will depend on the size and strength of your distributor and their position in the market.
Some of the key promotional tools for exporters are similar to those used domestically and can include international trade fairs, in-store promotions, Austrade showroom displays, advertising, public relations and direct mail. The key is to plan properly for your overseas promotional activities, have plenty of lead time and always follow up.
Austrade’s EMDGs are also useful for companies to get back some of the money spent on export promotion activities. Exporters can claim for overseas representation, marketing consultant fees, travel to your overseas markets, communication costs product promotions (free samples), trade fairs, advertising material, and overseas buyers visiting Australia.
“The good thing about the grant is that it’s real money,” says Katra. “Exporters can get up to $150,000 each year towards their export promotion and that makes a huge difference to what they’re able to do and what they’re able to offer their distributor.”
