Routes to market part 1: traditional methods

Article posted by Mark Neal, on behalf of Armagard Ltd

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This is the first part of Export Worldwide’s guide on the different routes to market for exporters. Here Daniel and Mark cover traditional routes to market – or the ‘old school’ methods – and in the second part they cover digital routes.

13 Possible Routes to Exporting for SMEs | the Advantages and Disadvantages

When developing your export marketing strategy, the route or routes into global markets are multiple and the route you choose will ultimately determine your success when trading overseas. With that in mind, it’s worth understanding the 13 common routes to exporting available to SMEs, plus the advantages and disadvantages of each channel…

First off, it is useful to note that having English as your first language is both a blessing and a curse because a German and an Italian are happy to communicate in English as they are both making the effort to learn the international language of trade, English.

The down side of having English as your first language is there is no other language that we can learn that is as widely used in international trade, so we have to make the effort to communicate in multiple languages. However, the up side is that everybody who wants to trade internationally will speak English, to a greater or lesser extent, so after the initial communication, English will be the language of trade.

In this two part feature I will discuss 13 routes to market that I have split into ‘Old School’ and more current 21st Century routes to export markets that weren’t open to SMEs prior to the digital age. This is not to say that new is better than old school because all routes to an export market are valid, provided you make a profit utilising which ever routes to market you choose. The routes we will discuss are illustrated in the graphic below.

The comments in this article are based on our own experiences of growing our own export sales from 6 per cent of sales to 67 per cent of sales, which led to one of our companies being named as National Exporter of the Year. It’s this success that inspired us to develop Export Worldwide. So, there are comments from the trenches, from people who have actually created and grown B2B export sales.

The 13 potential routes to market are…

Old School

  • Setup an office in the overseas territory
  • Work with an agent or Independent Reps
  • Resellers, Dealers, VARs, Retailers and Stockists
  • Find a Distributor
  • Go direct to clients or customers
  • Attend internal tradeshows and exhibitions
  • Trade missions

The 21st Century, Digital Age
  • Own international website in English
  • Own dedicated website in local language and localised for territory (i.e. Germany)
  • Mini site of your English .com
  • International B2B marketplace in multiple languages
  • E-market place
  • M-commerce (mobile) and S-commerce (social – big in Asia)

Let’s look at the advantages and disadvantages of Old School methods…

1. Setting up an office in the overseas territory

This is a high-cost, high-risk venture as you will be trying to manage a remote office, possibly several thousand miles away, and also in a different time zone. The best way of implementing this route is to find somebody within your current organisation’s home market. They will know your products and methods of selling, however, this person then needs to learn the different cultural nuances of the target market.

There are generally two problems in sending somebody to head up the overseas office:

1) It is not always possible to pull a trusted member of staff out of a role in a SME.
2) Lots of people don’t want to relocate to a new country.

However, the benefits of having localised staff is that you have an excellent presence and appear as a committed local company. This is how we have approached exporting to North America, but one particular problem we have found is that culturally, American sales staff are very different to European sales staff, with a much higher turnover of personnel.

Establishing a base in an international territory tends to be a long-term goal for SMEs. Once you have built up your experience of exporting indirectly, setting up a permanent presence could become a viable option for you.

Advantages:

  • Customers feel you’re committed to their market for the long-term
  • Easier to provide after-sales support
  • Greater autonomy for doing business and recruiting staff
  • You present as a local committed company

Disadvantages:

  • Cultural clash between home market and export office ways of doing business
  • Huge costs involved
  • Increased overheads and tax requirements
  • Substantial man hours to plan the logistics and manage remotely

2. Work with an Agent or Independent Reps (Popular in North America)

An overseas sales agent would be ‘the face’ of your SME in international markets. They introduce you and your products to customers and then invoice directly. Agents and independent reps are usually paid on a commission-only basis for introducing you to potential customers. Commission fees tend to range between 2.5 per cent and 20 per cent depending on your industry sector.

Advantages:

  • You get an agent’s extensive knowledge of your target market
  • They manage and control all local payments and documentation
  • You circumvent the recruitment, training and salary costs of using your own personnel to enter export markets
  • Good agents will be ‘in position’ to identify and take advantage of opportunities
  • Agents will likely have established relationships with potential buyers
  • Having an agent on board means that you retain more control over final price and brand image, when compared with using a distributor

Disadvantages:

  • The agent owns the customers and route to market
  • If you fall out with the agent it can be expensive to terminate an agent’s contract as they have a legal right to be compensated. This doesn’t hold with independent reps unless written into the contract
  • Selling through an agent means that after-sales service can be complex
  • Equally, keeping a record of stock inventories can be costly
  • You will potentially lose some control over marketing and brand image when compared with entering markets yourself
  • Managing an agent can be challenging

3. Resellers, Dealers, VARs, Retailers and Stockists

Stockists will sell your products across their stores – both bricks and mortar and online.

Advantages:

  • Will buy, stock, market, sell and support your product in their country/territory
  • You can choose between large multinational or specialist independent companies
  • Products will be sold across all stores whether bricks and mortar or online
  • Likely to have multiple stores in multiple countries
  • Often have complementary products particularly true for VARs and Dealers

Disadvantages:

  • Likely to demand a discount
  • Marketing and pricing of your products is out of your control
  • As a small to medium-sized business, you’re likely to be further down the queue in terms of priority and focus, so may not get the marketing effort or sales training that your product needs or deserves
  • Volume of annual orders might not meet expectations

4. Find a Distributor

A distributor will buy your products from you and then sell them to customers via multiple third-parties. Distributors make money by purchasing your product and selling it on at a higher price.

Advantages:

  • Access to all the Distributors dealers and resellers
  • Much of the risk is absorbed by the distributor
  • No need for SME to setup offices in overseas territories, saving you money
  • You only need to track the accounts of one distributor rather than several different customers

Disadvantages:

  • As an SME, you are unlikely to get the marketing and sales effort your products and brand deserve because the distributor will concentrate on the top 5 to 10 selling lines that generate the majority of their income. You’re likely to be further down the queue in terms of priority and focus
  • The activities of your distributor are out of your control, i.e. marketing and pricing
  • Distributors will expect substantial discounts when buying your products
  • Distributors will often require an extensive period of exclusivity
  • Often you will be asked to contribute financially to any marketing of your products in addition to the larger distribution discount

5. Go direct to clients or customers

You can go direct to businesses or the consumer by getting on a plane and visiting potential customers face-to-face.

Advantages:

  • Keeps you close to your customers
  • Multiple channels to reach customers directly
  • You can set your own prices to maximize profits because there’s no third-party involvement

Disadvantages:

  • Responsibility for the entire export process rests with you, i.e. marketing, selling, stock levels and shipping
  • Extensive amounts of paperwork and a requirement to support a sale through to completion, while providing after-sales support and managing returns
  • Difficulty of working across time zones with no local presence

6.Attend internal tradeshows and exhibitions

Visiting overseas exhibitions is potentially one of the quickest and relatively cost-effective ways to research new markets, local competitors, customers and test the waters for demand. They’re particularly useful for products that ‘need to be seen to be sold’ or for services that need face-to-face explanations.

However, on a per lead basis, exhibiting overseas is generally expensive (based on our own experiences, exhibition leads can be 8 times the cost of a lead generated through digital marketing) and they generally only happen once a year so it’s a feast or famine of new prospects for your sales team and products.

Advantages:

  • An opportunity to market products and services to a ‘motivated’ audience who are interested in exhibits
  • Puts a ‘face’ to your brand
  • An opportunity to network and establish key connections
  • An opportunity for market research and to check out the competition
  • Government support in the form of grants or supported exhibition space is sometimes available

Disadvantages:

  • Your success at exhibitions depends on the success of the exhibition itself
  • Lots of logistical preparation
  • Depending on the length of the exhibition, extensive man hours are required
  • Relatively expensive
  • Generally trade shows are an annual event, making marketing and lead generation disjointed

7. Trade missions

Trade missions, often supported by funding from the government, are overseas programs for companies looking to explore and pursue export opportunities by meeting with potential clients in their industry sector.

They generally involve meetings with foreign industry executives, networking events and site visits to facilities that may require your products and services. These can be cost effective ways to research a potential export market, provided the trade mission is for an industry and territory that you plan to sell to.

Advantages:

  • Access to high level business executives
  • Opportunity to network and connect with likeminded companies
  • The potential for media coverage
  • Opportunities for one-on-one appointments

Disadvantages

  • Trade missions tend to be overshadowed by political issues
  • Very niche. The scope for doing business is limited

Read the second part of this feature on digital routes to market.

About the Authors

Written by Mark Neal and Daniel Waldron for Export Worldwide.
Edited by Daniel Waldron.

Mark Neal is the Managing Director of Armagard, winner of the Queen’s Award for International Trade and the British Chambers of Commerce ‘National Exporter of the Year Award.’

Daniel Waldron is Export Worldwide’s Head of Content and a Huffington Post contributor for ExportWorldwide.com