PLANNING TO EXPORT?
A small company, that I was working with as an advisor, had seen that one of their competitors had begun exporting to a couple of EU countries. The owners found out following a trip to a tradeshow in Germany where they saw their competitor’s logo on a booth.
His thought process was that he needed to begin exporting in order to not be left behind by his competitor.
After discussing the benefits of a larger market we looked at his current market.
The product was for use in the construction industry and, including themselves, there were less than a dozen UK manufacturers that supplied the sector with about 70% of their consumption. The balance came from overseas. Of this 70% the Company supplied around 11%, so were a recognised brand.
WE BEGAN TO ASSESS THE ADDITIONAL ELEMENTS, AND COSTS, OF EXPANDING INTO EXPORTING, INCLUDING:
- Translation service for:
- promotional and safety materials
- product labeling
- Additional new stock in other languages
- Additional warranty and spares stock
- Compliance with local standards
- Location of suitable distributors
- Assigning staff to work with the distributors and associated international expenses
- Additional admin costs
- Allowing for exchange rate fluctuations
- Educating the new market
- Learning about new competitors
- Learning about the new potential customers
WE THEN LOOKED AT THE COSTS OF INCREASING MARKET SHARE WITHIN THE DOMESTIC MARKET, INCLUDING:
- Additional sales staff, perhaps regionally located
- Increasing the competitive benefits of their product
- Additional promotional activities (tradeshows, roadshows advertising etc.)
- Additional production capacity
- Possible acquisitions
There are, of course, disadvantages of focussing on just a domestic market. Disadvantages such as a greater impact in the case of a downturn caused by cyclical changes, and a more limited market size. What became clear quite quickly, though, was that the domestic market had a lot of, as-yet untapped, potential, and that there really was no need to go down the exporting route at this time.
It was decided to target the share of the market occupied by overseas suppliers, rather than head-to-head with domestic competitors, principally because it would be more difficult for the importer to react. It would also strengthen their own position in readiness to extend into the domestic competitor share.
Yes, it required planning. Yes, it required investment; however, the plan paid off and, within two years, they were on target and occupying a new space in the market.