For many small companies, International Business is essential to achieve success. But it is vital to do their homework. Success is best achieved if they calculate all the costs of doing business and understand the ramifications of each decision. If not, the efforts may be costly.
Making the decision to Going Global requires careful assessment of the advantages and disadvantages of expanding into new markets. Once the decision is made to export, developing an international plan is essential.
When we hear about international business we often think of exports meaning products produced in one country and shipped to another country, but many other possibilities should be considered.
YOU NEED TO SELL SOMETHING BEFORE YOU EXPORT
Traditional methods identified and most used by SMEs to identify potential International partners or customers are:
Kiss, Bow or Shake Hands, a very Important factor in establishing relationships in foreign countries is to be sensitive and aware of cultural differences in doing business
-International Business also means other aspects such as License technology to (or from) a foreign partner, Joint Ventures, Distributor agreements, co-develop a new product or solution, import a product or service for resale or other possible partnerships.
-The planning process forces you to look at your future business operations and anticipate what will happen. This process better prepares you for the future and makes you more knowledgeable about your business. Planning is vital for marketing your product in an international marketplace and at home. Any firm considering entering into international business transactions must understand that doing business internationally is not a simple task. It is stimulating and potentially profitable in the long-term but requires much preparation and research prior to the first transaction.
-Must be successful in its present domestic market, willing to commit resources time, people and funds, entry into foreign markets may take a year or two and needs to be well funded (International Travel is expensive).
-A International plan is a process, not a product. It must be revised on a continual basis as your knowledge increases about international markets. You will be surprised how much easier it is to update a plan after the first one is written. Planning is a continuous process. Plus, after a revision or two, you will know more about your international business market opportunities to export products.
-Identifying business goals can be an exciting and often challenging process. It is, however, an important step in planning your entry into the international marketplace. Your first step in this process is to select the more commercially attractive countries for your product. Preliminary screening involves defining the physical, political, economic and cultural environment. Plan to travel to the country or region in question as many times as is necessary to build a successful relationship.
-Selling and Marketing products and or services through the Internet can be relatively easy, especially for small businesses with limited resources. There is a low cost of entry and your marketing plan can range from a simple brochure to a full-blown e-commerce website. While e-commerce has vastly expanded the opportunities for small business exporters, it is important to keep in mind that there are varying levels of technical ability throughout the world. For example, a web-based marketing plan that works well in the UK may not be viable in certain developing countries due to lack of technical infrastructure or local business norms. It is also important to that privacy laws differ significantly from country to county, for example the EC mandate that customer data be protected and stored on European servers. Also making cultural adjustments and product modifications, such as packaging or labeling can make your product more acceptable. Conforming to entry requirements that are of a technical nature, such as the EC Mark for entry into the European Union markets may even require redesigning or retrofitting your products in order to be allowed entry.
-When you have made the initial choice of target markets, you can move onto assessing how to get your products to potential customers. You have many options for market entry strategies. The list includes direct and indirect exporting, joint ventures, strategic alliances, acquisitions of foreign companies through direct investment or licensing technology abroad. The benefits and risks associated with each method are contingent on many factors, including the type of product or service you offer, the need for product or service support, and the foreign economic, political, business and cultural environment you are seeking to penetrate.
-Rather than wait for potential foreign customers to contact you, another option is to search out foreign companies looking for the particular product you produce. Trade leads from international companies seeking to buy or represent Canadian companies maybe available through DFAITD. Trade shows are another means of locating foreign buyers, trade shows representing leading industrial sectors. International trade shows are an excellent way to market your product or services abroad. Participating in overseas trade missions is yet another way to meet foreign buyers. Public/private trade missions are often organized cooperatively by federal or provincial international trade department and trade associations. Arrangements are handled for you in order to simplify the process of meeting prospective partners or buyers.
-Licensing involves a contractual arrangement whereby a company license the rights to certain technological know-how, design and intellectual property to a foreign company in return for royalties or other kinds of payment. Licensing offers a small business many advantages, such as rapid entry into foreign markets and virtually no capital requirements to establish operations abroad. Returns are usually realized more quickly. The disadvantages of licensing include a lack of control over manufacturing, quality, and marketing. More importantly, that the licensee may become a competitor if too much knowledge and know-how is transferred. Always make sure to carefully protect your trademarks and intellectual property when undertaking any licensing agreement.
-Joint ventures can be equity or non-equity partnerships. Equity joint ventures are contractual arrangements with equal partners. Equity joint ventures are contractual arrangements which may, or may not, involve the host country partner in an arrangement in which joint activities (marketing or R&D) are formalized, although ownership is not shared. Laws often require that a certain percentage of stock belong to a citizen of the host country. Foreign manufacturing joint ventures are risky in that geographical and cultural factors may interfere with the smooth running of operations. You will have to deal with entirely new management, located in a different country, whose first language may not be English. Despite the drawbacks, using a foreign partner can have several benefits, like the partner likely will have intimate knowledge of the target market and may have business and political contacts to make market entry faster and more successful.
-An agent or distributor, will necessitate the development of a formal contractual agreement. Agent and Distributor agreements spell out in great detail the issues and define other aspects of the relationship between the parties to the agreement. In the contract it is important to, Specify the goods and/or services covered. Describe the agent or distributor’s sales territory, and whether they will have exclusive or non-exclusive sales rights. Set the length of the term for which the agreement is applicable and agree upon specified minimum sales volumes and objectives. Outline protection of intellectual property. Describe other types of obligations imposed on the parties, violations of which would justify termination of the contract. List specific intellectual property rights granted to the agent or distributor.
-Cultural sensitivities will affect your market entry and product acceptance in any country outside of Canada, including the US. Do not assume that because the language of business is English, the way of doing business is the same .It pays off to research cultural considerations along with market trends. A good overview of doing business with most nations is presented in International Business Practices or CultureGrams (www.culturegrams.com)
How you decide to enter overseas markets will depend on a variety of factors unique to your own small business. Going Global can be a challenging experience for a small business, but the rewards can be substantial.
Let optimism and enthusiasm be your guide as you Go Global.
Johannes Larsen • Business AdvisorMiramichi, New Brunswick, Canada