Key considerations

Companies always face a degree of risk when they decide to start exporting; and smaller businesses, without considerable in-house resources, may feel particularly exposed. But the rewards for those who compete successfully are considerable. There are many successful exporters and research shows that companies that export are consistently more profitable than those that do not. This guide starts by considering the benefits of international trading, then takes you through the stages of assessing your own company's export suitability, identifying and selecting potential markets and describing the first few practical steps you will need to take. It also points you towards the many sources of guidance available to British exporters.

Why export?

An increasing number of companies are driven to consider exporting because of increasing globalisation or the new trading opportunities that the Internet has provided. In truth, there are many and varied reasons for a company to start exporting. Benefits include:

  • Increasing your revenue and profitability by expanding your business - often the most obvious reason to export your goods and services.
  • Protection from local market fluctuations. A downturn in one country's or even continent's economy is not usually replicated worldwide. The wider the base that you take business from, the better.
  • Stabilising your annual workflow. Many businesses experience seasonality if they concentrate on only one market, but this effect can be lessened by broadening your horizons, e.g. selling your summer-friendly products in hotter climates throughout the winter period.
  • Finding a market for your product. A failed product in the UK may be a great success elsewhere.

It is frequently argued that selling overseas is less profitable than selling to the home market. Although it may be true that your profit per unit or service sold may decrease with your expansion, it is also true that many businesses are considerably more profitable overall because they have expanded beyond the UK.

Is my business right to export?

Your considerations here can be split into two categories. The first are specific to your own company and its current circumstances; the second examines the international position of your industry.

The first thing your company needs is an effective export strategy that complements your overall business plan.

Commitment to exporting must be evident throughout your company - your vision should have a truly international perspective.

Ask yourself the following questions about your business:

  • Are your UK sales increasing and profitable? Most companies that move to successful exporting are already a success at home.
  • Do you have the financial reserves for export market development?
  • Are you receiving a lot of overseas enquiries about your product? This can certainly suggest a demand.
  • Do you have the production capacity/human resource to meet an increase in demand?
  • Does your product fulfil the necessary overseas regulations and standards? If not, your capital outlay will have to be reviewed.
  • Are any UK companies already exporting your product?

Ask yourself the following questions about your industry:

  • Are any of your current UK competitors exporting?
  • Do any of your trade association reports recommend exporting?
  • Are similar products to yours being imported from overseas for sale in the UK?

Only you can make the final decision about your suitability or readiness for exporting but lots of help and guidance is available to help you reach that decision. As a first step, see our exporting section where there's a useful tool and guidance to help you assess your readiness for exporting. The UK Trade & Investment's (UKTI) website also has a self-diagnostic exercise to help you to identify your suitability.

Selecting the right market

The whole world is a potential market or series of markets, of course, so the skill lies in analysing which opportunities offer the best chance of success, bearing in mind your company's capabilities and resources. Market research is the key to identifying prime foreign markets for your services.

The key differences between markets can be summarised under the following headings. There are some questions included to help you start to think through the issues:

Economy

  • How is the population made up? Is it growing or declining?
  • What is the state of economic development?
  • Are there incentives for foreign investment or import restrictions?
  • What is the balance between public planning and free enterprise?

Political and social factors

  • What is the political system of that country? Is it stable?
  • Are there any other strong influences (e.g. military, religious)?
  • What is the Government's attitude to free trade?
  • What are its monetary/credit policies?
  • What is the administrative set-up (e.g. efficient or bureaucratic)?
  • What is the trade union situation?
  • Is bribery or corruption commonplace?

Culture

  • What are the general cultural influences (e.g. tribal, religious)?
  • How is the population's personal expenditure divided - how much goes towards food, housing, leisure etc?
  • Are there any current trends in spending patterns - such as a change in how money on leisure activities is spent?

Distribution

  • What is the trading pattern?
  • What are the distribution methods?
  • How are either of these changing?

Law

  • What legislation exists to affect your manufacture or trading (e.g. on trading methods, company structure or performance)?
  • Are there any restrictions on advertising and promotions?

(The Useful contacts section at the end of this guide will show you how to source this key information.)

Many successful exporters identify and target a small number of key markets. Start by looking for close markets with low entry barriers. Market visits enable you to experience and adapt to the local cultural environment and help you understand how to conduct business in an area. Trade exhibitions can bring you into contact with potential representatives and discuss a market's merits with other exporters.

How do I get into the market?

There are four main ways that you can sell your products overseas:

1. From your home base

This usually occurs in the following situations:

  • Where each customer's requirements are different and a high degree of custom-building is needed.
  • Where only a small number of orders, usually at a high value, are expected.
  • Where customers are very thinly spread throughout many different countries.

2. Using overseas agents/distributors

Using a retail/distribution specialist in your selected area/s has a number of obvious advantages, not least that they shoulder a good deal of the overseas legwork. The key to making such partnerships a success lies in the pre-agreed contracts you draw up, clearly defining the division of key responsibilities and the channels of communication between you. Many companies have found that the success of a distributor can be directly attributed to their commitment to the product. You need to be aware of the other commitments of your agent or distributor and spend a good deal of time ensuring they understand and appreciate the benefits of your product/service.

3. Having an overseas sales base

This requires a significant commitment to one country or area. It often happens when sales are very high for a specific reason in that country or area.

4. Licensing Agreements

This is where a local business produces and sells your product and is used when this appears to be the only way of ensuring profitable returns from an area. Many developing countries insist on the highest possible level of local manufacture as this represents the best long-term commitment to the region.

What is critical?

Research and planning

Both have already been mentioned in this guide but the advance planning and research required prior to implementing your exporting strategy cannot be too heavily stressed.

Research doesn't have to be expensive, nor does it all need to be originated by you. There is a great deal of publicly available data which you can access yourself. For example, governments and international trade bodies publish reports that could answer some of your questions. A few words of warning though - check the date of the report, find out how many people were interviewed for any research (and who they were) and, finally, try to establish why the research was conducted in the first place. This may be free information, but to be of any real use to you, it needs to be relevant, recent, accurate and objective.

If you do find that you need to conduct some research of your own, be very clear about what you want to achieve.

The costs will mount up if you try to achieve too much.

Among other things, your research must:

  • assess the current potential for the sale of your products/services in export markets,
  • let you identify and target a small number of key markets,
  • assess the level of competition in the export markets,
  • determine the need to modify your products/services for export,
  • inform you of your barriers to entry in your selected markets (e.g. import restrictions, national standards)

Successful planning ensures that adequate resources are available over time to develop your export market/s.

Your business plan is critical for gaining any additional funding required for export-led growth.

Your export plan should be continuously reviewed and updated as you must always be ready to respond to, and exploit, new opportunities.

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