For example, when I was employed in the healthcare industry selling goods internationally, I identified customers in various countries. With that knowledge in hand, I decided to establish an EMC. So I contacted domestic medical-products manufacturers who had products that would be of interest to my clients but who weren’t actively involved in exporting. I offered my services to these firms and found that they wanted to open up new markets, but they’d been hesitant because they didn’t want to deal with many exporting issues (payment, documentation, shipping, and so on). My EMC was able to handle those issues for them.
Piggyback exporting: Having another manufacturer export your related goods
Piggyback exporting is a foreign distribution operation in which your products are sold along with those of another manufacturer. Companies that have related or complementary but noncompetitive products use this form of exporting.
For example, say that you have a company that manufactures hairbrushes. You’re not yet exporting, but you’re interested in selling your hairbrushes in Italy. You just don’t want to assume any risks or deal with major headaches. Across town is a company that makes shampoos. It’s a well-established manufacturer and exporter of a line of shampoo products – and it’s currently selling its entire product line in the Italian marketplace. In piggyback exporting, you approach the shampoo company and offer to let that company represent and sell your hairbrushes in Italy.
Why would the shampoo company be interested in such a deal? Because this setup lets the shampoo company offer a more complete line of products to its distributors with little to no additional investment. The shampoo company profits either by purchasing the hairbrushes and adding on a markup or by coordinating a commission arrangement with you.
Doing direct exporting
In direct exporting, you do your own exporting. Companies usually export directly only after having exported indirectly for a while. If you’re interested in direct exporting, you can choose one of three routes:
✔ Use an agent. An agent is a company that acts as an intermediary but, unlike an EMC, doesn’t take title to the goods (see the earlier section “Dedicated exporting: Export management companies” for info on EMCs). You appoint an agent in each market (or country), and the agent solicits orders, with goods and payment for the goods happening directly between you and the customer in the other country.
✔ Appoint a distributor. You can appoint a distributor in another country; the distributer purchases goods, takes title, and serves the customers on your behalf.
✔ Set up an overseas sales office. You can go to another country, perhaps rent a warehouse, set up an office, and distribute the goods to customers. In practice, you’re exporting to yourself overseas.
Importing: Can I sell what you have?
Importers purchase goods in foreign markets and sell them domestically. An importer can be a small company that buys goods from distributors and manufacturers in foreign markets, or it can be a global corporation for which importing components and raw materials valued at millions of dollars is just one of its functions.
Because businesses face intense price competition, more companies are looking to the global marketplace to source products. Many nations have a well-educated and skilled workforce that earns salaries that are less than those of comparable workers in the United States. To remain competitive, U.S. companies import goods from suppliers in countries where costs are lower than they are domestically. This is true for both low-cost items and luxury items.
Environmental Forces That Make International Business Different
Doing business in a global environment is very different from doing business domestically. When you cross borders, you have to deal with a variety of dynamic environmental forces, conditions that have an impact on the operations of a company. Environmental forces are either internal (within the company) or external (outside the company). Internal forces are the ones you can control, and external forces are the ones you can’t.
I’ll start with the good news: When you’re in business – any business, whether domestic or international – certain factors are within your control. Internal forces include things such as
✔ Availability of capital
✔ Finances
✔ Personnel
✔ Production and marketing capabilities
✔ Raw materials
Your job is to coordinate these controllable forces so that you can adapt to the uncontrollable forces.
You’ll be way ahead of the competition if you recognize what you can’t control and figure out a way to adapt. In this section, I cover the main forces in international business.
Looking at economic and socioeconomic conditions
Other countries’ economic and socioeconomic conditions – which include factors such as population size, income levels, growth and recessions, and so on – are definitely factors you have no control over. And yet, when you’re considering doing business internationally, you have to examine those conditions closely because they may affect the attractiveness of the market. If you want to export goods, a potential market must have enough people with the means to purchase your products. If you want to import goods, you need to understand the country’s labor costs.
Considering geography and other physical factors
The impact of geography and natural resources is an important factor to consider. You need to be aware of the country’s location, size, topography, and climate. The location of a country also explains many of its trading relationships and political alliances.
Paying attention to political and legal conditions
When you’re importing or exporting, the primary political considerations are those having to do with the stability of the governments and their attitudes toward free trade. A friendly political atmosphere permits businesses to grow even if the country is poor in natural resources. The opposite is also true: Some countries blessed with natural resources are poor because of government instability or hostility.
Regulations in other countries can be quite different from those in the domestic market. When you’re evaluating business opportunities around the world, determine whether the country is governed by the rule of law and eliminate countries that are political dictatorships. Look at a country’s laws and how the country interprets and enforces them. You can find more information at www.export.gov and in Chapter 10.