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Use These Top Five Strategies for Selling in International Markets
 

IOMA

From the January 2001 edition of Managing Exports

Your company wants to enter a new international market, but what market entry strategy should it use? Starting off on the right foot in a foreign market can mean the difference between success and failure, but in making such high-stakes decisions export professionals too often find themselves Ïflying blind.Ó In a recent issue, World Trade magazine provides a chart (see below) that allows U.S. exporters to compare the pros and cons of the five most common market entry strategies. These are Direct Sales, Sales Agents and Representatives, Distributors, Licensing, and Joint Ventures and Wholly Owned Subsidiaries. Below, we summarize some of the key information contained in the chart to provide a useful checklist for ME readers facing such decisions.

1) Direct Sales to International Customer

Pros: Total distribution and pricing control for the exporter; high profit potential due to elimination of any middlemen.

Cons: Your company provides all services, including Advertise, marketing, customer service, translation, required labeling; you must become an expert in that market; credit risks are on average highest of any other strategy; potential sales volume is low.

2) Selling Through Agents/Representatives

Pros: If you perform due diligence and find the right agent, your export products are represented by an expert in the local market with established customer contacts; sales potential increases.

Cons: Typically, the exporter must grant exclusive agreements regarding geographic regions or product lines; control over pricing is relinquished; profit rate is lowered by 5% to 15% due to sales commission.

Caveat: Agents and representatives are not the same in every international market. You must do your homework to determine the actual relationship into which your firm is legally entering.

3) Selling Through Distributors

Pros: The exporter essentially deals with a single customer who takes title and possession of the goods at from 25% to 35% below wholesale, in exchange assuming total responsibility for promotion, marketing, delivery, returns, and customer relations. Sales volume potential increases, credit risk decreases.

Cons: Relationship is harder to legally terminate than with an agent or representative; wholesale price will usually be higher than in the U.S. market.

4) Selling Through Licensing Arrangement

Pros: Minimal credit risk; low level of commitment and risk for the U.S. company since the overseas licensee(s) is (are) responsible for all production, marketing, distribution, and credit and collections.

Cons: risk of loss of intellectual property; despite potential high sales volume, profit is limited to small percentage on each sale.

Caveat: this strategy works best for goods that can be produced relatively easily at overseas production facilities.

5) Joint Venture/Wholly-Owned Subsidiary

Pros: Per unit cost of production can be significantly lowered by moving selected manufacturing overseas; higher sales volume, market penetration, and profit potential than any other strategy.

Cons: High level of commitment, investment, resource allocation, and risk.

Caveat: This high risk, high commitment, but potentially high reward strategy is for exporters already experienced in the target market who are prepared to go the full nine yards to take maximum advantage of that market's potential.

Comparison of 5 Int'l Market Entry Strategies by 8 Factors

Strategy Contractual Relationship Profit Potential Credit Risk You Control Price? Market Information Sales Volume Risk/ Commitment
  No Excellent High Yes Low Low Low
Agent/rep Yes 5 to 15% of price discount goes to agent/rep Med. high No Moderate Moderate Low
Distributor Yes Good after discount Low No Fair Moderate Low/med
Licensing Yes You get 3 to 15% Very low No Fair High Low
Joint venture/ subsidiary Yes Very good n/a Maybe/ yes Very good High High

(Source: World Trade Magazine)

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