Planning and Preparations

for Export
1. Selecting and preparing products for export
2. Conducting international market research
3. Export promotion
4. Export channels of distribution
5. Export pricing
! Product selection
! Product adaptation
! Engineering and redesign
! Branding, labeling and packaging
! Installation
! Warranties
 Product selection
If you are a manufacturer…
"Your product will be the export
"Determine the export potential of the
products/ services before investing
resources into the business of foreign
trade
• Success in domestic markets
• Participation in overseas trade shows
• Advertising and market data
Experience

• With what countries is trade being conducted?

• Which product lines are most in demand and who are the buyers or likely buyers?
• What is the trend in sales?
• Who are the main domestic and international competitors?
• What lessons have been learned from past experience?

Management and Personnel

• Who will be responsible for the export department’s organization and staff?
• How much management time should or could be allocated?
• What organizational structure is suitable?

Production Capacity

• What is the firm’s production capacity?

• What is the effect of exports on domestic sales and production capacity and cost?
• Is a minimum order quantity required?
• What are the design and packaging requirements for exports?

Financial Capacity

• What amount of capital is tied up in exports?

• What level of export department operating costs can be supported?
• What are the initial expenses of export efforts to be allocated?
• When should the export effort pay for itself?
 If you are a middleman…
"Two approaches to selecting a product
• Systematic:
• Based on demand and growth trends (trade
flows), statistical sources (export markets,
demand, import markets) => decision on
products and markets
• Familiarity
• Proximity to producer, quality, price etc.
 If you are a middleman…
• Reactive:
• Based on immediate market need => select a product
to satisfy the demand
• Advertisements in publications => identify the
products/ services needed in foreign countries =>
contact buyers to get information => contact potential
suppliers
• Proximity, etc.
• Disadvantages: lack of focus on a given product/
market; absence of long term relationship with
importers
} Shifting Spending patterns: Emphasis on
products/services that consumers regard as “luxuries”
due to spending in response to rising incomes.

} Products to be excluded from the list: Products that

compete against large firms; fashion oriented market
(too volatile); multimillion dollar overseas projects
that require development of training facilities.

} Emphasis on quality and niche marketing

} What foreign needs does your product satisfy?
} Should your company modify its domestic market
product for sale abroad? Should it develop a new
product for the foreign market?
} What specific features, such as design, color, size,
packaging, brand, labels, and warranty, should
your product have? How important are languages
or cultural differences?
} What specific services, warranties, and spare parts
are necessary abroad at the presale and post-sale
stages?
} Are your company’s service and repair facilities
adequate?
Standardization Adaptation
} to conform to government regulations,
geographic and climatic conditions, or
differences in
 engineering and design
standards
} to facilitate shipment or conform to
 buyer
preferences and standards of living.
◦ For example, Japanese consumers tend to prefer
certain kinds of packaging, leading many U.S.
companies to redesign cartons and packages that
are destined for the Japanese market. Body size
may also be an issue. If a product is made for U.S.
body types, it may not work for people of smaller
body sizes (statures).
} Market potential must be large enough to
justify the direct and indirect costs involved
in product adaptation.
} fundamental aspects of products may require
changing
◦ For example, electrical standards in many foreign
countries differ from those in the United States =>
the manufacturer can determine whether a special
motor must be substituted or if a different drive
ratio can be achieved to meet the desired operating
revolutions per minute
} many kinds of equipment must be engineered
in the metric system for integration with
other pieces of equipment or for compliance
with the standards of a given country
} Are international brand names important to
promote and distinguish a product?
Conversely, should local brands or private
labels be used to heighten local interest? 

} Are the colors used on labels and packages
offensive or attractive to the foreign buyer?
◦ For example, in some countries certain colors are
associated with death. 

} Can labels and instructions be produced in
official or customary languages if required by
law or practice? 

} Does information on product content and country
of origin have to be provided? 

} Are weights and measures stated in the local unit?
Even with consumer products, packaging and
describing contents in metric measurements (e.g.,
kilograms, liters) can be important. 

} Must each item be labeled individually? What is
the language of the labeling?
} A visible endorsement from a famous person may
get you sales at home, but the same person may
be unknown— or, worse, disliked—elsewhere.
} Are local tastes and knowledge considered?
} Need of installing the product overseas. =>
should minimize time and cost of techinicians
in the field =>may wish to preassemble or
pretest the product before shipping or to
provide training for local service providers
through the web, training seminars, or DVDs
} careful to provide all product information,
such as training manuals, installation
instructions (even relatively simple
instructions), and parts lists, in the local
language
} Levels of expectation and rights for a
warranty vary by country, depending on the
country’s level of development, its
competitive practices, the activism of
consumer groups, the local standards of
production quality, and other factors.
} Product guarantees are important because
customers overseas may have higher service
expectations.
} Purposes of conducting market research
} Data in conducting market research
} Steps for international market assessment
} Purposes of international market research:
◦ Identify, evaluate, and compare the size and
potential of various markets and select the most
desirable markets
◦ Reassess market changes that may require a
change in a company’s strategy.
◦ =>using either primary or secondary data sources
 Conducting International
Market Research
" Primary research
- Provides specific information. Conducted
by collecting data directly from the foreign
marketplace through interviews, focus
groups, observation, surveys, and
experimentation with representatives
and/or potential buyers.
- TITA Research, Cimigo market research, Axis
research, Q&Me…
- => expensive and time consuming.
} Secondary market research
◦ Based on data previously collected and assembled for a
certain project other than the one at hand.
◦ Such information can often be found inside the
company or in the library, or it can be purchased from
public or private organizations that specialize in
providing information, such as overseas market
studies or market surveys.
◦ => readily available and inexpensive but maybe not
meet one’s needs, or difficult to categorize or compare
the research data, or difficult to assess the accuracy of
the information
 International Market Assessment
"Preliminary screening (basic needs):
Whether there is a basic need for the company’s products, which is
determined by
v Environmental conditions such as climate, topography, or natural
resources.
v Trade and investment data => whether the product has been imported,
volume, value and the exporting countries
v Whether the need for the product has been satisfied by local production or
imports
If market opportunities exists => consider market’s overall buying power
(GDP, GNI per capita, distribution of wealth (Gini coefficient), exports and
imports
} Secondaryscreening (financial and
economic condition):
◦ Trends in inflation, interest rates, exchange rate
stability and availability of credit and financing.
◦ Market size, market intensity (degree of buying
power), growth of the market
"Third screening (political and legal):
"Type of government and its stability
"Legal forces affecting export/import operation: Entry
barriers, limits on profit remittances, taxes and price controls
as well as protection of intellectual property rights.
} Fourth screening (sociocultural):
Customs, religion and values that may have an
adverse effect on the purchase or consumption of
certain products
◦ Sales of pork and its derivatives or alcohol in
Muslim countries
"Fifth screening (competitive):level and quality
of competition in potential markets.
v Competitors, their technology, quality and price of their
products, market shares…
} Final selection (field trip): Trade missions
or trade fairs in order to corroborate gathered facts
and supplement currently available information.
} => Final selection of the most desirable markets.
} • What countries/markets are currently buying
products similar to yours?
} • How large are your potential markets?
} • Who are your competitors, and how large are they?
} • What are the required standards, testing, and
certifications?
} • Do your products (or their labeling or packaging)
need to be modified for one or more markets?
} • Is your price point appealing within the market?If
not, what can you do to make it more appealing?
} • What distribution channels are available?
} • What will be your duties, taxes, and other costs or
restrictions?
Sources of Export Counseling And Assistance
"Vietnam trade promotion agency
"VCCI/ trungtamwto.vn
"Vietnam trade offices/ counselors in foreign
countries
"Foreign trade counselors in Vietnam
"Business associations
"Participation in multilateral/ bilateral economic
forum
"ITC tools (trademap, macmap, sustainability map)
"cbi.eu for European markets
 Export Promotion
"Designed to open new markets, maintain
and increase existing market share, and
obtain market intelligence
"Promotion strategies: push vs. pull
"Can choose one or a combination of
promotional tools
 Export Promotional Tools
"Advertising

"Personal selling

"Sales promotion

"Publicity
} The choice depends on the target audience,
company objectives, the product exported,
the availability of internal resources, as well
as the availability of the tool in particular
market
◦ High illiteracy => advertising in periodicals not
suitable
◦ Products intended for middle or high-income
consumers =>periodicals
◦ Products intended for broader audience => radios/
TVs
} Advertising
◦ Is any paid form of non personal presentation and promotion of
ideas, goods or services by an identified sponsor
◦ Vehicles: magazines, newspapers, TV, radio, direct mail, or
billboard
◦ Aware of regulations in various countries
◦ Small exporters often use direct email
} Personal selling
◦ Oral presentation by sales personnel of the organization to
overseas purchasers.
◦ Used in first stage of internationalization
◦ High-priced goods
} Sales promotion
◦ Marketing activity other than advertising, personal
selling or publicity: trade shows, trade fairs,
demonstrations…
– Trade shows: organized by governments
– Trade fairs: organized by certain industries
– Trade mission: a group of business people/
government officials visit foreign markets in search of
business opportunities
} Publicity
◦ Communicating with an audience by personal or
nonpersonal media that are not explicitly paid for
delivering the messages.
– Charitable donations to schools, hospitals;
sponsorship of youth athletic teams; participation in
local parades; and invitations to the media to cover
special events sponsored or supported by the export
company
} Indirect channel
} Direct channel
 Figure 5.1: Direct and indirect channels

Direct
Exporting

Resources

Indirect
exporting

Control / feedback/ time to market

• Indirect exporting is associated with poor control, inadequate feedback and shorter
time to market compared to direct exporting.
• Direct exporting requires a higher level of investment in financial, technical and
other resources than indirect exporting
" International Marketing objectives of the firm:
Objectives with regard to profits, sales, market share
etc.
" Manufacturer’s resources and experience: Limited
resources and experience (indirect)
" Availability of intermediary: Certain distribution
patterns vary from country to country.
" Customer and product characteristics: Direct
channels preferable in cases where customers are
geographically homogeneous, have similar buying
habits, and are limited in number, and concentrated in
major population centers.
" Marketing environment: Direct channels are
preferable in cases of countries that are more similar
in culture to the exporter’s home country.
" Control and coverage: A direct channel affords the
manufacturer more control over its distribution and
its link to the end user.
} The principal advantage of indirect exporting
for a smaller U.S. company is that an indirect
approach provides a way to enter foreign
markets without the potential complexities
and risks of direct exporting. Several kinds of
intermediary companies provide a range of
export services, and each type of company
can offer distinct advantages to your
company.
 Indirect Channels
" Exporters that sell on behalf of manufacturer
- Manufacturing exports agents: Represent non-competitive/related products;
handle marketing, promotion, shipping (sometimes financing); takes
possession not title to goods; risk of loss remains with manufacturer.
- Export management companies: EMCs act as the export department for one or
several manufacturers of noncompetitive products. Provide extensive services
to manufacturers including market analyses, documentation, financial, and
legal services, purchase for resale and agency services, collect and furnish
credit information on overseas customers, consolidate freight of several
principals.
- Some EMCs provide immediate payment for producer for export financing or buying for
resale. EMCs often specialize in products or markets => good knowledge of the product/
market
- Export trading companies: They buy and sell goods as merchants taking title
to the merchandise. Some work on a commission. They have more
diversified product lines, are larger and better financed than EMCs.
" Exporters that buy for their overseas customers
- Export commission agents: represent foreign buyers
such as import firms and large industrial users and
seek to obtain products that match the buyer’s
preferences and requirements. They reside and
conduct business in the exporter’s country and are
paid a commission by their foreign clients.
- The resident buyer: Handles purchasing function for
the overseas buyer and also ensures timely delivery
of merchandise and facilitates principal’s visits to
suppliers and vendors.
 Indirect Channels (cont.)
v Exporters that buy and sell for their own accounts:
- Export merchants: Export merchants purchase products
directly from manufacturers, pack and mark them according to
their own specifications, and resell to their overseas
customers. They take title to the goods and sell under their
own names.

- Cooperative exporters: These are manufacturers or service

firms that sell the products of other companies in foreign
markets along with their own.

- Export Cartels: Organizations of firms in the same industry

for the sole purpose of marketing their products overseas.
} Advantages
• Little or no investment or marketing experience
needed. Suitable for firms with limited resources
or experience.
• Helps increase overall sales and cash flow.
• Good way to test-market products, develop
goodwill, and allow clients to be familiar with
firm’s trade name or trademark before making
substantial commitment.
} Disadvantages
• Firm’s profit margin may be dwindled due to commissions and
other payments to foreign intermediaries.
• Limited contact/feedback from end-users.
• Loss of control over marketing and pricing. Firm totally
dependent on the marketing initiative and effort of foreign
intermediary. Product may be priced too high or too low.
• Foreign intermediary may not provide product support or may
damage market potential.
• Limited opportunity to learn international business know-how
and develop marketing contacts. Creates difficulty in taking
over the business after the relationship has ended.
} The advantages of direct exporting for your
company include more control over the
export process, potentially higher profits, and
a closer relationship to the overseas buyer
and marketplace, as well as the opportunity
to learn what you can do to boost overall
competitiveness.
} However, those advantages come at a price;
your company needs to devote more time,
personnel, and resources to direct exporting
than it would to indirect exporting.
 Direct Channels
v Direct marketing from home country: Catalog sales, traveling
sales representatives who are domestic employees of the
exporting firm. Duty, clearance problems with Internet sales.
vCbi.eu/market-information for EU market – Example: tea
v Marketing through overseas agents and distributors:
vOverseas agents are independent sales representatives of various non-
competing suppliers. They are residents of the country or region where
the product is sold and usually work on a commission basis, pay their own
expenses, and assume no financial risk or responsibility.
vOverseas distributors are independent merchants that import products
for resale and are compensated by the markup they charge their
customers.
v A firm may use direct channel for its lucrative markets or markets where it has

some internal strength and experience. It will use indirect channels for

unfamiliar, small or risky markets.

v A firm may use both channels if it has different product lines with different

customer profiles. It can use direct channels for the product in which it has a

good network of resources and customers and use indirect channels such as

cooperative exporting for other product lines where certain advantages do not

exist.

v Indirect channel options should not be ignored just because the firm has long-

term plans to go direct. Early indirect entry could facilitate the product’s

success (when it goes direct) if a good product image and customer support

has been created by the indirect partner.

 Export Competitiveness
v Price
vNonprice factors:
- Reliability
- Delivery time
- Product reliability
- Product quality
- Design flexibility
- Support services

- Financial services
 Export Pricing Objectives
"Market share

"Profits

"Targeted level of return on investment

 Pricing and Markup Policy
"High markups (few competitors,
differentiated products)

"Low markups (increased competition)

 Determinants of Export Price
" Internal variables
- Cost of production
- Cost of market research
- Business travel
- Product modification
- Packing
- Consultants
- Freight forwarders
- Commissions
- Distribution channels
- Level of product differentiation (=> independent
price setting activities)
 Determinants of Export
Prices (cont.)
"External variables
- Supply and demand
- Location and environment of foreign
market (host country)
- Economic policies such as exchange
rates, prices controls, and tariffs
- Home country regulations
 Pricing in export market
} Variations in market conditions
} Existence of cartels or trade associations or
different channel distribution
} Different markets – different stages in the life cycle
of a product
 Approaches to Export Pricing
} Cost-based pricing: Export price is based on full
cost and markup or full cost plus a desired amount
of return on investment.

} Marginal pricing: Export price is based on the

variable cost of producing the product.

} Skimming versus penetration pricing: Price

skimming is charging a premium price for a
product; penetration pricing is based on charging
lower prices for exports to increase market share.
} Demand-based pricing: Export price is based on
what the market could bear.

} Competitive pricing: Export prices are based on

competitive pressures in the market.=> Same price
level as competition, reducing or increasing prices
with some product improvement
}
 Illustrative Example
A US manufacturer exports medical equipment from Miami, Florida to a distributo
in Brazil.
Selling price: $30,000
Terms of sale: Ex-works, Miami, Florida
Payment method: Open account

Table 7.1 Export price calculation

Itemized Cost US dollars
Ex-works price (Miami, Florida) 30,000
Freight to Port Manaus, Brazil 2500
Insurance 750
CIF price 33,250
Landing Charges
Import duty (25% of CIF) 8312.5
Marine tax (20% ocean freight) 500
Warehousing tax (0.65% of CIF) 216.13
Terminal handling charge ($350 per container) 350
Custom broker's union fee ($140.00) 140
Custom brokerage fee ($750) 750
Bank costs (2% ex works price) 600
Total landing charges 10868.63
Landed cost at port manaus (with out local taxes) 44,118.63
Cost to Brazilian distributor 44,118.63
Distributor mark-up (50%) 22,059.32
Cost to retailer 66,177.95
Retailer mark-up (60%) 39,706.77
Price to brazilian consumer before local taxes 105,884.72
Local taxes (manufactures tax and local state tax: $6500) 6,500.00
Price to brazilian consumer after taxes 112,384.72
} Example
} Strategies to enhance competitiveness
◦ Long-term: free trade agreements, FDI, licensing
◦ Short-term: short distribution channel,
differentiation, discounts…
} Rules for any mode of transport: Ex-works,
FCA (free carrier), CPT (carriage paid to), CIP
(carriage and insurance paid to), DPU
(delivered at place unloaded), DAP (delivered at
place), DDP (delivery duty paid).
! Rules for sea and inland waterway transport:
FAS (free alongside ship), FOB (free on
board), CIF (cost, insurance and freight),
CFR (cost and freight).
} Step 1-- The exporter establishes initial
contact by responding to an overseas
buyer’s advertisement/ email for a product
that she/he can supply. Such ads are
available in various trade publications.
} Step 2 -- The prospective buyer responds to
the exporter’s letter or fax by specifying
the type and quantity of product needed,
with a sample where appropriate. The
potential importer also sends his/her trade
references.
} Step 3 -- The exporter checks with the importer/
consulate of the importer’s country to determine
a)whether the product can be legally imported
and any restrictions that may apply, and b) any
requirements that need to be met.

} Step 4 -- The exporter (if an agent) contacts

manufacturers of the product to a) establish if the
given product is available for export to the
country in question, b) obtain and compare price
lists, catalogs and samples.
} Step 5 -- The exporter selects the product from
responses submitted by manufacturers based on
quality, cost and delivery time. The sample
selected is sent by airmail to the overseas
customer to determine if the product is acceptable
to the latter. In the meantime, the exporter
prepares and sends a price quotation suggesting
the price, mode of transportation and payment
terms. The price quotation should include
commission and markup.
} Step 6 -- The exporter obtains a positive response
from the overseas customer, and is requested to
send a pro forma invoice (contract) to enable the
latter to obtain an import and foreign exchange
permit. The exporter sends the pro forma invoice.
} Step 7 -- The overseas customer receives the pro
forma invoice, opens a confirmed irrevocable letter
of credit for the benefit of the exporter (other
cases?), and sends an order to the latter to ship
the merchandise.
} Step 8 -- The exporter verifies with its bank
about the validity of the letter of credit and finds
that it meets the agreed conditions in the export
contract and that it will be honored by the bank
if the exporter meets the terms. The exporter
ships the merchandise, and submits the required
documents (such as bill of lading, commercial
invoice, consular invoice, certificate of origin,
packing list etc.) to the bank with a request for
payment. The exporter is paid, the merchandise is
on transit, and the transaction is completed.