Step #4: Develop a Strategy Appropriate for Your Business and the Export Market
One of the things that is suggested is fully understanding the options for strategy and evaluate the best strategy development to understand why one is doing something versus just the what and how. There are different strategies that companies are encouraged to consider, such as Michael Porter’s competitive advantage model, which is “the creation of a unique and valuable position, involving a different set of activities” (Porter 2011, 16). In other words, Porter’s model goes beyond just low cost but also quality, industry clusters, firm strategy, and government role.
Another useful strategy would be to see if your service could be provided in a new marketplace and, thus, create a new demand. In this case, competition initially would not be such a huge factor, since you are presenting something completely new and creating a demand (for more, see Kim and Mauborgne 2004). This is possible in untapped, overlooked markets. One observation is that many companies, especially the small companies that are just learning how to export, want to go to the larger, saturated markets just because they hear more about them, for example, China and Brazil. However, they do not consider the stiff competition not just from other companies from the United States but from all around the world. As a result, they overlook the enormous amount of opportunities in other larger or even smaller economies that may not have the types of services that they may provide but can do so while strategically and effectively creating a demand for their service. That still requires understanding the market and the target audience, not blindly going in with passion about a service and expecting it to succeed. Otherwise, you are in a sea of competition and price becomes the determining factor for the ability to compete, which may not bode very well for a services-based firm.
Just as with training for a marathon, it is wise to know why you are engaging in certain practices. In other words, beyond running, training regularly, and eating well, you need to know what different strategies or approaches may work. For example, during a conversation with a student studying international trade, the student mentioned that these strategies learned allowed him to go back to his employer and explain why a certain strategy would work over another to improve their export success.
CASE STUDY 6.1 INSIGHTS ON RESEARCH PRIOR TO SELLING TO A FOREIGN MARKET
“It’s incredibly important to incorporate that research component when you are starting to think about an export program ... to understand, first of all, where the best opportunities for your products or services [are] .... How would you know that if you just are guessing?”
Devorah Kaufman, Senior Account Manager, Euromonitor International
Euromonitor International is a research company that provides strategic market research, data, and analyses on countries, producers, and services worldwide. Organizations can use their information to expand overseas or help their clients or members to leverage international business opportunities. Senior Account Manager for Euromonitor International, Devorah Kaufman, who is based in Chicago, IL, offers insight into why research is important and tips that small and medium-sized companies can use prior to starting the export process.
The research as a part of a company’s export program should answer basic questions: Who? What? Where? Why? How? Getting answers to these questions will help a company identify the best market opportunities for its products or services, according to Ms. Kaufman.
Just going after a market because it has a large, growing population without doing in-depth research may prove inadequate for a company’s export strategy. Using China as an example, Ms. Kaufman explains:
A lot of times, people say I want to do business in China, because China has one billion people, and if I sell one of my products to one tenth of one percent of the population, then I'll be a zillionaire.
But China might not be the best opportunity. That market might be saturated in China. It might be hard to find a distributor in China.
The market might not be growing in China. So, you want to understand which markets around the world have the best opportunities for your particular product or service. Sometimes that’s looking at the current and forecast market sales or market size for [the] product or service. Sometimes it's looking at demographic trends or population or government, things that are happening in the market to understand where the market could be going.
Once a company has answered the basic questions, as suggested above, the next step is to rank the countries by their market potential for the company’s product or service. Looking at the top three to five countries with such a market potential is a good start to identifying the right market.
To determine the number one market for exporting, an analysis of the business environment in each of the three to five countries with market potential will be required.
You want to understand the conditions within those markets ... how to do business in those markets, where are the major population centers, or where are the best opportunities within those countries. Are there corruption or other types of issues in those countries? What are the trends of those countries? Because if you’re making a product or service here [in the LJnited States], you might need to tweak it for that [country], and usually you do.
Understanding the specific consumer preferences is another key component of adequately analyzing the market in another country.
E-commerce continues to make it easier for a company to make a sale to consumers outside of its domestic market online. What may appear as an easy market may actually result in a company overlooking the market with greater potential and that offers far greater and easier access, as Ms. Kaufman reveals.
Sometimes when small businesses are just getting started with exporting ... they have a website [and] they might get some sales online.... So, let's say that they got a sale from somebody in China, and they go, oh wow, we can do a lot of business in China. Really, if they'd sit down and do their research, they might find that some place like Mexico, [with] which we share our border [and] we have trade agreements. It might be much easier to get started and there's a much bigger opportunity in those nearby countries like Canada and Mexico.
Just because you got a sale online doesn’t mean that’s representative of the market; and definitely, you want to investigate that opportunity if you're going to be spending your time and energy. You want to spend that on the places that have the best potential, which are going to give you the most bang for your buck. And so that’s where you have to do some research and try and narrow down and understand those markets, which you are going to target.
CASE STUDY 6.2 PROVIDING CONSULTING SERVICES OVERSEAS
“If you don’t understand the market and you don't understand the culture and you don’t understand the rule of law, you are really putting yourself and the success of whatever enterprise you want to put in that country at risk.”
Jim Gitney, CEO, Group 50
Group 50 is a Southern Californian consulting firm founded in 2004 and that focuses on three practice areas: business strategy, talent strategy, and operational execution. The firm provides services to companies generating anywhere between US$50 million and US$1 billion annually, many of which are U.S. companies that set up operations overseas. Group 50 also provides consulting services for companies that are looking to operate in the U.S. market. That may entail helping the company create its supply chain and structuring its sales force and business development activities in the U.S. market. In other words, Group 50 serves as the in-country partner to a foreign company that wants to introduce its product to the U.S. market. Group 50 CEO Jim Gitney estimates that between 15% and 20% of the company’s revenue comes from providing a service to foreign companies.
Mr. Gitney shares information about the firm's services and important lessons that he has learned from his own experience with exporting Group 50’s services.
As Mr. Gitney explains:
Almost all of your work is structured around the supply chain....
The global supply chain has gotten very complex and is becoming more and more of an issue in validating the integrity of the materials you’re getting. Does it meet the product requirements? Does it meet the contractual requirements?
Blockchain technology is one of the types of technologies that is being incorporated into the supply chain. Group 50 advises companies on how technology can improve the efficiency of their supply chains, as Mr. Gitney discusses further:
When we work with global companies, our focus is on helping them leverage technology to make their supply chain more efficient and more robust and more resilient. Blockchain is an element that allows the use of technology to automate a lot of things that typically [have] been done by hand in the past, such as validating the quantity of goods that came in and allowing a smart contract to release payments to the vendor.... And so blockchain is really just another element of all of the technologies that are used to manage the global supply chain.
So how does Group 50 even reach clients internationally? “Seventy percent of my business comes from [an] organic search on the internet,” says Mr. Gitney. The company has a team of people that help with its SEO strategy and generating content-related supply chain.
In addition to internet searches, the network developed by Mr. Gitney and other members of the Group 50 team has helped in terms of securing international business projects. That network comes from many years working for a corporate firm, establishing connections, and building relationships. The Group 50 CEO adds, “So when you’re starting up a consulting firm after leaving corporate America, you have a pretty robust rolodex, and the acquisition of projects is easier, because you also have a very well-documented and defined skill set.” In 2020, Group 50 worked on projects for two separate Canadian companies. Although Group 50’s journey includes lessons throughout, one experience with an effort to secure a deal with a large agriculture-based company in Saudi Arabia in 2019 was shared to highlight key things that a firm should consider when working with a foreign company:
- 1. Culture: Gain a solid comprehension of the culture in a country and how business is done in that country.
- 2. Rule of law: Understand the rule of law in the country, since U.S. rule of law varies from that found in a country such as Saudi Arabia. Hiring an attorney who understands contracts in that country is important.
- 3. Language: Whereas language differences are a given, it is also important to understand the context. On this specific item, Mr. Gitney says,
“Because there is a language dynamic, you have to be incredibly careful about what you thought you heard.”
4. Payment: When doing business in foreign market, it is important to make sure that contracts are arranged in a way to ensure payment for any work completed.
Whereas identifying a need is one way to select a market for one’s service, Mr. Gitney adds a slightly different take on this approach. “What you do may be needed, but it’s really important to understand: What is the required form for it to be delivered or provided? There is a difference between the two, because delivered is more product focused, and provided is more service focused.”