Selecting export markets is an extremely important task. Choosing the wrong markets may result in great expense and frustration for you and your company. Choosing the right markets can result in profits far exceeding your expectations. Consequently, research and analysis is key. Depending on your goals and ability, it may be wise to focus on fewer rather than many foreign markets at once. Beginners may fare best focusing on two to four countries in the same region.

In selecting the most attractive export markets a firm should review a variety of data. Contingent on the level of resources, some firms will conduct research on a cursory level while others will perform in-depth analysis. No single screening criteria is appropriate for all firms. You must select the criteria that best satisfies your needs. You may wish to consider the following factors in your decision-making process.

Sectorial Market Demand

A basic approach is to rank foreign countries by the quantity or value of your product they import from the United States. For example, if you are a producer of a particular type of machinery and Brazil is the United States' biggest importer of that machinery, rank Brazil first. Using this selection criteria, identify the top 10 importing countries. This is often the easiest first step.

If the data is available, determine each of the selected foreign country's total demand for your product (domestic production plus total imports), and calculate the existing percentage of U.S. market share. This will help to identify both the level of competition (domestic and foreign) and foreign receptivity toward the U.S.-made product.

The current demand a foreign market has for your product is an important factor, but only one of numerous factors considered in the decision making process. Although the demand for your product in a particular country may be tremendous, a high degree of competition may effectively deny your product profitable access to that market.

Level of Competition

Based on the degree of competition, you may decide to pursue or not enter a given market. It is essential to know as much as possible about your competition, including their product price points, quality, profit margins, distribution methods, brand recognition, exposure, marketing strategy, and their ability to adequately and satisfactorily provide after-sales service.

If a great deal of competition exists, it may be more advantageous to target a smaller, growing market, with less intense competition. Keep in mind that smaller markets may be unprofitable for multinationals, but more than adequate for you. For small- and medium-size firms, this approach may be wise. It often pays to be the big fish in a small pond.

Country Performance

Perform an assessment of the macro-economic conditions and trends of each selected country. Of course, population, per capita income, and consumer demographics are important indicators. If the demand for your product has consecutively increased in a particular country, but its overall economic performance has decreased, its likely that the specific product demand will also decrease. If, on the other hand, the product demand has risen along with the country's total economic performance, the country may offer greater long-term opportunity.

Trade Barriers, Standards and Product Adaptability

Identify the tariff and non-tariff barriers (including standards, regulations, quotas, and import licenses) and necessary adaptations of each country to determine if they present formidable obstacles.

Standards and regulations are used to ensure a degree of quality in accordance with national regulations. These include standards to protect health, safety and product quality. In some cases making the necessary adaptations may require a greater investment than one is willing to make.

It is also necessary to satisfy packaging and labeling regulations stipulated by the foreign government. In the event that these measures are not satisfied, foreign customs agents have been known to seize the merchandise. Importantly, you may consider the preferences of the target market regarding the ease and attractiveness of the packaging.

Product adaptability is crucial to the success of an export venture. If, for example, motorists drive their automobiles on the left side of the road, they will likely prefer to drive cars with the steering wheel on the right. Unless your product is adapted to satisfy the specific needs, tastes and preferences of the specific market, it is highly unlikely that you will achieve your export goals.

Political Risk

Political and social risk is important to exporters and probably more so to investors. It is important to keep abreast of political activity, especially in developing nations. For example, should a military coup take place, a succeeding government may reverse policy; should social turmoil envelop a nation, the disruption of activities may effectively put you out of business. Importantly, stay abreast of bilateral government relations. Warmer political relations may allow greater cooperation and access to the foreign marketplace; cooler relations can have the opposite effect.

Distribution Accessibility

In some countries distribution channels may be controlled by a few families or companies effectively barring your product from retail shelves. If you can not gain access to lucrative distribution channels, other factors will have no bearing.

Climate & Location

Climate and geography play a vital role in selecting export markets. If your product is sensitive to moisture and will not operate effectively in humid conditions, it may be wise to pursue markets in dryer climates.

A manufacturer of extremely heavy material may find that excessive shipping expenses to distant destinations may significantly reduce price competitiveness. Under these conditions, it may be wise to license your technology to a manufacturer in that particular market or pursue markets located in closer proximity.

Infrastructure

Many high-technology products often require a skilled support staff, also referred to as human infrastructure, to keep the product operating smoothly. If the export market does not have affordable access to qualified people, providing the support from the home office may be too expensive. The lack of physical infrastructure, such as roads, utilities and telecommunications facilities, has significantly curtailed trade. For example, the inability to deliver perishables to market or the unavailability of refrigeration storage equipment deters exporters from pursuing certain markets.

Environmental Concerns

Environmental standards greatly differ from one country to another. Machinery and equipment may not meet stringent foreign environmental pollution standards and prevent product importation. On the other hand, some developing countries may not provide adequate facilities to treat or store toxic by-products generated by the manufacturing process creating a serious health risk and legal problems.

Intellectual Property Protection

Strong and enforced patent and trademark laws will better deter foreign companies from steeling your technology. If an export market's patent or trademark laws are generally weak or unenforced, an exporter of software, for example, may prefer to avoid this market.

Currency Convertibility

Countries with soft currencies or currencies that are not easily convertible, and countries that do not have sufficient currency reserves, may pose difficulties in their ability to pay for your merchandise. In these situations, you may consider barter trade if you have access to an expert in the field. If hard cash is available, it is highly recommended that a letter of credit be established to ensure swift payment. If other means of payment are acceptable to you, several credit checks on a prospective buyer is a must.

It is highly desirable to accept U.S. dollars or other hard currencies. Should you accept a foreign currency as payment, currency fluctuations may eliminate your profit margins or cause a loss.

Cultural Knowledge

The ability to converse in your buyer's language is advantageous. It helps eliminate ambiguity and common misunderstandings. It also demonstrates good will. Understanding the buyer's culture is also very important. Thus, a certain behavior considered friendly or appropriate in one country may be considered offensive in another. Importantly, many foreigners believe that to be polite is to agree, not considering the ramifications or their ability to perform.

Legal Environment

In some countries the accused is presumed guilty until proven innocent, courts may unfairly favor domestic agents terminated over poor performance or may favor domestic consumers who are injured by the inappropriate use of an inherently dangerous product. Consequently, it is wise to review legal trends in a country before shipping product.

Where To Start

The United States and Foreign Commercial Service (US&FCS), a division of the U.S. Department of Commerce, maintains 72 offices in the United States. US&FCS international trade specialists can provide you with most if not all of the data needed to conduct the research noted above. The cost is minimal. Additionally, the data is available at 1,000 public libraries designated as U.S. Federal Depositories located throughout the United States.

This article appeared in World Trade Magazine, November 1994.
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John Manzella
About The Author John Manzella [Full Bio]
John Manzella is a world-recognized author and speaker on global business, competitive strategies and the latest economic trends. He also is chair of the Upstate New York District Export Council and founder of the ManzellaReport.com and Manzella Trade Communications Inc. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




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