Direct Exporting

In direct exportingExporting directly to a customer who is interested in buying a product., a small business exports directly to a customer who is interested in buying a particular product. The small business owner makes all the arrangements for shipping and distributing the product overseas, is responsible for the marketing research, and collects payment. This approach gives the owner greater control over the entire transaction and entitles him or her to higher profits—although these higher profits are accompanied by the need to invest significantly more resources and efforts (see Table 15.1 "Advantages and Disadvantages of Direct Exporting"). It also requires a significantly changed internal organizational structure, which entails more risk.Laurel Delaney, “A How-To on Expanding Your Business Globally,” The Global Small Business Blog, January 11, 2011, accessed February 7, 2012, borderbuster.blogspot.com/2011/01/how-to-on-expanding-your-business.html; Laurel Delaney, “Direct Exporting: Advantages and Disadvantages to Direct Exporting,” About.com, accessed February 7, 2012, importexport.about.com/od/DevelopingSalesAndDistribution/a/Direct-Exporting-Advantages-And -Disadvantages-To-Direct-Exporting.htm; “The Advantages of Direct Exporting,” vcShipping.com, accessed February 7, 2012, www.vcshipping.com/export/the-advantages-of-direct-exporting.html.

Indirect Exporting

Indirect exportingEntering into an agreement with an agent, a distributor, or a traditional exporting house for the purpose of selling (or marketing and selling) the products in the target market. involves entering “into an agreement with an agent, distributor, or a traditional exporting house for the purpose of selling (or marketing and selling) the products in the target market.”Team Canada Inc., “10 Steps to Successful Exporting,” About.com, accessed February 7, 2012, sbinfocanada.about.com/od/canadaexport/a/10exportsteps.htm. Many small businesses choose this option, at least at the outset. It is the simplest approach, particularly when a business does not have the necessary human and financial resources to promote products in foreign markets in any other way (see Table 15.2 "Advantages and Disadvantages of Indirect Exporting").CBS Investment, “Advantages and Disadvantages of Direct and Indirect Exports,” CBS Investment, accessed February 7, 2012, www.cbsinvestment.com/advantages-and-disadvantages-of-direct-and-indirect-exports/; Laurel Delaney, “A How-To on Expanding Your Business Globally,” The Global Small Business Blog, January 11, 2011, accessed February 7, 2012, borderbuster.blogspot.com/2011/01/how-to-on-expanding-your-business.html. The easiest way to export indirectly is to sell to an intermediary in the United States because the business will normally not be responsible for collecting payment from the overseas customer or coordinating the shipping logistics.Laurel Delaney, Start and Run a Profitable Exporting Business (Vancouver, BC: Self-Counsel Press, 1998): chapter 8.

Product

The ideal situation is when a product developed for the US market can be sold in a foreign country without any changes. Although some kinds of products can be introduced with no changes (e.g., cameras, consumer electronics, and many machine tools),Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson Prentice Hall, 2009), 611. most products usually have to be altered in some way to meet conditions in a foreign market.John M. Ivancevich and Thomas N. Duening, Business: Principles, Guidelines, and Practices (Mason, OH: Atomic Dog Publishing, 2007), 49. From a small business perspective, the owner will want to market products that do not require drastic changes to be accepted. Relatively minor packaging changes, such as size or the language on the package, can be made inexpensively, but more drastic changes should be avoided. If a product must be changed drastically to market it globally, conduct an in-depth cost analysis to determine whether the additional costs will outweigh the anticipated benefits.“All About Global Marketing,” BusinessKnowledgeSource.com, accessed February 7, 2012, www.businessknowledgesource.com/marketing/all_about_global_marketing _032164.html. If a product is a food or a beverage, for example, is the business prepared to make the changes necessary to appeal to widely varying tastes?Arundhati Parmar, “Dependent Variables: Sound Global Strategies Rely on Certain Factors,” Marketing News, September 2002, 2.

Products need to be adapted for many reasons, including the following:Philip R. Cateora and John L. Graham, International Marketing (New York: McGraw-Hill Irwin, 2007), 341, 351, 353; “Global Linguistic Analysis,” Strategic Name Development, accessed February 7, 2012, www.namedevelopment.com/global-linguistic -analysis.html.

• Different physical or mandated requirements must be met (e.g., electrical goods will need to be rewired for different voltage systems).
• The legal, economic, political, technological, and climatic requirements of the local marketplace vary (e.g., varying laws will set specific packaging sizes and safety and quality standards).
• The product or the company name must translate flawlessly to the new target market so that it does not convey an unintended, perhaps very negative, meaning. One of the most well-known examples of a translation blunder is the Chevy Nova. In Spanish, “nova” means “no go.”
• The package label may need to be changed. Imagine the horror of a well-known baby food producer that introduced small jars of baby food in Africa when it found out that the consumers inferred from the baby picture on the jars that the jars contained ground-up babies. This shows us that even big companies can make big mistakes.
• A change in flavor or fragrance may be necessary to bring a product in line with what is expected in a culture. The pine and hints of ammonia or chlorine scents that are popular in the United States were flops in Japan because many Japanese sleep on the floor on futons. With their heads so close to the floor, a citrus scent is more pleasing.

The less economically developed a market happens to be, the greater may be the need for product adaptation. Research has found that only one in ten products can be marketed in developing countries without some kind of product adaptation.Philip R. Cateora and John L. Graham, International Marketing (New York: McGraw-Hill Irwin, 2007), 341.

Price

Pricing for the global market is not an easy thing to do. Many factors must be taken into account, the first of which are traditional price considerations: fixed and variable costs, competition, company objectives, proposed positioning strategies, the target group, and willingness to pay.“The International Marketing Mix,” Learn Marketing, accessed February 7, 2012, www.learnmarketing.net/internationalmarketingmix.htm. Add to these factors things such as the additional costs that are incurred due to taxes, tariffs, transportation, retailer margin, and currency fluctuation risks;John M. Ivancevich and Thomas N. Duening, Business: Principles, Guidelines, and Practices (Mason, OH: Atomic Dog Publishing, 2007), 40; Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson Prentice Hall, 2009), 616. the nature of the product or industry, the location of production facility, and the distribution system;Eric Mitchell, “The Pricing Advisor,” The Pricing Advisor Newsletter, accessed February 7, 2012, members.pricingsociety.com/articles/Pricing-for-Global-Markets.pdf. the psychological effects of price; the rest of the marketing mix; and the price transparency created by the Internet“The International Marketing Mix,” Learn Marketing, accessed February 7, 2012, www.learnmarketing.net/internationalmarketingmix.htm. and a business can begin to appreciate the challenges of global price setting. About the only thing that can be seen as a certainty is that a small business should expect the price of its product or service to be different, usually higher, in a foreign market.John M. Ivancevich and Thomas N. Duening, Business: Principles, Guidelines, and Practices (Mason, OH: Atomic Dog Publishing, 2007), 50. The specifics of that difference need to be worked out carefully, with thorough analysis.

Setting the right price for a product or a service is critical to success. It will be a challenge to navigate the pricing waters of each different country—to learn why, for example, a product sells for $16 in the United States but $23 in Britain.

Place

As challenging as distribution may be for a small business in the domestic market, it is even more so for the global market. No matter the product, it has to go through a distribution processThe physical handling and distribution of goods, the passage of ownership or title, and the buying and selling negotiations between producers and middlemen and middlemen and customers.—the physical handling and distribution of goods, the passage of ownership or title, and the buying and selling negotiations between producers and middlemen and middlemen and customers.Philip R. Cateora and John L. Graham, International Marketing (New York: McGraw-Hill Irwin, 2007), 396. It would make sense to be able to take advantage of existing transportation systems, retailers, and suppliers to sell goods and provide services. Unfortunately, adequate distribution systems do not exist in all countries, so a business will need to develop ways to get products to customers in as cost-effective a manner as possible.John M. Ivancevich and Thomas N. Duening, Business: Principles, Guidelines, and Practices (Mason, OH: Atomic Dog Publishing, 2007), 50.

Before deciding on a channel or channels of distribution, a business needs information. The following are some basic questions as a starting point:

• Is the selected market dominated by major retailers or is the retail sector made up of small independent retailers?“The International Marketing Mix,” Learn Marketing, accessed February 7, 2012, www.learnmarketing.net/internationalmarketingmix.htm.
• How many intermediaries will be involved? In Japan, for example, a product must go through approximately five different types of wholesalers before it reaches the final consumer.“The International Marketing Mix,” Learn Marketing, accessed February 7, 2012, www.learnmarketing.net/internationalmarketingmix.htm.
• Can we use the manufacturer, wholesaler, retailer, or consumer channel or can we export directly to a retailer?
• Should we work with a foreign partner? Unless a business plans to establish a retail operation on foreign soil, it will need to establish business-to-business (B2B) sales relationships. Then products can be sold directly to foreign retailers or foreign distributors who will sell to those retailers. A foreign partner can provide valuable insights about local import regulations, product marketability, and local customs. The US Department of Commerce website contains directories of foreign buyers.Ryan Underwood, “Creating a Smart Export Strategy,” Inc., May 3, 2011, accessed February 7, 2012, www.inc.com/magazine/20110501/author-pankaj-ghemawat -on-global-expansion-for-small-exporters.html. Small businesses excel at forming strategic partnerships.Laurel Delaney, “Global Guru: Shaking Things Up. Making Things Happen,” Change This, October 2004, accessed February 7, 2012, changethis.com/manifesto/6.03.GlobalGuru/pdf/6.03.GlobalGuru.pdf.
• Where can we attend a trade show or a trade mission? Going to these events can help a business find distribution channels.
• Is the Internet commonly used to distribute my product?

In the final analysis, the behavior of distribution channel members will be the result of the interaction between cultural, economic, political, legal, and marketing environments. A small business that is looking to go global—or is already there—will encounter channel structures that range from a minimally developed marketing infrastructure, such as in emerging markets, to highly complex, multilayered systems, such as in Japan.Philip R. Cateora and John L. Graham, International Marketing (New York: McGraw-Hill Irwin, 2007), 396.

When deciding to enter the global marketplace, a determination must be made as to whether the current channel structure in the selected country (or countries) will meet the business’s needs or whether some additional arrangements will be needed. The means of distribution will necessarily be a country-by-country decision. No matter the arrangement, however, figure on the costs being greater than in the United States.

Promotion

It is understandable that a small business owner may want to use the same integrated marketing communications (IMC) programs used in the home market to inform customers in foreign markets and persuade them to buy. This “one voice” approach offers the advantage of enabling a business or a product to gain broader recognition in the global marketplace; it also helps reduce costs, minimize redundancies in personnel, and maximize the speed of implementation.John M. Ivancevich and Thomas N. Duening, Business: Principles, Guidelines, and Practices (Mason, OH: Atomic Dog Publishing, 2007), 50; “Global Marketing,” SmallBusiness.com, accessed February 7, 2012, smallbusiness.com/wiki/Global_marketing. However, things are not that easy. Cultural, social, language, and legal differences from country to country will usually make it necessary to modify IMC messages to not offend current or prospective customers. Modification is more of a challenge for the small business because the resources needed to make the changes are more limited.

A business communicates with its customers through some combination of its website, advertising, publicity, public relations, sales promotion, sales personnel, e-mail, and social media. The actual mix will be a function of the selected country or countries. For example, in some less-developed countries, the major portion of the promotional effort in rural and less-accessible parts of the market is sales promotion; in other markets, product sampling works especially well when the product concept is new or has a very small market share.Philip R. Cateora and John L. Graham, International Marketing (New York: McGraw-Hill Irwin, 2007), 468. In Saudi Arabia, there is an appreciation for fancy packaging, and point-of-sale advertising elicits the best reaction.Marian Katz, “No Women, No Alcohol; Learn Saudi Taboos before Placing Ads,” Abstracts, Business International, 1986, accessed June 1, 2012, www.faqs.org/abstracts /Business-international/No-women-no-alcohol-learn-Saudi-taboos-before-placing-ads.html. However, the appropriateness of IMC activities for a small business will depend on the product being marketed, the industry in which it is competing, and the country in which it hopes to sell the product.

Of all the four Ps, decisions involving advertising are thought to be those most often affected by cultural differences in foreign markets. Consumers respond in terms of their culture, style, feelings, value systems, attitudes, beliefs, and perceptions. Because advertising’s function is to interpret or translate the qualities of products and services in terms of consumer needs, wants, desires, and aspirations, emotional appeals, symbols, persuasive approaches, and other characteristics in an advertisement must coincide with cultural norms if the ad is to be effective.Philip R. Cateora and John L. Graham, International Marketing (New York: McGraw-Hill Irwin, 2007), 473.

Examples abound of international advertising mistakes that have offended different cultures. Three are presented here. Although they are linked to large corporations, there are lessons to be learned by small businesses. No business is immune from making mistakes from time to time.

• Burger King ran in-store ads for three restaurants in Spain that depicted the Hindu goddess Lakshami on top of a ham sandwich. The caption read, “a snack that is sacred.” Many Hindus are vegetarian and were offended by the ad. Burger King pulled it.Emily Bryson York, “Burger King’s MO: Offend, Earn Media, Apologize, Repeat,” Ad Age Global, July 8, 2009, accessed February 7, 2012, adage.com/article/global-news/advertising-burger-king-draws-ire-hindus-ad/137801.
• Burger King ran a campaign in Europe for the Texican Whopper that featured a lanky American cowboy; a short, round Mexican draped in a cape resembling Mexico’s flag; and the caption, “the taste of Texas with a little spicy Mexican.” There was an immediate uproar, with the Mexican ambassador to Spain objecting publicly.Shaun Rein, “Learn from Burger King’s Advertising Fiasco,” Forbes, April 20, 2009, accessed February 7, 2012, www.forbes.com/2009/04/20/advertising-global-mistakes -leadership-managing-marketing.html.
• During a time when Fiat was trying to take advantage of auto sales growth in China, it released an ad in Italy in which actor Richard Gere drove a Lancia Delta from Hollywood to Tibet. The ad did not air in China, but it caused an online uproar nonetheless. Richard Gere is hated in China because he is an outspoken supporter of the Dalai Lama. His selection as the Fiat spokesperson was a major faux pas by Fiat.Shaun Rein, “Learn from Burger King’s Advertising Fiasco,” Forbes, April 20, 2009, accessed February 7, 2012, www.forbes.com/2009/04/20/advertising-global-mistakes -leadership-managing-marketing.html.

The reality of international advertising is that its cost and the effort required to prepare and place the ads correctly may be prohibitive for most small businesses, therefore pushing the emphasis on other elements of the IMC mix. However, a business will not know that for sure until it does the proper research before making a decision. Consider the characteristics of the target market, how the market uses media in that country, and which media are actually available. Some countries do not have commercial television, and some do not have advertising in newspapers. There will be newspaper and magazine circulation differences from country to country; in countries with a low literacy rate, radio and television advertising (if available) will be more effective than print media.John M. Ivancevich and Thomas N. Duening, Business: Principles, Guidelines, and Practices (Mason, OH: Atomic Dog Publishing, 2007), 50.

Fortunately, small businesses that want to go global can look to social media for assistance. The social web is a low-cost way to catapult a small business brand into the global arena.Susan Gunelius, “Building Your Brand with Social Media,” Reuters, January 4, 2011, accessed February 7, 2012, www.reuters.com/article/2011/01/05/idUS16245956220110105. Facebook, the most popular social networking site in the world, has developed a self-serve advertising tool that has created the greatest interest among small businesses that might not have had the means to launch a global advertising campaign before. This would be a good place to start—along with a map of the world’s most popular media applications country by country and culture by culture, which is available at www.appappeal.com/the-most-popular-app-per-country/social-networking.

No matter the mix of the IMC program, and no matter whether a business is business-to-consumer (B2C) or B2B, the way a business communicates internationally will be a major determinant of success. Each IMC component is a communication channel in its own right. A business must consider the appropriateness of each message in each channel. For example, is the message adequate? Does it contain correct cultural interpretations? Are the colors and graphics right? In the case of advertising, have the media been chosen that match the behavior of the intended audience? Have you correctly assessed the needs and wants or the thinking processes of the target market?Adapted from Philip R. Cateora and John L. Graham, International Marketing (New York: McGraw-Hill Irwin, 2007), 479.

Careful consideration of these and other communication issues will not guarantee success, but it should help reduce the chances of making a major marketing blunder.

Where to Go

Small businesses have reported that problems with access to financing for their exporting operations are a major barrier to exporting. The difficulties they experience in obtaining both trade finance and working capital often prevent small businesses from financing purchases by foreign buyers. This encourages foreign buyers to choose suppliers that are able to extend credit. Small businesses must also face the perception of lending institutions that they are a higher risk than larger companies coupled with a lack of familiarity with exporting by community banks.“Small and Medium-Sized Enterprises: Overview of Participation in U.S. Exports,” US International Trade Commission, January 2010, accessed February 7, 2012, www.usitc.gov/publications/332/pub4125.pdf.

Despite any anticipated difficulties, small businesses need to find export financing. They can look for financing in several places. The first place to look is internally. Does it already have the funds to finance global efforts? If the answer is yes, then all is well. This was the case for Center Rock, the small business featured at the beginning of this chapter. If the answer is no, which will most likely be the case, it will be necessary to look for external financing. A range of options is available for small businesses to consider (see Table 15.3 "Sources of Export Financing for the Small Business"). As you will see, most financing sources are available from the government. A small business must become familiar with the financing, insurance, and grant programs that are available to help it finance transactions and carry out export operations.“6 Steps to Begin Exporting,” US Small Business Administration, accessed February 7, 2012, www.sba.gov/content/6-steps-begin-exporting.