How can exporter penetrate a foreign market?

Picking out the method of entry into a specific export market is one of the momentous decisions to make. The penetration method has substantial implications for a wide range of international marketing concerns.

When choosing an entry method, the exporter should consider the similarity of the foreign market to the home market, level of service required, tariffs and shipping, lead time requirements, brand awareness, and competitive advantage. There are two main options for market entry: direct exporting and indirect exporting.

Direct exporting
With direct exporting, the manufacturer exporter undertakes the entire export process and does not use any intermediaries. By becoming a direct exporter, the firm takes responsibility for the entire range of export activities, starting with identifying the customer through to collecting payment.

In order to export directly, the firm may have to establish an export department independent of the domestic sales division which could be funded on the basis of its requirements. Direct exporting has several advantages such as; 1) the firm has complete control over the exporting process; 2) the firm increases its profit margin by saving on payments to an intermediary; and 3) the firm develops a closer relationship with the overseas buyer.

On the other hand, direct exporting may also imply; 1) the possibility that the time and resources needed to create a successful overseas market would outweigh the benefits the exporter could gain from exporting directly; and 2) the exporter would be exposed to more direct risk.

One form of direct exporting is for SMEs to join together to form Export Consortiums. Governments often allocate special benefits to small exporters who form a cooperation with other SMEs. This type of arrangement can be especially advantageous in the initial years for a first-time exporters.

Indirect Exporting
A firm wishing to export but not having the required personnel or resources to do so, may export through commission agents, local buying offices, merchant exporters or Export Development Companies (EDCs). These entities have the necessary infrastructure and expertise to export a number of different countries. Several advantages exist for indirect exporting; 1) a firm may concentrate on production without having to learn all the technical and legal aspects to exporting, and 2) the firm may benefit from the professional expertise that an exporting company or service provides. Disadvantages with indirect exporting include; 1) the possibility of losing control over the product to an overly aggressive representative, and 2) the fact that some of these individuals and organizations may not have objectives that coincide with that of the producer.

Other options existing for a company who wants to export include;

• Joint ventures: A joint venture is a partnership in which the domestic firm and the foreign firm negotiate tie-ups involving one or more of the following: equity, transfer of technology, investment, production and marketing. The arrangements define responsibilities for performance, accountability and profit sharing. The marketing arrangements can be in the form of partial or total buy-back by the foreign partner. Joint ventures can spread costs, mitigate risks, offer knowledge and details of local market and ease market entry. There are often laws regulating joint ventures which might require specified percentage of equity by the local partner.

Choosing among verious modes of market entry
Businesses can choose from a number of market entry strategies when expanding overseas. Establishing a local office, strategic alliance, joint venture, merger and acquisition, contracting and licensing, franchising, each mode has differing levels of risk, legal obligation, advantages and disadvantages.

Franchising
A franchise is an ongoing business relationship where one party (‘the franchisor’) grants to another (‘the franchisee’) the right to distribute goods or services using the franchisor’s brand and system in exchange for a fee. More sophisticated franchise arrangements specify a precise business format under which the franchisee is expected to carry on business and ensuring a common customer experience throughout the network. Franchising enables rapid market expansion using the intellectual property of the franchisor, and the capital and emthusiasm of a network of owner operators. Common, but not essential, features of franchised business are:

• group purchasing arrangements
• an exclusive territory for each franchise
• group advertising programs
• initial and ongoing training and support from the Franchisor
• assistance from the Franchisor with equipment specification, site selection and premises
fit-out and signage

Contracting and licensing
Firms may decide to enter a market by contracting the manufacture of its product in the target market, eg. clothing manufacturers. Products can be tailored to the conditions and specific requirements of the local market.

Market entry through licensing involves one company (the licensor) agreeing to permit another company (the licensee) to use the manufacturing, processing, trademark, know-how or some other skill provided by the licensor for a fee.