Chapter 15 Outline

Improving Export Performance

There are a number of ways in which inexperienced exporters can gain information about foreign market opportunities and avoid some of the common pitfalls that tend to discourage and frustrate novice exporters. In this section, we look at some information sources that exporters can utilize to increase their knowledge of foreign market opportunities, we consider the pros and cons of utilizing export management companies (EMCs) to assist in the export process, and we review various exporting strategies that can increase the probability of successful exporting. We begin, however, with a look at how several nations try to assist domestic firms in the export process.

An International Comparison

One big impediment to exporting is the simple lack of knowledge of the opportunities available. Often there are many markets for a firm's product, but because they are in countries separated from the firm's home base by culture, language, distance, and time, the firm does not know of them. The problem of identifying export opportunities is made even more complex by the fact that 180 countries with widely differing cultures compose the world of potential opportunities. Faced with such complexity and diversity, it is not surprising that firms sometimes hesitate to seek export opportunities.

The way to overcome ignorance is to collect information. In Germany, one of the world's most successful exporting nations, trade associations, government agencies, and commercial banks gather information, helping small firms identify export opportunities. A similar function is provided by the Japanese Ministry of International Trade and Industry (MITI), which is always on the lookout for export opportunities. In addition, many Japanese firms are affiliated in some way with the sogo shosha, Japan's great trading houses. The sogo shosha have offices all over the world, and they proactively, continuously seek export opportunities for their affiliated companies large and small.¹⁰ The great advantage of German and Japanese firms is that they can draw on the large reservoirs of experience, skills, information, and other resources of their respective exportoriented institutions.

Unlike their German and Japanese competitors, many US firms are relatively blind when they seek export opportunities; they are information disadvantaged. In part, this difference reflects historical differences. Both Germany and Japan have long made their living as trading nations, whereas until recently the United States has been a relatively selfcontained continental economy in which international trade played a minor role. This is changing; both imports and exports now play a much greater role in the US economy than they did 20 years ago. However, the United States has not yet evolved an institutional structure for promoting exports similar to that of either Germany or Japan.

Information Sources

Despite institutional disadvantages, US firms can increase their awareness of export opportunities. The most comprehensive source of information is the US Department of Commerce and its district offices all over the country. Within that department are two organizations dedicated to providing businesses with intelligence and assistance for attacking foreign markets: the International Trade Administration and the United States and Foreign Commercial Service Agency.

These agencies provide the potential exporter with a "best prospects" list, which gives the names and addresses of potential distributors in foreign markets along with businesses they are in, the products they handle, and their contact person. In addition, the Department of Commerce has assembled a "comparison shopping service" for 14 countries that are major markets for US exports. For a small fee, a firm can receive a customized market research survey on a product of its choice. This survey provides information on marketability, the competition, comparative prices, distribution channels, and names of potential sales representatives. Each study is conducted onsite by an officer of the Department of Commerce.

The Department of Commerce also organizes trade events that help potential exporters make foreign contacts and explore export opportunities. The department organizes exhibitions at international trade fairs, which are held regularly in major cities worldwide. The department also has a matchmaker program, in which department representatives accompany groups of US businesspeople abroad to meet with qualified agents, distributors, and customers.

In addition to the Department of Commerce, nearly every state and many large cities maintain active trade commissions whose purpose is to promote exports. Most of these provide business counseling, information gatherings, technical assistance, and financing. Unfortunately, many have fallen victim to budget cuts or to turf battles for political and financial support with other export agencies.

A number of private organizations are also beginning to gear up to provide more assistance to would-be exporters. Commercial banks and major accounting firms are more willing to assist small firms in starting export operations than they were a decade ago. In addition, large multinationals that have been successful in the global arena are typically more than willing to discuss opportunities overseas with the owners or managers of small firms.¹¹

Utilizing Export Management Companies

One way for first-time exporters to identify the opportunities associated with exporting and to avoid many of the associated pitfalls is to hire an export management company (EMC). EMCs are export specialists who act as the export marketing department or international department for their client firms. EMCs normally accept two types of export assignments. They start up exporting operations for a firm with the understanding that the firm will take over operations after they are well established. In another type, start-up services are performed with the understanding that the EMC will have continuing responsibility for selling the firm's products. Many EMCs specialize in serving firms in particular industries and in particular areas of the world. Thus, one EMC may specialize in selling agricultural products in the Asian market, while another may focus on exporting electronics products to Eastern Europe.

In theory, the advantage of EMCs is that they are experienced specialists who can help the neophyte exporter identify opportunities and avoid common pitfalls. A good EMC will have a network of contacts in potential markets, have multilingual employees, have a good knowledge of different business mores, and be fully conversant with the ins and outs of the exporting process and with local business regulations. However, studies have revealed that there is a large variation in the quality of EMCs.¹² While some perform their functions very well, others appear to add little value to the exporting company. Therefore, it is important for an exporter to review carefully a number of EMCs and to check references from an EMC's past clients. One drawback of relying on EMCs is that the company can fail to develop its own exporting capabilities in-house.

Exporting Strategy

In addition to using EMCs, a firm can reduce the risks associated with exporting if it is careful about its choice of exporting strategy. A few guidelines can help firms improve their odds of success. For example, one of the most successful exporting firms in the world, the Minnesota Mining and Manufacturing Co. (3M), has built its export success on three main principles--enter on a small scale to reduce risks, add additional product lines once the exporting operations start to become successful, and hire locals to promote the firm's products (3M's export strategy is profiled in the accompanying Management Focus). Another successful exporter, Red Spot Paint, emphasizes the importance of cultivating personal relationships when trying to build an export business (see the Management Focus at the end of this section).

The probability of exporting successfully can be increased dramatically by taking a handful of simple strategic steps. First, particularly for the novice exporter, it helps to hire an EMC or at least an experienced export consultant to help with the identification of opportunities and navigate through the web of paperwork and regulations so often involved in exporting. Second, it often makes sense to initially focus on one market, or a handful of markets. The idea is to learn about what is required to succeed in those markets, before moving on to other markets. The firm that enters many markets at once runs the risk of spreading its limited management resources too thin. The result of such a "shotgun approach" to exporting may be a failure to become established in any one market. Third, as with 3M, it often makes sense to enter a foreign market on a small scale to reduce the costs of any subsequent failure. Most importantly, entering on a small scale provides the time and opportunity to learn about the foreign country before making significant capital commitments to that market. Fourth, the exporter needs to recognize the time and managerial commitment involved in building export sales and should hire additional personnel to oversee this activity. Fifth, in many countries, it is important to devote a lot of attention to building strong and enduring relationships with local distributors and/or customers (see the Management Focus on Red Spot Paint for an example). Sixth, as 3M often does, it is important to hire local personnel to help the firm establish itself in a foreign market.

Local people are likely to have a much greater sense of how to do business in a given country than a manager from an exporting firm who has previously never set foot in that country.

Finally, it is important for the exporter to keep the option of local production in mind. Once exports build up to a sufficient volume to justify cost-efficient local production, the exporting firm should consider establishing production facilities in the foreign market. Such localization helps foster good relations with the foreign country and can lead to greater market acceptance. Exporting is often not an end in itself, but merely a step on the road toward establishment of foreign production (again, 3M provides us with an example of this philosophy).