11

FOOD EXPORTINGFOOD EXPORTING31183118

Steven C SeidemanSteven C SeidemanExtension Food Processing Extension Food Processing

SpecialistSpecialistCooperative Extension ServiceCooperative Extension Service

University of ArkansasUniversity of Arkansas

22

INTRODUCTIONINTRODUCTION

This module of instruction briefly This module of instruction briefly discusses the topic of exporting discusses the topic of exporting food to overseas markets.food to overseas markets.

33

DOING BUSINESS DOING BUSINESS OVERSEAS- A Guide to OVERSEAS- A Guide to

ExportingExporting The Global Marketing Support Services at the The Global Marketing Support Services at the

University of Arkansas has a booklet entitled University of Arkansas has a booklet entitled “Doing Business Overseas- A Guide to “Doing Business Overseas- A Guide to Exporting”. Exporting”.

A copy of this booklet can be obtained by A copy of this booklet can be obtained by contacting;contacting;

Global Marketing Support ServicesGlobal Marketing Support Services University of ArkansasUniversity of Arkansas 304 Hotz Hall304 Hotz Hall Fayetteville, AR 72701Fayetteville, AR 72701 479/575-5925479/575-5925

44

55

ExportingExporting

Exporting is defined as the direct Exporting is defined as the direct or indirect sale of goods and or indirect sale of goods and services to foreign markets.services to foreign markets.

Like domestic sales, export sales Like domestic sales, export sales involve both opportunities and involve both opportunities and risks.risks.

66

Reasons for ExportingReasons for Exporting

Increase total sales volumeIncrease total sales volume Sell your product in untapped markets Sell your product in untapped markets

vs often flooded U.S. markets.vs often flooded U.S. markets. Compensate for seasonal fluctuations Compensate for seasonal fluctuations

in domestic markets.in domestic markets. Find new markets for products with Find new markets for products with

declining domestic sales.declining domestic sales. And many others depending on your And many others depending on your

product versus other markets.product versus other markets.

77

Differences between Differences between Export Sales and Export Sales and Domestic SalesDomestic Sales BuyersBuyers CultureCulture Distribution Distribution

ChannelsChannels Emphasis on Emphasis on

CommunicationCommunication

Business Business EnvironmentEnvironment

Terms of Terms of Payment & Payment & CollectionCollection

Product/ Service Product/ Service RequirementsRequirements

After-Sales After-Sales ServiceService

88

BuyersBuyers

Just as domestic sales require an Just as domestic sales require an understanding of the needs of understanding of the needs of U.S. buyers, export sales require U.S. buyers, export sales require a greater emphasis on a greater emphasis on understanding the needs and understanding the needs and tastes of foreign buyers in specific tastes of foreign buyers in specific target markets.target markets.

99

CultureCulture

Domestic sales involve different Domestic sales involve different markets, but a common national markets, but a common national culture. However, for international culture. However, for international sales, exporters must determine to sales, exporters must determine to what extent the consumers of two or what extent the consumers of two or more nations are similar or different. more nations are similar or different. Exporters need an understanding of the Exporters need an understanding of the psychological, social and cultural psychological, social and cultural characteristics of the foreign characteristics of the foreign consumers they wish to target in order consumers they wish to target in order to design effective marketing strategies to design effective marketing strategies for the specific markets involved.for the specific markets involved.

1010

Distribution ChannelsDistribution Channels

Distribution channels for export Distribution channels for export sales are more complex than sales are more complex than domestic channels, involving the domestic channels, involving the movement of goods by land, air or movement of goods by land, air or ocean and requiring the services of ocean and requiring the services of freight forwarders, foreign freight forwarders, foreign intermediaries and others in the intermediaries and others in the movement of the exported goods movement of the exported goods between the U.S. manufacturer and between the U.S. manufacturer and the foreign buyer. the foreign buyer.

1111

Distribution Channels -Distribution Channels -ContinuedContinued

Once the goods arrive in the Once the goods arrive in the foreign market, they must also foreign market, they must also move through the internal move through the internal distribution system of the foreign distribution system of the foreign country to the end user. The country to the end user. The internal distribution system in the internal distribution system in the foreign market can be more foreign market can be more complex and difficultcomplex and difficult

1212

Emphasis on Emphasis on CommunicationCommunication

Greater distances, different time Greater distances, different time zones and foreign languages and zones and foreign languages and customs require the U.S. customs require the U.S. manufacturer to recognize and manufacturer to recognize and account for these differences in account for these differences in spoken and written spoken and written communication.communication.

1313

Business EnvironmentBusiness Environment

Firms must work within foreign Firms must work within foreign business practices, different business practices, different negotiation strategies, foreign tax negotiation strategies, foreign tax systems, government laws and systems, government laws and regulations, foreign currencies regulations, foreign currencies and different methods of and different methods of transportation in foreign markets.transportation in foreign markets.

1414

Terms of Payment & Terms of Payment & CollectionCollection

U.S. firms may have to extend different U.S. firms may have to extend different credit and collection terms to foreign credit and collection terms to foreign buyers than to domestic buyers; buyers than to domestic buyers; Therefore, export financing may be Therefore, export financing may be needed. Payment often takes longer needed. Payment often takes longer depending on agreed-upon terms, the depending on agreed-upon terms, the greater time needed for transportation, greater time needed for transportation, possible currency exchange problems, possible currency exchange problems, specific legal restraints in foreign specific legal restraints in foreign countries and other reasons unique to countries and other reasons unique to export sales.export sales.

1515

Product/ Service Product/ Service RequirementsRequirements

Goods and services for export Goods and services for export may have to be modified to meet may have to be modified to meet the needs of the foreign market. the needs of the foreign market. An example would be conversions An example would be conversions to metric measurements, food to metric measurements, food regulatory issues etc.regulatory issues etc.

1616

After- Sales ServiceAfter- Sales Service

The quality of after-sales service The quality of after-sales service may distinguish an exporter’s goods may distinguish an exporter’s goods from those of competitors. This can from those of competitors. This can allow the exporter to establish a allow the exporter to establish a positive position in the foreign positive position in the foreign market. Due to the lack of expertise market. Due to the lack of expertise or service ability in the foreign or service ability in the foreign market, one may want to consider market, one may want to consider establishing an after-sales service establishing an after-sales service organization.organization.

1717

Types of ExportingTypes of Exporting

There are basically two types of There are basically two types of exporting;exporting;

- Direct- Direct

- Indirect- Indirect

1818

Direct ExportingDirect Exporting

Direct exporting involves selling to Direct exporting involves selling to foreign markets by assuming foreign markets by assuming responsibility within the responsibility within the manufacturer’s company for all manufacturer’s company for all aspects of the export sale. Products aspects of the export sale. Products may be sold directly to foreign may be sold directly to foreign retailers, to foreign end-users or retailers, to foreign end-users or through foreign intermediaries by through foreign intermediaries by mutual agreement. mutual agreement.

1919

Indirect ExportingIndirect Exporting

Indirect exporting takes place when a Indirect exporting takes place when a product is being purchased domestically and product is being purchased domestically and sold abroad either on its own or as a sold abroad either on its own or as a component of another product. It can involve component of another product. It can involve selling to foreign markets by allowing an selling to foreign markets by allowing an outside firm to act as the manufacturer’s outside firm to act as the manufacturer’s “export department”. The outside firm could “export department”. The outside firm could act as a representative of the manufacturer act as a representative of the manufacturer without taking title of the goods or the without taking title of the goods or the outside firm could take title to the goods and outside firm could take title to the goods and export the goods on its own behalf.export the goods on its own behalf.

2020

Advantages of Direct Advantages of Direct ExportingExporting

Can yield greater profits.Can yield greater profits. Greater control over pricing and Greater control over pricing and

sales.sales. Control over company /brand Control over company /brand

awareness in foreign markets.awareness in foreign markets. Allows U.S. Company to develop Allows U.S. Company to develop

in-house expertise in the export in-house expertise in the export process.process.

2121

Disadvantages of Disadvantages of Direct ExportingDirect Exporting

Requires a commitment in terms of Requires a commitment in terms of personnel, time and financial resources.personnel, time and financial resources.

May require internal changes in the company May require internal changes in the company in order to support export sales activities.in order to support export sales activities.

NOTE; Companies that are new to the export NOTE; Companies that are new to the export sales process usually manage export sales sales process usually manage export sales with existing resources used for domestic with existing resources used for domestic sales. As their export sales and experience sales. As their export sales and experience increase, the firm may decide to manage increase, the firm may decide to manage export sales and domestic sales separately,export sales and domestic sales separately,

2222

Advantages of Indirect Advantages of Indirect ExportingExporting

Reduces the manufacturer’s Reduces the manufacturer’s commitment of personnel, time and commitment of personnel, time and financial resources to the export sales financial resources to the export sales process as well as the risk associated process as well as the risk associated with a greater commitment.with a greater commitment.

Provides immediate access to foreign Provides immediate access to foreign markets through established networks markets through established networks of foreign sales agents, distributors and of foreign sales agents, distributors and customers.customers.

Can allow the manufacturer with limited Can allow the manufacturer with limited experience and resources to penetrate experience and resources to penetrate foreign markets.foreign markets.

2323

Disadvantages of Disadvantages of Indirect ExportingIndirect Exporting

Limits the manufacturer’s control over Limits the manufacturer’s control over marketing, selling, pricing and marketing, selling, pricing and company/product reputation in foreign company/product reputation in foreign markets.markets.

Might add service costs that can make Might add service costs that can make export prices less competitive.export prices less competitive.

Might discourage foreign buyers Might discourage foreign buyers hesitant about dealing through anyone hesitant about dealing through anyone other than the manufacturer.other than the manufacturer.

Can yield lower profits.Can yield lower profits.

2424

Common Risks in Common Risks in ExportingExporting

Inability to support the export Inability to support the export market demand using existing market demand using existing production and inventory capacity.production and inventory capacity.

Interference with your domestic Interference with your domestic product development.product development.

Possible loss of economies of scale Possible loss of economies of scale resulting from a fragmentation of resulting from a fragmentation of your product line.your product line.

2525

Common Risks in Common Risks in ExportingExporting

Inability to support the costs of Inability to support the costs of new production periods.new production periods.

Inability to support the expansion Inability to support the expansion required by export sales.required by export sales.

Inability to finance orders.Inability to finance orders.

2626

Common Mistakes in Common Mistakes in ExportingExporting

Failing to get qualified counseling and to Failing to get qualified counseling and to develop a master international marketing plan develop a master international marketing plan before starting an export operation.before starting an export operation.

Failing to select foreign representation carefully.Failing to select foreign representation carefully. Not having enough commitment by top Not having enough commitment by top

management needed to overcome the initial management needed to overcome the initial difficulties and financial requirements of difficulties and financial requirements of exporting.exporting.

Chasing orders from around the world instead of Chasing orders from around the world instead of establishing a basis for profitable operations and establishing a basis for profitable operations and orderly growth.orderly growth.

Neglecting export operations when your Neglecting export operations when your domestic market boomsdomestic market booms

2727

Common Mistakes in Common Mistakes in ExportingExporting

Treating international distributors Treating international distributors unequally compared with their U.S. unequally compared with their U.S. counterparts.counterparts.

Assuming that a product or marketing plan Assuming that a product or marketing plan will automatically succeed in all countries.will automatically succeed in all countries.

Failing to modify products to meet the Failing to modify products to meet the needs or requirements of foreign markets.needs or requirements of foreign markets.

Failing to consider using an Export Failing to consider using an Export Management Company ( EMC).Management Company ( EMC).

Providing poor after-sales service.Providing poor after-sales service.

2828

Developing a Basic Developing a Basic Export PlanExport Plan

2929

Steps in Developing an Steps in Developing an Export PlanExport Plan

1)1) Research the marketResearch the market

2)2) Prepare the marketing planPrepare the marketing plan

3)3) Planning for distribution and promotionPlanning for distribution and promotion

4)4) Options for financing, payment and Options for financing, payment and collectioncollection

5)5) Documenting the sale and shipmentDocumenting the sale and shipment

6)6) Considering regulatory and legal issuesConsidering regulatory and legal issues

7)7) Establishing export operationsEstablishing export operations

3030

Step#1: Research the Step#1: Research the MarketMarket

Identify, pre-screen and assess potential of Identify, pre-screen and assess potential of foreign target markets. Thorough market foreign target markets. Thorough market research can help evaluate export research can help evaluate export opportunities and design a product-specific opportunities and design a product-specific and market-specific plan. and market-specific plan.

This plan should include market potential, This plan should include market potential, buyer characteristics, economic indicators, buyer characteristics, economic indicators, methods of payment and collection, special methods of payment and collection, special product requirements, channels of product requirements, channels of distribution, competitive position, restrictions distribution, competitive position, restrictions and market barriers, documentation and and market barriers, documentation and shipping requirementsshipping requirements

3131

Step #2: Prepare the Step #2: Prepare the Marketing PlanMarketing Plan

Design a product-specific and market-Design a product-specific and market-specific plan.specific plan.

It should clearly outline the company’s It should clearly outline the company’s export objectives, target markets, product export objectives, target markets, product requirements, required internal and requirements, required internal and external resources, pricing strategies, external resources, pricing strategies, promotion strategies, potential channels promotion strategies, potential channels of distribution and schedules for of distribution and schedules for implementing the marketing plan using implementing the marketing plan using available resources.available resources.

3232

Step#3; Planning for Step#3; Planning for Distribution and Distribution and

PromotionPromotion After designing a marketing plan, a firm must After designing a marketing plan, a firm must

decide;decide; 1) Whether it will export directly or indirectly1) Whether it will export directly or indirectly 2) Which channel of distribution to use to 2) Which channel of distribution to use to

move the goods to foreign markets.move the goods to foreign markets. These activities include assessing in-house These activities include assessing in-house

resources and capabilities, defining the resources and capabilities, defining the needs of market and the product, and needs of market and the product, and investigating the services and qualifications investigating the services and qualifications of any Export Management Companies. of any Export Management Companies. Evaluating foreign representation should Evaluating foreign representation should include visits to the potential representatives include visits to the potential representatives and their facilities.and their facilities.

3333

Step#4; Options for Step#4; Options for Financing, Payment and Financing, Payment and

CollectionCollection This activity includes assessing This activity includes assessing

and anticipating potential risks in and anticipating potential risks in the export sale such as the export sale such as commercial credit risks, political commercial credit risks, political risks and documentary risks.risks and documentary risks.

3434

Step#4; Options for Step#4; Options for Financing, Payment and Financing, Payment and

CollectionCollection In addition to the previous, the firm In addition to the previous, the firm

must decide;must decide;

1)1) The best terms of sale for both parties.The best terms of sale for both parties.

2)2) Any needed financing for export Any needed financing for export activitiesactivities

3)3) Acceptable options for payment and Acceptable options for payment and collectioncollection

4)4) A unique price for each foreign marketA unique price for each foreign market

3535

Step #5; Documenting Step #5; Documenting the Sale and the Sale and Shipment.Shipment. Documenting the sale involves Documenting the sale involves

collecting and organizing data to collecting and organizing data to complete documents required for complete documents required for shipping or to satisfy payment and shipping or to satisfy payment and collection terms, preparing the goods collection terms, preparing the goods for different modes of transportation for different modes of transportation and obtaining any needed insurance for and obtaining any needed insurance for the goods in-transit. The exporter may the goods in-transit. The exporter may also have to complete and track also have to complete and track applications for export licenses for applications for export licenses for specific shipments of goods.specific shipments of goods.

3636

Step #6; Considering Step #6; Considering Regulatory and Legal Regulatory and Legal

IssuesIssues Exporters should be aware of all laws Exporters should be aware of all laws

and regulations affecting export sales. and regulations affecting export sales. These include U.S. export regulations, These include U.S. export regulations, specific laws in target markets, anti-specific laws in target markets, anti-boycott legislation and other sources of boycott legislation and other sources of regulation and protection. Preparing for regulation and protection. Preparing for regulatory and legal issues also involves regulatory and legal issues also involves determining the proper export license, determining the proper export license, protecting intellectual property rights protecting intellectual property rights and developing an agreement.and developing an agreement.

3737

Step #7; Establishing Step #7; Establishing Export OperationsExport Operations

A company should establish an A company should establish an export department consistent with export department consistent with the firm’s export objectives. This the firm’s export objectives. This activity includes defining the activity includes defining the functions of the export department functions of the export department and its personnel, preparing the and its personnel, preparing the budget, committing needed budget, committing needed resources to export operations and resources to export operations and obtaining basic publications, obtaining basic publications, equipment and supplies.equipment and supplies.

3838

ASSISTANCEASSISTANCE

The previous sections are very general The previous sections are very general and non-specific to any particular and non-specific to any particular product. They were obtained from the product. They were obtained from the booklet “ Doing Business Overseas; A booklet “ Doing Business Overseas; A guide to Exporting”. It is recommended guide to Exporting”. It is recommended that you obtain a copy of this booklet. It that you obtain a copy of this booklet. It has many resources that can assist you.has many resources that can assist you.

Food product exporting may be more Food product exporting may be more difficult than other products due to difficult than other products due to extensive exporting regulations.extensive exporting regulations.

3939

SummarySummary

Exporting has many advantages but it Exporting has many advantages but it also has many risks.also has many risks.

Understanding the market, cultures, Understanding the market, cultures, regulations etc., can greatly minimize regulations etc., can greatly minimize the risks involved.the risks involved.

Be cognizant of the common mistakes Be cognizant of the common mistakes in exporting.in exporting.

One should develop a detailed One should develop a detailed product-specific and market-specific product-specific and market-specific plan for exporting.plan for exporting.

4040