Learning the Ropes
What you should be thinking about as you enter the booming export market
Many growing companies are taking a hard new look at overseas markets, and for several good reasons. The slack dollar makes U.S. products more attractive than ever to offshore buyers. Many of the world's newly industrialized countries have streamlined joint-venture and import-export rules as a means of boosting employment and satisfying growing consumer demand. Some mushrooming markets didn't even exist just five years ago, from bathroom fixtures for the 3 million new housing units planned in the Soviet Union this year to Zimbabwe's heavy demand for farming equipment.
For those of you who are considering doing business internationally, one simple rule usually applies: for the best results, start by exporting. You'll want to be sure you have a solid overseas market -- some experts suggest at least 15% of total sales -- before you even think about setting up international operations. The truth is, the best product or service can fall flat, not because of poor demand or inherent defects, but because it takes time to understand fully a customer's real needs as well as the prevailing business conditions and practices in an unfamiliar setting. One company that has had a good deal of experience -- and ultimate success -- in these matters is Autosplice Inc., based in Woodside, N.Y.
Autosplice's initial overseas venture was a logical and natural extension of its U.S. business. Having sold its products -- machines that provide solderless connections in appliances, computer peripherals, and other electronic devices -- to U.S. appliance-makers and other customers for several years, the company set up agent networks in Europe and the Far East to service its key buyers who had moved offshore. Once there, says company founder and president Irwin Zahn, "we saw that appliances were also made by Japanese and European companies, and in much the same way. We reasoned that if our machines worked for American companies, they'd also work for these other manufacturers.'
Last year, with facilities in Woodside, San Diego, Brazil, West Germany, and Great Britain, privately held Autosplice scored sales of $15 million (an increase of 25% over 1986), a third of it from overseas; another $5 million was brought in by its wholly owned subsidiary, Autosplice Japan, based near Tokyo. Although the company's international business is now growing faster than its domestic sales, it has taken its lumps along the way.
One thing Autosplice didn't reckon on at first was the need to modify its equipment for overseas use. "Americans look at basic function, but will generally overlook what we consider minor blemishes," says vice-president Otto Nedelkovich. "It took us about two years to realize that those blemishes are very important to European and Japanese executives." For example, some customers tend to overtighten a certain fitting on Autosplice machines during routine adjustments, which can dislodge or damage the main shaft.
"It could happen once or twice a year in some plants," says Zahn, "and it's a fairly minor problem here. But the Japanese won't put up with that. They demand, and pay for, a special shaft design that withstands overtightening. It's a case of overkill for an American customer, but it's absolutely essential there.'
Constraints imposed by strict worker-safety rules in other countries can also test the creativity of your design engineers, he warns. In some cases, all that may be needed is to install special guards on potentially hazardous equipment; in others, however, government-backed union rules may call for relatively exotic features, such as an electromagnetic field that stops the machine when interrupted by a worker's hand, or a remotely activated device for handling workpieces near moving equipment. "The problem is that most U.S. companies simply aren't aware of this," says Zahn. "Unless you want to spend years learning all these regulations, you need to know some experts over there -- not just advisers, but also engineers, designers, and machinists."
An important corollary is to take the time to tailor your product literature, documentation, performance specifications, and marketing programs to your specific target. Although foreign buyers care little about your company's ownership or where your product is made, "they do insist on a detailed analysis of what you're offering and how it's going to meet their needs," says Nedelkovich. And while customer service is important in every market, it carries special weight with Japanese and European customers. A surefire way to lose a client, in fact, is to force him to find an English-speaking employee to translate your instructions.
How will you sell your product in your new market? For the cautious newcomer, the most sensible choice -- especially during the start-up phase -- is to find a reputable agent or representative. "If you're unsure of the market potential, working through an agent is a safe, cost-effective approach," says Nedelkovich. "It costs you nothing until you're actually selling." But be warned: finding the right agent can be only slightly easier than finding the right marriage partner.
There are several possible approaches. One is the Commerce Department's U.S. and Foreign Commercial Service's agent/distributor service, which charges a mere $90 for matching your company's products and services with a qualified agent in your market (see "Export Help," below). Another is to find out if your target country supports a commercial-development office. The primary goal of such agencies is to promote start-ups, expansions, and other forms of new investments in their countries, especially in economically depressed areas. However, many will also advise exporters on agents, marketing conditions, and other factors in the hopes that you'll eventually become a resident producer.
Chances are you'll want to take a more active role in choosing your business partner. In that case, Zahn recommends that you simply ask some of your would-be customers "who they like doing business with. Never mind the elegant office and the fancy title. Your customers will tell you who's out there trying to solve the most problems."
Another advantage of an experienced agent is in helping understand the unfamiliar business practices and traditions in your offshore market. Despite Zahn's conviction that a good product here is a good product anywhere, success can ultimately rest on something as small as subtle shadings in communications. Although a skilled agent is indispensable here, of course, you also should be aware of how these "colorful quirks" can affect your business.
Social and cultural differences, for instance, often make it difficult to know what your customer is really saying. "A German manager will look you right in the eye and tell you exactly what's wrong with your product," says Nedelkovich. "But the Japanese don't want to embarrass you, so they bury their complaints beneath several layers of courtesy." Unfortunately, that makes it harder to figure out why your product isn't being accepted -- or how to get it fixed.
Nor is it always easy to know the decision makers in offshore markets, says Zahn. "In the United States, you can usually identify one person with the authority to say, 'Yeah, let's buy that.' But in Japan, almost everything is a group decision, although one person usually has the final word; the problem is that you may never know who that person is. Most Americans don't realize the significance of seating arrangements in Japanese meeting rooms, for example, or the small gestures that identify the decision maker to the careful observer."
Sometimes the hardest part of exploring overseas opportunities is figuring out how to get started. At the very least, search out a company similar to your own that's already operating overseas; most managers are glad to share their experiences with noncompetitors. Another possibility is to attend some of the international trade shows that are held every year. Says Nedelkovich, "You can learn a lot at these events, with minimal investment of time and money. You have a chance to meet other vendors, pick up leads, and learn how they sell."* * *
H. Garrett DeYoung is a Boston-based writer specializing in international, technology, and business issues.
One federal agency's sole mission is to encourage and support exports by American companies
A valuable -- and often overlooked -- resource is the Commerce Department's eight-year-old U.S. and Foreign Commercial Service (see "Reagan's Secret Export Program," November 1987). Backed by 1,100 trade professionals worldwide with specialists in 67 U.S. cities and 126 countries, US&FCS's offerings include free or low-cost counseling programs, seminars, trade delegations, and advice on trade-show participation. Other services include:
Comparison-shopping service. A research study tailored to your product that supplies key marketing facts for any of 14 countries. Sample questions: Who is the competition? What's the usual price for this type of product? Are there any candidates for licensing or joint venture? The price for the service is $500 per product per country. (Studies are generally limited to standard, off-the-shelf items rather than specialties.)
Agent/distributor service. Designed to match the would-be exporter with an experienced, qualified agent or distributor for a specific product in a particular market. Within 90 days, analysts will provide the names of up to six candidates. They'll also tell you if there are no qualified agents for your product. Price is $90 per search.
World traders data reports. Want to know more about a prospective customer or agent before tying the knot? For $75, US&FCS provides a complete profile, including background information within the local business community, payment history, creditworthiness, and overall reliability and suitability as a trade contact.
For more information on these or other services, contact one of the US&FCS district offices, or call (800) 343-4300 and ask for operator 199.