Export & Import - Winning in the Global Marketplace: A Practical Hands-On Guide to Success in International Business, with 100s of Real-World Examples

By Leif Holmvall

Export & Import - Winning in the Global Marketplace is a practical handbook for how to conduct international business. Each chapter has a complementary You-Tube video introduction. The book suits the person who is new to international business and representatives of business organizations who want to improve their skills for a more advanced professional approach. The author takes the reader step by step through topics such as culture, women in international business, researching market information, finding and activating a foreign representative, setting up distribution channels, export pricing, shipping, how to get paid, dealing with different currencies, adapting products/services, sales material and your organization to new markets, legalities, staff training and much more. The book finishes with overviews of the future of the world economy and technology as they influence international business. The text contains hundreds of real-life examples from the author's over 45 years of experience conducting international business in 100 countries. It also presents case studies from other business people and organizations. Most chapters are divided into two sections. The first delivers basic information and the second, more detailed coverage of the chapter topic. Each chapter has a summary, checklists, and exercises that allow the reader to apply what has been learned as they answer the questions. Also included are links to relevant web sites. The book provides information about international markets in easily understandable language, with step-by-step approaches for every element of business activities, clear descriptions and facts along with a multitude of practical examples, how to find and activate a foreign business partner and the differences between doing business in a variety of markets. The content and learning concepts have been tested and proven. Hundreds of international companies and more than 5000 students and executives have participated in Export Pro Inc.'s educational and professional development programs and used books written by Leif Holmvall. For sample pages of the book, introductory webinars and a list of the contents,  A teacher's handbook is available for qualified educators.

• Language: English
• Publisher: Export Pro Inc.
• Release date: Dec 22, 2019
• ISBN: 9780968114827

Book preview

In This Chapter:

♦More competition

♦Evolution of markets

♦Global population, labour force/labour markets

♦Emerging opportunities and environmental influences

♦Other international services, health care/medical tourism, legal, education, international consulting, outsourcing

♦Economies today and in the future

♦Large companies and their influence on international business

♦The power and influence of emerging markets

♦Product life cycles, adaptation and profits

♦Why exporting?

♦Differences between Domestic and International Marketing

♦Who can export and adapting your organization

Example - New competition

You operate a local bakery in Brussels, Belgium. You’ve been in business for the last 20 years, supplying not only people in your neighbourhood who pick up fresh baked goods on their way to and from work, but also you have supplied bread to local schools. This arrangement has provided you with a steady income, which made you feel comfortable about the future. However, without warning, the business landscape suddenly changes.

You’ve just been notified that a large international bakery located in Holland has taken away some of your best customers. They have new contracts with five schools you used to service. They also have signed agreements with hundreds of companies in office buildings in downtown Brussels, and will supply them with fresh croissants before 9 a.m. every morning. How did this happen?

The European Union requires that public sector purchasing over a certain monetary value, e.g. for municipal and regional governments, has to be put to public or competitive tender.

That international bakery in Holland submitted the lowest bid and, by law, was awarded the contract for the next three years. There is nothing you can do, even though you have always done business with the school board. You did not bid on the contract. The decision-makers had no choice but to open the bid for public tender and select the best quote. Because the Dutch bakery has established early-morning delivery to schools in Brussels, they can now use this to their advantage and also cover the costs of supplying baked goods to offices in the same area.

Welcome to the world of international competition!

As you can see, previously protected domestic markets are being opened to greater outside competition and your rivals are nibbling away at your territory. What can you do? You have no choice but to expand your business elsewhere and seek new opportunities to expand your market domestically or internationally.

The Evolution of Markets

We live in a world of ongoing political, technological and economic developments. The pace is rapid, as is the extent of change in the marketing environment. In order for today’s businesses to survive, managers must understand the impacts of progressively more integrated world economies. To succeed, they must have the skills to forecast and implement plans so that their organizations can keep pace with those changes. They have to continuously analyze the markets and how their company will be affected, so that they can adapt.

What was once classified as a local market now includes larger geographic areas and a broader base for products and services. In response to market demands and rapid technological development, goods marketed are no longer mainly raw material-based. The main shift has been to knowledge-based services. Life cycle merchandizing from introduction to obsolescence for products is now much shorter. For example, some electronic consumer product companies like Sony and HP change their product lines two to six times a year.

Developing countries are investing in the newest technology in order to improve their economic competitiveness. What they lack in traditional infrastructure assets is being overcome with products and services that do not require costly assembly, transportation or warehousing. The way industrialized countries target customers has also changed in response to numerous variables – political, economic, sociological, technological, environmental and demographic factors. These will be covered in more detail in the following pages.

Twenty-first century markets are essentially borderless. Transactions can be completed with the click of a computer mouse. Customer service can be delivered from any location in the world with telephone and internet access. Products and services are constantly being developed and adapted for a broader range of demographic and geographic markets. Product life cycles tend to be short and competition is aggressive. No longer is it profitable to develop a product only for the domestic market. Furthermore, domestic markets are quickly influenced by events and suppliers from all over the world.

Surviving on the international market scene requires common sense, flexibility, understanding of individual market characteristics and how to adapt business to each of them. Experience in international business issues does help, but even more critical is an in-depth understanding how other markets function.

"In business, the competition will bite you if you keep

running. If you stand still they will swallow you."

— Semin Knudsen

Global Labour Forces and Market Influences

Age

The aging of the Baby Boom generation in industrialized countries has created a substantial number of people over the age of 55. In 2035, 25% of the population in Europe will be over 65 years of age.

This large, well educated, financially stable, influential market segment has significantly affected every aspect of North American and European society for the last 50 years. Men and women are retiring earlier from full time employment and living longer. Their interests and activities have changed over time. Many retirees relocate overseas to countries with better climates, lower costs of living and lower taxes, thus creating new market opportunities. On the other hand, a significant population of older people in a society with a low birth rate has far-reaching social and economic implications. These include longer periods for pension payouts, a smaller percentage of the population contributing to the economy and seniors’ demands for recreational, housing and health care services such as hospital beds and pharmaceutical products.

In contrast to the greying workforce in the G-8 nations, many developing countries have up to 50 percent of their population in the under - 25 age group. What does this mean in terms of markets? Industrialized nations have a large part of the population not working or retired. Developing countries have more of their population in the labour force, making them very competitive with respect to availability of workers with lower wage and benefit costs for employers. To put it another way, it would be like competing with a company that has only 5 percent in administration costs while you have to operate with overhead of 35 percent.

Labour markets

Half of the global population earns less than two dollars a day; 80% earn less than $3000 a year. About 40 percent are employed in agriculture, 20 percent in industry and 39 percent in services. As seen in the chart below, over 40 percent of the world’s labour force resides in India and China. Both countries have a large low cost labour force, which creates a very strong competitive position as well as a large potential consumer base.

Labour Force by Country – 2015

Source CIA, The World Factbook 2015

Note: China and India have about 40% of the global labour force

Over 200 million people worldwide are living and working outside of their home or native country. A significant percentage of the population is telecommuting or not working out of a traditional office.

What this means for a marketer is that more than half of the population in Europe and North America is working from a home or a satellite office at least one or two days a week. Telephone and video-conferencing have also become part of companies’ ways of reducing traveling costs for meetings and conferences. The cell phone has made it possible to reach people all over the world and poses a strong threat to conventional land-line communications.

Skype (http://www.skype.com) is a software application that allows users to make voice and video calls over the Internet, to anyone anywhere all over the world who has a computer. Calls can also be made to local telephone numbers at a low cost, using the computer. Computer-to-computer communications are free; low-cost plans are available for calls to mobile and long distance telephones, making it less expensive to keep in touch with contacts and communicate frequently. Many companies now include a Skype address on their business card. Your Skype address follows you wherever your computer is.

Environmental Influences

Widespread awareness of environmental issues has generated an array of eco-friendly or green products and services for environmental controls and safeguards. There is strong interest in recycling and waste reduction. Today, product formulation, product packaging and distribution are, to a larger extent, driven by customer demands for suppliers to comply with the new trend for environmentally friendly products. Conservation efforts, public interest issues and catalysts such as fluctuating prices for petroleum products push consumer demand for specialized products like alternative fuels and hybrid powered or electric motor vehicles.

The price of petroleum will continue to have a long-term impact on trade and the cost of goods. When crude oil prices reached $140 a barrel in 2008, many industries and individuals were directly affected. The sudden drop in oil prices 2015/2016 to $30 changed that back and improved the economics of oil importing countries. This is an example of continued sudden changes in economic rules. The advantage of low wage levels could be offset by the high cost of transporting goods, which for some products would cause them to become less price-competitive and more difficult to sell on far distant markets. When there is a balance between demand and supply of oil again, the price will increase.

New Opportunities for International Business

Improved communication and transportation methods have transformed the market for new products and services. During the last ten years, utility companies, catalogue order-taking, customer support functions for computer hardware and software, help desks, financial transaction data entry and other sales and support activities have been outsourced to locations beyond the borders of Europe and North America to countries such as India and the Philippines. Although there have been service quality and human resources/labour management challenges, off-shoring represents a low-cost way to deliver customer services.

In regions like North America, Europe and Australia new careers are emerging in sectors that did not exist three decades ago: software engineering, computer game development, optical payload design, infrastructure planning, medical imaging, etc. These and other specialized occupations service growing market niches that in turn stimulate demand for innovative products and services. The lesson is this: move jobs and services abroad and the customers will follow. There is no real limit to what can be offered outside of domestic markets.

Health care has become increasingly costly in many traditional industrialized or developed countries. There are shortages of hospital beds and family physicians. The price of some pharmaceutical products has increased beyond what many individuals can afford, especially those who have minimal or no comprehensive health insurance coverage. People are living longer. Many will need more medications, frequent and complex treatment as they age, but as well as constraints on government spending at all levels have led to long waiting lists. For patients who have the ability to pay for wellness care or for treatment, their approach is, why should we have to wait?

Over the years, increasing numbers of graduates from developing countries have studied the same technical and professional curricula for careers in accounting, health care and engineering. However, their comparable education has been obtained at a much lower cost than in developed countries. Relocating some high-paying jobs to lower-cost locations abroad makes economic sense for both employers and their workers. In fact, many developing countries are now competing directly with traditional service providers for customers in the medical field, to the benefit of local economies.

Why Medical Travel/Tourism?

■High healthcare costs in industrialized nations. Many uninsured or under-insured individuals cannot afford the costs at home

■Avoid long waiting lists for surgery or treatments at home

■It is relatively easy and affordable to travel overseas

■Overseas institutions often provide more personalized, customer-oriented care

■International accreditation of foreign hospitals provide quantifiable benchmarks for patient care quality (More than 250 hospitals have been accredited by JCI, Joint Commission International, (2008)

■Some insurance companies offer lower rates for coverage if surgical procedure is completed overseas

Medical Tourism

Medical tourism is one of the fastest growing global industries, at a rate of about 30 percent a year. The cost of surgery in India or Thailand is often one-tenth of what it would be in the United States or Western Europe. In addition to standard medical procedures, some hospitals also offer all-inclusive options with travel, hotel, a companion package and arrangements for vacation-recovery after surgery. In part, costs are lower because of reduced liability/insurance expenses for physicians, more modest salaries and less overhead. Medical practitioners are board-certified and many have left lucrative practices in other countries to return home for a less hectic lifestyle or to care for aging parents and to focus more on medicine than administrative tasks.

Medical tourism are attracting increasing numbers of medical tourists, individuals with disposable incomes who are not prepared to wait and who are willing to travel the world for services such as hip replacement, cosmetic surgery, dental treatments and womb for rent. Costs are consistently lower. Because many of the service providers have been trained in and practiced their speciality in North America and Europe, the quality of services can be higher and delivered at luxurious high-rise hospital resorts.

Countries such as India, Singapore, Hungary, South Africa, Malaysia, Dubai, Israel, Costa Rica, Brazil and Thailand are the top-ranked health tourist treatment destinations. Australia, Argentina, Belgium, Canada, El Salvador, Guatemala, Hungary, Malaysia, Mexico, New Zealand, Panama, South Korea, Taiwan, Turkey and the UK are becoming increasingly competitive.

2.5 million foreign patients travelled to hospitals in Thailand (2013), Singapore 850,000 (2012), Malaysia 770,000 (2013), and India 166,000 (2012).

According to health.com, about six million Americans travelled overseas for faster access to convenient, economical medical treatment in 2009. Popular procedures include comprehensive physical assessments, orthopaedic surgeries such as spinal fusion and knee/hip replacement, cosmetic surgeries such as facelifts and liposuction, gastric bypass, cardiac care, organ transplants and dental procedures.

With millions of health tourists seeking lower-cost but high quality medical care abroad each year, the sector is expected to generate $100 billion worldwide by 2012. The main consumers are residents of the Americas, the Middle East and Europe.

India is forecast to generate over $2.3 billion in health services revenue by 2012. They graduate more than 30,000 medical professionals every year. After 7 years in medical school, a physician can expect to earn about $400 a month. Compare that with the salaries of doctors in Europe and North America and you can understand why there is price differential.

Diagnostic testing is also being outsourced. Secure internet and high-speed broadband transfers are now so reliable that X-ray images, MRI and CT scans can be sent overseas for evaluation by skilled radiologist whose wages are a fraction of wages in Europe and North America. Completed reports are returned to the referring physicians for discussion with their patients.

Comparison of Overseas Surgical Costs*

*Source: www.Healthbase.com

Dental treatments such as cleaning, surgeries and tooth implants are also popular. A porcelain metal crown that costs a patient $600-1,000 in the US is priced at around $80-$300 in India. A porcelain metal bridge that costs $1,800 - $3000 in the US could cost $300 - $800 in India.

The examples illustrate one of the results of open competition for medical services on a global market.

Bumrungrad International (http://www.bumrungrad.com) in Bangkok, Thailand, is one of the largest hospitals in Asia, treating over 400,000 foreign patients per year from 150 countries. With more than 700 nurses and 945 physicians covering 55 sub-specialties (200 are US-board certified and many others were trained and certified in Europe, Japan, or Australia) this private, internationally managed facility provides an extensive array of medical programs and services.

Package prices are available for numerous routine procedures and cover surgical fees, doctor’s fees, medicine, lab tests, room charges and other costs for treatment, so there are no surprises when the invoice for services is received.

Patients may be picked up at the airport arrivals gate and escorted through immigration to a waiting limousine, which will transport them to sign in to their hotel/hospital. While their paperwork is being processed, they will enjoy a flat-screen television, complementary refreshments and newspapers in the waiting rooms. Being treated like a VIP means staying in a luxury room with a higher standard of care than most hospitals at home, then recovering in a tropical country where you can buy a decent lunch for less than $3 and have a tailor-made suit or dress made for $100 in two days. You can include your family when you travel and spend time having a relaxing vacation – all at a much lower cost than you would pay at home for the medical treatment, and without long waiting times.

Reproductive tourism

All-inclusive fertility treatment packages and surrogacy services are being promoted to infertile would-be parents around the world. Couples from India and overseas sign a legal contract and pay approximately $8-12,000 to rent a womb, where, for a fee, an Indian woman will carry a child conceived through in vitro fertilization or artificial insemination, to term. The comparative cost in the US, where willing surrogates are hard to find and the process is highly legalized and regulated, is around $70,000.

The prospective foreign parents are the renters. The embryo of their biological child is implanted into the healthy Indian woman by a physician at a local medical clinic. Of the $12,000 - $20,000 fee, about $7-10,000 will be paid to the surrogate. The rest is paid for physicians, medical care, hospital costs and food. Many of the surrogate mothers live in rural villages and have husbands and children, but limited income. This money represents the equivalent of 10 - 15 years’ salary for a rural Indian family and allows them to build a house, start a business and pay for children’s educations. A labourer makes about $1 a day.

Surrogacy treatments bring more than $450 million a year to India. India has about 350 fertility clinics. It is believed that more than 500-600 surrogate babies are born each year to couples from Japan, the U.S., Taiwan, Europe, and Australia plus babies to locals using gestational surrogates.

Ethical and legal concerns have begun to complicate the provision of surrogacy services. Although services may be allowed in the country supplying them, they may be illegal in the country of the buyer. Other questions are, what happens if the donor parent split up or decide they no longer want their biological child? What nationality does the newborn child have? The government of Canada requires a DNA test to prove that the couple are the biological parents. Many countries in Europe ban surrogate babies from overseas. For Germany, a child’s citizenship is based on the nationality of the birth mother, which in this case would be the Indian mother. New legislation is on its way in India that would prohibit gay and lesbian couples from hiring surrogates, because Indian laws ban same-sex marriage. There is also a growing possibility that authorities in India will demand a document from the couple’s home embassy confirming that the baby will be granted citizenship in that country. Many countries are now legislating against those procedures.

Other services

Lawyers and investment companies outsource research to lower salary countries like India. Why pay a Wall Street Analyst in expensive office space a salary of $180,000 a year plus benefits, when you can hire the same service in Mumbai, India for $20,000? Customer service functions like call centres are also being outsourced, so that when you have problem with your computer you can call a toll-free number to be connected to a technician in India or the Philippines. The market has changed, and so have the customers.

Education

More universities are establishing campuses and joint venture overseas. In the United States, 3.5% of students are from abroad. China has more than 200,000 students in higher education programs abroad, mainly studying engineering, languages and business. In 2014, about 4.3 million students were enrolled in higher education overseas.

Population and Market Influence

Global population is predicted to reach more than eight billion by the year 2020 and 10-11 billion by 2050, an increase of 88 million inhabitants a year. This is equal to the population of Germany. With shifts in demographics and residences, a minority of those people will be living in Europe and North America. In 2009, about 37% of the world’s population lived in China and India.

What were formerly characterized as lesser-developed countries are now becoming increasingly industrialized. They have emerged as large potential markets. More critically for other marketers, they will be serious competitors.

Projected population - year 2050 (Billion inhabitants)

1. India 1.57

2. China 1.46

3. Pakistan 1.34

4. USA 0.40

5. Nigeria 0.30

6. Indonesia 0.30

7. Brazil 0.27

8. Bangladesh 0.25

9. Ethiopia 0.19

India and China will account for 33% of the world’s population of 9.3 billion

Source Economist and www.photius

Movements of companies and privatization

Besides having to think more internationally, municipal, provincial and federal governments have been dealing with increasing numbers of foreign companies entering their traditionally protected markets.

The migration of people is another reason for shifts in settlement patterns. Privatization of industry that started in countries such as the United Kingdom has spread as an impetus to economic growth. The more prosperous status of the Latin American economy, for example, is largely the result of more open and privatized markets. Markets have been strongly influenced by ongoing hostilities in the Middle East, the former Yugoslavia, South East Asia and in Iraq. On the other hand, we have seen positive developments in South Africa, Latin America and the old Eastern Bloc of Europe.

The political instability in countries like Egypt and Libya in 2011 is another indication what can happen when ordinary citizens try to force democracy using the internet and social media in combination with demonstrations.

The unexpected economic downturn during 2008-2011 is an example of what can happen when governments, banks and countries spend more money than they have. Ten years ago, who could have predicted that in 2011, some countries, states and cities could face bankruptcy?

Economies and the Future

These types of developments are tough to forecast. Natural disasters such as the earthquake and tsunami in Japan will have a long-term global impact on agriculture, politics, manufacturing, trade and investment patterns. A potential exporter must balance their desire to expand into new markets with ensuring that investments are not wasted in countries with strong potential for political instability. Choosing the right market and decision-making flexibility - being able to change direction at short notice – are essential to success. The only constant is change!

Economic growth in industrialized countries has slowed. If you live in one of those, your market has been deteriorating for decades and neighbouring countries have also experienced limited expansion. You have to look outside your home territory for new, expanding markets.

Geopolitical uncertainties now drive long-term trends in global capital accumulation, currency flows and exchange rates. As well, there are the constant short-term influences of stock markets, high profile business failures, world events and government fiscal policies. In contrast, some developing countries such as Latin America and Asia have shown tremendous trade and industrial growth.

When you work for a company and want to know about its performance, you look at annual sales and the percentage of sales increases year over year. In many ways, a country is similar to a company. Gross Domestic Product (GDP) is like annual sales and an increase in the percentage of a nation’s GDP is like a company’s percentage of annual increase in sales.

When you are considering a new market, you must look at population as a basis for market size. However, even with a large population, if per capita income is low, total annual sales or GDP would likely be low compared with other countries that have a smaller population but higher GDP. Also, when the percentage of annual GDP growth is high, you have to determine whether it results from changes to a historically lower level of growth. Look at countries that have shown steady growth over a number of years. Determine if consumers there have sufficient income to afford your product or service. Note that trade in goods and services now represent 25% of global GDP, an increase from 10% three decades ago. The chart below shows a forecast of GDP positions.

Top 10 GDP Countries

Source: IMF and PwC - PPP = Purchasing Power Parity

In fact, since the figures in the table above were presented in late 2009, the economic climate has changed. By August 2010, China passed Japan to become the second largest economy. The forecast is that by 2030, China will pass the US as the largest world economy.

Even if a nation has experienced steady development it can involve uncertainty and potential risk. Some countries in the newly restructured Eastern Block have shown a relatively fast change in focus by adapting to a market-driven and investment style of business. So if you want to survive on an international market, you have to find new markets and also be aware of the threat of someone stealing part of your domestic market.

Some large corporations have as much in sales as the GDP of many countries. As a comparison, Wal-Mart, an American company with more than 1 million employees, had annual sales of $486 billion in 2015, which is the same as or more than the GDP (sales) of countries like Austria ($448 billion), Norway ($523 billion), Venezuela ($226 billion) and Greece ($252 billion). This means that large corporations can have a major influence on the economies of many countries.

Ten largest corporations in 2015

Source: statista.com

Some countries have experienced more rapid economic development than others. Corporations that are not that large today will have a much greater influence in the future, because of their location in emerging markets.

Different industry sectors and markets have a large impact on countries’ economies and also on the profitability of individual companies. For example, between 2006 and 2007, Tata Steel in India increased sales by 358 percent. Freeport McMoRan Copper and Gold Inc., which have operations in Asia and Spain, increased sales by 209 percent. Today’s emerging markets are becoming increasingly strong competitors with traditional industrialized European and North American countries.

While the financial downturn in 2008 had a negative effect on some national economies, others continued to enjoy uninterrupted GDP growth.

Examples of annual sales increases/GDP growth - 2015

Source, World Fact book - https://www.cia.gov/

Economics are changing, so see above as a sample. High GDP growth could indicate the economy is on continues upward trend, that the start level is low or is turning around. I suggest that you visit several websites to research country performance when it is time to make your selection of a new market.

Almost 100% of the growth and around 30% of global GDP comes from emerging markets. Because so many factors influence markets and market development, individual country growth and large corporations, from now until 2050 shifts in ranking will continue. As someone in international business, you will have to follow these developments and be prepared to change your priorities, research new market opportunities and adapt how you do business.

What Does International Business Include and What Can You Do?

International business is a two-way process that, among other things, includes:

■Export

■Import

■Joint Ventures

■Licensing

■Strategic partnerships

Benefits of Exporting

Increase your market size = increased sales

If your domestic market is 30 million customers and the world market is 8 billion potential customers, the global market is about 270 times the size of your domestic market. It is simply not possible that you could ever cover a market of that magnitude. Given the population of Canada, the European market offers a population of about 10 times the size of my domestic market. By entering that market, I will spread my risks and, at the same time, gain exposure to a much larger potential market.

More markets and clients = Increased company stability and more constant sales

Indirect exporting

You may already be exporting without knowing it. Say you supply hoses and couplings to a company manufacturing hydraulic systems and selling them on the international market, in 30 countries. So in fact, your products are being sold internationally. When those overseas customers want spare parts and you are set up to supply them, you have created an opportunity to start your international exposure.

Example - Indirect exporting

A European company supplied computerized control systems to a manufacturer of robotics in Europe. The manufacturer exported the systems to North America. After a number of years, over 300 systems were exported for use in the American automotive industry. As the control system could also be used for other automated systems, the European company decided to set up its own operation in North America. They already had 300 systems installed that needed service and as well, the existing satisfied users could serve as references, and become a good base for expanding the business.

Spread the risks = less dependence on one market, minimize fluctuations (currency, orders, etc.)

When investing in the stock market, you don’t just buy equities from one company; you diversify and spread the risks. Experts say you should never have more than 5% on your investments in one stock. When doing international business, you should use the same philosophy. Perhaps you cannot limit your exposure to 5%, but try to keep it to a maximum of 15%.

If you are fully dependent on your domestic market and that market drops by thirty percent, you’ll lose 30% of your business. Let’s say that your domestic market is limited to only 10%, then you would lose only 3% (30% of 10%). By taking your business to several markets, you can spread your risks and level out the ups and downs in your sales.

Economic trending varies from country to country, not only because each is in a different development cycle but also because of how industry is structured and what sectors bring the most money into the country. For example, Saudi Arabia relies on the price of oil and global consumption of petroleum products for their wealth. Naturally, when economies are actively expanding, there will normally be higher demands for some products and also higher prices.

Chile, which accounts for 35% of global copper output, is sensitive to fluctuations in consumption of minerals. When the economy is going at full speed, consumption rises and so do prices. When the economy slows down, consumption and prices also fall. During the economic meltdown of 2008, copper prices fell 45% and Chile’s exports declined by 29%. Even a country like China that has a huge domestic market is very dependent on exports. If the economy slows in Europe and North America and customers cut back on their consumption, the Chinese economy will feel the impact.

Increase your product or service range

Have you considered representing and/or manufacturing foreign products for your domestic market or for your trading area?

Example: two-way trades

For many companies, especially in North America, international business means exporting. However, there is always an opportunity for trade in both directions – into and out of your home country.

Let’s say you’re a German company that manufactures woodworking machinery. You have a limited range of products and you would like to export to Australia. You’re looking for a company in Australia that sells woodworking machinery, which is not a market competitor, and which preferably also manufactures a complimentary range of woodworking machinery.

You approach company management and offer to sell or perhaps even manufacture your products under license in Australia and New Zealand. You want to expand your product range so you can become more competitive on your domestic market. You offer to sell the Australian company’s products on your domestic market, as well as representing them in Europe from your home base. Your approach succeeds. Now you have a partner who will sell your products in Australia, and you also have access to complimentary woodworking equipment for your domestic market, as well as for export within Europe.

Why invent everything by yourself, when you could find a partner who already has suitable products? Why not spread the risks and benefit from the experience of others by partnering to expand your business and international sales activities?

Increased market and sales

As you’ve seen in the woodworking example above, by expanding into new markets, you will increase sales. By importing products, you can increase your product range and become more competitive on the domestic market too. If it is possible, you can also arrange to export the products you are representing on the domestic market.

Increase the range of products and services = use other company’s technologies rather than developing on your own

Expanding abroad can make it easier for you to source components for domestic production. With suppliers all over the world, you can search for opportunities to further reduce manufacturing costs and increase your competitiveness.

Two-way communications

International business is increasingly about two-way communications for sourcing and distributing products. Advancements in travel options and developments in telecommunications have greatly facilitated market growth. Creative use of inexpensive and accessible fax and video-conferencing, Internet-based communications such as e-mail, online and Net Meetings, Skype and text messaging and the simple telephone have greatly reduced communication barriers, despite the distances involved. Innovations such as on-line advertising and other promotional activities between merchants and consumers have transformed marketing and purchasing patterns. Competition is global and competitors are much more aggressive.

Modern merchandising includes not only tangible goods or hardware, but also systems, software or other kinds of advanced technology. What this means in the market is that now a smaller proportion of the value of non-traditional products is based on the cost of manufacturing than in the past when goods made up the main category of items traded. Value today is based on benefits and knowledge or soft products which include education and consulting services. The result is a better return on investment for the client. And price is based on what the customer is willing to pay.

One example is the mobile phone/smart phone. The hardware is actually only a minor part of the product and what you pay. The capabilities of the software is much more important.

Markets Today and Tomorrow

The number of companies and countries involved in international business continues to increase. Competition in industries such as manufacturing of high technology products is intense. Because of this, and rapid product development, the life span of new products has been reduced considerably. Purchasers know that two months after they’ve bought the latest model computer, another model will come onto the market, faster, with more features and a bigger monitor, and at a lower price.

Distances have shrunk, in part because of better communications and faster methods of transporting goods from one location to another. New opportunities have opened up for companies wanting to establish themselves in the global market. At the same time, companies wanting to compete domestically are under increasing pressure. Company personnel with better business knowledge, the right attitude, a willingness to step outside their comfort zone and the ability to make fast decisions will be most likely to succeed in new markets.

Business is a combination of war and sports.

— Andre Maurots

When products have shorter life cycles, larger markets and more rapid new product introductions are required. A product which in the past had a 20-25 year life cycle (i.e., from introduction to obsolescence), may now have a life of only two to three years. Some of the major electronic goods manufacturers refresh or change their entire product line six times a year. They have to maintain a significant market share to remain profitable. These global companies also have to be aware of the characteristics of different markets so that they can phase-in product introduction. This is a common method for extending product life cycles, in a variety of markets.

Product life cycles; from design to phase out

The cycles:

♦Design, planning and introduction phase

♦Growth/expansion phase when sales take off

♦Maturity, when sales begin to level off

♦Stagnation, when the product loses its attractiveness and sales begin to stall

♦Phase out or obsolescence, when the product no longer matches the needs of the market

Individual markets develop in different stages. What is considered a high tech product in one country may be too advanced for another market. For example, in a country where labour is cheap and a shovel is the only tool used for digging trenches, it would be impossible to sell a computerized excavator. Not only would it not pay off, but there would be no one available to service the unit.

Example - Obsolete product in established market but modern in new market

In highly industrialized countries, a modern sawmill is a fully computerized system. The system requires few people to operate. A computer scans each log and calculates the optimum cuts based on lumber prices that day.

When those sawmill systems were introduced in Europe and North America around 1970, they were seen as a way to better utilize expensive raw materials as well as cutting labour costs by reducing the work force.

This created a surplus of old sawmills to be sold or recycled somewhere and also limited the market for outdated machines. However, a huge potential market was located in Africa. Now the old sawmills could be exported to a new market and users who were happy to buy more advanced equipment than they had before. An obsolete product in a more developed market represented modern technology in a lesser developed country. In addition to new sales of complete older sawmills in new export markets, the sale of spare parts increased in markets that had not previously needed them.

So what does this mean for you as an exporter? It means that when the life cycle of products developed for higher-technology markets is over, you can now begin to market them to less-developed markets that have matured enough to use your old product. You can extend your product life cycles, increase your markets and sales, and open up demand for spare parts.

Increased sales and product adaptation = Extending product cycle

With an expanding market, you can sell current and older products. By adapting an earlier generation of products for lesser developed markets, you can create a longer life cycle and higher volume of sales.

Older products sold on lesser developed markets = New market life for established products

Product Life Cycles

Selling older products in less-developed markets = New Market Life

Example - Old product finds a new market

Sometimes, you can find opportunities in under-developed markets in more industrialized countries. In 1980, when Canadian consumers were concerned about energy shortages, the demand for old-fashioned cast iron fireplaces exploded. Being a Swede, I knew that companies in Sweden used to manufacture cast-iron fireplaces. In Sweden, they were considered old-fashioned technology. More modern units had been developed using sheet metal construction and fans for better efficiency. All the tools and equipment for manufacturing cast-iron fireplaces had been scrapped long before. However, a company called Jötul in Norway was still manufacturing the old-fashioned fireplaces, and they were able to take advantage of the new market for an old product. Jötul still exports large numbers of fireplaces to Canada.

Write off R&D on larger volumes = Less cost per item and more profit

When a company develops a new product, a lot of time and money is spent on development costs, tooling, etc. A car manufacturer spends hundreds of millions of dollars for every new car model and associated tooling. (Toyota spends $1 million an hour on research). So if they only sell one car, all that cost has to be carried by that one car. By manufacturing hundreds of thousands of cars or sometimes even millions of cars, development costs can be spread over larger volumes and the R&D and tooling costs reduced per unit.

The same is applicable for you, whether you develop software or machinery. Your product development and tooling costs can be dispersed over the expected volume of sales. So if your R&D costs are $300,000 and you sell one thousand units, your R&D cost per unit is $300, (300,000 / 1000). However, if you sell 10,000 units, your R&D cost is only $30 per unit. As you can see, by expanding into larger markets you can increase your sales volume and reduce the R&D costs per unit, which means you make more money. If you can extend your product life cycle, you can increase your sales volume even further and write off R&D quickly.

If you purchased a product like Microsoft Office software and examined the contents of the brightly coloured box, you would find that you received a DVD and a short installation manual. The cost to manufacture this product was most likely less than $5. So why were you charged $200 or even $700? Because you were willing to pay that price, you were convinced you needed the software and its benefits were worth it for you. Do you think the difference between the $200 you paid and the $5 production cost was profit for Microsoft?

You have to remember, though, that Microsoft has spent a huge amount of money developing and marketing their products. The dealer you purchased the software from was making money, too. So when Microsoft calculated the manufacturing cost -- the total cost -- they had to take into consideration the R&D costs and spread them over a large volume of sales. Of course, the more products Microsoft can sell, the more their profits will increase. When the company has written off the costs for R&D, i.e., reached the volume the product cost was based on, the marginal cost will be $5, giving Microsoft an enormous profit.

When we calculate manufacturing costs as well as profits, we tend to forget about this fact. Furthermore, because we complete the wrong calculation, we don’t realize that we could make more money. Have you ever had someone ask for a quote on a large number of units at a reduced price, and you couldn’t take the order because the price was too low based on your estimated manufacturing cost? Let’s look at one example.

Different Ways to Calculate Profit

Reviews for Export & Import - Winning in the Global Marketplace

[kash s · Rating: 5 out of 5 stars]

The most information packed book regarding import/export I have ever read. I can’t think of one thing that was missed. But of course, practical hands on experience is key to your success.