How to Export Products to a Foreign Market? (IM 29 Sept 2020-2)

How to Export Products to a Foreign Market?

One of the most important and critical decisions in international marketing is the mode of entering the foreign market. This decision needs to be a cautious move for its implications will have too much bearing on the future growth of the company. Market entry assumes more significance due to the fact that no country willingly accepts anyone from outside. At one side, a company may decide to produce the product domestically and export it to the foreign countries. In this case the company need not make any investment in foreign countries.

On the other hand, the company may establish manufacturing unit in the foreign country to sell the product there. This strategy requires direct foreign investment by the company. In between these two extremes, there are several options each of which demands different levels of foreign investment. No matter how mighty your company may be, it is not a practical strategy to enter all foreign markets with a single entry method.

With all its power, even a largest company may have to formulate different entry strategies to different foreign markets. Exporter may opt for one entry strategy in one market and another strategy in another foreign market, because one entry strategy may not suit all the countries.

In this way a firm may adopt various modes for international marketing ranging from indirect export to direct investment in manufacturing units in foreign countries. Each of these strategies requires different levels of investment, ranging from no additional investment to high investment in production facilities. Where the investment is low, the international business firm faces less risk, less control over the foreign market. On the other hand, when the investments are high in the form of manufacturing facilities abroad, international firm can have full control over the market, but faces higher risk.

Exporting of products to a foreign market is a quite common entry strategy many firms follow for at least some of these markets. Under this strategy, the company exports the product from its home base, without any marketing or production or organization in foreign countries. Normally, company exports the same product which is being marketed in the home market.

 

Exporting may be appropriate under the following circumstances:

1. If cost of production is much higher in the foreign country.

2. If there is political or other risks of investment in the foreign country.

3. When there is excess production capacity in the domestic market.

4. When expansion of existing plant is less extensive and easier than setting up plant in foreign country.

5. If foreign investment is not encouraged by the concerned foreign government.

6. If very attractive incentives are given by the government in the country for establishing facilities for export production.

7. If the value of export is not large enough to justify.

 

A manufacturer who wants to introduce his products in overseas markets can do so in two ways. The first alternative is to manage the export sales himself in the foreign countries. It requires greater involvement of the exporter. The other alternative is indirect exporting involving middlemen from the beginning to the end. The manufacturer does not involve himself in international marketing. Indirect export is not much different from the sale in the domestic market.

The middlemen get the goods produced from the exporter under their own specification and sell them in overseas markets or alternatively, manufacturer contacts such middlemen in a bid to sell his produce to them who sell them in foreign markets of their own choice. The middlemen sell the goods so procured in the same form or after grading, packing, designing or transforming them as per their own standards and specifications.

 

Direct Exporting:

When a manufacturing firm itself performs the task of selling goods in foreign countries rather than entrusting it to any outside agency it is called direct exporting. Usually a home-based export department or international marketing department in the firm is given responsibility for selling the products in foreign countries. The exporting firm may also establish its own sales subsidiary as an alternative mode.

When a manufacturer engages in direct export, he takes more risks but gets more returns. More than anything else, direct export means more involvement for the manufacturer, more control and more expertise within the firm.

In this way in direct exporting, the manufacturer takes upon himself the task of managing the export sales. The exporter engages in or supervises every step in the export of goods and shoulders the entire responsibility for the operations and bears all risks. This will naturally mean greater involvement on his part in the export business.

 

Thus, if a manufacturer firm opts for direct exporting strategy it has to perform the following functions which are not required in indirect exporting:

(i) The direction and supervision and control of export, including the development of export policy;

(ii) The adaptation of the product for export, including export packing;

(iii) Selling, including such related functions as advertising, sales promotion, sales training etc.,

(iv) Transportation of the product, including documentation for shipment, rail and ocean shipping, insurance and other related matters;

(v) Credit and terms of payment;

(vi) Financing, including exchange, invoicing and collections.

In this way, the exporter manufacturer performs all the functions relating to export from the beginning to end and has to bear all risks.

 

Direct Exporting by Indian Exporters:

By analyzing the advantages and disadvantages of direct exporting, it can safely be said that direct exporting is much better, provided the exporting firm is financially sound. In India, more and more exporters are taking recourse to direct exporting.

 

 

 

There are two reasons for this involvement:

1. Improves Exporter’s Image in Domestic Market:

If manufacturer adopts direct exporting strategy and succeeds, it can boost the manufacturer’s image in the domestic market because of- (i) goodwill earned by the firm in foreign markets; (ii) improved quality of products as the firm will like to produce and supply quality goods to the domestic market in order to achieve scale-economies (it need not differentiate the product unless it is warranted by situation), (iii) product development as the firm uses modern and the best technology available in the world to make its product competitive in the foreign markets. The advantage of product development is also available to domestic consumers.

 

2. Export Incentives:

In India, liberal export incentives are given by the Government to promote foreign exports. They help exporters in taking pricing decisions.

Due to above reasons, Indian exporters are interested in direct exporting.

 

Indirect Exporting:

Indirect export means export of product or services through middlemen. When an exporter allows an intermediary in his own country to perform certain important marketing function in relation to exporting the product, it is indirect exporting. In other words, when a firm delegate the task of selling products in a foreign country to an outside agency, it is called indirect exporting. It is almost equivalent to domestic sales.

The company, under this system, sells its products in its own country to another party which undertakes the responsibility of exporting the same to other countries. In this way, the exporter loses, to a limited extent, his control over certain marketing operations. For small companies with little or no experience in exporting, the use of domestic middleman readily provides expertise.

If a manufacturer has once adopted the indirect method of exporting it is not necessary always to export indirectly through middlemen nor does it preclude the manufacturer from selling a part of his production directly. The actual method that is adopted depends on the volume of business and the manufacturer’s decision often changes in accordance with the different conditions of the sales.

Steps for Selection of Foreign Markets (IM 29 Sept 2020-1)

 

Module II

 

Steps for Selection of Foreign Markets

 

 

First Step

First Step of the foreign market selection process is to use macro variables to discriminate between countries having basic opportunities and countries with no or little opportunities. Macro variables of the country describe the total market in terms of social, economic, geographic and political information. For example economic statistics of the country will disclose gross national product, population size, per capita income, personal disposable income etc. Political stability, political relations with the exporting country, geographical distance, climatic conditions etc., also influence the selection of a country.

 

Second Step

Second Step of the process focuses on the factors that indicate the potential market size and acceptance of the product. Generally proxy variables are used in this screening process. A proxy variable is a similar or related product that indicates a demand for firm’s product. Other factors such as stage of economic development of the country, taxes, duties etc., are also considered while selecting a country.

 

Third Step

Third Step of the selection process focuses on micro level considerations such as competition, cost of entry and profit potential. In other words, in this process main focus is given on profitability.

 

The Fourth Step

The fourth and last step of the screening process is an evaluation of potential target markets based on firm’s resources, objectives and strategies.

 

International or Foreign Market Selection Process (IM 15 Sept 2020) (IM 22 Sept 2020) (IM 24 Sept 2020)

International or Foreign Market Selection Process

 

Process 1 # – Identifying Foreign Markets:

Identification and selection of markets is the first stage in international marketing. Before making an entry in the international market, a firm has to identify those markets in which it can sell its products easily. To take this decision, firm has to analyse the potentials of various foreign markets and their respective marketing environments. Some markets may not be potentially good, and the firm’s objectives and resources may not allow it to operate in some other markets.

Therefore, a proper analysis is necessary for selecting the proper and appropriate foreign market. One market differs from another but still in one respect or the other, they can be grouped in different segments. It is important for the firm entering the world market to segment them in such a way that it is able to effectively meet their requirements. No matter how much attempt is made, the firm will not succeed unless it is marketing right product in the right market.

It costs lot of time and money to find out a suitable foreign market for a product. No firm has unlimited resources. Proper selection of markets would avoid waste of time and effort. One product may be more acceptable in some countries than in others. It would, therefore, be better to concentrate on a few markets than in more markets.

 

Process 2 # – Proper Selection of International Markets:

There are ample opportunities for export in a number of countries but taking into account the various factors it is not possible for a firm to do business in all the countries. It has to pick out a few possible markets out of the total markets surveyed. A preliminary study may help in avoiding the markets which are obviously impossible or less likely ones in comparison to other.

 

 

 

Criteria for Eliminating the Markets:

The following are some of the points which may serve as the criteria for eliminating the markets from an Indian exporter’s point of view:

(i) The Government of India has banned export to some countries.

(ii) There may be some commodities, the export of which are restricted or prohibited either completely or only to some countries.

(iii) Incompatibility of technical standards may eliminate some markets.

(iv) In some cases cost of product adaptation may be so high that an exporter may not be able to afford it.

(v) Some importing countries may impose quotas on the import of certain specific products from some specific countries. In such cases export is not possible.

(vi) If some countries impose formidable tariff barriers which may make the product too costly in the concerned country, it will not be possible to export such commodities to those countries.

(vii)There may be some non-tariff barriers which may make the export of some products to some countries virtually impossible or difficult.

(viii) In some cases, shipping costs may be too high. Therefore, export in such cases is not possible.

(ix) Where the competition is quite severe it may not be easy to enter the market or it may not be profitable to sell the product in such markets without high costs.

(x) In the case of technically sophisticated products too much promotional expenditure may have to be made and make them difficult to export.

In this way the foreign market selection process usually begins with a screening process that involves gathering relevant information on each country and after screening, eliminating loss making countries. Therefore while selecting foreign market, one must keep in mind the above facts and the following steps must be carefully analysed.

 

Process 3 # – Steps for Selection of Foreign Markets:

First Step:

First Step of the foreign market selection process is to use macro variables to discriminate between countries having basic opportunities and countries with no or little opportunities. Macro variables of the country describe the total market in terms of social, economic, geographic and political information. For example economic statistics of the country will disclose gross national product, population size, per capita income, personal disposable income etc. Political stability, political relations with the exporting country, geographical distance, climatic conditions etc., also influence the selection of a country.

 

Second Step:

Second Step of the process focuses on the factors that indicate the potential market size and acceptance of the product. Generally proxy variables are used in this screening process. A proxy variable is a similar or related product that indicates a demand for firm’s product. Other factors such as stage of economic development of the country, taxes, duties etc., are also considered while selecting a country.

 

Third Step:

Third Step of the selection process focuses on micro level considerations such as competition, cost of entry and profit potential. In other words, in this process main focus is given on profitability.

 

The Fourth Step:

The fourth and last step of the screening process is an evaluation of potential target markets based on firm’s resources, objectives and strategies.

Process 4 # – Criteria for Selecting Target Countries:

The process of selecting target countries through the screening process requires that the exporter identify the criteria to be used for selecting a country or differentiate one country from the other.

Market research on international marketing has shown that the following main factors are responsible for market selection:

1. Market Size.

2. Political Environment.

3. Social and Cultural Environment.

4. Legal Environment.

 

1. Market Size:

Market size is an important factor in selecting foreign markets.

Various factors influence market size and growth. Some important factors are as under:

 

I. Economic Factors:

(i) Total Gross National Product / Gross National Income = the total domestic and foreign output claimed by resident of the country = Consumption + Investment + Government + Net Export + Income earned by domestic resident.

(ii) Per capita income

(iii) Income growth rate

(iv) Income and wealth distribution

(v) Personal disposable income

(vi) Import size of the country and growth rate of import

(vii) Export-Import policy and other Trade Policies of the country

(viii) Export restrictions and incentives

(ix) Balance of payment = BOP is the statement of all transaction made between entities in one country and the rest of the world over a defined period of time, such as a quarter or a year.

(x) Trade agreements with other countries, and

(xi) Competition in the market and competitor’s market share.

 

II. Population Factors:

(i) Total population

(ii) Population growth rate

(iii) Distribution of population

(a) rural-urban wise

(b) Age-wise

(c) Sex-wise 

(d) Income-wise

(e) Literacy-wise, and

(f) Religion-wise.

(iv) Work habits and occupations.

(v) Consumer mobility, geographically and within social class structure.

(vi) Population density.

 

III. Geographical Factors:

(i) Size of country.

(ii) Climate.

(iii) Topographical characteristics.

 

2. Political Environment:

The impact of an importing country’s political environment on market selection is obvious. The exporter must consider the political influences as they affect consumers, present and potential customers or suppliers, international trade policies and the economy as regards business cycles, monetary stability, and taxation system etc. It means the government policies and their effects on the national economy should also be carefully analyzed.

Some indicators of political risks are as under:

(i) Probability of nationalization,

(ii) Government intervention and restrictions,

(iii) Limits on foreign ownership,

(iv) Restrictions on capital and profit movements, and

(v) Number of riots.

 

3. Social and Cultural Environment:

A culture, to some extent, determines its members’ needs and expectations. Understanding of socio-cultural conditions of the country is very important since, ultimately, it is the consumer who is to be served by the firm. Therefore, the impact of social and cultural environment on market selection is very important.

The following are the main elements of culture:

(i) Material Culture—Technology, technique and physical things

(ii) Language

(iii) Education, and

(iv) Religion, beliefs and attitudes.

 

4. Legal Environment:

In different countries not only are the rules for business different, but the ways they are applied also vary. This variation presents very difficult environment for international marketing; therefore, it is necessary to understand legal complexities before determining a selection of foreign market.

International or Foreign Market Selection Process

 

Process 5 # – Preferences Available to Indian Exporters:

Export promotion is an important method of encouraging economic growth and correcting the imbalance of trade. Export promotion means export encouragement in which old and new exporters are encouraged to increase exports. They are provided with cash help for this purpose. Bank loans are given. The import of some capital goods, necessary machinery and other raw material is allowed in lieu of exports. Concessions are given on train and marine fare to export goods.

Moreover, exporters and export organizations are given tax relief. Economists are of the opinion that export promotion is the only way to make India self-reliant, making balance of trade favorable, earning foreign exchange and industrial development. Foreign exchange can be earned only though exports.

Therefore, it is the government’s duty to give more importance to export promotion. The success of five-year plans depends upon exports. It corrects the imbalance of trade and completes progressive projects. Since independence India’s balance of trade has always been unfavorable.

Therefore, there is a constant need for export promotion. The various projects of the country depend upon export growth because the machinery, equipments and chemicals required for these projects are imported. Export promotion is necessary in order to reduce the burden of foreign loans. It is also used for selling new products made in India.

 

The various types of preferences available to Indian exporters are as follows:

1. The Generalized System of Preferences or GSP:

Under the generalized system of preferences, the developed countries allow the imports from developing countries like India either duty free or at concessional rates. It has naturally helped India’s exports to such countries. GSP makes the imports cheap in comparison to products coming from countries which are not entitled to GSP.

To take advantage of GSP, an exporter must know- (i) whether his product is covered by GSP, (ii) the preference margin enjoyed by his product, (iii) quotas for the import in that country, and (iv) procedural formation on this point may be gathered from the Indian Institute of Foreign Trade, Trade Development Authority, the Ministry of Commerce and Export Promotion Councils.

 

2. Exchange of Preferences among Developing Countries:

16 developing countries, including India, have been exchanging preferences among themselves under 1972 agreements. These countries are Brazil, Chile, South Korea, Spain, Mexico, Pakistan, Philippines, Tunisia, Turkey, Uruguay, Yugoslavia, Israel, Egypt, Paraguay, Bangladesh and India. India is also a member of ESCAP (The Economic and Social Commission for Asia and the Pacific). ESCAP members are extending preferences to each other on 93 products. The exporter must be aware of the products covered in the list of those 93 products.

 

3. Import Promotion Centers in Some Countries:

Some countries have established import promotion centers for imports from developing countries and to provide assistance to their exporters. A directory of such import promotion centers (IPC) has been compiled by the International Trade Centre UNCTAD/GATT and can be obtained from them. The countries where such centers have been established are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hungary, Israel, Italy, Japan, New Zealand, Norway, Poland, Sweden, Switzerland, Russia and U.K. etc.

 

4. Other Advantages:

An Indian exporter should also examine whether India has got any particular advantage in the market. Such advantages may be- (a) proximity, (b) trade dominated by persons of Indian origin, (c) existence of shipping facilities, (d) political relations, if they are not good, business may get setback even if the terms offered are more attractive, and (e) existence of rupee payment agreements.

Thus, after carrying out market surveys, some markets where entry is impossible or difficult, should be rejected and in other cases where some additional preferences are available, those markets should be favorably considered.

 

Sources of Information Available to Exporters:

There are many sources of information available to Indian exporters to help them.

Such sources are as follows:

(i) Export Promotion Councils, Commodity Boards, the Trade Development Authority, and various chambers of commerce.

(ii) Libraries maintained by foreign embassies in India provide a number of references to assist exporters.

(iii) United Nations publish detailed international trade statistics which can help the exporters in locating the market for their products.

(iv) Commercial banks and the Export Credit Guarantee Corporation of India can provide information about the foreign exchange and payment conditions in different countries and also the credit ratings and risks.

(v) Export-Import Bank can provide information about assistance provided by the bank to Indian exporters and foreign importers of Indian goods.

(vi) Reserve Bank of India publishes the Reserve Bank of India Bulletin incorporating the policies regarding exchange control regulations and other credit information.

Process 6 # – Export Promotion Organizations:

Export promotion organization of each country tries to promote the export of their country. In India also Export Promotion Councils (EPC), Export Development Authorities, Commodity Boards, India Trade Promotion Organization (ITPO), Exim Bank and others offer great help in easing Indian product sales abroad. They provide information by advertisements, sale promotion programmes and public relations. They do not do this to help a particular firm.

Their object is to promote Indian products abroad. Main objects of export promotion bodies are

(i) To be aware of chances of Indian product export,

(ii) To impress foreigners about Indian industrial development and technical capacities, (iii) To improve impressions about quality of Indian goods.

 

Following suggestions need to be considered for encouraging India’s export:

 

1. The government should set up a control room in the trade ministry in order to encourage exporters. This control room’s job will be to increase the facilities of exports and to solve the problems faced in export. It should work towards streamlining exports.

 

2. It is necessary to increase exports that the government should sets up training institutes. Export training should be popularized in the country. India Trade Promotion Organization should make special efforts. It should arrange for foreign trade courses to be taught in various universities.

 

3. The government should arrange for the production of goods that are in demand abroad. Proper plans should be prepared for export of goods. Export goods should be produced continuously. The goods that are in demand in the domestic market should be exported only when the domestic demand is fulfilled. These goods should be of high quality and should be priced competitively.

4. The government should give priority to the export sector. It should publicize as to what is in demand abroad. The country’s doctors, technicians etc., should be encouraged to work abroad on the basis of business agreements. Artists and entertainers should be encouraged to perform abroad. Foreign tourism should be given facilities on priority basis.

 

5. Government trade has an important place in increasing exports. But in our country, it has not proved to be very effective and profitable. It is necessary that government sector adopts a private sector like approach towards exports. For exports to increase it is important the government does bilateral trade agreements with other countries. It is necessary to make foreign trade successful.

 

6. Indian industrialists should set up joint operations in India and the government should do so abroad. This will have a favorable effect on our exports. Moreover, foreign industrialists should be encouraged to set up more and more export-oriented units in India. Multinational companies can be very effective in this regard. Indian industrial houses should also try to get foreign help.

 

7. It is necessary for the government to provide necessary information to the public on exports. The people should know what to export. Country- wise export research should be done. Studies should be done about the possibilities of exports. People should know about the facilities that the government gives to exporters. Such as Startup Business.

Decision Making Process for International Markets (IM 10 Sept 2020)

Decision Making Process for International Markets

 

Identification of International Markets

 

The first stage in international marketing is to identify the right market where the exporter can sell his product profitably because one market differ from one another and a person cannot sell his product in all the market of the world. So, he has to segment them in such a way that he may be able to meet the requirements of the market.

The basic problem that a firm has to solve in the initial stage of planning its international marketing strategy is to identify global marketing opportunities. To identify and shortlist markets which offer or might offer in future opportunities that can be exploited by it, a classification scheme for segmenting the world markets is required.

 

There are several bases of classification, principal among them are:

 

1) Classification on the Basis of Stages of Demand:

 

i) Existing Markets:

In the existing markets, consumer needs are known and are already being serviced by some products. The market opportunities can be assessed by estimating the consumption rate and the share of imports in current consumption.

 

ii) Latent Markets:

Latent markets have potential customers, but because no one has offered a product to fill the latent need there is no existing market.

 

iii) Incipient Markets:

Incipient markets do not exist in the present. However, conditions and trends can be identified that point towards the emergence of future needs and preferences for products and services that will create a latent market, which if supplied will become an existing market.

 

2) Classification on the Basis of Stages of Development:

 

i) Industrially Developed Economies:

Industrially developed countries provide a large market as they have no or little import restrictions. These countries lay more emphasis on the production of more sophisticated products and therefore insist more and more on research and development. Therefore, they like to import goods of simpler technology and simpler manufactures.

They provide ample opportunities for the marketing of the following types of products:

a) Labour intensive products like electronics and light engineering goods because these countries have an acute shortage of la.

b) Spares and components and raw materials to field their industries as they are not rich in agricultural raw materials.

c) Decorative articles and craft articles because of their affluence.

d) Anti-pollution equipment and those articles whose production has been banned for risks of pollution because they are very particular about preventing pollution.

As these countries have modern technology they are willing to provide technology to set up production and processing facilities in developing countries.

 

ii) More Developed Developing Countries:

This category would include countries like Brazil, Mexico, Hong Kong, India, etc. They would like to update technology for current range of manufactures and would like to import machinery and equipment to set up new manufacturing facilities. They are also interested in setting up joint ventures in other less developed countries.

 

iii) Raw Material Exporting Economies:

This category includes countries like those in the Gulf area and many countries ir. Africa and Latin America. They are generally faced with large changes in foreign exchange earnings because of fluctuations in their export prices. For example, Gulf countries were having a good time because of the increase in oil prices. They have inadequate infrastructure and therefore they need various types of goods, almost anything – consumer durables, food products, transport equipment, services facilities, etc.

 

iv) Subsistence Economies:

This type of economy is found in the least developed countries. They almost produce nothing and depend very much on the imports. They need:

a) Equipment to exploit their untapped resources

b) Infrastructural facilities like railways, roads, building, transport equipments, power generation equipments, transmission line tower etc.

c) Turnkey projects like housing, schools, hospitals etc.

As these countries lack infrastructures, the most developed countries do not offer latest technology and therefore there is much scope for the developing countries like India to export their products in these countries. New industries can be set up in these countries.

 

3) Other Basis of Division of World Markets:

 

i) On the Basis of Population:

Population could be another criterion for division of markets. The higher the population of a country, the bigger is the market provided by it. Of course, when analyzing population, it is necessary to look at (i) age groups and sex, (ii) social class, (iii) educational background, (iv) Number of households, (v) geographic concentration and differences, and (vi) the rates of change in each of the above characteristics.

 

ii) On the Basis of Gross National Products:

Gross National Product (GNP) ant its rate of growth as also the standard of living of its population could provide another basis for classification of countries. In fact, the large industrialized nations like the United States, West European countries, Japan, Australia and Canada are the best markets for consumer goods and consumer durables even though these countries manufacture these products themselves, because the people are wealthy enough to be able to buy imported products and in many cases prefer to do so.