Exporting technology goods and services

Summary

These are a few thoughts on exporting from the UK. The article has been written specifically for a growing business exporting technology goods and services, but it is also applicable to exporting most other goods and services. A number of potential exporting target countries are analysed.

Deciding to export

You have a good product which is selling well in the UK. So why not make more money by exporting it to other countries? Language and cultural differences, bureaucratic obstacles, currency fluctuations and other real or imagined problems can be resolved in most cases, but often knowing what to expect in a particular market can significantly reduce the efforts and the risks involved.

Distributors

It is most likely that as your product gets more popular (and this is especially true if your website is well-designed and current), your organisation will get approached by foreign companies wishing to become a distributor for your product. You will be flattered and after doing some due dilligence, you will appoint them as distributors. They will promise to take care of the marketing and sales in their territory, while you will be responsible for shipping the product to them and providing second-line technical support. You will pay them a margin for doing this, typically between 30 and 60%.

This arrangement could be beneficial for both your company and the distributors for a few years. However, you will gradually become more and more dissatisfied. Here is why:

Short-term view

Most distributors have a short term view: their interest is usually confined to where the next sale is coming from and they are not interested in investing in things that may yield results in two or three years time. They will not be interested, for example, in investing in more fundamental marketing and brand development of your product and this will frustrate you greatly. You will try and push them into doing long-term projects, but you are unlikely to succeed.

Lifestyle company

It is likely that the distributor who approaches you initially will be a one- or a few-man company. He will be happy growing his company, but it is likely that the extent of his ambitions will not match yours. When his company reaches a certain size and he has bought his Ferrari, a new house and a boat, he will not welcome the headaches caused by going after more difficult customers and picking higher-hanging fruit. He has established what is known as a "lifestyle company" and you will have great difficulty in persuading him to develop further.

One or more distributors

One way to change the behaviour of a distributor running a lifestyle company is to appoint a second distributor in their territory. You will get squeals of protest, since the easy life will suddenly be made more difficult by local competition. Promises of improved performance will follow, if only you were to stick with one distributor. Ignore all this and appoint a competing distributor. The renewed vigour in the original distributor's behaviour will be dramatic and could well achieve a change in his lifestyle company behaviour, work harder and show more rapid growth.

Unauthorised copying

If you are selling easily copyable goods such as computer software (or virtually anything into China), it is likely that a less than honest distributor will "forget" to report some sales, supplying the customer with a copy of your product instead of the original.

For example, a Polish distributor of a UK software company got rather good at duplicating original CDs, producing local copies. Another distributor in Italy would routinely buy one-user software licences from the company and add his own licence for whatever the number of seats his customer bought. In both cases the truth eventually came out and the distributors were fired, but tens of thousands of pounds were lost in the meantime.

In most cases it will be timewasting to pursue such behaviour in local courts.

Payment terms

Selling goods is not enough: you must collect the cash due to you. Unfortunately, some countries are renowned for late payment of invoices and your distributor will give you this as an excuse as to why he cannot pay your invoices on time. Agree payment terms in advance and stick to them. Late payment should be your distributor's problem and the cost of financing any debt should come out of his margin.

Setting up a subsidiary

More and more distributors in more and more countries will approach you and you will appoint them. This arrangement will last for a few years and then you will fire most of them. Why?

You will get fed up with your distributor's excuses for not marketing your product, the sales will not increase at the rate you want and you will eventually decide to terminate the distribution agreement and set up your own subsidiary in the country.

Selecting the head of subsidiary

Selecting the right head will probably be the most difficult step in setting a subsidiary. You have two main choices:

Internal candidate

Select a person who is already working for you in the HQ, persuade his wife that country X is a wonderful place to live and send him there.

This may seem like a low-risk path since you know the person and the person knows you and the company. However, beware the cultural differences between a UK resident and the locals in country X. Does he speak the language fluently? Does he understand working practices and laws in country X?

Somebody from international sales who has previously been exposed to the country may well fit the bill.

Recruit a local

You can advertise in local media, employ a headhunter or use some other means to recruit a local person. On one hand, they may well know the local working practices, speak the language etc, but very importantly, they do not know you and your company. This could turn out to be a problem unless you tackle it proactively, both before and after making the appointment.

Running a subsidiary

The subsidiary has been established, the new office sports your company logo and the first employees have been recruited. What next?

Ex-distributors

Consider retaining your ex-distributors as resellers. This often proves to be a good arrangement, with the ex-distributors doing what they are capable of doing well (i.e. selling in the local market). Your subsidiary will be in control of what they can do well, i.e. making long-term investments into marketing and brand development.

Communicate often

A new subsidiary can very soon start feeling lonely and not well connected with the headquarters. You must communicate often with the person running it and encourage your HQ employees to communicate with their peers in the subsidiary. Establishing a regular rhythmic activity such as weekly telephone calls is a good way of ensuring that communications happens.

Ask the head of subsidiary to produce a monthly report on the state of the subsidiary. This can be published on your company intranet and provides a communication channel from the subsidiary to the HQ.

Visit often

Telephone calls, video conferencing and email are no susbsitute to physical visits to subsidiaries. You can talk to employees directly and ask them questions: it is sometimes amazing to discover problems which are not known even to the head of the subsidiary.

You will also experience yourself what it is like working outside the HQ with the problems of different time zones, slow internet connections, absence of data which is universally accessible in the HQ etc.

Learn the language

Learning and using even a few words of the foreign language will go a long way towards establishing a rapport with your overseas employees.

Export target countries

This is a selection of countries which could be potential exporting targets. The comments on each country are by no means exhaustive, but give an indication of what to watch out for.

USA

The US is a huge market which is greatly temptating for companies to enter. It is also geographically large with several time zones within the country itself. A lot of companies have attempted to enter the US too early, not appreciating the size of the necessary investment to succeed there. You should examine much more carefully why not to enter the US rather than the other way round.

Americans think big and what may be a large company in the UK will be classified as a medium company in the US. Make sure that if you aim for that market, you have the capacity to service really large customers.

Unfortunately, you will also encounter plenty of competition, both local and external, companies just like yours who have noticed that big juicy market. Be prepared for a tough fight.

Australia

Australia is a relatively small market, but very UK-friendly. They do like new things and lots of companies use Australia for test-marketing new products.

The country is similar in size to the US, but with most of the population spread around the southern coast, with not much happening in the middle. Be prepared for increased travel costs and the complications of geographical spread.

Japan

Japan is a market roughly half the size of the US. It is a very difficult market to enter, but various Japanese government agencies have programmes to encourage foreign companies to export to Japan.

Probably the biggest barrier to exporting to Japan is the language and the writing. Not many people speak English and all your literature, manuals etc will have to be translated into Japanese. The quality of translation is very important, in that shoddily translated materials will not be well accepted. Verbal discussions will almost certainly be done through an interpreter.

Japanese are suspicious of companies looking for a quick buck, disappearing from the market faster than they have arrived. They will look for signs of your intention to remain long term in Japan before committing to doing business with you. On the other hand, once you become accepted and trusted, potential rewards are huge.

Business negotiations in Japan can be frustratingly slow and tough for a westerner, so read a book or two on the subject. The good thing is that once something is agreed verbally and confirmed with a handshake, signing the paper contract becomes a formality.

Germany

With the market size slightly bigger than the UK, Germany is a market which cannot be ignored. Most Germans do speak English, but when you are selling to them, it helps to speak German (if you can).

They are usually solid and dependable partners who like certainty and try to plan everything.

France

The size of the French market is similar to the UK. The French sometime speak English, but if you are selling to them, you will speak French.

Although the 35-hour week is now history, expect and be prepared for various employment law horrors.

The French do not like conformism and if something can be done differently, it will be. Established procedures coming from the HQ will be interpreted in a way which can be very different from what was the original intention.

China

China is a huge market and a powerful magnet for any exporter. Beware of the tempting siren calls, though. It is an extremely tough market and if you are selling, be prepared for tough negotiations, razor-thin margins and high costs of sales. Of course, business is much easier if you are buying their products.

Quality is not as important as low price.

A few tips

• Exporting is a good and rewarding way to grow your company sales.
• Honesty and straight-forwardness are a universally-accepted currency.
• Never pay local "incentives" (bribes). Strongly encourage your distributors to behave in the same way.
• Organise an annual get-together of your distributors. Your subsidiaries should meet more frequently, e.g. once a quarter.
• Visit your overseas distributors and subsidiaries often.
• Try and learn foreign languages.
• Don't try to impose strictly uniform UK practices abroad: markets and customs vary and what is standard in the UK may be done differently abroad.