International strategy always looks logical in the board room. Many companies demonstrate a strong track record of success penetrating their home market and perhaps adjacent countries. Success stories out number failures, but there are “Lessons Learned” that can help manufacturers avoid costly mistakes. Listed below are our Ten Barriers to Export Success.
Don’t Under- Estimate the Local Competition
It is likely that the local competition has a strong grasp on the fundamentals of the local market. What works, what drives consumption, and importantly what doesn’t work. Competitive teams may include native born employees with long standing customer relationships. Your product may taste better and have a more attractive package but you are the new comer. Always frame the proposition in terms of what the local competitor would be required to do and spend to enter your home market.
In Country Manufacturing
A local plant provides cost efficiencies throughout the supply chain. Exporting companies may face overseas freight charges, port handling charges, duties, as well as inventory related financing charges. Ultimately, all these incremental costs must be placed into your market pricing calculation placing you at a competitive disadvantage versus local producers. Local production alternatives may include use of a co-packer or joint venture if local production is mandatory for your category.
Low Category Development for Your Brand
Eating Habits and Practices vary widely from the staples of rice and beans in emerging markets to protein based diets in the Americas and Western Europe. Syndicated data, government reports or checks with local experts will reveal the “size of the prize” of your category in foreign markets.
Per Capita Spending Power is Low in Target Country
All of the worlds citizens maintain the basic requirement to source food products. However, in half of the world, the consumer maintains the spending power to afford only basic items necessary to feed their family. A country like Nigeria or Indonesia may boast a large population, but realistically the markets are small because only a fraction may be able to afford value added branded consumer goods. I remember that many companies targeted Brazil due to its 203 million population versus neighboring Argentina with a population of 42 million. The reality is that only 30 % of the Brazilian population is a target market for most brands translating to a market of 60 million people while 90 % of the Argentine population purchases consumer brands so the market opportunity gap is not as large as the population may indicate.
Investment is Required in All Markets
There is a cost of doing business in all markets. These investments may be segmented into consumer awareness and trail generating vehicles and trade incentives to encourage in store activity. It is not enough to place a product on the shelf without marketing support. The consumer will just walk past your product unless there is some stimulus to make them stop and consider your brand among their multitude of choices. Investments can be modest as an allocation of $5,000 to $25,000 can go a long way in many countries. Conversely certain markets such as Italy and Hong Kong are notoriously expensive to do business. A general rule is to establish a budget based upon a per capita population and adjust upward for a developed market and downward for an emerging market.
Pricing, Pricing, Pricing
Export pricing calculations result in prices 2-3 times the shelf price of your product in your home market due to the supply chain issues discussed in our in country manufacturing bullet. Consumers may be willing to pay up to a 30 % premium for a high quality international brand. If your price exceeds this 30 % threshold then you are really just appealing to the top 10 % of a countries population where price is not a barrier to purchase. The consumer will always be value conscious and international manufacturers need to search to provide value in different ways: ingredients, package, convenience etc.
Lack of Local Market Expertise
Many industry practices are transferrable across borders. After all, we are all aiming to place a product on the shelf of a supermarket. Each market and local category maintains a vault of “tribal knowledge” that new comers may fail to understand during the critical launch period. A local distributor or employee may bridge the knowledge gap, but nothing can replace years of experience in the category.
Core Product Benefits/Competencies do not Translate to Local Markets
International marketing text books are filled with examples of product launches failing due to lack of understanding of local cultural or industry practices for a brand. “This is How we do it back home” does not always transfer. Best bet is to conduct local market research or view existing category offerings for clues on local preferences. The local consumer may not be interested in the unique flavor or product benefit from your brand.
Difficult to Manage Export from Home Office
Companies tend to “micro manage” the business in their home country. Export often requires that the business is managed from afar, with only periodic visits and the majority of the business conducted via email and phone. This distance may create communication gaps and “under achievement” versus expectations.
International Focus May Represent Strategic Drift for a Small Company
In a small company, the same team of people perform multiple tasks. The primary objective for a company is to hit their sales and profit targets. This can be a stretch of the CEO and sales director are travelling to international markets trying to develop a new business. Even participation at a foreign trade show can deplete resources as management spends a week preparing, a week at the show and a week following leads. Resource allocation is a strategic decision and small companies must make choices on the best use of company executive team leaders time.