The aim of this assignment is to demonstrate knowledge of the information and data needed to formulate an export strategy. This will be achieved by way of addressing the following: 1. What is meant by the ‘business and market environment’ of a target market? What kind of information would an exporter need to collect? 2. What is meant by the concepts ‘market segmentation’ and distribution channels’? What kind of information would an exporter need to collect? 3. What are the financial issues, export practicalities and technicalities that an exporter would need to know about to in the context of developing an export strategy?
Business and market environment of a target market Exporting is a more difficult business task than importing (Weiss 2008). It is a challenge exacerbated by the global economic recession, remarkable growth and emerging economic might of China and India and the increasing pace of globalisation (Albaum and Duerr 2011). Although technological advances such as the Internet have made it possible for even the smallest businesses to sell their products and services around the world with relative ease (Albaum and Duerr 2011), there is still a need for a clearly thought out export strategy.
A nucleus of business activity, this master plan is like a satellite navigation system stating the destination of the business and the route it should take to get there. Weiss (2008) believes exporters need to know as much about target export markets as possible before any business transaction takes place. This information, he argues, should be based on a critical evaluation of the target market and tailored to the relevant product to be exported as part of a ‘market-entry plan including an initial marketing mix’ (Weiss 2008, p101).
What he is referring to is essentially a blueprint of the business and market environment of the target market. The importance of understanding the business and market environment of the target market, namely, the political, ‘legal, regulatory, financial and institutional systems’ are critical factors in determining success in the export sector (Commander and Svejnar 2011, p309). This can give crucial insights into the levels of corruption, number of regulations, taxation laws, business licensing and macroeconomic policies (Commander and Svejnar 2011).
Although target market studies tend to be product dependent, knowledge of local customers’ culture, hopes, language, predilection, buying capability, and the country’s international standards, state of development, infrastructure, transportation and environmental concerns are important considerations when formulating an export strategy. Furthermore, Commander and Svejnar (2011) stress the significance of indicators such as Gross Domestic Product (GDP), human capital and social factors such as health care expenditure and tertiary school enrolment.
The inference here is that a more highly educated workforce may perform better and reduced costs of any necessary training and healthier workers may take less sick leave. In ensuring that a full picture of the target market is obtained, Cadogan et al. (2012) argue that attention should be paid to data other than from the target market and there needs to be more flexibility in export market oriented behaviour. Kalafsky (2009) believes personal relationships can prove influential in some target markets. For example, ‘face-to-face contact is important in the Chinese market’ (Kalafsky 2009, p47).
In an adaptation of Porter’s (1979) Five Forces framework, it could be argued that exporters should take into account rivalry among competitors, threat of potential entry into target market, bargaining power of supplier, negotiating capability of buyers and threats of substitutes. Notwithstanding this, factors such as tariffs and non-tariff regulations, quotas, maturity of market, its structure and rival products are also of significance. In this way a heterogeneous range of perspectives of the business and market environment would give impetus to the export strategy. Market segmentation
Market segmentation is where companies establish ‘segments of demand’, ‘target specific segments’ and ‘develop specific marketing ‘mixes’ for each targeted market segment’ (Hunt and Arnett 2004, p7). According to McDonald and Dunbar (2010, p9) it is an ‘alternative to product differentiation’ – the ‘process of splitting customers, or potential customers, in a market into different groups, or segments’. A crucial factor in McDonald and Dunbar’s (2010) definition is the emphasis on customers, who they are argue, are no longer content to play a secondary role, but are more market savvy and experienced enough to specify exactly what they require.
Part of the reason for segmentation is that it can be used to divide large markets creating sectors that cater for geographic such as climate, area and location; demographic and socioeconomic like income, education, job, age, gender; family dimensions and house occupier status; behaviour relating to brand loyalty and psychographic in terms of attitude, lifestyle choices and values. Segmenting in such a way can ensure accurate and precise product and service placing. An important dimension of an export market strategy is to determine the segment of the market the company wishes to target.
In this way a company will ascertain the potential buyers of its products in the target market, reasons for buying, situatedness of customers and any salient features. Bloom (2005) has argued that ineffective segmentation may lead to strategic marketing opportunities being overlooked and a firm not benefiting from a tactical campaign. Factors such as the proportion of the segment and its profitability are, therefore, crucial features of a marketing plan. Distribution channels
How to operate distribution channels is of critical significance to the success or failure of an export business (Madsen, Moen and Hammervold 2012). This means making important judgements in utilising options such as the choice of foreign export firm to assume responsibility for the operation abroad. The locally recruited company would be charged with unearthing sales outlets, establishing its own export management, trading by way of local representatives, locating and using storage facilities and handle as decisions and setting up its own sales branch.
The level of responsibility assigned to a distributor or agent is dependent on the number of product rights an exporter holds (Madsen, Moen and Hammervold 2012). This may include marketing roles like pricing and delivery strategies, communication and locating customers. However, it is worth noting that overburdening a distributor with too many tasks could make them less effective. Such is the significant role of the distributor that it is essential that good relations are maintained (Zhang, Cavusgil and Roath 2003). ‘Relationships between exporting firms and other members of the international distribution channel
can significantly impede or enhance performance in export markets’ ( Matear, Gray, Irving 2000, p539). With the likelihood of long distances between exporter and their distribution channel trust between parties will be a central feature of this relationship. Financial issues Financial assistance for exporters and investors may be obtained through government schemes, credit export agencies or other financial institutions. According to UK Trade and Investments (2013), such assistance may be available through insurance policies and guarantees on bank loans.
This could also be in the form of bond support, overseas investment insurance, credit insurance and loan guarantees (UK Trade and Investment 2013). Notwithstanding this, due to high default risk and the required level of working capital associated with international trade export, businesses are more sensitive to financial shocks (Amiti and Weinstein 2011). Furthermore, exporters have a greater need for working-capital than those of domestic operating businesses, because of the longer time constraint experienced in international trade, especially when using the sea as the mode of transport (Amiti and Weinstein 2011).
The global economic downturn since 2008 has led to export finance being a main casualty of the European Bank retrenchment and having a high dependency on large amounts for long periods has led to limited financial institutions being able to offer monetary assistance (O’Connell 2012). This undoubtedly have had a significant impact on international business operations, limiting trade opportunities and progression. To increase a business’ prospect for successful exporting a systematic approach should be employed (Cavusgil, Knight and Riesenberger 2008).
The assessment of the potential markets (global market opportunity), organising for export, acquiring the necessary skills and competences and executing export strategies are of significant importance (Cavusgil, Knight and Riesenberger 2008). Export practicalities and technicalities A precise understanding of the practicalities for exporting is vital. When exporting within the European Union (EU), for example, these include commercial documents, duties, charging and accounting for VAT, responsibility for trade statistics, sales list and intrastat (Enterprise Europe Network 2013).
Even though there may be a slight differentiation when exporting outside the EU, there are necessary considerations such as new export system this permits exporters to make electronic declaration. Export licences is also vital. Johnson and Turner (2010) assert licensing reduces restrictions from the host countries regarding entering foreign markets. Further assistance and information on the practices and technicalities involved in exporting may be obtained from the market access database and International Commerce Terms (Incoterms) (Enterprise Enterprise Network, 2013).