Are you Targeting the Right Export Markets?

— 13 min read

Targeting high-potential export markets is one of the most arduous and, at the same time, most impactful processes a company can undertake.

Ask company executives how they chose their export markets and, in many cases, the response will be that the market basically chose them. This can be a natural evolution whereby the company is contacted by someone who wants to buy their product or serve as a distributor in a particular market. Over the years, a company can end up with representation in a significant number of countries based on opportunity rather than strategy.

On the other hand, there are companies that are not selling into any export markets but want to start up an exporting program. Where do they start?

Whether a company is new to export and looking to enter its first export markets or an existing exporter intending to expand into new markets, both companies could benefit by embarking on a targeting process that would help to ensure their commitment of resources to export markets would yield the greatest return.

Why target specific markets?

Too often, we spend our time reacting to inquiries from many countries around the world rather than taking a proactive position that focuses the company’s resources on a targeted number of high-potential country markets. If your company has limited resources for its global expansion effort, the strategy should be to target a limited number of high-potential markets and proactively apply a significant portion of the company’s available resources to enter, expand, and penetrate those markets.
For the rest-of-world (ROW) or non-target markets, the strategy should be to allocate only limited resources to react to inquiries. If you apply the “80-20 Rule,” you would allocate 80% of the company’s resources to proactively target the areas you have identified as high-potential markets that will produce 80% of the results. Conversely, you will apply 20% of the company’s resources to react to the ROW markets that will produce only 20% of the results.

Thus, the primary reason for targeting markets is that the opportunities for global expansion are usually greater than your limited resources, and you want to proactively focus on the highest-potential markets rather than letting others pull your company’s resources into low-potential markets.

How do you target markets?

The most effective way to tackle the targeting process is to think of it as a funnel going from many markets and very broad screening criteria to few markets and very specific screening criteria.

The top of the funnel will include a broad array of Countries of Interest from which you will identify Potential Markets (Screen #1) and then Best-Prospect Markets (Screen #2) and finally your High-Potential Markets (Screen #3). If you keep updating your information during your annual planning process, over time Best-Prospect Markets might move into the High-Potential Markets category and become new target markets. Initially completing this process can be challenging. But, once completed, you will have a wealth of information from which to base your decisions. Should you decide to focus on lower potential markets, you will have gained insights to perhaps off-set some of a market’s shortcomings or anticipate obstacles that may not have been apparent.

Starting the Process – Establish Countries of Interest

You may be tempted to start with a very small number of countries based on past inquiries, conventional wisdom in the industry, or other criteria. However, you should consider starting with a very broad list of countries.

There are almost 200 countries in the world. There is probably a high potential for your product in countries that you will miss if you select a very limited group of countries. Therefore, you might consider starting with all countries in the world. Alternatively, if you are focusing on only a specific region of the world, you might select all the countries in that region. Either way, as you go through the targeting process you will narrow the countries down to relatively few high-potential target markets based on a three-level screening process.

Once you’ve established the Countries of Interest, what’s next – Establish Market Selection Indicators

Next you will need to establish 3 sets of Market Selection Indicators to be researched and applied against country markets as they move through the funnel from Potential Markets (Screen #1) to Best-Prospect Markets (Screen #2) to High-Potential Markets (Screen #3).
The three broad categories of market indicators include environmental indicators, product indicators, and “other” indicators. Environmental indicators are useful in identifying the general business environment and the basic need potential of the market. Product indicators point directly to your specific product and include an assessment of hurdles and other indicators of your ability to be successful in the market. The “other” indicators are an array of factors that could apply to your product.

Whatever your product, there are Indicators of demand that you explicitly or intuitively use to target your marketing program in your domestic market. What are the indicators of demand in your domestic market? In the global market, the indicators of demand may be similar to your domestic indicators adjusted to different environments, cultures, regulations, and so forth. In this task you will begin to define the global market indicators for your product. You will use a mix of indicator types—data, market intelligence, expert opinion—to determine the highest potential markets for your product.

Ready for Screen #1 – Identify Potential Markets

Let’s assume you’re starting off with a large number of Countries of Interest. You will want to use Market Selection Indicators for Screen #1 that will be relatively easy to collect for all of the Countries of Interest and will enable you to eliminate those countries that don’t meet a minimum threshold. This first screen might focus on indicators such as the following:

  • Demographic. Population, growth rates, age structure, birth rate, urbanization
  • Economic. GDP, GDP growth, GDP per capita, household income, private consumption, interest rate, exchange rate, convertibility of currency, economic stability
  • Ease of Doing Business
  • Trade Agreement with the US
  • Other

At the end of this step, you should be able to select a limited number of countries (e.g. 20 or 30) to be included on Screen #2. To select these countries, you may use the total weight (see Assigning Units of Measure and Weights below) to rank your Potential Markets. However, there may be critical country markets that you want to either include (e.g., a critical customer is in that market) or exclude (e.g., the local economy is currently in a deep recession). In this case, use your judgment in finalizing the countries for Screen #2.

That wasn’t so bad, now on to Screen #2– Identifying Best-Prospect Markets

The next task in the targeting process is to narrow the list to your Best-Prospect Markets. You will start your screen with the limited number of countries selected in the Screen #1 for Potential Markets task and apply the Screen #2 market indicators. The market indicators for Screen #2 will be more challenging to obtain but, fortunately, we’ve already narrowed the country list significantly. This second screen might focus on indicators such as the following:

  • Social/Cultural. Education levels, literacy, family structure, ethnicity, language, religion
  • Political. Patent and trademark protection, legal system, international organization participation, political stability
  • Business. Practices, culture, rule of law
  • Export Hurdles. Export restrictions from your country to the market
  • Import Hurdles. Tariffs, non-tariff barriers, product standards
  • Use Hurdles. Cultural, lifestyle, technical, product life cycle
  • Demand. Size, growth rate
  • Customers. Need for product, ability to afford product, market segments and size
  • Infrastructure. Ports, inland transportation, rail transportation, communications
  • Inquiries. Requests for the product received from foreign markets
  • Other

Once again, you will apply the weights and calculate a total weight for each country. This weight, along with your judgment, can be used to identify and rank the second round of country markets (e.g. 10 to 15) as Best Prospect Markets.

We’re nearing the narrow end of the funnel – Screening for High-Potential Target Markets Screen #3

The Market Indicators for Screen #3 will likely be the most challenging to obtain as they really drill down into the demand and competition for your specific product. Below are examples of the types of Market Indicators that might be used for Screen #3.

  • Industry Sector. Production, rate of growth, number and size of local competitors, strengths and weaknesses of industry, imports of product from your country/world, exports of product to your country/world, competitors’ imports to country
  • Distribution. Defined distribution channels, distribution agreement laws and practices
  • Competition. Price, quality, service, technology, promotion, market share by domestic competitors, market share by non-domestic competitors
  • Complementary Products. Size of demand for complementary products or products on which your product may piggyback
  • Expert Opinion. Your judgment, industry leader opinions
  • Unique Indicators. There will undoubtedly be very unique indicators for your product that you will develop

As with Screens #1 and #2, you will once again apply weights and calculate a total weight for each country. This weight, along with your judgment, can be used to identify and prioritize your High-Potential Markets. There may be critical country markets that you want to either include or exclude in the final list of high-potential target markets. Again, use your judgment in making your final selection.

How many country markets should be included in the High-Potential list?

The number of target markets into which you plan to focus your global expansion program will depend on the resources your company has allocated to the program.

If your global expansion resources can address all the listed High-Potential Markets within the current planning cycle, then consider these markets as prioritized markets. However, if your resources are limited, you may want to deselect one or more of the target markets for the current annual planning cycle. The deselected, or secondary, target markets may be phased into the global expansion program over time.

At the conclusion of the targeting process you will have divided the world into three categories:

  • Prioritized Target Markets – markets to be entered or expanded in the current planning cycle.
  • Secondary Target Markets – markets to be phased in over time.
  • ROW Markets – all the non-target country markets in the world.

Market Indicators — Assigning Units of Measure and Weights

Each selection indicator will need to be assigned a weight scale. This scale will be used to calculate a weighted-rank order for a specific indicator. It will also be used to sum up a total weight for the indicators for a specific country. The total weight will help you to identify and prioritize the highest-potential markets and select the markets that will be used in your next screen.

The units of measure would be whatever makes sense for a particular indicator such as number, dollars, percentages, volume, and other customary units of measure. The weights that will be assigned for each indicator (e.g., Per Person GDP at under $5,000 = 1, between $5,000 and under $10,000 = 3, etc.) need to be defined using a scale such as 1-to-10.

Undoubtedly, some indicators will be more important in selecting your target markets than others. Therefore, when you are assigning weights for an indicator, important indicators may be scored on a 1-to-10 scale while less important indicators may be scored on a 1-to-5 scale. By using a higher scoring scale for the important indicators, you will give them more weight in the weighted-rank order process.

Where to look for Target Market Indicator Information —

As you establish your market selection indicators, you will also need to identify where you might source your data and information. In this process, you may find it necessary to adjust your indicators based on the availability and cost of the desired data and information. By specifying the sources, you will be able to update the data and information in your screening tables as the need arises over time.
Several sources can be used for collecting indicator data and information on almost every country market. These sources include resources such as theU.S. Census Bureau, Customs information, Euromonitor, Kompass, United Nations, U.S. Central Intelligence Agency World Factbook, and U.S. Department of Commerce. Some of the sources are fee based but may provide free access to low levels of data and information. Government agencies in the country of export may be some of the best sources of free or low-cost foreign market data and information. While many people use standard forms and tools to populate the information, there is also a newly developed software by FasTrack Globalizer to guide you through this process. The FasTrack Globalizer software allows you to input, analyze, and share information with your colleagues, all in a cloud base system to help you better manage your global strategy.

Your company’s records and database may be primary sources of data and information (e.g., quality foreign inquiries). You may need to review government export marketing reports; scan industry journals for market and competitor information; and talk with experts in government agencies, industry associations, and known exporters in your industry (including domestic and foreign competitors).
Your search for secondary and primary sources of selection indicator data and information can go on endlessly, but don’t let it. Your primary purpose is to make a rational judgment about the highest-potential markets for your product based on reasonably available and accessible data, market intelligence, and expert opinion. In future annual planning cycles you will reiterate this targeting process and continue to improve the sources for and quality of data and information.

If your product fits neatly into a narrow product classification code, collecting data may be easier than if the product is included in a broad product classification code or is a service or technology. For these types of products, finding relevant data and information for an indicator may, in some cases, become more challenging and require more creativity or, in other cases, become easier (e.g., you identify a complementary product for which there is abundant date/information).

All data and information needs to be weighed against the test of common sense. For that reason, it is imperative that you use your own judgment, as well as seek out the opinion of experts in your industry and market intelligence sources. Review trade journals, contact your trade associations, discuss your potential markets with government agencies, talk with known exporters to the country, quiz foreign visitors you meet at trade shows, and so forth.

It’s worth the effort –benefits will be realized company-wide

This targeting process, particularly if updated as part of major planning cycles, will enable you to focus on those markets that truly offer the greatest return. If product modifications are required, then you will be more confident making that investment leading to greater competitive advantage in a high-potential market. Personnel throughout the organization can become expert in selling to and servicing those markets that are going to generate the greatest return and long-term growth for your company. And, you might be surprised by the markets that you’ve been overlooking, as well as those where you’ve been “spinning your wheels.”

About this Author: This article is brought to you by Sandra Renner. Sandra has many years of experience in Global Exporting and is the Founder and Chair of the Board of FasTrack Globalizer. For more information on FasTrack Globalizer, please visit.

 

 

Prioritizing Your Products with the Highest Export Potential – Why It’s Important

— 9 min read
Whether your company is an experienced exporter or new to exporting, one way to help ensure profitability in export markets is to step back and assess or re-assess the products, services, or technologies (hereafter referred to as products) that your company will promote in export markets. 
 
If your company produces only one product, this process will enable you to identify or anticipate potential challenges and hurdles early in your export expansion process and allocate resources accordingly. If your company produces multiple product lines, this process will enable you to focus your resources on those products that will have the greatest success in the near term and gain a better understanding of what will be required to succeed with products that might face export hurdles, import hurdles, or sales and use hurdles. 
 
Often, companies continue to add products to their export catalog without putting each one through this type of process and the result can be limited sales and profitability in relation to resources allocated to sell the product in a particular market. While this process can be completed by one individual in your organization, it is more productive to have input from various functional areas within the company.
 
 
 
Steps
 
⦁ Assess Export Potential of Products
 
Your company may be making a worldwide, regional, or country assessment of your products depending on how you are defining your market.
 
To start the selection process, list the products you are currently exporting or you believe might have export potential. Beside each product listed, indicate why you want to export the product and/or believe that the product might be successful in export markets. This list may be based on your current knowledge – no research required – and updated over time. It is also a good opportunity to include others from your organization in this discussion.
 
After listing your products with export potential, select one or more products that you believe have the highest export potential. List these potential products and your rationale for selecting them.
 
⦁ Select Best-Prospect Products
 
Your initial assessment is designed to determine likely issues to be encountered such as governmental approvals, if any, and product features or characteristics that may require a certain degree of alteration. Ideally, your products can be exported “as is” since one of your objectives will be to successfully sell your product in export markets with a minimum of expense and complication. Use your experience in the U.S. market, knowledge of foreign markets in general (e.g., use of metric measurements), and your intuition to start the assessment process.
 
There are four types of questions you will want to address to initially determine the exportability of your products: 
 
⦁ What hurdles might I have to overcome in order to ship my products out of the country?
⦁ What hurdles might my foreign customers have to overcome in order to import my products?
⦁ What hurdles might my foreign customers have to overcome in order to sell or use my products?
⦁ What other hurdles might I have to overcome to maintain export success?
 
In order to select your most exportable products (Best-Prospect Products), start with the potential products you selected as Products with Export Potential. 
 
Use the information you currently know about your products, your potential customer base, and your existing knowledge and perceptions about foreign markets. For each product you are considering, write down the hurdles you believe will have to be overcome or about which you have questions. This list does not have to be long. The number of questions may, of course, depend on the type of product you choose.
 
⦁ Export Hurdles
 
There may be export hurdles to be addressed that are related to shipping your product out of the country to a foreign buyer or, for example, not to getting your product into the foreign market. You will need to determine if your product will require a special export license or is prohibited from being shipped to a specific country or customer. Note any initial hurdles of which you may be aware. You will address export licensing in more detail later in the process.
 
⦁ Import Hurdles
 
In many countries, your customers may have high import hurdles such as tariffs, restrictive quotas, or other formal and informal barriers to importing. If you are exporting electrical, medical, food, or certain other types of products, your customer may not be able to import the product until the product has passed inspection and meets the standards of the importing country. If your product requires government approval in your domestic market, for example, there is a chance there is a comparable agency in other countries that may require your foreign customer to obtain approval. Obtaining import approvals is not necessarily an obstacle because there are a number of ways to work through the approval processes. The important thing at this time is to raise the questions that will have to be answered at some later step in the process by you or your customer.
 
⦁ Sales and Use Hurdles
 
Your initial product screening should also include an assessment of sales and use hurdles such as the product’s features and characteristics. Are there things which would obviously need some modification in order to make the product marketable, and, if so, how difficult would the changes be to implement? Because all but three countries of the world use the metric system and many parts of the world use different types of electrical power, your foreign customers may have problems selling and/or using your product unless the products are modified. Your product should also be reviewed for foreign sales and usage problems such as the need for training in the use of the product, after-sale support or maintenance, and so forth.
 
⦁ Other Hurdles and Issues
 
During the initial assessment, you may identify other hurdles and issues about which you are unsure and which will have to be considered as you progress down the export track. For example, if your product is competitive with imports in your domestic market, will it also be competitive in foreign markets? Are there patents or trademarks that will have to be protected?  By starting a list of these unresolved issues now, you are more likely to address all the potential areas of concern that will have to be resolved before you take your product into a foreign market.
 
⦁ Select & Prioritize Best-Prospect Products
 
The assessment of your best-prospect export products has identified some of the potential hurdles you and/or your customers will have to overcome in order to introduce your product to a new market. In addition, you have raised other issues that you will have to consider along the way.
 
At this point, you should be able to initially determine the potential “exportability” of your products. Determine the product or products which you believe to be most exportable. Then, select and prioritize the products and record the product names and rationale for selection. 
 
⦁ Determine Harmonized System Codes
 
Determine or double-check the HS product code for each of your prioritized products. The HS number is a six-digit commodity classification number and is used internationally to classify products for customs purposes. The HS codes are maintained by the World Customs Organization and can be reviewed at the UN Trade Statistics website.
 
U.S. companies should also determine their domestic export Schedule B codes. These codes are composed of the HS six-digit code plus an additional four digits. To identify the Schedule B numbers for each of your company’s products, use the U.S. Census Bureau’s Foreign Trade Division website. If you require assistance with the search for your numbers, use the Contact Us information option listed on the website.
 
Canadian companies should consult the Canada Statistics’ Canadian Export Classification codes.
 
⦁ Determine Export Licensing Restrictions
 
Now is the time to take a closer look at export licensing restrictions if you are unsure about this requirement as it relates to your prioritized products.
 
U.S. companies need to comply with the US Export Administration Regulations (EAR), administered by the US Department of Commerce (USDOC), Bureau of Industry and Security (BIS). Depending on your product and other factors, you may have to check with other U.S. agencies.
 
⦁ Check to see if your product has a specific Export Control Classification Number (ECCN) on the Commerce Control List (CCL). If it is not listed on the CCL, your product will be classified as EAR99 and will not require an export license unless (a) it is being shipped to an embargoed/sanctioned country, restricted party, or in support of a prohibited end use and (b) it appears on the U.S. Munitions List (USML). 
⦁ Check with other federal departments based on other legislation that limits certain exports and their uses (e.g., Department of State for certain defense uses, Department of Treasury for specific end users).
⦁ At this point, you may not know to which country markets and buyers you will be shipping product. Therefore, you may need to return to this task later in the market expansion process. 
⦁ The vast majority of products are classified as EAR99 and do not require an export license.
 
Canadian companies may consult Global Affairs Canada for licensing issues. The Ministry of Foreign Affairs, Export Controls Division issues export permits in accordance with the Area Control List (ACL) and the Export Contact List (ECL).
 
After completing this process, you will have a prioritized list of best prospect products for export expansion based on export hurdles related to shipping your product out of the country to foreign buyers, import hurdles that will need to be addressed by your customer in the export market, and sales and use hurdles that will be faced by your customer trying to sell the product in a competitive environment or the end user that might require support.
 
As your company makes resource allocation decisions for export expansion, you will find the information gleaned from this process to be invaluable in determining which products will be capable of generating the desired return and you will be in a better position to make decisions related to issues such as product modifications, in-country training or product servicing, and other attributes that will enable true export expansion for your company.

Benchmarking to Export and Globalization Best Practices

— 7 min read

Business leaders are constantly searching for ways to improve their businesses, often using the continuous improvement process to help achieve this objective. Benchmarking can be an important component of continuous improvement, particularly if personnel at all levels and across all functions of the company are involved in the process.

Have you considered benchmarking with a focus on export and globalization?

The point of benchmarking is to identify internal opportunities for improvement across a range of processes and functions. But, how often does company leadership benchmark the company’s operations and strategies against best practice standards for accelerating the company’s success in global markets, globalizing its organization, and globalizing its vision and strategies.

Why do it?

Many industries are global and most companies need to compete with domestic and international competitors. If company leadership does not develop and instill a global perspective, they will likely be surpassed by those competitors that do. Benchmarking is defined as “a process of measuring the performance of a company’s products, services, or processes against those of another business considered to be the best in the industry, aka “best in class.” What better way to trigger innovation, learn from other industry sectors, and gain information that will enable the company to become more successful globally.

What should be benchmarked?

The key to successful benchmarking is to clearly understand the processes, procedures, and methods that allow a company to become the best across a wide range of categories. Initially, it will be important to benchmark your organization and establish baseline information about your company. This information will provide a snapshot of your organization in relation to factors that are associated with success in international markets. It also initiates the product assessment process and examines the business reasons for entering and expanding into export markets.

A comprehensive Export and Globalization Benchmark Assessment should include both an Operational Benchmark Assessment and a Strategic Benchmark Assessment.

The Operational Assessment would benchmark all aspects of the company’s operations against best practice standards, including the company and management; products; markets and entry /expansion methods; operational plan and budget; organization, policies and systems; information and resources; export team and support services; competitive market price and offer; market entry and expansion preparation; production capacity; distribution network; sales and financing; shipping and collections; and the evaluation process.

Let’s use a real-life example to take a closer look at operational benchmarking. The company is a mid-size producer of hand tools. They benchmarked 39 subsets under the Operational Assessment categories listed above. One subset of company and management was management commitment. The best practice standard was as follows: “Management has allocated a portion of its time to the export market entry and expansion effort sufficient to lead the effort and has designated a strategic international leader to guide the companywide export acceleration and globalization process.”

The leadership team went through a very deliberate process to address areas of strength and areas of weakness. They engaged in discussion and sought input from others. They discovered that the time and guidance allocated to the international effort by the strategic international leader was significant. However, the international expansion effort was a low priority for the leadership as a whole. Management’s focus on domestic priorities was very high and on-going product issues further complicated the allocation of management time and leadership for the international expansion effort. Based on their findings, they gave themselves a score of 5 on a scale of 1 to 10. They detailed their decisions, actions to be taken, assigned responsibilities and established a timeline.

Other operational areas where the company scored 5 or less (scale of 1 to 10) in relation to best practice standards included after-sales product support; target market sales projections; integration of the domestic and international operational plan; organizational structure; intra-company coordination to implement the global expansion plan; access to information resources; selection of distribution channels in each target market; pricing and terms of sale for each target market; distribution partners (recruitment, selection, and start-up in target markets); sales negotiations; integrating export-related policies, procedures and systems into the company’s standard operations; shipping and documentation system; and establishing and evaluating sales and profits by country and product line.
In each case, the company developed and implemented measures to move in the direction of established best practice standards, as well as a timeline for implementation and re-assessment. The importance of making this a companywide effort cannot be over-emphasized.

Next, our hand tools company needed to take on a task that was even more challenging than the Operational Benchmark Assessment, and that was the Strategic Benchmark Assessment. Below is a brief summary of the tasks.

  • Profiling the industry’s strategic global players, strategic global market segments, strategic global country markets, and strategic global competitors in order to understand the company’s role or position in the global environment.
  • Assessing industry globalization forces such as market forces, cost forces, government forces, competitive forces, and other current or future globalization forces in order to understand key conditions that are propelling the globalization of the industry.
  • Assessing the extent to which the company’s strategies are globalized to be in balance with the industry’s globalization force including assessing and benchmarking the company’s strategies related to market participation, product standardization, activity location, marketing, and competitive moves.
  • Globalizing the company’s strategic direction including the future strategic product and market direction it will pursue and the future strategic competencies it will need to achieve in order to achieve maximum profitability and growth and strategic competitive advantage in the global market of the future.
  • Globalizing the strategic plan including strategic goals, initiatives, values, and mission in order to integrate its domestic and global strategies into a single globalized strategy.

This was their first attempt to consolidate and document their knowledge about the company in relation to the global industry and then compare those findings with best practice standards. They benchmarked 17 subsets under the Strategic Benchmark Assessment tasks listed above. On a scale of 1 to 10, the company scored between 2 and 5 on those ratings.

On the downside, there was a lot they didn’t know and they had a lot of work to do. The upside was that they saw the value of initiating an on-going process to collect and compile information and data that would enable them to become more competitive and more profitable.

Who does it and how often?

Many companies bring in someone from the outside, such as a management consultant, to conduct benchmark assessments. However, you may want to consider conducting the Export and Globalization Benchmark Assessment as an internal initiative. Depending on your company’s global experiences, you may find some of the tasks more or less difficult. Frequently you will find that you do not have information adequate to make a firm decision or that your judgements are somewhat tentative. Initially, you will use your knowledge, experience, and immediately available resources to work through the various components of the assessment. Over time, the questions raised during this initial pass will be revisited and increasing amounts of knowledge, experience, and resources will be brought to bear and your decisions and judgements will be updated. As mentioned earlier, getting personnel across all functions and at all levels involved in the process will be critical to success in terms of contributing information, ideas and ultimately buy-in for decisions, changes, and plans that result from the benchmarking.