An order from Paraguay is received by Wessex Devices in Montana. The company has never done any international business before. The sales manager determines the potential customer should be charged twice the U.S. price and make a cash payment up front. The terms are accepted, and the product is shipped.
Four months later, the same customer places a larger order. The terms are the same, the payment is made, and the order is shipped. This scenario plays out over the next two years with increasingly larger orders, culminating in an arranged visit by the Paraguayan customer.
A month later, the customer arrives at Wessex’s headquarters, and the sales manager presents him to Wessex’s president. During that meeting, the customer asks to become the exclusive distributor of Wessex’s products for Mercosur. The president and the sales manager look at one another; they both think the same thing, “Anyone who pays double the U.S. price and pays up front is a good client. We don’t have any business in that area other than this customer. Why not give him the exclusive distributorship for Mercosur?”
Neither the president nor the sales manager realizes that Mercosur is the name for the Common Market of the southern cone of Latin America, Brazil, Argentina, Uruguay, and Paraguay.
They have just given exclusive distributorship of a geographical area larger than the U.S., with a population of close to 200 million, to someone they know nothing about—other than he pays up front. Is he the right person in the right country? Does he have what it takes to become a worthy distributor who will represent Wessex adequately?
This example is exaggerated, but not by much. You would be amazed by how many companies’ entry into international markets takes place in a similar fashion. Most companies have backed into international markets rather than stepping forward in an organized and analytical way.
Once in an international market, inertia usually sets in, and no one ever asks if it is the right market to be in. The fact is that there are right markets and right market entries for every product, service and company. Unfortunately, analysis rarely takes place in most companies, even among the huge multinationals.
So, what is the right way to enter international markets? The logical approach is to first define the criteria of a right market for your product. Once the criteria are defined, it is relatively easy to compare countries, markets and entry strategies to determine which seem more appropriate.
Of course, significant homework should be done to learn as much as possible about the countries, their markets and best market entry strategies before conducting the analysis and comparison. There is a wide variety of market entry strategies. Most companies, however, tend to focus on the easiest first: exporting.
While exporting can be quite profitable, I refer to it as “the lazy man’s way to international business.” Why? Because, most exporters ignore the full potential of the markets to which they ship their products to. They often don’t know how their product is being distributed, sold, promoted and used in these countries. The potential market is usually far larger than what is being sold by exporting alone.
Whenever possible, I recommend people visit the countries in order to determine the best way to offer their products and services to the consumers of that market. There is no substitute for being hands-on in determining the true potential of a market.
You can never be sure how a product is being used until you take a first-hand account. To illustrate, in World War II, American forces worked to build the Burma Road to connect India with China. A young American army engineer watched native laborers shovel dirt into baskets, load the baskets on their heads, walk to the side of the mountain and dump the dirt. The engineer immediately realized that wheelbarrows would expedite the work. A thousand wheelbarrows were flown in and demonstrated. Later, the engineer decided to see how much progress was being made. He watched the laborers shovel dirt into the wheelbarrows, place the wheelbarrows on their heads, walk to the side of the mountain and dump the dirt.
Take a good look at how your is product being used. Is it being used the right way? Have foreign users come up with new and interesting ways of using it? Did you enter the right countries and markets? Did you use the right entry strategy? Are you fully benefiting from the potential of the market? You could, and probably should, be generating considerably more revenue.