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Tapping foreign markets.

Here's what CPA should know to help their employers or clients expand their businesses abroad.

In today's business environment, any company that overlooks foreign markets is risking obsolescence. Markets abroad can be lucrative for many U.S. companies--whether they sell products or services. Yet many managers, particularly those in smaller companies, fail to explore international opportunities because they don't know how to get started. CPAs--whether as employees or as advisers to a U.S. client--can fill that gap, helping to increase an enterprise's sales and profits.

Finding customers overseas is not difficult and there are many resources available that can help companies new to exporting. This article tells how to start.

BUY AMERICAN

Companies new to exporting should take a narrow approach to defining the foreign markets with the best potential for their products or services. Usually, the most lucrative for U.S. companies are those in Western Europe since, collectively, they make up the second-largest economy in the world and their market cultures--tastes, values and buying habits--are comparable to ours. The huge Pacific Rim market presents a larger challenge because, unlike Western Europe's, Asia's market cultures are more diverse.

Because Western Europe is an easier target, new exporters probably should begin in this market. Within Western Europe, a potential exporter should refine its target market further to a particular country or region. Because of the removal of trade barriers in the European Union, it may make sense to define a target market by its language rather than its borders. For example, a market defined as the French-speaking peoples of Western Europe includes France, Luxembourg and parts of Belgium, the Netherlands, Switzerland and Italy.

OVERCOMING BARRIERS

A product to be exported should be evaluated against market criteria that may differ from the domestic criteria. Cultural differences certainly affect a product's marketability in a foreign country. For example, in France corn commonly is viewed as an animal feed and not fit for humans. Thus, marketing corn products could be difficult there.

Some industries and products enjoy a protected status in certain countries, making outside competition difficult. Such barriers include import licensing requirements, high tariffs or import quotas Japan's barriers to U.S. electronic products, cars and rice are high-profile examples of such problems.

High transportation costs could be another barrier. Moreover, the availability of transportation might make it difficult to meet delivery deadlines.

Restrictions on exporting certain products from the United States also could create barriers. Some products, like firearms, may require an export license. Lists of products that require such licenses can be obtained from the U.S. Department of Commerce and other federal agencies. Information about the import restrictions of a particular country usually can be obtained from the U.S. embassy or consulates in that country. For details on how to contact those offices, call the U.S. Department of Commerce; for the phone number of the nearest regional office, check your local telephone directory.

While a nation's economic development certainly affects demand for nonessential products, big-ticket items still may have a large potential in an underdeveloped nation if its upper class is large enough.

Product modifications may be necessary to adapt a U.S. product to a foreign market. A product may require conversion to metric sizes or different voltage capabilities. On the other hand, many products require little or no modification, except perhaps the translation of packaging text and instructions.

TAPPING THE DATA

One important source of information that can help resolve such issues is a regional office of the U.S. and Foreign Commercial Service (USFCS), a division of the Commerce Department's International Trade Administration. Check your local phone directory for the nearest office. USFCS trade specialists can be invaluable sources for export trade counseling and information gathered from overseas posts. The specialists can access the Foreign Trade Data Bank, a database that includes information on foreign products, pricing, labor costs and organizations wanting to buy U.S.-made products.

The specialists can provide contacts to other USFCS foreign offices maintained in U.S. embassies or consulates situated in most foreign countries. These overseas posts are staffed by host-country citizens who speak the local language and are important sources of country-specific market intelligence of all types.

In addition to the USFCS, there are legions of industry- and country-specific desk officers at the Commerce Department's headquarters in Washington. These experts probably are among the best sources of information about foreign products. For example, a desk officer for Germany should have a listing of upcoming trade shows there and detailed information that could assist a U.S. exporter greatly in determining whether a product has potential in Germany.

Most state governments are very active in promoting international business and offer individual consulting to potential exporters. Some states maintain offices in foreign countries, conduct overseas trade missions, supply trade information and subsidize small companies that participate in certain foreign trade shows. Some states even have representatives abroad who can provide in-country assistance for businesspeople traveling to those locales. For example, as a service to companies resident in the state, such a rep could set up appointments with prospective distributors or buyers of a company's products and provide office services for U.S. businesspeople during their trip.

In addition, there are many private resources. Industry trade associations are some of the best places to investigate since many have undertaken special efforts to promote their members' exports. Two examples are the American Hardware Manufacturers Association and the National Machine Tool Builders Association.

Foreign accounting firms, banks and advertising agencies, among others, can provide local business information to prospective exporters, particularly if they believe they may be helping a prospective client or gaining a new one. The U.S. Chamber of Commerce, based in Washington, and foreign-based trade associations, especially those in Europe, also are good sources. For example, the International Office Products Association based in Zurich is an excellent source of office products information throughout Europe.

HOW TO FIND BUYERS.

Once a target market or region has been determined, the next step is to develop a plan for approaching overseas buyers in that market. The process varies according to the type of product and the effort and risk an exporter is willing to undertake. Distribution channels pose significant challenges for certain products in certain markets. The exporter needs to assess the normal distribution channels.

Exporting can be done either directly or indirectly. In indirect exporting, sales are made through an intermediary that, for a fee or commission, handles the entire operation. Export management companies (EMCs) and export trading companies (ETCs) are the two types of organizations typically used by U.S. indirect exporters. Generally, they are based in the United States.

EMCs handle two of the more difficult aspects of exporting, shipping and financing. Because they typically specialize either in certain types of products or in certain foreign markets, they often are especially adept at identifying foreign customers in those areas.

ETCs are similar to EMCs except they actually take title to goods before selling them to foreign customers. Thus, an ETC purchases products directly from the manufacturer and incurs all subsequent risks involved in reselling and delivering them. ETCs often are large trading organizations formed by trade associations, foreign banks or port authorities and usually can provide credit or other financing to both the buyer and seller. Since ETCs put up their own money, they reduce the risk for the selling company.

With direct exporting, products usually are sold to foreign customers through an overseas agent or a distributor or directly to an end user. Agents serve as sales agents or manufacturers' representatives; they usually work on commission and may provide customer services. A distributor may actually purchase products for resale. Thus, a distributor typically has the additional duties of arranging for products' warehousing, maintenance and transportation. A distributor, unlike an agent, performs more of the overall product marketing functions in a foreign market by handling many promotional and advertising details. A distributor also may provide warranty servicing.

While direct exporting typically is more profitable, it places more demands on exporters because many of the functions that accompany export sales, such as financing and documentation, must be handled inhouse. As sales volume grows, an exporter may need to establish an export department to handle special tasks.

After deciding to export a product directly to a foreign market rather than use a domestic intermediary, an exporter must identify specific ways to find customers, agents or distributors.

FINDING BUYERS

Certainly one of the best ways to find customers is to visit a target market and show products at trade exhibitions. Overseas trade shows and trade missions are organized by private groups, trade associations and government agencies. Foreign trade shows provide exporters with opportunities to meet agents, distributors and customers; to size up the competition; and to get feedback on local acceptance of the product from potential users. The U.S. Commerce Department sponsors many foreign trade shows. In several countries, the USFCS has its own exhibition space at trade shows for the exclusive benefit of U.S. companies.

An effective trade mission program conducted by the USFCS is the Matchmaker Trade Delegation. Throughout the year, it conducts a series of trade missions that focus on specific countries and industries. It researches foreign markets to identify the key importers and government officials and then arranges individual appointments, receptions and briefing sessions for U.S. exporters.

Another marketing tactic is the use of catalog shows, in which a company's literature, samples or videos are shown. They're popular because they're less expensive than overseas trade exhibitions. At an exporter's request, and for a minimal fee, USFCS will arrange exhibition space to display a product and provide interpreters for the show attendees. The USFCS also promotes the event by recruiting qualified buyers and records the names and addresses of those who express interest in a product.

An easy way to identify agents and distributors in foreign markets is to use the USFCS's agent-distributor search service. For a small fee, the USFCS will identify qualified distributors to contact. To conduct a search, an exporter simply provides the USFCS with basic company information, product literature and t e qualifications an agent or distributor should possess.

U.S. companies may advertise their products and services in Commercial News USA, a monthly publication of the Commerce Department, which is distributed abroad to importers, agents and distributors. For a small charge, U.S. companies can solicit trade leads from approximately 110,000 importers, agents, distributors, government officials and end users worldwide. Additional foreign trade leads are available from other government agencies, including the Agriculture Department, the Agency for International Development and state and foreign government agencies.

U.S.-made products are in great demand in many overseas markets. The information in this article can be a door-opener to this vast and profitable market.

EXECUTIVE SUMMARY

* COMPANIES NEW TO EXPORTING should take a narrow approach to defining which foreign markets have the best potential for their products or services.

* THE PRODUCT TO BE EXPORTED should be evaluated against market criteria that may differ from the domestic criteria, taking into consideration how cultural differences affect a product's marketability.

* ONE EXCELLENT SOURCE of information on foreign markets is the U.S. and Foreign Commercial Service, a division of the Department of Commerce's International Trade Administration. In addition, there are legions of industry- and country-specific desk officers at the Department of Commerce's headquarters in Washington.

* MOST STATE GOVERNMENTS are very active in promoting international business and offer individual consulting to potential exporters.

* INDUSTRY TRADE ASSOCIATIONS are some of the best places to get sales leads and other information since many have undertaken special efforts to promote their members' exports. Also, foreign accounting firms, banks and advertising agencies, among others, can give local business information to prospective exporters, particularly if they believe they may be helping a prospective client or gaining a new one.

For more information ...

Readers who want more information on finding export markets for their products or services can turn to International Business, by Mark F. Murray. The book is part of the American Institute of CPAs management series. It costs $9.50. To order, call (800) 862-4272 and ask for product no. 090064JA.

JAMES E. DENNY, CPA, is a partner of Denny & Co., a Barrington, Illinois, firm concentrating in international business opportunities and taxation. He is the author of a soon-to-be published American Institute of CPAs self-study continuing professional education course, How U.S. Companies Can Profit in Foreign Markets.
COPYRIGHT 1994 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1994, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:CPA advice on business development
Author:Denny, James E.
Publication:Journal of Accountancy
Date:May 1, 1994
Words:2079
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