As economies across the world become increasingly intertwined, it can feel suffocating for a small business to only operate domestically. Unreliable demand, stiff competition, or market saturation can make exporting look like an attractive solution. Indeed, in many smaller countries, international expansion may be the only option for growth in the long-term.
Unfortunately, entering foreign markets comes with a lot of challenges, and is a decision that needs to be approached strategically and with significant forethought. Exporting can come with a lot of hidden costs and challenges that businesses need to consider to determine whether they’ll be able to compete in their target market.
Identify potential markets
The first thing to do is to look for potential foreign markets where significant demand for your products exists. To many small business owners, the entire world might look like a great potential market at first glance, but there are a few important factors to consider to help narrow this down:
● Market Size – Estimate how many people in the target economy may be interested in your product, and have the means to purchase it.
● Competition – Determine how your product compares to that of local competitors in terms of price and quality.
● Distance – Shipping costs can add up quickly. Always consider how, and how far, you’ll need to ship your products.
Review relevant trade agreements
Some countries can be significantly more difficult to export to than others. While you might appear to be highly competitive in a target economy at first glance, you may find that an artificial barrier to entry, such as a tariff, makes it impossible to actually generate a profit there. Because of this, it’s a good idea to look up with whom your country has entered into a free trade agreement (FTA).
FTA’s significantly decrease or eliminate trade barriers between countries, making it much easier for businesses to import and export across borders. Because these agreements go both ways, they allow economies to mix and become interdependent, often resulting in market conditions that are similar to those at home in the long term.
Explore financial options
Moving money across borders has been a major barrier to business since the birth of the banking industry and major international commerce. Unsteady exchange rates can make it difficult to price products in the target economy, and can cut into profit margins if fluctuations are particularly unfavourable. Then, once products have been sold, exchange and transfer fees can consume any remaining profits if a traditional bank is used to recover the revenue from abroad.
One relatively recent solution that’s been developed to address this issue for a wide variety of currencies is specialised foreign exchange services. These charge very low or no transaction fees, and specialise in timing transactions very precisely to secure favourable exchange rates.
Review local product compliance issues
Take the time to review local industry guidelines. It’s important to make sure that your products are produced in accordance with any local laws so that they can legally be marketed there. Depending on your industry that might mean tracing the origins of source materials, avoiding restricted processes or chemicals in the production process, packaging and labeling products properly, or any of a variety of other possible requirements.
To make sure that this is done properly, you may need to sit down with a local legal professional to help you find and properly comply with all relevant regulations.
Analyse logistical hurdles
Exporting naturally requires a lot of logistical paperwork and planning. First, you’ll need to determine how to ship your product and later distribute it to the end consumer. Will you market your products online and deliver from a warehouse, open an outlet to sell directly, or market goods to local partners for resale? The best solution depends strongly on your individual business, your products, and your target market. Then, you’ll need to go through and determine what forms and import/export practices your government and that of your target market require.
Besides ensuring that you can strategically address these issues, you’ll also need to ensure that the cost of properly packaging, shipping, and distributing your products doesn’t push product prices up to the point of unprofitability.
Exporting products into new markets is an increasingly necessary and natural step for businesses who want to seriously compete within their industries. Despite that, businesses need to be strategic and cautious about how they go about it. Becoming a successful exporter means managing a lot of disparate issues, from foreign regulations, to logistical details, to international finance. Mastering these, however, gives you the tools you need to expand your business and elevate your operation to the international stage.