This is the first in a series of three articles on developing export markets. The articles will set out a practical step-by-step approach. Irish companies need to develop export markets. You can’t afford to rely on the domestic market: it’s too small. To grow your business, export.
But watch out, you need to think through key issues: How to access foreign markets How to move goods to a foreign market Where you get help to
develop your logistics infrastructure
Top tips on how to break into foreign markets:
- Begin with a strategy. Think, think, think before you jump. If you plough ahead too quickly, without understanding what’s involved, you may regret it. Your strategy will influence all your decisions.
- Do your market research. Decide which market you intend to enter after careful market research. The research should help you decide how to target that market. Before you move into a new market, you need to know how to research the characteristics of that market. Use Enterprise Ireland & Irish Exporters’ Association. They both provide free services to get you started.
- Make sure you know the people you’re dealing with. Create relationships, visit your market and meet the people that will represent you.How to access foreign markets:You have options, and decisions to make.
Here’s an overview of your six main options:
- Export Agent: based in Ireland, acts as your representative, usually commission-based.
- Trading House: buys & sells your goods on their own account, essentially a customer of your company
- Import Agent: based in the export market, your representative, commission-based.
- Foreign Wholesaler or Distributor: sells goods for their own account, to other intermediaries or end users.
- Retailer: Sells goods to the end user.
- Direct Sales to end user: Internet sales to end users. It’s especially important to have your Logistics & a Return Policy sorted out.Your challenge is to find the most direct route to market – at lowest cost. The closer you are to the end user, the more control you’ll have over marketing & pricing.
You may not be able to set up your own distribution network. You may need to rely on Distributors or Wholesalers to penetrate the market.·
Use market research to find out what works best in each market:
- Learn how the distribution channel works in each market
- Find out who the key players are.You need to appoint an intermediary to represent you in the target market.
But remember you won’t have much influence over the distribution channel beyond that first point of contact.
Name your product carefully: make sure the name of your product “fits” the foreign market. (There’s a famous story about an Irish company that made a dreadful mistake. “Irish Mist”, the liquor, targeted the German market. It didn’t realise the word “mist” had a very different & undesirable German meaning. The product needed a different name to succeed.)
How to Move Goods to a Foreign Market
Contract terms are important: Price matters, but equally important are the terms & conditions of the sales contract. Pay as much attention to contract terms as to sale price. Remember this when negotiating the contract.
Contract terms to use:
There’s an internationally recognised set of contract terms which I recommend you should use. International Commercial Terms (Incoterms) are trade terms, issued by the International Chamber of Commerce (ICC).
Adopted by most countries, Incoterms define the responsibilities & risks for both buyer & seller. Incoterms also cover goods in transit. Best known Incoterms are “Ex works”(EXW), “Free on Board”(FOB), “Cost, Insurance & Freight”(CIF), “Delivered Duty Unpaid”(DDU), and “Carriage Paid To”(CPT).The first version of Incoterms was in 1936.
Since then, ICC lawyers and trade practitioners have updated them six times. They keep pace with changes in international trade. ICC is revising Incoterms 2000. A new version, Incoterms 2010, will probably come into effect from 1st January 2011. You can find a full description of all 13 Incoterms here. You can get full information & publications on Incoterms from your local Chamber of Commerce or freight forwarder.
Insurance is so important:
Don’t overlook Goods in Transit Insurance. There are a few fundamentals you need to understand…
(1) Clients often expect the carrier to makes good losses or damage for goods in his care. Expect no such thing. Be careful. The liability of a carrier is limited, and, in some cases, the carrier has no liability at all. If your goods are lost or damaged, there are binding international conventions you need to understand. These conventions matter: without goods in transit insurance, you run the risk of significant losses.
(2) The most common conventions are:·
Roadfreight: CMR (Convention relative au contrat de transport international de Marchandises par Route)
- (a) Airfreight: Warzaw Convention
- (b) Oceanfreight: Hague Visby Rules (as amended by the Hamburg rules 1978)
(3) You’d imagine the most important question would be “whose carelessness caused the loss or damage?” Think again: it’s completely different. Even if you prove the carrier was careless, the maximum you can recover from the carrier is only a fraction of the value of the goods. You need your own Cargo insurance. Nothing is more important.
(4) Don’t rely on the carrier’s insurance. Cargo insurance (also called marine cargo insurance) covers physical damage to (or loss of) goods whilst in transit by land, sea & air.
(5) Draw up the sales contract with Incoterms: this makes clear who’s responsible for arranging marine cargo insurance. Both parties know where they stand. Premium’s are only a fraction of 1% of the value of the goods. You declare what the goods are worth for insurance purposes; the premium is a % of that. It’s a small price to pay for peace of mind, and future security of your business.
(6) There is another important issue: General Average. If your goods are travelling by sea, you need insurance cover for the risk of General Average. General Average is a significant risk. This is the principle that’s involved: “An ancient principle of equity in which all parties in a sea adventure (ship, cargo, and freight) proportionately share losses resulting from a voluntary and successful sacrifice of part of the ship or cargo to save the whole adventure from an impending peril, or extraordinary expenses necessarily incurred for the joint benefit of ship and cargo”.If a vessel owner declares General Average, the cargo owners may have to share all losses. You may become liable for your share of what someone else has lost. This includes loss or damage to cargo, towage or salvage – and even repairs to the vessel itself.You need an “All Risks” Marine Cargo Insurance policy. This covers General Average losses. This insurance also covers the cash deposit which may be required to get the goods released from the carrier.
(7) Exporting from Ireland by road? This could be important for you…General Average could be an issue for you. If your goods are on a ferry which gets into difficulty, General Average could apply to your business.
Key points about insurance:
- Always make sure your goods are insured appropriate to the mode of transport
- Make sure your have insurance against General Average
- Get advice from your Freight Forwarder or Insurance BrokerThe next article in this series will cover Packaging & Customs Issues.