Overcoming obtacles to overseas trades

Companies can achieve spectacular growth by breaking into foreign markets. However, various pitfalls await the unwary. Thorough planning is vital.

For a growth-hungry company, the prospect of selling goods or services into an overseas marketplace can be a mouth-watering proposition but launching in new markets is seldom straightforward. Trading throws up a great many challenges, from the basics of understanding the market through to the crucial issues of payment and cashflow.  

So what are the potential obstacles that could stand in the way of export success and, more importantly, how do you deal with them? 

Understand your target market

From the comfort of a UK office, the behaviour of business customers or consumers in France, Germany, Spain or even the US can appear deceptively similar. It’s therefore easy to conclude that a product that has proved successful at home will do equally well abroad. But that could be a fatal mistake.

In the real world, the expectations of customers across national markets can vary significantly; that’s true even within the European Union. And when you look beyond the comfort zone of the single market to the fast-growing emerging markets of Africa, for example, commercial life can look very, very different. Failure to understand the realities of an overseas market could undermine your export plan.

So you need to ask yourself some searching questions. Will your target market be right for your brand or product? Is the customer base large enough to warrant investment? Who are the local and multinational competitors? Can your business find a niche in the commercial landscape? Do you have the resources and expertise to adapt your offering to local expectations?

Do what it takes to find the answers. The key is to visit the market and talk to customers and potential partners, such as distributors or agents who know the market. Just as you would in the UK, commission market research. 

Be competitive and find a pricing formula

One of the key questions you should ask yourself is whether you offer your company’s products at a price that local customers are willing – or indeed able – to accept? This can be an especially acute issue if there are local companies addressing the same market.  For instance, a company shipping products from the UK will have to factor in the cost of transport, (including any import/export duties), regulatory compliance, localised marketing, packaging, currency shifts and discounts to distributors. These costs may push prices up to levels above those of local competitors.

So, work out some realistic costings that will be beneficial for you and the customer. There are a number of formulae for pricing:

  • Cost plus. This is a common formula. You total your costs, add a mark-up and arrive at a price. The problem here is that you may arrive at a price that is well above that of your competitors.
  • Competitor-based pricing. Exactly what is says on the tin. You look at what your competitors are charging and find a way to bring your own pricing model into line with market expectations. This can be a key determinant of whether you can be competitive.
  • Loss-leading discounts to establish a foothold. This can be effective but it may be difficult to raise prices at a later date.

Whatever the strategy, the challenge is to find a price that’s right for the market while ultimately delivering a return.

Find a USP

Unless you are offering something that is truly unique or ground-breaking, chances are you will be moving into a marketplace where competition is intense so you will need a USP (unique selling point) to differentiate yourself from rivals. The USP could be price, build quality, after-sales service, stylish design, the cachet of a premium brand or corporate reputation for excellence. Once identified, it should be the keystone of your marketing. It’s also worth noting that a strong USP can boost the price you can charge to customers. 

Find the right partners

Most companies don’t have the resources to set up their own distribution network so the alternative is to find either a local distributor or an agent. These third parties will understand the local marketplace, language and commercial landscape. A distributor buys your products (often at a discount for bulk) and resells them; an agent represents you and takes commission. The important thing is to find partners you can trust. To a greater or lesser extent they will be the interface between your customer and the brand.

Adapt your marketing collateral

Advertising and marketing material that works in the UK won’t necessarily succeed elsewhere. Rather than taking a global approach to advertising and marketing, many companies find it beneficial to work with local agencies to tailor their message to the market.

Plan your cashflow

One of the biggest worries for companies trading overseas is cashflow. Supplying goods or services to an overseas buyer often involves a significant amount of upfront spending before the order can be fulfilled, followed by a wait for the customer to make good on the invoice. The commercial practices prevalent in some overseas markets mean that the gap between an invoice being sent and payment arriving can be anything up to three or four months. It’s vital then to ensure that you either have sufficient resources or banking facilities in place to cover any cash shortfalls. Do careful cashflow projections and then arrange any necessary finance. 

Guard against late and non-payment

Late or non-payment can be a huge headache. You can protect yourself in a number of ways. First of all, research potential customers carefully and carry out credit checks as you would in the UK. If possible, ask for references from other suppliers. Once contracts have been signed, use letters of credit or bills of exchange to ensure that money changes hands according to the terms and conditions of your agreement with the customer.

Overseas trading can be hazardous but forethought, careful preparation and a thorough understanding of the markets you intend to target will minimise the risks.

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John Carroll - Helping businesses achieve International success. Head of Product Management & International Business, Santander UK