Trade Development    

Authority of Pakistan

WHAT IS EXPORTING?

A definition of exporting:

In the briefest terms, exporting is the process of earning profits by selling products (or services) in foreign markets.  It is finding customers as SME(Small & Medium Enterprises) can serve better than these customer's current suppliers.  It is serving these customers so successfully that the SME grows and prospers, simultaneously increasing direct or indirect employment.

At this point, we distinguish between "selling" and "marketing".  "Selling" applies to a product you already have.  "Marketing" applies to a product that the market needs.  We will leave the world "selling" behind and use "marketing" instead.

Who said exporting easy?  Perhaps not for the first time.  That is why preparation and hard work is needed.  Subsequent efforts will benefit from experience.  Furthermore, exporting can be very profitable and - if you like a challenge - very exciting.

Assessing your export potential :

Before you start exporting, you have to do many things.  The first and perhaps the most crucial step is to assess the export potential of your SME. You may ask yourself why you need to examine your export potential when you are already familiar with your domestic market.  Succeeding in your local market is a necessary but not a sufficient condition for entering foreign markets.  You may run the risk of unwisely committing too many resources to exporting or to start too early.  You should therefore begin with an internal audit of your export potential.

What is export potential?  It is the company's ability to take advantage of its business opportunities abroad.

Export potential is derived Prom a set of enterprise characteristics such as domestic marketing performance, resources and products.  It is therefore measurable at the enterprise level.  We shall suggest what internal characteristics make a successful exporter. There are also external factors which we shall discuss first.  A characteristic of the external factors is that you cannot influence them as an individual exporter.  Some important external factors are as under:

1	2	3	4
COPARATIVE ADVANTAGES OF YOUR CONTRY	TRADE DEVELOPMENT POLICY OF YOUR GOVERNMENT	EXCHANGE RATE	OPPORTUNITIES IN SPECIFIC EXPORT MARKET

The inherent strengths or comparative advantages of your country, e.g. its resources, location, climate, cost structure of the economy, will set the stage for your enterprise's export efforts.

Government policy on taxes, financing schemes, information and incentive programmes, and other matters plays a significant role in aiding export efforts.

The relationship between your currency and that of your export customer (exchange rate) floats, i.e. changes continually.  As your currency weakens, it gives you a competitive edge in export markets.  As it strengthens, you may lose competitiveness.

Exporting succeeds when there is a good fit between your products and your market.  A good fit exists when you can respond to an export opportunity with exactly the product benefits the export customer wants.  It is up to your company to capitalize on the opportunities that always develop in specific export markets.

Internal assessment of readiness to export :

Having developed an understanding of the environmental factors that contribute to export potential, let us concentrate on the individual SME's own readiness to export.

An individual enterprise's export potential can be summed up under two independent dimensions: its organizational readiness to export and product readiness.

Organizational readiness to export (ORE):

A number of factors internal to the organization determine how well equipped it is to engage in export transactions.  These factors are:

*     Manufacturing capacity: There should be plant and equipment sufficient to supply the home market plus additional capacity to meet demand from abroad.

*     Management and organization: Exporting requires additional management time, especially in the early stages of market development.  If your existing management structure is already thinly stretched by the domestic business, it will be difficult to take on the new commitments resulting from exporting.  Similarly, the existing organization may not be suitable for handling export sales.

·      Financial resources: Marketing abroad requires additional working capital, and capital for market investigations, promotion, product adaptation, and so on.  It would be unwise to begin exporting if your company's financial base is barely sufficient for your domestic business.

*     Technical knowledge: An enterprise that has the technical workforce capable of product development and adaptation is likely to have greater potential than one without such capabilities.

·      Marketing know-how: Although marketing expertise gained in the home market is not always directly applicable abroad, we find that enterprises with substantial home market experience are better able to adapt to the requirements of export business.

*     Export experience: An enterprise's export performance to date and the lessons learned from successes or failures have a bearing on its export potential.

*     Management's goals and priorities: Management's current plans for its domestic business, e.g. investments, product launches, expansion of sales force, have a direct relationship to its export potential.  These require resources and management effort that may limit the enterprise's ability to develop its export business.

Product readiness for export (PRE):

Product advantages carry over to the export market as well.  If the SME's products are successful in the domestic market, competitively priced, up-to-date in design and engineering, and appealing to the selected customer segment, marketing opportunities abroad are likely.

To assess your product readiness for export, you must look at each of your products critically, and identify their inherent strengths and weaknesses.  You must also do this analysis in the context of the target export markets.

To explore export marketing seriously and analytically a company has to:

*     Select export markets;

*      Build an export marketing mix;

*      Develop and export marketing plan;

*      Consult a professional trade promotion agency about its analysis and the assistance the agency can give in implementing the plan.

Market selection :

Market research is necessary to identify the most promising markets, and to find out how to go about marketing in these markets and how to meet their requirements.  The importance of conducting market research, or of having someone to do it, is overlooked by many potential exporters and even by companies that are actually exporting.

The whole process of market selection is rather like the prospectors' search for gold.  They start by studying general geological data; they next pinpoint particular areas and survey these areas perhaps for the air.  They then narrow their research to areas on the ground and , finally, after more investigations, they study the mineral-bearing ore to determine exactly where to start mining operations.  At every stage, possibilities are eliminated, until the choice is narrowed down to one.

Similarly, exporters start with the whole world, and with overall statistical analysis.  As they narrow down their search, they look more closely at the details until, if they are successful, they find the countries or the groups within parts of countries, to which they can sell their products, profitably.

At each stage the research costs more, so that it is essential to eliminate as quickly as possible the markets that will not repay the research effort.

Import/export statistics :

The first requirement is therefore to find the markets that will repay further research.  The best initial indicator of a market's likelihood of buying a product is whether or not, it currently imports that type of product.  Fortunately, this information is usually available, because nearly every country records the flows of goods across its boundaries, to levy import duties and to determine the value of its own exports.

Most countries publish their import/export figures.  In addition, these figures are summarized, converted into dollars, and published by international agencies.  It should therefore be easy for you to find out what countries are now importing your type of product and from what source.  You may judge the amount of business and the rate of growth or decline.  When volume and value figures are given, you should also be able to calculate average FOB (Free On Board) prices.  To do this, you must know:

· Which data are essential;

· Where to find the data;

· How to use them.

          Some possible sources of data are now discussed.

National data are usually published and are available from government ministries or in libraries collected data for the whole world are published by the United Nations and by the Organization for Economic Co-operation and Development (OECD).  OECD world trade statistics are probably the most commonly available, but they deal with the trade of member countries of OECD, i.e. the major industrialized countries.  They therefore do not give figures on trade among developing countries, among economics in transition and trade between these two groups of countries.

          Data published by individual countries are the most detailed.  The language problems can usually be overcome by working on the basis of the so-called SITC or HS code numbers, so that a detailed search for a particular product's performance or that of a class of products is possible.  Isolated figures are less useful than a series of figures which can show growth or decline and relative size of markets.  It is necessary to have figures for several years to obtain useful information on trends, as year-to-year changes can be misleading.  The export/imports data of Pakistan can be obtained from the offices of E.P.B. as well as offices of Federal Bureau of Statistics.

Building up a market profile : Once you have your short list of export markets, you should build up a short profile of each market.  For this, more accurate information should be collected.  The questions that have to be answered can be assigned to three areas: the market, competition and technology.

The market.  You must distinguish between the total market and the segment of it you hope to serve.  For instance ' if you were considering exporting instant Rice or Garment to Saudi Arabia, you would be well advised to find the total size of the Saudi Rice market and also the size of the instant Rice segment.  The second would be much smaller than the first but quite probably growing while the other is declining.

Next, check the growth rate.  You are unlikely to enter a declining market, in-stable .

markets, competitors will react fiercely when you enter because the only way you will get business is by taking it from them.  If the market is growing, entry may be easier, provided you have the product that customer want.

The important questions you must answer are:

· Is the market or the market segment big enough?

· Does it have a future?

Then, study the channel of distribution for your product.  If it is too long, it could squeeze out your profits.

Competition.  Who will you have to outperform to be profitable in each of your short-listed markets?  If the main suppliers to the market are large powerful firms, competing head-on will be a disaster.  However, if such companies do not cover certain segments of the market, then you may have found a real market opportunity, but which is probably small in size-

If there are many relatively small competitors chasing the same customer, you may be able to compete with them.  However, competition will tend to revolve around pricing tactics, so your expected profits will be low.

You should consider yourself lucky if you have identifies a market segment or niche where there are few direct competitors.  There you could have the opportunity to build up long-term customer loyalty to a specialized product or service.

Technology.  You need to know where you stand in regard to prevailing technology levels for your kind of products.

Export market information : To prepare the final answers to all the question you have been asked in "Market Selection" and "building up a market profile" you will need much more information.  Do you know how to obtain the information?  This matter is so important that we will devote more time to it in a subsequent section.  Here we give only a few suggestions:

Contact  Trade Development Authority office.  The TDAP office will give you information you need, the advice regarding procedure and sources of relevant information.

Contact your Chamber of Commerce.  The Chamber will give you advice and access to the information you need.

Talk to other exporters to the markets of interest to you What do they know that may be valuable to you.

Talk to other companies exporting products similar to, or compatible with, your product,

but not directly competing with it.  Can you perhaps find a way together to enter export markets?

Professional marketing research can be commissioned as export project advance.

As soon as you can, visit the international market and obtain a personal feel for the reality of customer needs.

Building an export marketing mix : Successful export marketing (or marketing at home for that matter) involves using a variety of techniques in a suitable way and making a series of appropriate decisions about the many options one has, always keeping in mind the requirements and characteristics of the market itself.  It all adds up to what is called the marketing mix, the particular combination of techniques used and choice made in order to market products in a specified situation.

PRODUCT           PRICE             PLACE           PROMOTION             PRESENTATION

Here are some variables in the marketing mix, easy to remember as they all start with a "P".

Product.  Its function; its basic design; its quality; what it is.

There are many basic product characteristics that are within your power to change at least to some degree to meet the needs and wants of the consumers in the market.  These include the quality of the product, the material from which it is made, how well it works.

Even more basic than that is the concept of the product itself.  Often, SMEs have the option to produce different products with the same equipment and even the same materials.  For example, a producer of hand tools can decide to go into the toy market and produce miniature tools for children.  Or he may move even further away from his original product line to produce, for example, castings for toy trains.  The product itself is therefore one variable of the marketing mix.

A) Presentation: Its styling (colours, details - design elements that affect how a product

looks rather than how it works); its packaging.

            The presentation of a product is closely related in a marketing sense to the product

itself, and in many cases it is really part of the product in the mind of the buyer.  Styling details of a product - such as its colour, the different sizes offered, its shape - can greatly influence its success in the market.  Another important aspect of presentation is packaging, especially for consumer products.  Good packaging not only makes a product more attractive, but also renders it more convenient to use.

B) Pricing : This depends on the costs, where the product is sold, to whom it is sold, and competitor's costs.

A good product that is well designed and well presented can still fall if the pricing is wrong.  What price to charge for a product is difficult to decide.  The price to the customer has to take many costs into account.

            The cost of the materials that go into the product has to be taken into consideration.

Then there are the costs of factory overheads, wages, distribution, etc.  Costs arrived at under

marginal pricing systems may be quite different from apparent costs.

There is also the danger of a product being priced too high or too low in comparison with competitive goods.

Exporters must consider condition in distant markets, which can be unlike those they are familiar with at home.

C) Promotion (marketing communications).  Stimulating demand through a variety of techniques, including personal selling, advertising, publicity and trade fairs.

D) Place (marketing channels).  How the product is transported, stored and made available to the consumer.