WHAT IS INTERNATIONAL BUSINESS? – ENTERING OVERSEAS MARKETS part 9

the article on entering international markets continues, part 9

B. Indirect: selling goods and services through various types of intermediaries.
1. Foreign agents are hired by companies for representation in overseas markets as the agent has knowledge of business practices, language, laws, and culture. There are different types of agents who perform a number of functions. The one you choose to hire is based upon how much you want the agent to do for you and how much you are willing to pay.

• Exporters use commissioned agents most often. It is the simplest way of doing things: The agent is paid a percentage of a sale only when the sale is made. This provides an incentive for the agent to work on your behalf.
• Retainer agents are paid a fixed amount to do certain work for a company over a specified period of time. The disadvantage is that it is difficult to monitor how hard they are working and they get paid whether they do anything or not.
• Retainer/Commissioned agents are placed on a retainer but also receive a percentage from each sale. The retainer provides them with funds to help run their business while the commission gives them additional incentive to work harder on your behalf.

PROS:
1) Agents can help identify customers for your products and market your goods to them;
2) uncover other opportunities/markets for your product;
3) translate and act as interpreter in business dealings in the foreign country;
4) validate translation of your publicity materials;
5) Assist with local travel and/or living arrangements;
6) provide guidance with local government regulations.

CONS:
1) Agents often work for other businesses…and truly work for the BUYER, not the seller
2) Agents prioritize their clients based on product, incentives and/or base pay.
3) There are no guarantees the agents will make inroads in terms of market share with your product.

2. Export Management Company (EMC) functions as an “off-site” export sales department, representing your product along with various other non-competitive manufacturers. The EMC searches for business for your company and usually provides the following services: market research and development of marketing strategy; locating new, and utilizing existing foreign distributors or sales representatives to put your product into the foreign market. Functions as an overseas distribution channel or wholesaler. Takes ownership of the goods and operates on a commission basis.

PROS:
1) Faster entry into the overseas market in terms of first recorded sales;
2) better focus on exporting because most firms give priority to their domestic problems;
3) lower out-of-pocket expenses;
4) an opportunity to study the methods and potential of exporting; expertise in dealing with the special details involved in exporting, as well as its strategies.

CONS:
1) NO control of the export strategies and quality control of after-sales service;
2) can create competition from the EMC’s/ETC’s other products (might be more profitable and easier to sell)
3) Reluctance of some foreign buyers to deal with a third-party intermediary;
4) Added costs and higher selling prices because of gross profit margin requirements of the EMC/ETC, unless the economies of scale can be used to off-set this factor.

3. Piggyback Exporting: when a company, which already has an export distribution system in place, is allowed to sell another company’s product in addition to its own. A good advantage is that the requisite logistics associated with selling abroad are borne by the exporting company.

PROS:
1) International experience not required;
2) Fast entry to the international market;
3) Little to no increased financial commitment; generally low risk.

CONS:
1) Low control by the exporting business;
2) Possible choice of wrong market, wrong distributor;
3) Inadequate market feedback;
4) Potentially lower sales;
5) Higher risk in general.
6) Brand erosion

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