International sales allow your growing company to speed up the pace of growth and profitability. International sales allow your company not only to grow sales but to diversify its customer base, enter high growth markets, enter potentially less competitive markets and allow your company (particularly consumer based companies) to diversify product lines and test new products.
Growing your business by expanding overseas is not easy. Management has to be willing to commit the significant and ongoing time and resources necessary to successfully expand. And success is determined not only by effort. Companies have to be sensitive and aware of cultural differences in doing business in different countries. What works in the United States might be accepted in certain regions and wholly unsuccessful in other regions of the world. A product which might be well received in Malaysia and Vietnam might fall flat in China.
Growing your business internationally requires coordinating your long term strategy for your company generally with determining how international trade will help your company meet its long term goals. Also, there may also be challenges between international expansion and near term goals. Often, the costs of expanding internationally will require a significant financial commitment and will require that you consider a cost-benefit analysis to the decision when and how to grow your business internationally.
Before jumping into international expansion, it is important to develop an action plan with realistic timelines and to ask yourself a number of important questions. Perhaps most importantly, you need to be able to explain why your products will succeed in international markets. If you have a number of products, you need to consider which products will be most welcomed by overseas markets and why. You also need to understand the competitive advantages of your products or business over the existing products sold in these foreign markets.
In exploring specific markets, you will need to have trustworthy information about conducting business in specific countries. Trade associations and other entrepreneurs are an invaluable resource. In considering which countries to best expand your business, you need to consider a number of factors, including demographics, environmental, political stability, competition (if the local ruling family owns a competitive business….), and economics, including trade policies, currency exchange rates and related matters. Your market access may also be effected trade restrictions, import regulations, patent and trademark laws, preferential trade treaties, taxations, repatriation, employment and legal system issues.
Once you have determined you want to proceed in a specific foreign market, you then need to look how each part of your organization will be involved. It may be that you wish to manufacture products here in the United States or there may be important cost benefits (cost of labor, shipping, tax benefits) in manufacturing in the foreign market. There may also be concerns with manufacturing overseas, particularly in countries where trade secret laws are spotty at best or where the culture does not recognize the value of intellectual property rights. In other instances, your technology may never leave the United States (e.g., software and cloud based services).
The next step is to develop a pricing strategy which may differ significantly from country to country. You will also need to consider the terms and conditions of sale to make certain that certain terms (e.g., warranty terms and technical support) are also acceptable in the foreign country.
Who will sell and service your products is perhaps one of the most critical issues. A direct sales organization is expensive to build, takes time to get up to speed, and is also very time intensive for senior management. Utilizing a sales agent or distributor may allow you to offload up-front costs and management to a better organized and respected sales force.
Selecting a sales agent or distributor requires massive due diligence. The best product may fall flat with a poor agent or distributor. Negotiations with agents and distributors regarding the terms of their services is also critical. For example, the proposed price to the distributor and the end user customer price need to be carefully negotiated. Other terms and conditions of sale can also have a significant impact. These include matters such as responsibility for shipping and insurance, local taxes, repair services, sales and marketing obligations, conversion of marketing materials to the local language, and warranty obligations. You will also want to consider provisions prohibiting your agent or distributor from selling competitive products and the protection of your trade secret information.
Another difficult issue in foreign expansion is your company’s right to terminate a sales agent or distributor. You need to clearly delineate the terms under which you can terminate the arrangement, the rights and remedies of both parties upon termination. You may also want to consider how this arrangement would be impacted by a sale of your company. A distributor who has spent several years building your business in a foreign country will understandably be reluctant to hand over the business to some large international conglomerate which has acquired your business.
Finally, reaching agreement on where and to which customers your agent or distributor may sell your products is critical. You want to make certain that one sales agent does not sell outside of his territory. Dealing with sales to large international conglomerates is another challenge. If you sell to BP in the United States and your sales agent sells to BP in Europe, you want to coordinate so that you are not competing with your sales agent.
Another which is receiving increasing governmental attention, particularly with regard to high technology products, is compliance with U.S. export control laws. You need to make certain that your agent or distributor understands any limitations. Recently, a large Massachusetts based public company was shocked to learn that a sales agent in China was exporting certain products to Iran which could be used to make weapons grade nuclear materials. If you do elect to manufacture and sell directly overseas, you will also want to make sure that your business operations will comply with all local laws and regulations regarding both the employment and termination of employees.
Finally, you need to develop a contractual arrangement for how disputes will be dissolved between your company and its sales agent or distributor. What laws apply? Where will the dispute be heard? Will the dispute be resolved by a court or by arbitration? What are the parties’ limitations of liability in the event of a breach? What are your company’s responsibilities for claims against customers by a third party claiming infringement of its patents or trademarks?
For a company wishing to expand internationally, the efforts required to have your business succeed internationally will require up front planning and ongoing management and supervision, as well as well-drafted legal documents and accounting and tax strategies. If you are willing to commit the time, effort and up-front funding, the rewards can be enormous.
To learn even more, join us for Global Growth: Strategies for Profitability & Partnering on February 10th. Event details.
