FOOD EXPORTING 3118

1. FOOD EXPORTING3118 Steven C Seideman Extension Food Processing Specialist Cooperative Extension Service University of Arkansas

2. INTRODUCTION • This module of instruction briefly discusses the topic of exporting food to overseas markets.

3. DOING BUSINESS OVERSEAS- A Guide to Exporting • The Global Marketing Support Services at the University of Arkansas has a booklet entitled “Doing Business Overseas- A Guide to Exporting”. • A copy of this booklet can be obtained by contacting; Global Marketing Support Services University of Arkansas 304 Hotz Hall Fayetteville, AR 72701 479/575-5925

5. Exporting • Exporting is defined as the direct or indirect sale of goods and services to foreign markets. • Like domestic sales, export sales involve both opportunities and risks.

6. Reasons for Exporting • Increase total sales volume • Sell your product in untapped markets vs often flooded U.S. markets. • Compensate for seasonal fluctuations in domestic markets. • Find new markets for products with declining domestic sales. • And many others depending on your product versus other markets.

7. Buyers Culture Distribution Channels Emphasis on Communication Business Environment Terms of Payment & Collection Product/ Service Requirements After-Sales Service Differences between Export Sales and Domestic Sales

8. Buyers • Just as domestic sales require an understanding of the needs of U.S. buyers, export sales require a greater emphasis on understanding the needs and tastes of foreign buyers in specific target markets.

9. Culture • Domestic sales involve different markets, but a common national culture. However, for international sales, exporters must determine to what extent the consumers of two or more nations are similar or different. Exporters need an understanding of the psychological, social and cultural characteristics of the foreign consumers they wish to target in order to design effective marketing strategies for the specific markets involved.

10. Distribution Channels • Distribution channels for export sales are more complex than domestic channels, involving the movement of goods by land, air or ocean and requiring the services of freight forwarders, foreign intermediaries and others in the movement of the exported goods between the U.S. manufacturer and the foreign buyer.

11. Distribution Channels -Continued • Once the goods arrive in the foreign market, they must also move through the internal distribution system of the foreign country to the end user. The internal distribution system in the foreign market can be more complex and difficult

12. Emphasis on Communication • Greater distances, different time zones and foreign languages and customs require the U.S. manufacturer to recognize and account for these differences in spoken and written communication.

13. Business Environment • Firms must work within foreign business practices, different negotiation strategies, foreign tax systems, government laws and regulations, foreign currencies and different methods of transportation in foreign markets.

14. Terms of Payment & Collection • U.S. firms may have to extend different credit and collection terms to foreign buyers than to domestic buyers; Therefore, export financing may be needed. Payment often takes longer depending on agreed-upon terms, the greater time needed for transportation, possible currency exchange problems, specific legal restraints in foreign countries and other reasons unique to export sales.

15. Product/ Service Requirements • Goods and services for export may have to be modified to meet the needs of the foreign market. An example would be conversions to metric measurements, food regulatory issues etc.

16. After- Sales Service • The quality of after-sales service may distinguish an exporter’s goods from those of competitors. This can allow the exporter to establish a positive position in the foreign market. Due to the lack of expertise or service ability in the foreign market, one may want to consider establishing an after-sales service organization.

17. Types of Exporting • There are basically two types of exporting; - Direct - Indirect

18. Direct Exporting • Direct exporting involves selling to foreign markets by assuming responsibility within the manufacturer’s company for all aspects of the export sale. Products may be sold directly to foreign retailers, to foreign end-users or through foreign intermediaries by mutual agreement.

19. Indirect Exporting • Indirect exporting takes place when a product is being purchased domestically and sold abroad either on its own or as a component of another product. It can involve selling to foreign markets by allowing an outside firm to act as the manufacturer’s “export department”. The outside firm could act as a representative of the manufacturer without taking title of the goods or the outside firm could take title to the goods and export the goods on its own behalf.

20. Advantages of Direct Exporting • Can yield greater profits. • Greater control over pricing and sales. • Control over company /brand awareness in foreign markets. • Allows U.S. Company to develop in-house expertise in the export process.

21. Disadvantages of Direct Exporting • Requires a commitment in terms of personnel, time and financial resources. • May require internal changes in the company in order to support export sales activities. • NOTE; Companies that are new to the export sales process usually manage export sales with existing resources used for domestic sales. As their export sales and experience increase, the firm may decide to manage export sales and domestic sales separately,

22. Advantages of Indirect Exporting • Reduces the manufacturer’s commitment of personnel, time and financial resources to the export sales process as well as the risk associated with a greater commitment. • Provides immediate access to foreign markets through established networks of foreign sales agents, distributors and customers. • Can allow the manufacturer with limited experience and resources to penetrate foreign markets.

23. Disadvantages of Indirect Exporting • Limits the manufacturer’s control over marketing, selling, pricing and company/product reputation in foreign markets. • Might add service costs that can make export prices less competitive. • Might discourage foreign buyers hesitant about dealing through anyone other than the manufacturer. • Can yield lower profits.

24. Common Risks in Exporting • Inability to support the export market demand using existing production and inventory capacity. • Interference with your domestic product development. • Possible loss of economies of scale resulting from a fragmentation of your product line.

25. Common Risks in Exporting • Inability to support the costs of new production periods. • Inability to support the expansion required by export sales. • Inability to finance orders.

26. Common Mistakes in Exporting • Failing to get qualified counseling and to develop a master international marketing plan before starting an export operation. • Failing to select foreign representation carefully. • Not having enough commitment by top management needed to overcome the initial difficulties and financial requirements of exporting. • Chasing orders from around the world instead of establishing a basis for profitable operations and orderly growth. • Neglecting export operations when your domestic market booms

27. Common Mistakes in Exporting • Treating international distributors unequally compared with their U.S. counterparts. • Assuming that a product or marketing plan will automatically succeed in all countries. • Failing to modify products to meet the needs or requirements of foreign markets. • Failing to consider using an Export Management Company ( EMC). • Providing poor after-sales service.

28. Developing a Basic Export Plan

29. Steps in Developing an Export Plan • Research the market • Prepare the marketing plan • Planning for distribution and promotion • Options for financing, payment and collection • Documenting the sale and shipment • Considering regulatory and legal issues • Establishing export operations

30. Step#1: Research the Market • Identify, pre-screen and assess potential of foreign target markets. Thorough market research can help evaluate export opportunities and design a product-specific and market-specific plan. • This plan should include market potential, buyer characteristics, economic indicators, methods of payment and collection, special product requirements, channels of distribution, competitive position, restrictions and market barriers, documentation and shipping requirements

31. Step #2: Prepare the Marketing Plan • Design a product-specific and market-specific plan. • It should clearly outline the company’s export objectives, target markets, product requirements, required internal and external resources, pricing strategies, promotion strategies, potential channels of distribution and schedules for implementing the marketing plan using available resources.

32. Step#3; Planning for Distribution and Promotion • After designing a marketing plan, a firm must decide; 1) Whether it will export directly or indirectly 2) Which channel of distribution to use to move the goods to foreign markets. • These activities include assessing in-house resources and capabilities, defining the needs of market and the product, and investigating the services and qualifications of any Export Management Companies. Evaluating foreign representation should include visits to the potential representatives and their facilities.

33. Step#4; Options for Financing, Payment and Collection • This activity includes assessing and anticipating potential risks in the export sale such as commercial credit risks, political risks and documentary risks.

34. Step#4; Options for Financing, Payment and Collection • In addition to the previous, the firm must decide; • The best terms of sale for both parties. • Any needed financing for export activities • Acceptable options for payment and collection • A unique price for each foreign market

35. Step #5; Documenting the Sale and Shipment. • Documenting the sale involves collecting and organizing data to complete documents required for shipping or to satisfy payment and collection terms, preparing the goods for different modes of transportation and obtaining any needed insurance for the goods in-transit. The exporter may also have to complete and track applications for export licenses for specific shipments of goods.

36. Step #6; Considering Regulatory and Legal Issues • Exporters should be aware of all laws and regulations affecting export sales. These include U.S. export regulations, specific laws in target markets, anti-boycott legislation and other sources of regulation and protection. Preparing for regulatory and legal issues also involves determining the proper export license, protecting intellectual property rights and developing an agreement.

37. Step #7; Establishing Export Operations • A company should establish an export department consistent with the firm’s export objectives. This activity includes defining the functions of the export department and its personnel, preparing the budget, committing needed resources to export operations and obtaining basic publications, equipment and supplies.

38. ASSISTANCE • The previous sections are very general and non-specific to any particular product. They were obtained from the booklet “ Doing Business Overseas; A guide to Exporting”. It is recommended that you obtain a copy of this booklet. It has many resources that can assist you. • Food product exporting may be more difficult than other products due to extensive exporting regulations.

39. Summary • Exporting has many advantages but it also has many risks. • Understanding the market, cultures, regulations etc., can greatly minimize the risks involved. • Be cognizant of the common mistakes in exporting. • One should develop a detailed product-specific and market-specific plan for exporting.