With the current tough economic times faced ahead by many small to medium sized businesses, considering the growth potential of entering into new foreign markets is something that could help grow your business through these challenging times.
There are a number of ways you can establish yourself in foreign markets but it very much depends on how established your business is and whether you are selling product's or services. The three key areas that I would consider in the context of a product related business (business to business) would be selling direct, distributors and joint ventures.
At Spinning Hat we are currently using a combination of selling direct and using distributors. Selling direct to foreign customers has become much easier due to the world wide exposure the Internet has to offer. In addition to this our viral marketing strategies have allowed us to generate lots of hype surrounding the products for a very small amount of investment. In addition to attracting new foreign customers the internet has allowed us to pinpoint key specific customers in foreign countries, again at a very low cost. A slightly more expensive way to grow our business would be to exhibit at key foreign trade shows which is something we are now in the process of doing.
Using a distributor has its advantages as they know their market better than you. They have an established sales network and can potentially generate huge business which means you have less relationship management as you have one point of contact rather than hundreds of customer relationships to manage. Also, they will hold inventory of your products which makes it more attractive to the hundreds of smaller clients that you couldn't reach by selling direct due to the expense of shipping smaller quantities.
However, finding a good distributor is where the challenge lies. Finding the right one for your business will not happen overnight and it can sometimes take three or four trials before you establish the right fit for your business. From my experience it has been through trade fairs that has led to our greatest success with recruiting potential distributors. Visiting foreign trade fairs in specific countries will also allow you to identify and qualify potential distributors.
The last option is joint ventures. Having already been through the process of setting up a joint venture (different business) with a large US firm I would only recommend going through this process after you have already tried selling direct and using a distributor. Setting up a joint venture requires much more investment both financially and from a time point of view. This maybe something you want to consider when you have built up a solid relationship with an existing distributor. There is much more emphasis on integrating systems, processes and company values whereas a foreign distributor will just be interested in buying your stock.
Selling into foreign markets pose a number of legal concerns that you should take into consideration. Protecting your ideas/products from being copied by competitors is fundamental and in general terms is an expensive process. However, it is likely to cost even more as you will need to employ lawyers that have country specific knowledge. Within the gift market there is much more emphasis on speed to market rather than spending huge amounts of money protecting your products, which is largely due to the high turn over of new products and the short life span which products have. However, that's not to say you shouldn't do anything. I think the key consideration is ensuring you get the right balance of protection against the level of sales you are likely to achieve.
Another legal concern you need to consider if you are selling products into a foreign market is ensuring they meet product specific regulations. Generally speaking product regulations within the UK tend to be much more stringent than some other foreign countries, however it is likely you will still need to consider country specific certification.
Although selling into foreign markets poses many challenges it also presents some great opportunities and benefits. The real benefit from taking your business into foreign markets especially in the current economic climate is the fact that all sales will be on a proforma basis. This may change slightly over the years as key clients push for credit but the majority will always remain on an upfront basis. For any small to medium size business this is a great way of growing your business without putting too much pressure on your cash flow, especially if you have some large clients or distributors in place.
Looking back over the last four years of co running Spinning Hat if there was one bit of advice I would of liked to have received it would have been to set our sights much earlier on the world market. I think you can become too fixated with trying to win all the business in the UK market which is relatively small in comparison, rather than focusing on taking a smaller slice of a much bigger market.
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