Breaking into new markets can be a tricky at any stage of business development, but it can also be a hugely rewarding when you get it right, says Siddharth Shankar
It appears that the likelihood of the UK leaving the EU without a deal heightens by the day and, for some experts, the UK’s economic outlook is increasingly gloomy. Reports suggest that no deal could spell havoc for trade with the EU, which currently accounts for roughly half of UK exports.
So, what are businesses supposed to do to stimulate growth; if the UK economy is weak and EU trade is about to get a whole lot trickier?
Businesses should be looking at options to enter new growing markets for British goods, and Asia could be the most promising of these.
Today, Asia’s major markets hold exciting potential for British businesses. There is increasing demand for British products in the region and exporting there is becoming easier – there’s never been a better time to consider exporting there. But first do your homework and make sure you avoid these common mistakes.
How well do you know your target market?
So many exporters assume the same things work everywhere. Not so. In-depth research is a must.
The way the market works in the country you are exporting to might be very different from what you know. Many good product portfolios fail on export because of a lack of understanding of the target market, consumer behaviour and poor market segmentation.
For example, if a phone case company with both a luxury and cost-effective offering tries to enter the Chinese market, the luxury side of the product won’t easily sell. High net worth individuals won’t consider buying a luxury item from a new entry brand who does both luxury and cost-effective products. Although the higher middle class in China might have the buying power they wouldn’t be likely to buy the luxury product either because their cultural norm is to not dress up or hold personal items better than those of their superior/boss.
Carefully understanding the culture of your target market is critical when developing your export strategy.
Customs tax categories – the devil is in the detail
A common mistake many novice exporters make is to include different products under one brand and think it all comes under the same customs category.
But different countries have different systems, and although they may all look alike on the surface, as you get into the detail each one is quite different. One country might favour imports of certain goods and so lower the import tax bar and be flexible how goods are classified. Another country might want each product categorized and detailed down to its constituent parts, so that the tax is then calculated in a composite way.
The first time you export to a new country is really pays to go through their customs tax laws with a fine toothcomb and make sure you get help from the right specialists. Getting the calculations right on tax at the start of your project is essential – since getting the calculation wrong by a percentage point or two can be the difference between profit and loss on your exporting plans.
Remember don’t make assumptions based on another country, even a neighbouring country. The devil is definitely in the detail so make sure you are calculating your potential customs liabilities using the correct policies and preferences of your target country.
CIF or FOB – what’s the deal?
Cost, Insurance, and Freight (CIF) and Free on Board (FOB) are international shipping agreements used in the transportation of goods between a buyer and a seller. The specific definitions vary in every country, but, in general, both contracts determine where liability between buyers and sellers begins and ends.
Whether your goods are being exported on CIF terms or FOB will make a difference to the way you price your product.
The responsibilities of the seller under a CIF agreement include transporting the goods to the nearest port, loading them on a vessel and paying for the insurance and freight. If you are exporting under a CIF agreement you can charge more as you have liability for all the costs associated with transit until the goods are received by the buyer.
FOB contracts on the other hand relieve the seller of responsibility once the goods are shipped. When the journey begins, the buyer then assumes all liability.
Make sure you understand the risks and advantages of both types of agreement when negotiating your deal and their potential impact on your profit margins.
Air or sea?
Don’t assume that sending your freight by air is always going to be the more expensive option. If your goods are low weight but higher value, or you need them to be there quickly, air freight be the most cost-effective option.
Don’t forget to calculate wastage
It can be difficult to get this right until you have experience of sending your goods to a specific place. Different logistics providers and even different transport routes can change the amount of goods damaged during transportation. If the quantity of undamaged goods delivered doesn’t match the original contract, then this might result in payment being delayed or the additional costs of sending replacements.
Don’t overlook the legal requirements of packaging
Packaging is an important factor to be considered when exporting. The regulations in different target markets might require very different packaging. Make sure you have investigated the rules about labelling and materials in your export market.
Use protection
Make sure that you have intellectual property protection for your product and extend this to your branding – logo, and marketing slogans and designs.
Don’t miss important documentation
It is worth creating a document checklist so that you can ensure that each export is accompanied by the right paperwork – things like a Certificate of Origin, and the other documents required for different customs and market regulations.
But don’t make the mistake of thinking this is a job you only need to do once. Regulations change all the time, so remember to stay on top of documentation requirements in the country you are exporting to.
Do you need an agent or a distributor?
A common mistake made by many first-time exporters is to find a distributor and think the job ends there. It can be tempting as a direct relationship with a distributor can get the sale process moving quickly but it could limit future market development. Don’t overlook the advantages of working with an agent – the right one could help you reach the most distributors in the long term.
Be sure to consider all the factors when making your choice.
After-sales service
Operating in a new overseas market can often make the delivery of after-sales services hard, so make sure you have the right logistics and quality control in place. Don’t skip this step. It is vital to make sure your customer service structure is well planned and in place before your product hits the local market.
Siddharth Shankar is a leading expert in trading with Asia and CEO of Tails Trading, an innovative new solution helping UK SMEs to export their goods to Asia. Visit www.tailstrading.com to find out more.
