Launching a Sales Presence in a Foreign Market
Leaders in companies operating only in the American market or in a limited number of global markets understandably worry about entering a new foreign market. Risks are many. The opportunity for problems is enormous. What should the executive team of a company planning to enter a foreign market do in order to protect itself from failure and improve its chances for success? It can create a four-point plan that includes properly setting expectations, studying and understanding local market norms, preparing itself for fraud and scandal, and incorporating lessons from competitors into its corporate memory.
Setting Expectations
Many American companies fail in their attempt to enter foreign markets. Some companies fail several times before reaping rewards from a successful foray into those markets. Thoroughly defining the expectations of a foreign venture is fundamental to success. Sales may seek expanded sales and greater total available market. Manufacturing may need a greater level of production against which to spread its fixed cost. Finance may desire a new market that can counterbalance swings in existing sales and profits. Engineering may want to create a partnership with a foreign customer or competitor.
The chief executive of a company planning to create a sales presence in a foreign market must absorb the wants and needs of the various components of the company and shape a comprehensive set of expectations. During the process, he must ensure that each department endorses the overall plan. Sales is obligated to grow foreign sales only while simultaneously operating within predetermined budgeted costs. Finance must realize that a new foreign market may stretch accounts payable beyond normal levels enjoyed in the American market. Manufacturing may need to handle additional products that cater specifically to the foreign market. The company may need to accept a lower average selling price of its goods or services offshore. The market may demand unique packaging, ultimately increasing the manufacturing cost.
As the plan for expansion into a foreign market develops, the CEO must ensure that the entire executive team supports the total plan. Executives may not support only pieces of the plan. Once complete, the CEO and executive team need to communicate the overall plan to the entire company. Success is dependent upon everyone in the company understanding and supporting the plan to enter a new market.
Market Norms
For any product or service, the sales and marketing approach in one market is not exactly like the approach in another market. The methods of selling and marketing in foreign markets are rarely identical to the methods used in America. Prior to entering a foreign market, a company must study the market in depth. Do competitors go to market with a direct sales force, manufacturers’ representatives, distributors, value-added resellers, brokers, dealers, or some combination of channels? How do local suppliers sell in the foreign market? How do other foreign suppliers sell into the foreign market? Do customers purchase goods only from local suppliers and agents? Do customers accept goods sold by American companies and shipped from American ports? Are product information, marketing data, and packing acceptable to customers if printed in English? Do customers demand product and collateral printed in the local language? Absent a demand, do suppliers that adopt local language in product data and packaging enjoy greater share of market than those that cling only to English?
If manufacturers’ agents or distributors generally handle sales, do those agents or distributors usually demand exclusivity? Do agents or distributors accept working alongside competitive third parties? Accounts receivable in America are commonly 30-to-45 days sales outstanding. What is the corresponding DSO (days sales outstanding) ratio in the foreign market? Study and learn the normal terms and conditions of selling in the foreign market prior to making an investment of time and money. There is seldom a law demanding that an American company must follow local customs. However, an American company planning to sell and market abroad must evaluate how deviating from local norms may influence sales, brand recognition, sales growth, market share and profitability.
Fraud and Scandal
Most companies plan to hire only hard-working people with sound principles. Few companies actually plan to hire executives and staff known to circumvent local rules, norms and laws. When expanding overseas, the opportunity for a company to be involved in fraud or scandal increases dramatically. Distance from headquarters and less-than-perfect communication between headquarters and the foreign sales office are the two greatest reasons that the incidence of fraud and scandal are greater offshore.
Companies must have policies and procedures that clearly define how to conduct business across the company and around the world. Coincidentally, companies must have a plan about how to deal with fraud and scandal once detected. Although avoiding problems is a noble objective, an incidence of fraud or scandal need not be catastrophic. More important than preventing a problem is a policy and plan for dealing with it once discovered. A company must react to detection of a problem and resolve the problem expeditiously. Discovery of fraud or scandal does not permanently impugn a supplier’s reputation. However, a slow or poor response to a problem once discovered is unforgivable and unnecessary. A slow or poor response encourages other problems in the future.
Less seasoned management frequently takes too long to prepare a solution to a fraudulent situation. Management may attempt to hide the problem from the outside world. Such an exercise is foolish. Once discovered, news of fraud is almost impossible to prohibit from leaking into the local market. The best action is to implement corrective action as quickly as possible. Rewarding speedy resolution makes a recurrence more difficult in the future.
When companies seek to repair problems caused by fraud or scandal, their actions to recover are visible to customers and competitors. Whether a company handles a scandalous situation clumsily or with great aplomb, customers notice. A wise company must demonstrate its prowess when dealing with the problem.
Lessons from Competitors
Every market is chock full of suppliers that have made both strategic and tactical mistakes. The best companies study and learn from those mistakes and move ahead. The history of mistakes and solutions in any market is available to anyone who chooses to take the time to study the market. Many mistakes are very common. Lessons about the foreign market come from many sources. If the executive team gathers lessons of competitors, the expansion plan that it prepares can avoid the most common mistakes made by American companies. Suppliers already operating in the market have a number of errors made and solutions taken. Gather as many of those stories as possible. When those tales are gathered and compiled before marching into the new market, there is less chance to make the simplest and most frequently committed errors. Not making blunders can save precious management time and scarce corporate resources while entering the foreign market.
In the American market, suppliers rarely offer to help direct competitors. However, when selling in foreign markets, GMs at subsidiaries of American suppliers often recognize each other more collegially. Although there is little communication between American competitors in the USA, GMs managing foreign sales subsidiaries in Timbuktu likely have a cordial relationship. Those GMs are probably members of the American Chamber of Commerce and the American Club. Both attend monthly meetings of one or more trade associations and are members of a local network. When problems or questions about running the subsidiary arise, there is little stigma attached to asking for help from a competitor. When a foreign subsidiary avoids making a blunder, it saves a significant amount of management time and money. In order to earn the amount of money required to resolve a scandalous issue, the company must sell a significant amount of incremental goods or services just in order to break even. Avoiding problems is great, but competently resolving the issue once it surfaces is most important.
Conclusion
Opening a sales presence in a foreign land can be a challenge, particularly opening in a company’s first foreign market. Increase the odds for success with a four-point formula that includes setting and broadly communicating expectations, learning and comprehending local market customs and norms, preparing in advance for fraud and scandal, and gathering market entry lessons from competitors both foreign and domestic. Be sure to retain in the corporate memory lessons learned from the next foreign market entry.
This article first appeared in the Summer 2007 issue of MWorld: The Journal of the American Management Association. Glen Balzer is a management and forensic consultant involved with marketing and sales. He advises parties involved with relationships and contracts between manufacturers’ representatives, suppliers, customers, and industrial distributors. He has integrated divisions of companies upon merger and acquisition. He has been involved in establishing and managing marketing and sales organizations throughout America, Europe and Asia.
Contact him through his Web site: www.neweraconsulting.com