Exporting often means finding partners to sell or distribute your products in a foreign country. Forming partnerships that add value to your product is a challenge for any business embarking on exporting.
A value chain includes every step — from conception to end use — that your business takes to produce a product or service and deliver it to consumers. Designing an effective upstream supply chain by finding the right suppliers can significantly reduce your costs and make your business more reliable and flexible. Unless you’re selling directly to consumers in a foreign country, it’s just as important to get the downstream supply chain partnerships right.
Some steps in a supply chain, such as warehousing and sales, are typically internal processes when your business is selling only in the domestic market. When you start exporting, it often becomes necessary to find partners to perform some of these functions on your behalf. There are at least five ways in which a downstream supply chain can be configured and each method impacts on the level of control you will have over the final pricing, placement and promotion of your product.
Domestic buyers
As a first venture into exporting, it might be possible to find a domestic buyer who will export your products on your behalf.
The buyer could procure products from various domestic vendors and consolidate them in single shipments to be sold or distributed from one or multiple locations in a foreign country. The buyer assumes all the risks and handles all the exporting details.
As the product is sold to the buyer early in the value chain, your influence on the product’s final pricing and distribution is likely to be limited.
Foreign wholesalers
Wholesalers in the country you want to export to may have established distribution networks with the customers you wish to sell to. You’d then sell large quantities of your products to the wholesaler, who would sell them on to their customers.
You would need to negotiate with the wholesaler to make sure your products are distributed to the right kind of stores and priced correctly. It may be difficult to exert a lot of control over this process.
Agents and intermediaries
It might be possible to find an agent or intermediary who has access to customers you wish to sell to if you don’t have access to them yourself. Agents or intermediaries can be based in your country but are more typically based in the country you wish to export to. They can give you access to well-established expertise and trade contacts, but you retain considerable control over the sale process. In return for brokering deals on your behalf brokers are paid either on a commission basis or on a monthly retainer.
Exporting directly
This approach is challenging as your business will have to handle many aspects of the exporting process, from market research to planning foreign distribution and payment collection.
A typical scenario might be making deliveries to a supermarket chain’s central distribution centres, from where they’ll move the products to individual stores. Though you may not have control over the final pricing of your product, you may have some influence over displays and joint promotions.
Direct foreign investment
This is the most ambitious method of exporting as your business will set up its own distribution and sales network in the foreign country.
This might be a sales office or opening your own stores, and the management and financial costs as well as the risks will be significant.
This approach is the best way to develop relationships directly with consumers and it gives you maximum control over pricing and promotion of your products.
A downstream supply chain can have multiple configurations. It might be possible to have combinations of distribution methods in the same market. You might export directly with one sort of customer, for example, and also sell to a wholesaler who has access to a different sort of customer.
Choosing a partner
Even when transfer of ownership of goods takes place early in the supply chain, choosing the right partner is crucial. As an extreme example, a wholesaler could negotiate an exclusive contract for your goods without ever intending to sell your product, simply to keep it out of an already highly competitive market.
Complex networks of supply are more difficult to control as information sometimes doesn’t flow in both directions, which could result in problems predicting where inventory should be held in order to meet demand. The design of the value chain will also influence the type of transportation that will be needed. If an e-commerce business sells directly to end consumers, the goods will probably be sent in a parcel. Deliveries to a wholesalers are more likely to take place in pallet or container loads.
Content on this page is paid for and provided by UPS, sponsor of the Exporting to New Markets hub on the Small Business Network.
