The Sunday Mail
Trade Focus
Allan Majuru
THE choice of market entry in international markets largely depends on the products or services one intends to sell as well as the objectives for exporting.
Some of these objectives include improving the business’ cash flows, de-risking the business through market diversification, maximising profitability and developing a long term market share. The success in export markets, however, depends largely on the strategy employed, particularly in ensuring that the products or services reach the targeted consumers effectively. In most cases, businesses employ direct or indirect exporting strategies when entering international markets.
While both options are appropriate as a strategy, emerging trends are showing that direct market access will bring ideal benefits to local businesses.
Direct market access, in this case, refers to an arrangement where local companies can export directly to regional and international markets, without needing an intermediary based in the targeted market.
Another strategy that local companies can consider in direct foreign market access is investing in the target by setting up operations as subsidiaries. On the other hand, indirect market penetration is when a company uses other means such as piggy-backing on established exporters or using intermediaries, licensing, franchising or joint ventures. Big organisations like Coca Cola and Unilever have used the licensing approach to grow exports of their brands in various countries.
KFC, Macdonald’s, Pizza Hut and Spar have used the franchising route to export their brands globally.
On the services side, Grant Thornton, Ernst & Young and Price WaterhouseCoopers are some firms that have used the licensing strategy to grow and export their brands globally.
Due to some limitations, such as poor knowledge of foreign markets or logistical challenges, some local producers have had to export to some countries through intermediaries.
Although this has made it easy for local companies to access difficult areas, more benefits could be realised with accessing markets directly. When looking at the two market entry strategies, the disadvantages of indirect market access for product exports expose local companies to high costs of doing business, which render products uncompetitive on export markets.
However, for services, it must be advantageous as the quality and standard of the desired service can be offered locally in that market through a licensed firm, with reduced logistics cost of sourcing it from original source.
The main drawback of indirect exporting strategy for physical product through an intermediary is that the exporters lose control over how their products are marketed in the overseas market. If it is licensed or franchised, the attendant standards and operation procedures will ensure that control is achieved on how the product or service is marketed.
Coca-Cola, KFC and Spar have periodic standards checklists on how the brand is marketed and managed, to ensure the control on the marketing and promotion is achieved in foreign markets.
In most cases for product exports, the intermediary will be responsible for marketing, pricing, and logistics, from the source to the market. However, for services, the owner of the brand will maintain a certain level of control in the marketing, logistics and pricing models to achieve a global standardisation of business approach.
For example, Coca-Cola will control the advertising and promotional campaigns to ensure there is a global standard approach to even localised marketing efforts.
The other set back of indirect exporting is the failure by the exporters to gain valuable knowledge on how the market where their products are sold functions, as this role is left in the hands of the intermediary.
The intermediary normally negotiates with the exporter for a low price to gain some price competitiveness, a situation which reduces the profitability of the exporter as compared to direct exporting strategy.
To draw much value from indirect market access, local small-scale exporters need to take advantage of established exports or consolidate to meet required amounts. As the working is similar, there is a better bargaining power between the local small-scale exporter and the local established exporter.
For example, ZimTrade has been working with established farmers under the Best Model Farm programme, which is designed to be an aggregator for improved market access by small-scale farmers using the outgrower approach. This has seen improvements, which would have been difficult to achieve if local small-scale farmers were exporting through intermediaries based out of the country.
Longevity of direct
market access
Direct market access will guarantee local business a long-term market share rather than quick wins in profitability and cash flows.
With direct exporting, local exporters must be prepared to search for the appropriate markets to service, preparing all the export documents, and arranging for product upliftment among other tasks necessary to make it easy to conclude a sale.
Further to this, local businesses will have greater control on how their products are placed in foreign markets, as well as how they are promoted, priced and positioned.
The business can get a better understanding of export windows and trends in international markets if they deal directly with buyers. This improves production planning for improved efficiency.
Since there are no middlemen, the exporter has greater chances of negotiating for better prices and hence improve profitability.
However, this strategy calls for the company to have the necessary resources in terms of know-how, skills, and finances.
For example, local companies must be prepared to invest in marketing research to understand the dynamics of the target market so that they can package, promote and appropriately price their products.
The chances of succeeding in penetrating the export market using the direct export strategy are high if the chosen market is easily accessible and homogeneous to the exporting country.
ZimTrade can facilitate the training of exporters in the use of ITC (International Trade Centre) Marketing Tools which allow companies to get relevant market data and information for decision making especially if one is into direct exporting.
Connecting
directly with markets
To help local companies understand business as well as market and consumer dynamics, ZimTrade — the national trade development and promotion organisation — regularly conducts in-depth market surveys in regional and international markets. These surveys which are structured researches on existing and emerging markets support new market identification and development for dissemination to companies in Zimbabwe.
The surveys are for the benefit of Zimbabwean exporters and would-be exporters and can be accessed only through formal request.
ZimTrade in its export promotion services, links local, export ready companies directly with buyers in foreign markets through trade missions, B2B meetings and matchmaking initiatives.
Taking part in trade missions and exhibitions where Zimbabwean companies can showcase their products will improve direct linkages in markets. Most of these events draw international buyers across the globe, making it a good platform for exporters to promote themselves to the world and create long lasting relationships with the buyers.
Participating in trade fairs in foreign markets presents an opportunity to get new leads, which can translate into increased export sales.
One such example is Fruit Logistica where opportunities to have access to global major fruit and vegetables producers and buyers converge. These events enable local companies to meet prospective buyers, generate business contacts, engage in business-to-business meetings and to learn market trends so that they develop competitive products and services.
Further to this, ZimTrade prepares on request, market pointers which assist Zimbabwean companies to make informed decisions and develop appropriate export strategies as they explore opportunities in the global market. For easy linkages with regional and international buyers, local companies can register on www.shopatzim.co.zw portal, an online platform developed to link international buyers with local sellers.
There are other avenues exporters can explore to get market information for the markets that they consider doing business with.
Our embassies which now have a new focus on economic diplomacy are key in linking local companies directly with buyers in international markets. It is, however, important to note that direct market access has a few drawbacks.
Direct exporting might be difficult and risky if the target market has high regulatory requirements, different business culture, or if the exporter is inexperienced in international trade. The business’ profitability might be affected by changes in the macro environmental factors such as political and economic instability in the importing country and uncompetitive distribution costs, which will make the products too expensive for the consumer. The exporters in their planning processes are urged to consider the possibility that if the venture is not successful, the investment in marketing will not be recouped. Therefore, local companies considering this route must be prepared to invest significantly in marketing to achieve long term profitability.
Allan Majuru is ZimTrade chief executive.
