will you enter the foreign market place?
Marketing > Export Marketing channels > How will you
enter the foreign market place?
Deciding on how you will enter the foreign market place
is an important decision to take and will affect many
other decisions you will be required to make. What options
are available to you? Well, you can:
- Export indirectly – This involves making
use of an export agent, trading house or by piggybacking.
The export agent simply acts as your representative,
while the trade house buys and sells for its own account
and represents a customer for you. Piggybacking is when
a firm with an existing sales network in the foreign
marketplace agrees to carry your product in addition
to their own line. They will normal only agree to this
arrangement if your product(s) complement theirs in
some way and adds value to their sales network. The
term piggybacking is sometimes (incorrectly) used when
another exporter buys your product as an input to their
manufacturing process. Essentially your product is being
sold overseas, but only as a component of the other
exporter’s product. This is little more than a
domestic sale for you – you would be paid in rands
even though your products end up overseas.
- Export directly – This you can do either
through an import agent, foreign distributor, wholesaler,
retailer, or by selling directly to the end user. The
agent (like an export agent) functions as your representative
on a commission basis, while the distributor buys and
sells products for their own account. This is a significant
difference – the agent is little more than your
representative, while the distributor is a customer
in its own right. Wholesalers and retailers function
in a similar way to the distributor in that they are
also customers of your company, yet sell the product
on to other intermediaries and/or the final user. Finally,
there is always the option of selling your products
to the end user using direct marketing, including the
- License, franchise or contract the production and/or
marketing of your product abroad – In this
instance, you enter into a contractual agreement with
a foreign company to either use your technology or
intellectual property (licensing) or entire business
system (franchising) in the foreign market place.
In both the case of franchising and licensing, your
involvement is somewhat limited beyond providing access
to the intellectual property or the business system.
Thereafter, the foreign company operates largely on
its own. In the case of contract manufacture, the
foreign company simply manufacturers the goods to
your specification – you will normally keep
control over the marketing.
- Invest directly in the foreign marketplace – Direct
foreign investment may take different forms, such as
foreign assembly or foreign manufacture. In the case
of manufacturing abroad, you can decide to either start
a new manufacturing operation altogether, or you can
buy into an existing manufacturing operation.
- Enter into a co-operative agreement – With
co-operative agreements, you enter into an agreement
with a foreign firm, where your two firms work closely
together to develop the business in the foreign market
place. Examples of co-operative agreements include joint-ventures
(a shared ownership of a new operation), strategic alliances
(involving close cooperation in the area of technology,
R&D, distribution or marketing) and reciprocal share
holdings (normally not common with smaller firms).
Smaller exporters are likely to use only some of these
Most of these market entry options
are not likely to be serious options for the small-
or medium-sized firm. Realistically, smaller firms are
likely only to consider export agents, local trading
houses, piggybacking, import agents, import distributors,
foreign wholesalers or retailers, direct marketing,
licensing (only where you have unique technology or
intellectual property to market), or franchising (generally
only in retail scenarios such as restaurants or retail
stores such as Cash Crusaders) as market entry options.
The other options are generally the domain of the larger
Your market-entry decision is an important marketing
Your decision about market-entry is
a very important one to make, as this decision will
affect many –if
not all – of the other marketing decisions you will
make. For example, if you sell direct to the end user,
your pricing is likely to be different from the situation
where you selling to an import distributor or through
an import or export agent. Similarly the market entry
decision has a direct impact on your distribution decision – market
entry, after all, is a distribution decision. Also, the
close to the end customer that you sell your goods, the
fewer intermediaries there will be in the marketing channel
and the more control you will have over the process and
the cheaper it will be.
Conversely, the further away from the customer you sell
your product (say to an import distributor), the less
control you have and the more intermediaries there are
likely to be, affecting distribution costs and distribution
complexity, For example, if you sell through an export
agent, this agent may arrange for you to sell your product
to an import distributor, who in turn sells the product
to a wholesaler, who sells to a retailer, who eventually
sells the product to an end user. Each of these intermediaries
adds a further mark-up to the product and the product
is handled more often with the danger of being damaged.
It is also a more time-consuming process, the longer the
Work with rather than against a channel
On the other hand, some markets have
traditionally long distribution chains – the Japanese are known for
this – and it may be very difficult to sell outside
of an established marketing channel. It is important that
you quickly learn how the marketing channel traditionally
works in the country you are targeting (i.e. who are involved
and what markups they are likely to impose). This will
ensure that you do not waste time trying to by-pass intermediaries
who considered key in that particular channel. For this
reason, when doing your marketing research, you should
strive to learn how the marketing channel works in your
target market and who the important channel members are.
In selecting your channel members, consider the following:
- What value will the channel member offer your firm?
- Are they seen as key to your distribution efforts
by other channel members (in which case will have to
work through them)?
- What coverage does the channel member offer you?
- What services do they offer?
- What will they expect of you?
- How will you communicate with them (do they speak
- What will they cost (what mark-ups are they likely
- Will you have any say in the further distribution
decisions that they make?
You are not likely to have much control over the channel
beyond the first intermediary
Unless you have a very desirable product and are quite
a large, influential company, you are seldom likely to
have much control of the marketing channel beyond the
first channel member. For example, if you sell to an import
distributor, the distributor will generally not allow
you to make any decisions or have any control over who
they, in turn, sell to or through. Your control over the
channel pretty much ends with the import distributor!
Large multinational corporations such as Kodak, for example,
may enter a market and develop a channel that they control
by providing active assistance (such as providing financial
marketing incentives to photo shops to carry their brand
as they did in China) and even by taking over or partnering
with some key channel members (such as distributors and
wholesalers). Indeed, they may even set up a wholesaling
and sales operation in competition to the existing channel
structure. Kodak also franchise their Kodak brand by allowing
entrepreneurs to set up small Kodak-only photo outlets.
With this effort, Kodak has taken control over much of
the marketing channel. But in reality only a few companies
have the reputation, brand and resources to do so.