The International channel system

In the previous unit we learned that internationalization affects many aspects of your farm behaviour and provides new exciting opportunities. The process of Internationalization of a farm can constitute at the moment an activity of vital importance to stay and grow within the changing business world.

Once you have decided to get the process started based on a feasibility planning you need to build up a strong and effective channel system supporting your entry in foreign markets. An efficient distribution system is a prerequisite for effective market penetration! Collaborating with other companies in the design and development of the internationalization process could be a good strategy. Joining existing and tested networks also could be helpful.

Economic theory suggests us that the most common methods of exporting are indirect selling and direct selling.

In indirect selling, an export intermediary such as an export management company (EMC) or an export trading company (ETC) normally assumes responsibility for finding overseas buyers, shipping products, and getting paid. In direct selling, the producer deals directly with a foreign buyer. The key factor in determining whether to market indirectly or directly is the level of resources a company is willing / is able to devote to its international marketing effort.

There are at least four approaches to internationalization distribution, which may be used alone or in combination:

1. Passively filling orders from domestic buyers who then export the product. These sales are indistinguishable from other domestic sales as far as the original seller is concerned. Someone else has decided that the product in question meets foreign demand. That party takes all the risk and handles all of the exporting details, in some cases without even the awareness of the original seller.
2. Seeking out domestic buyers who represent foreign end users or customers. Foreign corporations, general contractors, foreign trading companies, foreign government agencies, foreign distributors and retailers, and others purchase for export. These buyers are a large market for a wide variety of goods and services. In this case, a company may know that its product is being exported, but it is still the buyer who assumes the risk and handles the details of exporting.
3. Exporting indirectly through intermediaries. With this approach, a company engages the services of an intermediary firm capable of finding foreign markets and buyers for its products. EMCs, ETCs, international trade consultants, and other intermediaries can give the exporter access to well-established expertise and trade contacts. Yet, the exporter can still retain considerable control over the process and can get some of the other benefits of exporting, such as learning more about foreign competitors, new technologies, and other market opportunities.
4. Exporting directly. This approach is the most ambitious and difficult, since the exporter personally handles every aspect of the exporting process from market research and planning to foreign distribution and collections. Consequently, a significant commitment of management time and attention is required to achieve good results. However, this approach may also be the best way to achieve maximum profits and long-term growth. With appropriate help and guidance of state trade offices, freight forwarders, international banks, and other service groups, even small or medium-sized firms can export directly if they are able to commit enough staff time to the effort.

First glossary intermediaries and representatives for indirect export

The principal advantage of indirect marketing for a smaller farm is that it provides a way to penetrate foreign markets without the complexities and risks of direct exporting. Several kinds of intermediary firms provide a range of export services. Confirming houses or buying agents are finders for foreign firms that want to purchase a national products. They seek to obtain the desired items at the lowest possible price and are paid a commission by their foreign clients. In some cases, they may be foreign government agencies or quasi-governmental firms empowered to locate and purchase desired goods. An example is foreign government purchasing missions.

An Export Management Company EMC acts as the export department for one or several producers of goods or services. It solicits and transacts business in the names of the producers it represents or in its own name for a commission, salary, or retainer plus commission. Some EMCs provide immediate payment for the producer's products by either arranging financing or directly purchasing products for resale. Typically, only larger EMCs can afford to purchase or finance exports ( disadvantage of using an EMC is that a manufacturer may lose control over foreign sales)

Export agents, merchants, or remarketers purchase products directly from the manufacturer, packing and marking the products according to their own specifications. They then sell these products overseas through their contacts in their own names and assume all risks for accounts. In transactions with export agents, merchants, or remarketers, a firm relinquishes control over the marketing and promotion of its product. This situation could have an adverse effect on future sales efforts abroad if the product is underpriced or incorrectly positioned in the market, or if after-sales services are neglected. On the other hand, the effort required by the manufacturer to market the product overseas is very small and may lead to sales that otherwise would take a great deal of effort to obtain.

The advantages of direct exporting for a company include more control over the export process, potentially higher profits, and a closer relationship to the overseas buyer and marketplace.

Intermediaries and representatives in direct export

When a company chooses to export directly to foreign markets, it usually makes internal organizational changes to support more complex functions. A direct exporter normally selects the markets it wishes to penetrate, chooses the best channels of distribution for each market, and then makes specific foreign business connections in order to sell its product.

Overseas, a sales representative uses the company's product literature and samples to present the product to potential buyers. A representative usually handles many complementary lines that do not conflict. The sales representative usually works on a commission basis, assumes no risk or responsibility, and is under contract for a definite period of time (renewable by mutual agreement). The contract defines territory, terms of sale, method of compensation, reasons and procedures for terminating the agreement, and other details. The sales representative may operate on either an exclusive or a nonexclusive basis.

The widely misunderstood term “agent” means a representative who normally has authority, perhaps even a power of attorney, to make commitments on behalf of the firm he or she represents. You can rely on the term “representative,” since agent can imply more than intended. It is important that any contract state whether the representative or agent does or does not have legal authority to obligate the firm.

The foreign distributor is a merchant who purchases goods from a national exporter (often at a substantial discount) and resells it for a profit. The foreign distributor generally provides support and service for the product,. The distributor usually carries an inventory of products and a sufficient supply of spare parts and also maintains adequate facilities and personnel for normal servicing operations. Distributors typically handle a range of non-conflicting but complementary products. End users do not usually buy from a distributor; they buy from retailers or dealers.

A Farm may also sell directly to foreign retailers, although in such transactions, products are generally limited to consumer lines. This method relies mainly on traveling sales representatives who directly contact foreign retailers, although results might also be achieved by mailing catalogs, brochures, or other literature. The direct mail approach has the benefits of eliminating commissions, reducing traveling expenses, and reaching a broader audience. For optimal results, a firm that uses direct mail to reach foreign retailers should support it with other marketing activities.

A Farm may sell its products or services directly to end users in foreign countries. These buyers can be foreign governments; institutions such as hospitals, banks, and schools; or businesses. Buyers can be identified at trade shows, through international publications, or through Commerce's Export Contact List Service. The company is responsible for shipping, payment collection, and product servicing unless other arrangements are made. Unless the cost of providing these services is built into the export price, a company could have a narrower profit than originally intended.

First possible steps in building channels

1. The Business Mission Abroad

   Participating in a Business Mission Abroad (foreign government purchasing missions) is an interesting first approach to a foreign market, to promote your products and to select and meet potential local partners.

   Business missions are organized by trade associations, chambers of commerce and associations. Generally benefits for the entrepreneurs from these missions are important because these initiatives are regional or nationally funded and allow to approach the selected country along with other companies, usually non-competitors.

   The organizer institution, who has a reference network in the country, collects company profiles and promotional material of the participating companies. In the previous months to the mission, it promotes the company among potential partners who match their business needs; it also organizes bilateral meetings.

   Who organizes Missions Abroad in my country?

2. International fair

   Participating in an international fair allows to the entrepreneur to meet in a few days a large number of operators and visitors (agents, distributors, representatives) and exhibitors (competitors), to create direct relationships with potential customers and to offer a strong promotional support to local network sales.

   The choice of the fair should be based on the importance of the market's trade fair site, on the international image, its level of specialization the number and type of exhibitors and visitors.

   The cost / benefit ratio of participation in a fair must be carefully considered: the cost of rent and set up the stall, recording on the catalog, the shipment of goods to be exhibited, the documentation to be prepared (translated brochure, catalogs, videos, invitations, photo), travel expenses, accommodation and representation for staff and any supporting figures. In the case of particularly high costs, it may be convenient to evaluate participation in a joint stand organized by associations.

   Special EXPO 2015
   
   http://www.expo2015.org

3. The B2B meetings with foreign buyers

   The meeting with foreign buyers during their visit to Italy represents an interesting opportunity for a farm that is starting a process of internationalization. Trade associations regularly organize visits of delegations of foreign buyers in Italy, in trade fairs or visits to foreign institutional delegations occasion.

   Buyers are highly specialized in their sector, they have a deep knowledge of market and product dynamics, as well as the views of the different manufacturers, and the quality, visibility and price that they offer.

   The meeting with a foreign buyer takes place in a restricted time, during which must be shared information about your products and prices, the terms of sale, transport arrangements, guarantees, labels etc. It's recommended that, in preparing the meeting, you collect information about the company that the buyer represents, the type of products they purchase on their origin, the selling price and the technical regulations of the country.

4. Electronic commerce

   Companies wishing to explore new sales channels should not overlook the possibility of using electronic commerce. Although the practice of buying food online is not yet widespread, it is growing

   In Italy, and in countries with higher rates of technological literacy (for es. United States, Great Britain, Scandinavia, Germany, etc.) the phenomenon is gradually taking hold.
   An increasing number of small businesses are turning to the internet and their e-commerce websites to sell their products overseas, bypassing traditional and expensive routes to export. Small businesses and startups are turning to the internet and their e-commerce sites simply due to cost: With an effective e-commerce website, small businesses can market and sell their goods and services to every country in the world effectively.

   Anything from marketing to transportation, documentation and payment solutions deserves mentioning. There are online shop windows implementable in an afternoon, payment gateways handling international credit card payments in most countries and online comparison and booking portals where businesses at the click of a button can get complete overview of available shipping solutions, costs and documentation requirement