Learn to Export
Is your product ready to be exported?
Whether or not your product is export ready is a function of the buyer’s needs, your product’s ability to meet those needs, and how your product will shape up against international competition. Your product’s exportability would also be dependent on your business’s ability to export as discussed in the previous section.
In order to determine export readiness, you need information on the target market, potential competitors and the buyers themselves. Your product may also demand specific questions relating to that industry. Common factors that would affect the exportability of a product are:
1. Market potential
Unless there is a need, you will not sell your product. Your domestic market is a good indicator of the chances of success in international markets based on the fact that you are meeting a need locally and should be able to meet the same need internationally. This, however, is not the only consideration. International markets are usually further away, meaning that you will have to add international transport costs, and will most probably have to include the cost of import duties and taxes in the final delivery price.
- Have you had success in selling in your domestic market without the benefit of protection against foreign competition?
- Are you aware of buyers in international markets with similar needs to those of your customers in South Africa?
- How do your delivered prices compare with those of international competitors?
2. Product adaptability
A key quality of an export product is its ability to adapt its function, design, or packaging to suit an international market. Cultural differences between countries could affect the use or acceptability of a product in each country. A product name could have a totally different and possibly derogatory meaning in another language and would have to be changed for that market. The following questions test the flexibility of your product to meet the different needs and demands of selling in international markets:
- Could your product serve a different function in international markets to what it serves in your domestic market, and if so, can you adapt your product accordingly?
- Is the packaging suitable for international freight?
- Can labels, manuals, and marketing material be adapted to the needs and requirements of an international market, eg language?
3. Cost structure
The cost structure of the product will obviously impact on its competitiveness. For example, depending on the cost of materials, and whether or not those materials can be locally sourced, international transport costs and customs duties in the importing country will collectively determine the final delivery price. The following questions highlight the areas that will affect your cost structure:
- What is the percentage of local content of materials used in the production of your product? (The South African rand has weakened against major currencies and although beneficial to exports, if your raw materials are imported, that benefit could be lost due to the higher cost of imports).
- Will your manufacturing process cope with bigger production runs and would this improve your efficiency?
- Do you have access to lower cost raw materials for export production, eg due to Government subsidy schemes or duty rebates on imported raw materials?
- Are you able to cost your export products without including your business overheads in the selling price?
- Is your product a high or low value product? ( The lower the value the more sensitive it will be to pricing and transport costs.)
- Would international freight costs constitute a high or low proportion of the final delivery price?
- Is your product one that would generally attract high import duties in most countries, e.g. agricultural products?
4. Competitor’s product
The more you know about your competitor’s product, the better your position when determining your own chances of succeeding. Price is an important factor in determining success, but not necessarily the only way to compete. By differentiating your product against your competitor’s, such as highlighting some of the unique selling points of your product, can result in success. Questions that should be addressed with regard to your competitors are:
- Are you aware of any clear advantages that your product has over your competitor’s?
- Are you aware of any disadvantages that your product has against your competitors?
- Can your product easily be substituted by another type of product?
5. Product complexity
The greater the complexity of your product, the more important role the strength of your business will play. Products that need a high level of support or installation, need a strong agent network with trained staff to support the product. The investment in setting up a sales and support structure in the importing country could be prohibitive to you, making your product unexportable. The following questions indicate the type of considerations affected by complex products:
- Is the technology involved in using the product considered to be simple or sophisticated?
- Does the buyer need any special skills or instructions in using the product? (More demands are placed on the way you distribute and support the product).
- What utilisation demands does the product have eg power? (Some markets use a different voltage, eg USA =110 V)
- Does the product need installation? (You would have to have qualified installers on location each time your get an order.)
- Does the product need repair services and spares backup? (You would most likely have to set up a capable agency network.)
6. Rights to sell product internationally
If your product is being manufactured under licence, you must check to see that there are no limitations on which markets you may sell into. The country that you may wish to sell into may already be producing the same product under the same licence and the patent holder may prevent you from competing with that manufacturer in his market.
- Are there any patents applicable to your product and what is your position regarding the rights to market the product internationally?
- If you are manufacturing under licence, are there any restrictions on which markets you may enter?
- By now you should have a clearer idea of what is meant by export readiness and what type of commitment is required in becoming a successful exporter.