If the only trade is between parents and siblings in a home then there may be benefit to one member but there is no development of wealth for the whole home. For New Zealand it is the same story. Our economic prosperity depends on export revenues from foreign markets rather than domestic trade with each other. We need more globally capable companies in New Zealand but we have been slow to respond to the opportunities of globalisation. The majority of our trade is still with each other, and the small size of our domestic market constrains overall economic growth. We need more export income.
For an initial scan of potential markets use data on countries found in the annual World Economic Forum report (www.weforum.org). Although providing a broad brush picture, the data is extensive and can lead to a ‘first cut’ of contenders. For more intimate evaluations it is useful to pick a set of criteria for more attractive possibilities e.g. population, culture, government regulation, political and economic stability, language, currency etc.; and then rank the attractiveness of each market against your business strengths. Secondly think initially in terms on one city, not a full country. For example Melbourne has the same population as New Zealand, is only three hours away by air and is culturally similar to New Zealand.
Management guru Peter Drucker has suggested ‘entrepreneurial judo’ to help small companies.
- “Being fustest with the mostest” – being the unchallenged leader in your field using continuous and rapid innovation.
- Use Creative imitation –
Creative imitation: “Hit them where they ain’t” attack into niche gaps in the market and
operate ‘under the radar’ in markets poorly served by established companies
- Find and occupy an “ecological niche” – based on a scarce specialty skill or knowledge.
- Changing the economic characteristics of an existing product or business model – redesign to reduce non-value adding cost to gain competitive advantage
Appointing Agents and Distributors
The agent will facilitate trade and be paid a commission, whereas a distributor buys your product and usually takes on all the risk of funding, marketing and distribution in the foreign market in return for a significant share of the profit margin. In either case you are dependent on their performance to get your product successfully into the market and so they must be chosen carefully and managed well. The ideal relationship will be built on close personal contact, trust and rapport. The key components are regular communication, performance measurement, efficient operational systems and active collaboration. New Zealand Trade and Enterprise publish helpful guides on appointing agents or distributors.
Exporting risk can be managed or mitigated by awareness and planning. Past exporter experiences have identified some of the more common pitfalls listed below.
- Selling ‘AT’ the market rather than ‘IN’ the market.
- Failure to tailor existing products/services to the unique requirements of the new market
- Lack of true understanding of cultural differences
- Trying to do it all by yourself
- Going too fast – you need to temper persistence with patience
- A failure to realise how much capacity you will need
- A failure to realise the working capital requirements
- A failure to understand foreign government regulations
- A failure to have all import/export documentation correctly prepared.
Foreign Exchange Risk
Finally, dealing in foreign currencies can be scary for new exporters. All of the main trading banks in New Zealand offer foreign exchange advice and services. The key issue is that exporters must fully understand the sometimes complex financial products they are buying to offset the risk.
In most cases ‘hedging’ is the common practice to offset risk. This involves a forward exchange contract that allows an exporter to lock in an exchange rate without having to pay for the purchased currency until a future date.
Other strategies that are harder to negotiate involve building flexibility into contracts so that adjustments can be made if the currencies move past tolerable points, or alternatively establishing contracts in New Zealand dollars.