Make more offshore

• Stephen Craft
• 23 October 2008
• Page 1 of 2 : single page

There was a time when doing business overseas was daunting. Business at a distance was hard work: you had to market yourself to people half a world away, distribute your product to them and worry about international payments and foreign exchange. That meant spending a lot of time and money many small business owners couldn’t afford.

But the internet changed all that. Opening a shopfront on the other side of the world can be as simple as creating a website with a payment gateway. You can research foreign markets, contact distributors, make overseas payments and manage foreign exchange without leaving your desk.

That’s not to say that selling to a customer on the other side of the world is as simple as selling to one in the next suburb. There are still plenty of technicalities to master, especially if you’ve got bulky goods to move. But if the effort is greater, so are the potential rewards.

Working your niche

It’s not hard to see how going offshore could help many businesses succeed. One of the secrets of success in small business is to carve out a niche where you can target the most profitable customers without competing on price alone. But if you’re targeting a niche market, your potential customer base in Australia
is limited.

For example, if your pet care product appeals to the 1.1% of Australians who own guinea pigs, your market is only 23,000 people. But if you could access the 0.3% of Americans who also own guinea pigs, that would give you an extra 1 million potential customers. (It took about 10 minutes to find those statistics on the net, by the way.)

Some recent research highlights the point. The Commonwealth Bank and Investment Trends found small businesses that trade in a wider market enjoyed faster profit growth. In the year before the survey, businesses that only operated in their local area experienced average profit growth of only 9%, while businesses that traded nationally and internationally grew their profits by an average of 27% and 25% respectively.

So if you’re already selling around the country, overseas is the logical next step. Here are some of the issues you need to think about.

The market

Which market will you target? Australia is on the doorstep of some of the world’s fastest growing economies and blessed by having the same language and a similar culture to three of the world’s economic powerhouses: the United States, the United Kingdom and Canada. That can simplify things enormously when it comes to reusing your marketing and packaging.

Many business owners are tempted to start with a smaller neighbourhood market, like New Zealand. But that can be a mistake. Remember, if you open up shop in New Zealand, you’re only adding the population of Sydney to your potential customer base. But if you go to the US, you’re adding 75 Sydneys.

Whichever market you decide to attack first, you need to do the same sort of research you did before starting up in Australia. How many potential customers are there? Who are the competitors? What’s their market positioning? How can you differentiate yourself?

Don’t assume what worked in Australia will succeed overseas, although it’s a great base to build on. The Australian Government agency Austrade can give you a helping hand with market intelligence and planning advice through programs such as TradeStart.

The product

Do you need to make any product changes to wow customers offshore? Start with the obvious essentials, like overseas licensing and labelling requirements, language differences and infrastructure differences, like electrical plugs and voltage. Then think about the competitive landscape and any cultural issues.

Marketing

The net doesn’t eliminate all the challenges of marketing your product to customers half a world away. A local distributor can be a godsend. With a distributor to take care of marketing, you only need to set the strategy and supply brochures and other material – rather like a franchisor working with franchisees.

Trade shows and expos can be another great way to get contacts in other parts of the globe. Again, Austrade can help, and there are other ways to get your message across. Australian export success story The Fire Company [see below] hired an overseas public relations agency instead of advertising. The result was more than 400 positive articles in publications ranging form Vogue to Le Monde, which brought distributors knocking on their door.

You could also remodel your marketing and packaging to capitalise on the Australian origins of your product. That doesn’t necessarily mean coming across like Crocodile Dundee. According to Uwe Backes, director of The Fire Company, “Americans really like Australian products – they see us as the new Italy, because we have a lot of good designers and good products.”

Production and distribution

Obviously it’s essential to scope the size of your potential new market and ensure you have the staff and production capacity to ramp up when all those new orders (hopefully) come flooding in. You also need to decide how you want to distribute your product overseas. Here are some options:

• Go direct by selling online or opening an overseas office. This gives you more control but doesn’t allow you to take advantage of the resources and know-how of an experienced local.
• Find a distributor in your target market which will on-sell your product to retailers or customers. This is a partnership, so it’s important to choose someone with the right outlook and an enthusiasm for your product.
• Sell to an export merchant – an Australian wholesaler which sends your products overseas. This is often the easiest option, since you don’t have to worry about the details of transport and foreign exchange.

Intellectual property

Before you go offshore, make sure your intellectual property is protected. That means extending any Australian trademarks and patents to your new markets. It can be a time-consuming process.

“A patent takes 18 months if you want to have it worldwide, then you have to specify which country you want to go into,” says Backes. “It takes another two to three years to get local approval in each country.”

International conventions make the process easier, provided you apply within the agreed time limits – 12 months from filing your Australian application in the case of patents or six months for trade marks.

Finance

Trading offshore can stretch your finances, simply because it takes much longer to transport your goods to market, clear them through customs and get them into the hands of your distributor or customer. Depending on your payment terms and shipping arrangements, the time lag between paying for a product and getting money from your customers can open up a sizeable cashflow gap.