Methods of entering foreign market

Direct Exporting
Direct exporting is selling directly into the market you have chosen using in the first instance
you own resources. Many companies, once they have established a sales program turn to
agents and/or distributors to represent them further in that market. Agents and distributors
work closely with you in representing your interests. They become the face of your company
and thus it is important that your choice of agents and distributors is handled in much the same
way you would hire a key staff person.

Licensing
Licensing is a relatively sophisticated arrangement where a firm transfers the rights to the use
of a product or service to another firm. It is a particularly useful strategy if the purchaser of the
license has a relatively large market share in the market you want to enter. Licenses can be for
marketing or production. licensing).

Franchising
Franchising is a typical North American process for rapid market expansion but it is gaining
traction in other parts of the world. Franchising works well for firms that have a repeatable
business model (eg. food outlets) that can be easily transferred into other markets. Two caveats
are required when considering using the franchise model. The first is that your business model
should either be very unique or have strong brand recognition that can be utilized
internationally and secondly you may be creating your future competition in your franchisee.

Partnering
Partnering is almost a necessity when entering foreign markets and in some parts of the world
(e.g. Asia) it may be required. Partnering can take a variety of forms from a simple co-marketing
arrangement to a sophisticated strategic alliance for manufacturing. Partnering is a particularly
useful strategy in those markets where the culture, both business and social, is substantively
different than your own as local partners bring local market knowledge, contacts and if chosen
wisely customers.

Joint Ventures
Joint ventures are a particular form of partnership that involves the creation of a third
independently managed company. It is the 1+1=3 process. Two companies agree to work
together in a particular market, either geographic or product, and create a third company to
undertake this. Risks and profits are normally shared equally. The best example of a joint
venture is Sony/Ericsson Cell Phone.

Buying a Company
In some markets buying an existing local company may be the most appropriate entry strategy.
This may be because the company has substantial market share, are a direct competitor to you
or due to government regulations this is the only option for your firm to enter the market. It is
certainly the most costly and determining the true value of a firm in a foreign market will
require substantial due diligence. On the plus side this entry strategy will immediately provide
you the status of being a local company and you will receive the benefits of local market
knowledge, an established customer base and be treated by the local government as a local
firm.

Piggybacking
Piggybacking is a particularly unique way of entering the international arena. If you have a
particularly interesting and unique product or service that you sell to large domestic firms that
are currently involved in foreign markets you may want to approach them to see if your
product or service can be included in their inventory for international markets. This reduces
your risk and costs because you are essentially selling domestically and the larger firm is
marketing your product or service for you internationally.

Turnkey Projects
Turnkey projects are particular to companies that provide services such as environmental
consulting, architecture, construction and engineering. A turnkey project is where the facility is
built from the ground up and turned over to the client ready to go – turn the key and the plant
is operational. This is a very good way to enter foreign markets as the client is normally a
government and often the project is being financed by an international financial agency such as
the World Bank so the risk of not being paid is eliminated.

Greenfield Investments
Greenfield investments require the greatest involvement in international business. A greenfield
investment is where you buy the land, build the facility and operate the business on an ongoing
basis in a foreign market. It is certainly the most costly and holds the highest risk but some
markets may require you to undertake the cost and risk due to government regulations,
transportation costs, and the ability to access technology or skilled labour.

export Pricing?
Price fixed for the export products or services which the exporter intends to sell in the overseas
market is called export pricing. Export price of a given product is determined by many factors.
There are a number of methods used for the purpose of costing in exports. These methods are
divided into three groups.

Objectives of Export Pricing

Export pricing is a technique of fixing the prices of goods and services which are intended to be
exported and sold in the overseas markets. Export pricing is much more difficult than domestic
pricing, because the exporter has to take into account not only the cost of production but also
the influence and impact of the conditions prevailing in the international markets.

Therefore export pricing is not just an arithmetical calculation, but a practical proposition based
on market situation. The success of an export firm largely depends on its effective pricing
policy.
The principal objectives of export pricing are as follows.

1. Survival
An exporter faces competition not only from his fellow-exporters, but also from other country
exporters. In much competitive markets, one of the marketing tools which can make the
exporter survive the competition is pricing.

Making price competitive, thereby earning less profit in order to survive, could be one of
the objectives of pricing. Keeping prices competitive and maintaining low prices is a short-term
objective, as every exporter aims at increasing profits at a later stage.
2. Maximum Sales Growth
As an exporter survives the competition, the objective shifts to having maximum sales growth.
Depending upon competition and sensitivity of market to price, the final pricing decision needs
to be taken. There are two alternatives available for this purpose.
1. Setting lower prices to overseas buyers leads to higher sales volume, thereby earning more
profits. For this purpose, market should be highly price sensitive. Such low prices discourage
competition, thereby further increasing sales.

2. Setting higher prices to indicate the superior quality of the product. Such indications lead
consumers to rate products higher compared to that of competitors. Due to this perception,
sales volume of the product increases.

3. Maximum Current Profit

An exporter may determine his object of securing maximum Profits. A price which would
generate such a profit is to be established. For this purpose, it is necessary to have complete
information of cost and demand. A price which can generate maximum cash flows or a
higher rate of return is determined. But this objective is more of a short term nature and bases
its performance on profits which may turn out to be dangerous in export markets.
4. Establishing Leadership
Another objective behind pricing is to establish not only a superior quality image, but also
emphasize on leadership or number one position in the export markets. By charging a higher
price and making a noticeable difference in the price as compared to that of competitors, this
objective can be fulfilled.

Importance of Export Pricing

Price is one of the important elements in marketing mix and this is a delicate area of export
marketing. It is rightly treated as an important factor in successful export strategy. The
importance of export pricing can be summarized as follows:
1. Consumers are extremely sensitive about quality and price of the product. If the price is not
properly set, success of the firm in the international market becomes doubtful.

2. The volume of sales and market demand depends on pricing policy.

3. Competitive capacity in foreign market depends on the price fixed.

4. It decides the success and failure of export efforts.

5. Export pricing builds goodwill in the market.

6. Export pricing helps in capturing foreign market.

7. Develops brand image and product differentiation.

8. Pricing helps in penetration of market by keeping them low initially and gradually raising
them.

9. Pricing not only helps in increasing profit and raising revenue, but also in enhancing market
share of the product.

10. Pricing helps by having good profitability to undertake diversification, research and
development etc.

The process of analyzing service export cost and pricing The process of cost and pricing analysis
for services involves the same three stages as for goods: Determine the cost of exporting
services. Elaborate a pricing strategy. Assess the viability of the transaction. The approach to
exporting services is similar when exporting tangible goods, however, there are some important
differences to be considered. Organizations may be exporting services linked to goods, for
instance training related to exported software. An organization may be exporting pure services,
such as management consulting, education, or health services. It is sometimes more challenging
for an organization exporting only services simply because establishing an international profile
without a tangible product can be difficult and requires serious resources.

Step 1. Determine the cost of exporting your service Service exporters must fully account for all
of the costs involved in delivering internationally. Once the delivery mode is determined, a
costing sheet must be developed or customized to address all relevant factors. The export of
services is a highly variable field, and the potential costs will differ depending upon the delivery
mode, the type of service, the industry sector, and the target market. Organizations should
consider potential after-sales costs that apply, such as providing ongoing client support.

Step 2. Elaborate a pricing strategy Once the costs are identified, service exporters must choose
an appropriate pricing strategy. Market research will provide market intelligence related to the
offered service. Before setting a final price, exporters need to ensure they have considered the
promotional costs of providing the service in-market. Three reasons calculating a separate price
for each export market is important are: Costs vary between markets Competitors’ pricing
strategies will differ depending on the target market. The price end users are willing to pay will
differ depending on the target market. Some common pricing models for services include: cost
plus pricing, competitive pricing, premium pricing, and penetration pricing.
Cost Plus Pricing Cost plus pricing requires an accurate understanding of total costs for
delivering the service into the target market as well as how to reflect a price compatible with the
perceived market position. It is important to have an understanding of the average margin for the
industry in the export market. A drawback to using cost plus pricing is that an organization may
not be competitive in some markets (for instance, this may be by over or under pricing).
Organizations may be able to discount or match a competitor’s price, if local resources are less
expensive than domestic ones. Final pricing should reflect a balance between affordability for
customers and the desired profit.

Competitive Pricing Competitive pricing involves setting the price of a service based on what
the competition is charging. This is due to the assumption that the market has already reached a
price equilibrium and competitors are setting their price to that. This can improve market access,
especially if new services can be released shortly after market entry with demonstrable benefits
and features. This is an acceptable strategy of service, if the service can be delivered at similar
cost levels to other providers in the market; otherwise, it may not be feasible. Competitive
pricing can make premium pricing difficult in the future, as it signals a ‘value of money’ or
‘affordable’ market position.

Premium Pricing Premium pricing is a static strategy based on what the market will bear. It is a
good export strategy as it is more profitable and provides a greater profit margin to cover cost
increases. This strategy may allow an organization to maintain a price in foreign currency by
absorbing negative impacts in exchange rates. As there is perceived value in innovative and
uniquely packaged services, premium pricing can be an acceptable strategy. It also allows an
organization to establish a premium brand in the market, offer discounted rates to loyal
customers without reducing profit, and meet competitive threats over time.

Penetration Pricing As with the export of goods, service exporters can choose to price their
service low so that they are perceived as excellent value for the money. This strategy can reduce
the time to get market entry, while sacrificing early profit margins. This process must be tightly
controlled. Representatives and partners must understand that market success will bring future
price increases to cover lost margins and achieve rightful market positioning. This strategy must
be used with caution and its implementation carefully monitored.

Common Export Documents

This section covers documents that are commonly used in exporting, but specific requirements vary by
destination and product. It is divided into the following subsections: common export
documents, transportation documents, export compliance documents, certificates of origin, other
certificates for shipments of specific goods, other export-related documents, and temporary shipment
documents. Learn more about export documentation. For additional assistance with country-specific
documentation requirements, please email the Trade Information Center.

COMMON EXPORT DOCUMENTS

Commercial Invoice

A commercial invoice is a bill for the goods from the seller to the buyer. These invoices are often used
by governments to determine the true value of goods when assessing customs duties. Governments
that use the commercial invoice to control imports will often specify its form, content, number of
copies, language to be used, and other characteristics.

Export Packing List

Considerably more detailed and informative than a standard domestic packing list, an export packing
list lists seller, buyer, shipper, invoice number, date of shipment, mode of transport, carrier, and
itemizes quantity, description, the type of package, such as a box, crate, drum, or carton, the quantity
of packages, total net and gross weight (in kilograms), package marks, and dimensions, if
appropriate. Both commercial stationers and freight forwarders carry packing list forms. A packing list
may serve as conforming document. It is not a substitute for a commercial invoice. In addition, U.S.
and foreign customs officials may use the export packing list to check the cargo.

Pro Forma Invoice

A pro forma invoice is an invoice prepared by the exporter before shipping the goods, informing the
buyer of the goods to be sent, their value, and other key specifications. It also can be used as an
offering of sale or price quotation.

TRANSPORTATION DOCUMENTS

Airway Bill

Air freight shipments require airway bills. Airway bills are shipper-specific (i.e., USPS, Fed-Ex, UPS,
DHL, etc.).

Bill of Lading

A bill of lading is a contract between the owner of the goods and the carrier (as with domestic
shipments). For vessels, there are two types: a straight bill of lading, which is non-negotiable, and a
negotiable or shipper's order bill of lading. The latter can be bought, sold, or traded while the goods
are in transit. The customer usually needs an original as proof of ownership to take possession of the
goods. See also: straight bill of lading and liner bill of lading.

EXPORT COMPLIANCE DOCUMENTS

Export Licenses

An export license is a government document that authorizes the export of specific goods in specific
quantities to a particular destination. This document may be required for most or all exports to some
countries or for other countries only under special circumstances. Examples of export license
certificates include those issued by the Department of Commerce’s Bureau of Industry and
Security (dual use articles), the State Department’s Directorate of Defense Trade Controls (defense
articles), the Nuclear Regulatory Commission (nuclear materials), and the U.S. Drug Enforcement
Administration (controlled substances and precursor chemicals).

Several videos are available on export licenses, including: Export Compliance Introduction, Exporting
Commercial Items: ECCNs and EAR99, The Commerce Control List and Self-Classification,
and Exporting EAR99 Items: Screening Your Transaction, Lists to Check and Red Flags.

Destination Control Statement

A Destination Control Statement (DCS) is required for exports from the United States for items on the
Commerce Control List that are outside of EAR99 (products for which no license is required) or
controlled under the International Traffic in Arms Regulations (ITAR). A DCS appears on the
commercial invoice, ocean bill of lading, or airway bill to notify the carrier and all foreign parties that
the item can be exported only to certain destinations. For more information, watch relevant
videos: Export Compliance Introduction, and Exporting Commercial Items: ECCNs and EAR99.
CERTIFICATES OF ORGIN

Generic Certificate of Origin

The Certificate of Origin (CO) is required by some countries for all or only certain products. In many
cases, a statement of origin printed on company letterhead will suffice. The exporter should verify
whether a CO is required with the buyer and/or an experienced shipper/freight forwarder or the Trade
Information Center.

Note: Some countries (i.e., numerous Middle Eastern countries) require that certificate of origin be
notarized, certified by local chamber of commerce and legalized by the commercial section of the
consulate of the destination country. For certain Middle Eastern countries, the National U.S.-Arab
Chamber of Commerce may also provide such services.

For textile products, an importing country may require a certificate of origin issued by the
manufacturer. The number of required copies and language may vary from country to country.

Certificate of Origin for claiming benefits under Free Trade Agreements

Special certificates may be required for countries with which the United States has free trade
agreements (FTAs). Watch our FTA webinar for more information. Some certificate of origin including
those required by the North American Free Trade Agreement (NAFTA), and the FTAs with Israel and
Jordan, are prepared by the exporter.

Certificate of Analysis:

A certificate of analysis can be required for seeds, grain, health foods, dietary supplements, fruits and
vegetables, and pharmaceutical products.

Certificate of Free Sale

Certificate of free sale may be issued for biologics, food, drugs, medical devices and veterinary
medicine. More information is available from the Food and Drug Administration. Health authorities in
some states as well as some trade associations also issue Certificates of Free Sale.

Dangerous Goods Certificate

Exports submitted for handling by air carriers and air freight forwarders classified as dangerous goods
need to be accompanied by the Shipper’s Declaration for Dangerous Goods required by the
International Air Transport Association (IATA). The exporter is responsible for accuracy of the form
and ensuring that requirements related to packaging, marking, and other required information by
IATA have been met.

For shipment of dangerous goods it is critical to identify goods by proper name, comply with
packaging and labeling requirements, which vary depending upon the type of product shipper and the
country shipped to. More information on labeling/regulations is available from the International Air
Transportation Association or Department of Transportation - HAZMAT websites.

For ocean exports, hazardous material regulations are contained in the International Maritime
Dangerous Goods regulations.

Fisheries Certificate

The National Marine Fisheries Service conducts inspections and analyses of fishery commodities for
export.

Fumigation Certificate
The Fumigation Certificate provides evidence of the fumigation of exported goods (especially
agricultural products, used clothing, etc.). This form assists in the quarantine clearance of any goods
of plant or animal origin. The seller is typically required to fumigate the commodity at his or her
expense a maximum of 15 days prior to loading.

Halal Certificate

Required by most countries in the Middle East, this certificate states that the fresh or frozen meat or
poultry products were slaughtered in accordance with Islamic law. Certification by an appropriate
chamber and legalization by the consulate of the destination country is usually required.

Health Certificate

For shipment of live animals and animal products (processed foodstuffs, poultry, meat, fish, seafood,
dairy products, and eggs and egg products). Note: some countries require that health certificates be
notarized or certified by a chamber and legalized by a consulate. Health certificates are issued by the
U.S. Department of Agriculture’s Animal and Plant Health Inspection Service (APHIS).

Ingredients Certificate

A certificate of ingredients may be requested for food products with labels that are inadequate or
incomplete. The certificate may be issued by the manufacturer and must give a description of the
product, contents, and percentage of each ingredient; chemical data; microbiological standards;
storage instructions; shelf life; and date of manufacture. If animal fats are used, the certificate must
state the type of fat used and that the product contains no pork, artificial pork flavor, or pork fat. All
foodstuffs are subject to analysis by Ministry of Health laboratories to establish their fitness for use.

Inspection Certificate

Weight and Quality certificates should be provided in accordance with governing USDA/GIPSA
regulations for loading at port and loading at source/mill site as appropriate. A certificate of origin
certified by the local chamber of commerce at the load port and a phytosanitary certificate issued by
APHIS/USDA and fumigation certificate are to be provided to the buyer. Costs of all inspection, as well
as certificates/documents at the load port, are usually the responsibility of the seller. Independent
inspection certificates may required in some instances.

Pre-Shipment Inspections

The governments of a number of countries have contracted with international inspection companies to
verify the quantity, quality, and price of shipments imported into their countries. The purpose of such
inspections is to ensure that the price charged by the exporter reflects the true value of the goods, to
prevent substandard goods from entering the country, and to deflect attempts to avoid payment of
customs duties. Requirements for pre-shipment inspection are normally spelled out in letter-of-credit
or other documentary requirements. Inspections companies include Bureau Veritas, SGSand Intertek.
Some countries require pre-shipment inspection certificates for shipments of used merchandise.

Insurance Certificate

Insurance certificates are used to assure the consignee that insurance will cover the loss of or damage
to the cargo during transit. These can be obtained from your freight forwarder or publishing house.
Note: an airway bill can serve as an insurance certificate for a shipment by air. Some countries may
require certification or notification.

Phytosanitary Certificate

All shipments of fresh fruits and vegetables, seeds, nuts, flour, rice, grains, lumber, plants, and plant
materials require a federal phytosanitary certificate. The certificate must verify that the product is free
from specified epidemics and/or agricultural diseases. Additional information and forms are available
from Animal and Plant Health Inspection Service(APHIS).

Radiation Certificate

Some counties including Saudi Arabia may require this certificate for some plant and animal imports.
The certificate states that the products are not contaminated by radioactivity.

Other (Product-Specific) Certificates

Shaving brushes and articles made of raw hair must be accompanied by a recognized official
certificate showing the consignment to be free from anthrax germs. Used clothing requires a
disinfection certificate. Grain requires a fumigation certificate, and grain and seeds require a certificate
of weight. Many countries in the Middle East require special certificates for imports of animal fodder
additives, livestock, pets, and horses.

Weight Certificate

A certificate of weight is a document issued by customs, certifying gross weight of the exported goods.

Consular Invoice

Required in some countries, a consular invoice describes the shipment of goods and shows information
such as the consignor, consignee, and value of the shipment. If required, copies are available from
the destination country's embassy or consulate in the U.S. The cost for this documentation can be
significant and should be discussed with the buyer.

Canadian Customs Invoice

Although not required by regulation, this customs invoice is a preferred document by Canadian
Customs and customs brokers. It is issued in Canadian dollars for dutiable and taxable exports
exceeding $1600 Canadian dollars. Detailed invoice requirements can be obtained at the Canadian
Customs website.

Dock Receipt and Warehouse Receipt

A dock receipt and warehouse receipt are used to transfer accountability when the export item is
moved by the domestic carrier to the port of embarkation and left with the ship line for export.

Import License

Import licenses are the responsibility of the importer and vary depending upon destination and
product. However, including a copy of an import license with the rest of your documentation may in
some cases help avoid problems with customs in the destination country.

HOW TO EXPORT
Introduction

India’s Foreign Trade i.e. Exports and Imports are regulated by Foreign Trade Policy notified by
Central government in exercise of powers conferred by section 5 of foreign trade (Development and
Regulation) Act 1992. Presently Foreign Trade Policy 2015-20 is effective from 1st April, 2015. As
per FTD & R act, export is defined as an act of taking out of India any goods by land, sea or air and
with proper transaction of money.
STARTING EXPORTS

Export in itself is a very wide concept and lot of preparations is required by an exporter before
starting an export business. To start export business, the following steps may be followed:

1) Establishing an Organisation

To start the export business, first a sole Proprietary concern/ Partnership firm/Company has
to be set up as per procedure with an attractive name and logo.

2) Opening a Bank Account

A current account with a Bank authorized to deal in Foreign Exchange should be opened.

3) Obtaining Permanent Account Number (PAN)

It is necessary for every exporter and importer to obtain a PAN from the Income Tax
Department. (To apply PAN Card Click Here)

4) Obtaining Importer-Exporter Code (IEC) Number

An IEC is a 10 digit number which is mandatory for undertaking export/ import. Application
for obtaining IEC Number can be submitted to Regional authority of DGFT in form ANF 2A
along with the documents listed therein.

Applicants can also apply for e-IEC on the DGFT website (http://dgft.gov.in/). Only one IEC
can be obtained against a single PAN.

5) Registration cum membership certificate (RCMC)

For availing authorization to import/ export or any other benefit or concession under FTP
2015-20, as also to avail the services/ guidance, exporters are required to obtain RCMC
granted by the concerned Export Promotion Councils/ FIEO/Commodity Boards/ Authorities.

6) Selection of product

All items are freely exportable except few items appearing in prohibited/ restricted list.

After studying the trends of export of different products from India proper selection of the
product(s) to be exported may be made.

7) Selection of Markets

An overseas market should be selected after research covering market size, competition,
quality requirements, payment terms etc. Exporters can also evaluate the markets based on
the export benefits available for few countries under the FTP. Export promotion agencies,
Indian Missions abroad, colleagues, friends, and relatives might be helpful in gathering
information.
 8) Finding Buyers

Participation in trade fairs, buyer seller meets, exhibitions, B2B portals, web browsing are an
effective tool to find buyers. EPC’s, Indian Missions abroad, overseas chambers of commerce
can also be helpful. Creating multilingual Website with product catalogue, price, payment
terms and other related information would also help.

9) Sampling

Providing customized samples as per the demands of Foreign buyers help in getting export
orders. As per FTP 2015-2020, exports of bonafide trade and technical samples of freely
exportable items shall be allowed without any limit.

10) Pricing/Costing

Product pricing is crucial in getting buyers’ attention and promoting sales in view of
international competition. The price should be worked out taking into consideration all
expenses from sampling to realization of export proceeds on the basis of terms of sale i.e.
Free on Board (FOB), Cost, Insurance & Freight (CIF), Cost & Freight(C&F), etc. Goal of
establishing export costing should be to sell maximum quantity at competitive price with
maximum profit margin. Preparing an export costing sheet for every export product is
advisable.

11) Negotiation with Buyers

After determining the buyer’s interest in the product, future prospects and continuity in
business, demand for giving reasonable allowance/discount in price may be considered.

12) Covering Risks through ECGC

International trade involves payment risks due to buyer/ Country insolvency. These risks can
be covered by an appropriate Policy from Export Credit Guarantee Corporation Ltd (ECGC).
Where the buyer is placing order without making advance payment or opening letter of
Credit, it is advisable to procure credit limit on the foreign buyer from ECGC to protect
against risk of non-payment.(To know more about ECGC Click Here)

Product standardization strategy refers to a uniform representation of all aspects of

the product such as the quality, the materials that had been used, product name and
packaging for all markets, regardless of the location around the world. In the contrast,
the most challenging decision that a company may face in internationalization is the
degree of standardization or adaptation in its operations. The question of
standardization or adaptation affects all avenues of a business’ operations, such as
R&D, finance, production, organizational structure, procurement, and the marketing
mix. Whether a company chooses to standardize or adapt its operations depends on its
attitudes toward different cultures. These attitudes are defined by three orientations
toward foreign culture: ethnocentric, polycentric and geocentric.
Further, standardization is a practice of setting identical characteristics for a particular
good or service. Also, it suggests a standardized approach as a “one size fits all”
approach.

Product standardization is an efficient method to reduce costs and increase quality. By

minimizing the differences in your products, you are able to rapidly increase production,
streamline distribution, decrease raw material costs and reinforce product branding. The
best product standardization strategies allow you to balance the need for targeted
adaptation with the cost savings of standardization.

Examples:

1. Piston industry – Standard sizes of pistons are produced for different products.
Like Federal-Mougal is producing pistons for many industries like Maruti as well
as large scale manufactures like BMW etc…
2. Nut & Bolt industry – Standard nuts & bolts are produced. So that they can be
easily available in the market in case of requirements.
Product adaptation is the changes and special modifications are made in order to
adjust to each market. Adaptation is a marketing strategy where new products or
services are modified based on existing products and services. However, this is not to
suggest that in doing so they pioneer in innovation. In order to meet the needs of
international customers, the firm may need to adapt its product to suit individual or
regional markets. The company will also need to establish a brand that can be applied
globally or tailored to fit into the local market. Product adaptation strategies are also
being considered as perhaps the most influential aspect for Multi-National Corporations
(MNCs).There are many factors affecting to use adaptation strategies. Some of them
are product, target market, package & design, ingredients, language, culture, religion
etc….