Chapter 3: Identifying International Markets

To succeed in exporting, you must first identify the most profitable international markets for your products or services. Without proper guidance and assistance, however, this process can be time consuming and costly -- particularly for a small business.

The U.S. federal government, state governments, trade associations, exporters' associations and foreign governments offer low-cost and easily accessible resources to simplify and speed your foreign market research. This chapter describes those resources and how to use them.

FEDERAL GOVERNMENT RESOURCES

Many government programs and staff are dedicated to helping you, the small business owner, assess whether your product or service is ready to compete in a foreign market.

The U.S. Small Business Administration

Many new-to-export small firms have found the counseling services provided by the SBA's Service Corps of Retired Executives (SCORE) particularly helpful. Through your local SBA District office, you can gain access to more than 850 SCORE volunteers with experience in international trade.

"Our SCORE counselor is really like a big brother to us and our company," says Jim Hadzicki, Vice-President of San Diego-based Revolution Kites, a recreational kite manufacturer. Exports now account for 24 percent of their sales in just three years. "I recently went on a trip to Tokyo to line up a distributorship. Our SCORE counselor helped me list our objectives, what I was to do and ask about and even told me what gift I should take to the Japanese representative," says Hadzicki.

Two other SBA-sponsored programs are available to small businesses needing management and export advice: Small Business Development Centers and Small Business Institutes affiliated with colleges and universities throughout the United States:

Small Business Development Centers (SBDCs) offer counseling, training and research assistance on all aspects of small business management. The Small Business Institute (SBI) program provides small business owners with intensive management counselling from qualified business students who are supervised by faculty. SBIs provide advice on a wide range of management challenges facing small businesses -- including finding the best foreign markets for particular products or services.

The U.S. Department of Commerce

The U.S. Department of Commerce's (DOC) International Trade Administration (ITA) is a valuable source of advice and information. In ITA offices throughout the country international trade specialists can help you locate the best foreign markets for your products. Oklahoma exporter OK-1 Manufacturing Co. has found the foreign market research available through the ITA extremely useful:

"The Oklahoma District ITA office prepared a market research study to determine whether we should export our fitness accessory items to Japan," says Sherry Teigen, OK-1 Manufacturing Co. export manager. Today, the company exports to Japan in addition to 20 other countries. Since it began exporting, the company staff has grown by 75 and Sherry's husband, OK-1's President, Roger Teigen, won the 1991 SBA Exporter of the Year award.

District Export Councils (DECs) are another useful ITA-sponsored resource. The 51 District Export Councils located around the United States are comprised of 1,800 executives with experience in international trade who volunteer to help small businesses export. Council members come from banks, manufacturing companies, law offices, trade associations, state and local agencies and educational institutions. They draw upon their experience to encourage, educate, counsel and guide potential, new and seasoned exporters in their individual marketing needs.

The United States and Foreign Commercial Service (US&FCS) helps U.S. firms compete more effectively in the global marketplace with trade specialists in 69 United States cities and 70 countries worldwide. US&FCS offices provide information on foreign markets, agent/distributor location services, trade leads and counseling on business opportunities, trade barriers and prospects abroad.

The United States Department of Agriculture

If you have an agricultural product, you should investigate the U.S. Department of Agriculture's (USDA) Foreign Agricultural Service (FAS). With posts in 80 embassies and consulates worldwide, the FAS can obtain specific overseas market information for your product. The FAS also maintains sector specialists in the United States to monitor foreign markets for specific U.S. agricultural products.

Most state commerce and economic development offices have international trade specialists to assist you. Many states have trade offices in overseas markets. Dial Tool and Manufacturing of Franklin Park, Illinois, found the Illinois State office in Hong Kong very helpful:

After visiting the Illinois State office in Hong Kong, Dial Tool and Manufacturing President Steve Pagliuzza reports that he was able to sign on sales reps for his company's metal stamping equipment: "My state office in Hong Kong gave me several names of potential reps. We eventually signed them on and are now successfully exporting to Asia, in addition to Europe, Canada and Mexico. In four years, 15-20 percent of our sales now come from exporting."

Port Authorities are a wealth of export information. Although traditionally associated with transportation services, many port authorities around the country have expanded their services to provide export training programs and foreign-marketing research assistance. For example, the New York-New Jersey Port Authority provides extensive services to exporters including XPORT, a full-service export trading company.

PRIVATE SECTOR RESOURCES

In addition to government-supported resources, private sector organizations can also provide invaluable assistance.

Exporters' Associations

World Trade Centers, import-export clubs and organizations such as the American Association of Exporters and Importers and the Small Business Exporter's Association can aid in your foreign market research.

Trade Associations

The National Federation of International Trade Associations lists over 150 organizations in the U.S. to help new-to-export small businesses enter international markets. Many of these associations maintain libraries, databanks and established relationships with foreign governments to assist in your exporting efforts.

More than 5,000 trade and professional associations currently operate in the United States; many actively promote international trade activities for their members.

The Telecommunications Industry Association is just one association which leads frequent overseas trade missions and monitors the pulse of foreign market conditions around the globe. Whatever your product or service, a trade association probably exists that can help you obtain information on domestic and foreign markets.

Chambers of Commerce, particularly state chambers, or chambers located in major industrial areas, often employ international trade specialists who gather information on markets abroad.

HOW TO GATHER FOREIGN MARKET RESEARCH

Now that you know where to begin your research, you should next identify the most profitable foreign markets for your products or services.

You will need to:

• classify your product;
• find countries with the largest and fastest growing markets for your product;
• determine which foreign markets will be the most penetrable;
• define and narrow those export markets you intend to pursue;
• talk to U.S. customers doing business internationally;
• research export efforts of U.S. competitors.

Classifying your product

The Standard Industrial Classification (SIC) code is the system by which the United States government classifies its goods and services. Knowing the proper code for your product or service can be useful in collecting and analyzing data available in the United States.

Data originating from outside the United States -- or information available from international organizations -- are organized under the Standard International Trade Classification (SITC) system, which may assign a different code to your product or service.

Another method of classifying products for export is the Harmonized System (HS). Knowing the HS classification number, the SIC and the SITC codes for your product is essential to obtaining domestic and international trade and tariff information. DOC and USDA trade specialists can assist in identifying the codes for your products. The United States Bureau of the Census (USBC) can help identify the HS number for your product.

Finding countries with the largest and fastest growing markets for your product

At this stage of your research, you should consider where your domestic competitors are exporting. Trade associations can often provide data on where companies in a particular industry sector are exporting their products. The three largest markets for U.S. products are Canada, Japan and Mexico. Yet these countries may not be the largest markets for your product.

Three key United States government databases can identify those countries which represent significant export potential for your product: SBA's Automated Trade Locator Assistance System (SBAtlas), Foreign Trade Report FT925 and the U.S. Department of Commerce's National Trade Data Bank (NTDB).

SBA's Automated Trade Locator Assistance System (SBAtlas) is offered only by the U.S. Small Business Administration and provides current market information to SBA clients on world markets suitable for their products and services. This valuable research tool supplies small business exporters with information about where their products are being bought and sold and which countries offer the largest markets. The Country Reports detail products imported and exported by various foreign nations. Data are supplied by the DOC's USBC and member nations of the United Nations. This information can be obtained through a SCORE counselor at the SBA District and Regional Offices and at SBDCs and SBIs. This service is free to requesting small businesses.

Foreign Trade Report FT925 gives a monthly country-specific breakdown of imports and exports by SITC number. Available by subscription from the Government Printing Office, the FT925 can also be obtained through DOC ITA offices.

The National Trade Data Bank (NTDB) contains more than 100,000 U.S. government documents on export promotion and international economic information. With the NTDB, you can conduct databank searches on country and product information. NTDB can be purchased by subscription and used with a CD-ROM reader, or can be used at Federal libraries throughout the United States. DOC ITA offices will also conduct specific NTDB searches to meet your foreign market research needs.

Once you learn which are the largest markets for your products, determine which are the fastest growing markets. Find out what demographic patterns and cultural considerations will affect your market penetration.

Several publications provide geographic and demographic statistical information pertinent to your product: The World Factbook, produced by the Central Intelligence Agency; World Population, published by DOC's USBC; The World Bank Atlas, available from the World Bank; and the International Trade Statistics Yearbook of the United Nations. Volume Two of this U.N. publication (available at many libraries) lists international demand for commodities over a five-year period.

DETERMINING THE MOST PENETRABLE MARKETS

Once you have defined and narrowed a few prospective foreign markets for your product, you will need to examine them in detail. At this stage you should ask the following questions:

• how does the quality of your product or service compare with that of goods already available in your target foreign markets?
• is your price competitive in the markets you are considering?
• who are your major customers?

Answering these questions may seem overwhelming at first, but many resources are available to help you select which foreign markets are most conducive to selling your product.

The DOC's ITA can link you with specific foreign markets. ITA offices are part of the US&FCS and communicate directly with FCS officers working in United States Embassies worldwide.

FCS staff and in-country market research firms produce in-depth reports on selected products and industries that can answer many of your questions regarding foreign market penetration.

One small business exporter who regularly uses foreign market information obtained through the DOC's US&FCS is Fabri-Quilt Inc. of North Kansas City, Missouri.

According to Fabri-Quilt President Lionel Kunst, "When I decide to enter a foreign market, the Commerce Department ITA office in Missouri sends information on my company to the Foreign Commercial Service Officer in the country where I want to export. They send me back information on that particular country and even make appointments for me when I decide to visit the market myself." Of the product line Fabri-Quilt exports, 25 percent of their sales can be attributed to exporting.

You can also order a comparison shopping service report through ITA district offices. The report is a low-cost way to conduct research without having to leave the United States.

SBA's and DOC's Export Legal Assistance Network (ELAN) provides new exporters with answers to their initial legal questions. Local attorneys volunteer, on a one-time basis, to counsel small businesses to address their export-related legal questions. These attorneys can address questions pertaining to contract negotiations, licensing, credit collections procedures and documentation. There is no charge for this one-time service, available through SBA or DOC district offices.

Trade Opportunities Program (TOPs) of the DOC can furnish U.S. small businesses with trade leads from foreign companies that want to buy or represent their products or services. These trade leads are available in both electronic or printed form from the DOC. Participating companies must pay a modest fee to gain access to this service.

Other important issues about the target foreign markets you should explore are:

• political risk considerations,
• the cultural environment, and
• whether any product modifications, such as packaging or labelling, will make the product more "exportable."

One U.S. poultry producer discovered it had to modify its product to make it more palatable to Japanese consumers:

Atlanta-based Gold Kist Inc. found that, to be successful in Japan, they needed to cut and package their chicken parts to meet Japanese consumer preferences. That change required substantial modification in Gold Kist's operations. The alteration paid off: Gold Kist's Don Sands reports, "In 1988, we shipped 5.3 million pounds of poultry to Japan, 9 million in 1989 and 12 million in 1990."

Identifying market-specific issues is easily accomplished by contacting foreign government representatives in the United States. Commercial posts of foreign governments located within embassies and consulates can assist you in obtaining specific market and product information.

American Chambers of Commerce (AmChams) abroad can also be an invaluable resource. As affiliates of the United States Chamber of Commerce, 61 AmChams, located in 55 countries, collect and disseminate extensive information on foreign markets. While membership fees are usually required, the small investment can be worth it for the information received.

Another fundamental question to ask country-specific experts is what market barriers, such as tariffs or import restrictions (sometimes referred to as non-tariff barriers), exist for your product? Specialists at U.S. Trade Representative (USTR) should be consulted on trade barriers.

Tariffs are taxes imposed on imported goods. In many cases, tariffs raise the price of imported goods to the level of domestic goods. Often tariffs become barriers to imported products because the amount of tax imposed makes it impossible for exporters to profitably sell their products in foreign markets.

Non-tariff barriers are laws or regulations that a country enacts to protect domestic industries against foreign competition. Such non-tariff barriers may include subsidies for domestic goods, import quotas or regulations on import quality.

To determine the rate of duty, you will need to identify the Harmonized Tariff section which corresponds to the product you wish to export. Each country has its own schedule of duty rates corresponding to the section of the Harmonized System of Tariff Nomenclature, I-XXII.

DEFINING WHICH MARKETS TO PURSUE

Once you know the largest, fastest growing and most penetrable markets for your product or service, you must then define your export strategy.

Do not choose too many markets. For most small businesses, three foreign markets will be more than enough, initially. You may want to test one market and then move on to secondary markets as your "exportise" develops. Focusing on regional, geographic clusters of countries can also be more cost effective than choosing markets scattered around the globe.

After you have identified the best export markets, your next step will be to determine the best way to distribute your product abroad. Chapter 3, "Market Entry," discusses distribution methods.

Next: Chapter 4 - Foreign Market Entry