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6. Determine your mode of entry

It is essential that you have a clear mode of entry strategy that sets out how your product or service will be delivered to your target market. How you enter your overseas market will be determined by the nature of your product or service, and by the conditions and requirements of your chosen market segment and location.

You will need to decide if you will export your product directly to your overseas market or set up a physical location to sell your product or service.

Austrade has put together a comprehensive step-by-step guide, specifically focused on helping Australian businesses export their product overseas.

Direct strategies

Eliminating the middlemen means you can more easily customise your mode of entry strategy to better reflect the market conditions you may face. Sales can be made directly between you and customers or through local sales representatives who promote your goods and services without taking ownership.

Selling directly to customers means you will be responsible for market research; marketing; distribution; warehousing and delivery; customer and after-sales service; and the sales order, billing and collection process.

If you decide to set up a physical location, you must consider your customer acquisition strategy and the operational needs of your business, such as:

  • Customer access
  • Labour requirements
  • Infrastructure requirements
  • Access and costs of raw materials
  • Access and costs of utilities
  • Logistics
  • Warehouse/shopfront availability and costs

Indirect strategies

An indirect strategy is where products and services are handled through intermediaries such as channel partners (including distributors and agents), and export management and trading companies.

A channel partner is a third party organisation, or in some circumstances, an individual, that markets and sells your product or service via a partnering relationship. Forming strong channel partnerships is important to amplifying your global sales expansion at a quicker pace. These partnerships may be the best initial entry mode in markets where it may take time to recruit qualified staff with deep industry experience and where your resources may be limited. Working with the right channel partners may assist you expand quickly without putting too much strain on your domestic operation. Additionally, these partners may be able to provide you with valuable feedback on how you can tailor your solutions to better fit the market.

A distributor buys the goods from a wholesaler, and resells the goods to the customer. As they hold larger amounts of overheads and cost associated with inventory, distributors will require a higher margin of profit and therefore tend to minimise the price at which they will buy from your company. Existing distributors may be able to give a startup's product very good reach and market penetration from an early stage. Advantages of using a distributor may include:

  • Overall simplification of the exporting process
  • Reduction in the risks associated with logistics and customs clearance
  • Access to well-established in-market distributor networks
  • Reduction in marketing costs as many distributors will take it upon themselves to undertake their own marketing to support their sales effort
  • Reduction in costs associated with warehousing and inventory control, due to distributors carrying stock in-house

Agents act as representatives of the supplier in an overseas market without taking ownership of the good itself. They are usually remunerated on a commission basis, and offer the benefit of deep familiarity with the market. In this way, agents can help startups scale quickly in a new market by using their existing networks to sell a particular product. Advantages of using an agent may include:

  • Reduction in costs associated with hiring and training resources needed to be in-market selling and promoting your product
  • Access to well-established in-market agent networks
  • Greater control over your customer acquisition strategy, when compared with other channel partner options, such as a distributor

Export management companies can simplify the exporting process by providing market information, appointing sales representatives in the importing country, devising promotional strategies, and organising shipping and export documentation.

Export trading companies will usually provide support services such as distribution, warehousing, shipping, billing and insurance.

Partnerships

You may wish to form a strategic partnership with a supplier, a distributor, a company you sell to or a business that sells a complementary product or service.

Partnerships should be based on mutual trust, openness and shared cost, risk and reward that produces a competitive advantage for both. A successful partnership depends on each side learning to understand the interests, expectations, incentives, culture, appetite for risk and work ethic of the other. In particular, make sure roles and responsibilities are clearly defined.

There are a number of key benefits associated with partnering, some of which may include:

  • Access to capital
  • Credibility gained through association
  • Scale-up support
  • Reduced risk when internationalising
  • Access to infrastructure
  • Access to pre-established sales channels and a customer base
  • Market knowledge and mentoring

According to Australia’s International Business Survey 2018, 57% of respondents said introductions to potential overseas buyers, distributors or partners would be the most valuable support that would encourage them to pursue international opportunities, further highlighting the value partnerships can bring.

The World Economic Forum has published a white paper, Collaboration between Start-ups and Corporates: A Practical Guide for Mutual Understanding, which offers practical guidance for successful collaboration between startups and corporates.

Online

There are a number of online channels Australian startups can utilise when looking to engage their overseas market online, some of which include:

  • Setting up a website in your destination country which incorporates an online store
  • Selling your product wholesale to major e-commerce sites, which will then manage the marketing, sales and distribution to customers
  • Setting up an online store within a major e-commerce site
  • Selling your product through a third party store, known as an online supermarket

Utilising an e-commerce platform can be an efficient and accessible path to market for a startup to export physical or digital products overseas without establishing an in-market presence. It is also useful as a testing ground and analytic data collection point to determine if there is interest within a market for your product or service. A major trend within the e-commerce industry is the use of mobile technology for retail products.  

When engaging with consumers through an online e-commerce platform, consider the following:

Tip - market entry

A study of 30,000 online shoppers reveals that 92.2% would prefer to shop and purchase in their local currency, and a study of 3,000 online shoppers from 10 countries reveals that 75% want to buy products in their native language, highlighting the need for a customer-centric approach to engaging through e-commerce.

Austrade has put together a comprehensive guide to help Australian businesses export online. Topics include:

  • Getting started in online exporting
  • Researching the market
  • Developing an online business model
  • Exporting from your own website
  • Exporting from online marketplaces
  • Online exporting through a distributor
  • Logistics solutions
  • Finding distributors and service providers
  • The online sales cycle
  • Building good consumer relationships
  • The importance of continuous research
  • Understanding potential risk