EXPORT STRATEGY AND
PLANNING
Leonardo Da Vinci
2011-1-HR1-LEO05-00827
Author: MAKRO
Contents
1. THINKING ABOUT EXPORTING .........................................................................................................4
1.1 Going Global – SME Strategies in the Global Arena ....................................................................4
1.2 Getting Started with Exports .....................................................................................................7
1.2.1 Why Export? .......................................................................................................................7
1.2.2 Why not Export? .................................................................................................................8
1.2.3 Company Specific Reasons for Getting Started with Exports ...............................................8
1.2.4 Review of Company Profile .................................................................................................9
1.2.5 Review of Company Objectives ...........................................................................................9
1.2.6 Export Readiness ................................................................................................................9
1.3 Planning Exports...................................................................................................................... 10
1.3.1 Why Plan? ........................................................................................................................ 10
1.3.2 What is an Export Plan? .................................................................................................... 11
1.3.3 Export Plan, What is it for? ............................................................................................... 11
1.3.4 Structure of Export Plan.................................................................................................... 12
2. ANALYSIS OF INTERNAL ENVIRONMENT ....................................................................................... 12
2.1 The Company .......................................................................................................................... 12
2.1.1 The Product ...................................................................................................................... 13
2.1.2 Resources and Business Processes .................................................................................... 13
2.1.3 Operations and Production Capacity ................................................................................. 13
2.1.4 Financial Capacity ............................................................................................................. 13
2.2 SWOT Analysis......................................................................................................................... 13
2.2.1 Why and When SWOT Analysis? ....................................................................................... 13
2.2.2 How to make a SWOT Analysis? ........................................................................................ 14
3. ANALYSIS OF EXTERNAL ENVIRONMENT ....................................................................................... 15
3.1 Analysis of Micro Environment ................................................................................................ 15
3.2 Market Characteristics ............................................................................................................ 16
3.3 Competition ............................................................................................................................ 16
3.3.1 Porter’s Five Forces Model of Competition ....................................................................... 16
3.2 Analysis of Macro Environment ............................................................................................... 18
3.2.1 PEST Analysis .................................................................................................................... 18
4. SETTING EXPORT OBJECTIVES ........................................................................................................ 20
5. EXPORT STRATEGY ....................................................................................................................... 20
5.1 Market Entry Strategy ............................................................................................................. 21
5.1.2 Market Entry Modes ......................................................................................................... 21
5.2 Product Strategy ..................................................................................................................... 21
5.2.1 Engineering & Redesign .................................................................................................... 22
5.2.2 Labelling & Packaging ....................................................................................................... 22
5.2.3 Installation & Warranties .................................................................................................. 22
5.2.4 Pricing .............................................................................................................................. 22
5.3 Business Process Strategy ........................................................................................................ 22
5.4 Production & Operations Strategy ........................................................................................... 23
5.5 Financial Strategy .................................................................................................................... 23
6. ACTION PLAN ................................................................................................................................ 23
REFERENCES ..................................................................................................................................... 24
1. THINKING ABOUT EXPORTING
1.1 Going Global – SME Strategies in the Global Arena
Today globalization is one of the factors which affect most of the firms in the world. Globalization of
trade markets affects and shapes the firms not directly but indirectly. As a result of competition
policies established in the globalization process, the countries have decreased the import duties and
abolished the trade barriers. Therefore, firms are facing tough competition even in their domestic
markets. Competitors from foreign countries enter the national markets, which were previously
protected, with new products and technologies and affect the behavior and preferences of the
consumers in these countries.
Globalization process is accelerating with the technological development. Especially innovations in
the information and electronic technologies disparage the world quickly. Classic competitive
advantage theories are no more applicable in the world trade. Digital technologies are imposing a
new competition attitude in most of the sectors.
Technological development in the logistics and distribution area give the opportunity of selling the
products in the global market electronically to the most of the firms. This provides huge
opportunities to the customers. Customers became able to compare the price and quality of the
product they want globally through their computers, phones or other mass media instruments.
Customers have the opportunity to order the product they want electronically and make these
products sent to their addresses.
As a result, even the small firms which prefer to operate only in the domestic market are affected by
this global competition. Even if these firms do not prefer to export or import, they face global
competition. Undoubtedly, the competitive advantage of the small and medium sized enterprises
(SMEs) compared to the big ones is that they establish close relations with their customers and their
skills in protecting these relations. However, it is obvious that SMEs will no longer be able to maintain
this advantage in such a competitive world.
In this context, SMEs must catch up the recent developments to survive in the markets which are
different from what they are used to.
The following simple questions are to be asked by the SMEs to draw a new strategy:
1) Can collaborating with an international partner or supplier ensure providing better service to
our customers and strengthen our relations with our customers?
2) Does such collaboration increase our profitability?
3) Can a competitor enter our market and provide service to our customers through
information technologies and today’s complicated marketing techniques?
4) How can our customers find new suppliers through internet?
 Change in the customers’ product preferences
 Change in the customers’ after sale service and price preferences
 Reduction in the concerns of the customers for doing business with a supplier which
is not established in the national market
If the firm gives positive answers to some of these questions and the change which is tried to be
defined through the above questions is identified in the market, the firm must immediately develop a
new strategy to adapt to the new conditions in the market.
Export as a Strategic Choice for SMEs
For the sustainable growth of SMEs which want to move forward and be developed, export is the
necessary instrument to enter the global market. Export not only ensures growth in the sales but also
provides other advantages;
 Enlargement of customer portfolio
 Mitigate the dependence on limited number of customers
 Mitigate the effect of conditional regional demand fluctuations
 Growth potential in the niche products which might not be demanded in the national
market
 Enlargement of collaboration network, new experiences and as result better service for the
domestic customers
SMEs have unique characteristics like their size or ownership structures. Most of the SMEs are owned
by families or small groups of regional entrepreneurs. In the globalization process, some of these
characteristics provide advantages while some of them provide disadvantages.
Characteristics
Dependence on limited number
of decision makers (Co-owners
and managers are usually the
same people)
Advantages
- Long-term perspective and
stability
- Consistency
- Absence of pressure for short
term success
- Established business culture
and identity
- Responsibility and stability
Close Relations with business
partners and customers
- Success in making future
business relations permanent
- Capability in collaborating
successfully for common
interests
- Capability and desire in
collaborating
- High adaptation capability and
flexibility
- Quick reactions(decision
making/answering)
- Easy communication within
the organization
- Specialization opportunity and
capability in getting successful
Basic Organization
Small Size
Disadvantages
- Limited thinking because of
the limited knowledge and
capacity of co-owners
- Insufficient corporate culture
and capacity in adapting to new
opportunities and situations
- Inconsistency between the
corporate objectives and
personal objectives of the
firm’s owner
- Risk of overly concentrating
on the existing business and
enterprise
-Deficiency in capability of
complicated planning and
application for international
- Unwilling to apply
sophisticated organizations
Limited financial and human
resource opportunities:
in the application of niche
strategies
- Difficulties in compensating
new investments and business
losses from new activities
- Insufficiently compensating
the cost of market research
promotion activities
- Insufficient number of
employees to undertake
additional duties
- Lack of employee having
international experience
These characteristics are the prerequisites of success of SMEs in export. SMEs should overcome their
certain weaknesses and satisfy certain prerequisites to enter the international market. These are:
1) The owners of the firms which want to enter the international market and export should
have a strong vision, stability and commitment. Decision makers should believe that entering
in the international markets as a strategy is necessary for the long-term development and
success of the firm. Then they can overcome the problems on the way through globalization
as entering in the export markets is a long and difficult process. Benefits can be achieved
after a long, costly and difficult process. If the decision makers are not that committed, they
will give up exporting as soon as they face a problem long before the success.
2) In addition to that, exporting requires certain amount of international knowledge and
experience within the company. Without this knowledge and experience, the firms become
dependent on third parties’ (consultants) advices. Moreover, dependence on third parties’
advices is always costly and sometimes unreliable. Therefore, in-house experiences should
be established within the company in time.
If the decision makers own the necessary knowledge and “know-how” to enter the
international markets, reliability of the objectives determined and methods preferred
increases. It is ideal that the co-owners of the firm or the next generation are being trained in
this direction. It is essential that the co-owners of the firm in the future have the capacity for
international commitments and to represent their firms in the international environment. If
the firm does not own this experience within the organization, hiring a manager having this
experience until gaining this experience or until the next generation grow up is suggested.
There is another advantage of hiring a manager who is able to let the firm enter the
international market. A person outside the organization will bring new thoughts which have
never been considered before, new applications, a new attitude and a new culture.
Globalization of a SME or another firm starts with making the co-owners and managers open
to novelties. Without this, it is impossible for a firm to enter the international market.
Therefore hiring a manager who has the authority to make decisions will ease the problem of
resistance to entering the international markets and will help to overcome this problem.
3) Lastly, SMEs should understand that international activities are beyond finding new
customers and buyers in foreign countries. Internationalization of a firm requires radical
changes. This change requires taking risks, radical changes in business culture and intense
learning capacity and these things cannot be achieved casually. In this process, painstaking
and detailed inner change planning and leadership is needed as this change planning should
be part of international activity planning.
1.2 Getting Started with Exports
1.2.1 Why Export?
Emergence of recent technological developments eased the individuals to move and communicate
faster with lower or no costs. These opportunities also highly affected the business world; the new
age opened the businessmen the gates of foreign markets. Even if there are also several risks of
entering foreign markets, exporting mostly serve the advantages given below:
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Increased sales and increased profits: If the firm is performing well in domestic market in
terms of sales, exporting presumably would increase the demand by extending the market
base to overseas countries and thus the profitability of the firm.
Faster growth: Selling in overseas markets may help the business grow in size and scope at a
faster rate.
Reduced local market dependence and overcoming of local market fluctuations and
vulnerability: If the firm diversify sales into international markets, it would avoid depending
on a single market. In this case a local economic downturn would damage less if the demand
in overseas markets remains high.
Economies of scale: With a larger market base, the firm can save costs by producing on a
scale that makes better use of resources; reduce waste by utilizing maximum production
capacity and thus increase efficiency.
Innovativeness by gaining new knowledge and experience in the global market: Exposure
to new ideas, approaches, marketing techniques, technology and processes can help the firm
develop innovative products and services.
Domestic and global competitiveness: Trading in the global marketplace increases the
exposure to international best practice, ideas and alternative ways of doing business while
improving the chances of competing at home and overseas.
Improvement of quality and price combination of products and product life cycle
Enhancement of the company image
Benefits for domestic economy: With the increase of production capacity there will be a
need and chance of employment creation. Besides, turning into an exporting firm and having
higher exports than imports may help domestic economy in the reduction of foreign trade
deficit, if any.
1.2.2 Why not Export?
Exporting also brings its own set of challenges and risks. These may include:
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Increased costs and risk of lower profit margins: Exporting means costs which are mostly
caused by the desire to gain market share, such as the costs of; extra travel, new marketing
materials and maybe additional staff.
Lower sales than expected: Sales may be lower in the beginning and it may take time to see
a significant return on the export investment.
Intense competition: Competition in foreign markets may be higher than expected.
Late or non-payment risks: To avoid or minimise the risks of non-payment, the firms should
research the market conditions in the target country and the credit worthiness of the
potential customers before starting exports.
Legal and regulatory issues: There may be different legal and regulatory issues than the
home market such as; border-custom types, legal procedures in the cases of corruption,
online security and bribery. It is very crucial to get a good grasp of how the procedures work
in the chosen country before starting exports.
Heavy paperwork: Authorities in the chosen markets may require a lot of documentation
from the exporters.
Cultural differences and language barriers: The firm will be dealing with a new culture by
entering a new market. Business culture can even vary between regions of the same country,
so local knowledge is vital in building valuable foreign working relationships.
Economic and political risks: Risks such as unpredictable economic and political systems
issues can deter the firm from expanding into a new market. Awareness about what is
happening in the target market may help the firm avoid these issues.
It is generally accepted that starting an export venture despite several risks would still benefit the
firm, if the firm carefully assess the above listed advantages and disadvantages and take measures
when necessary before entering a new market. Exporting activity would lead to changes in the way
the business done and increase awareness within the firm’s own domain making it more innovative
and responsive to changes in the market than otherwise it could be.
1.2.3 Company Specific Reasons for Getting Started with Exports
The firm should answer several questions before starting an export venture and reach company
specific reasons and advantages for export activities. The base for this short preliminary self
recognition should be based upon what role the company expect export to play. Specific reasons
should be drafted from the answers to the questions asking whether; the company is seeking an
increase in profit or sales volume; it would like to develop a broader customer base, to learn more
from overseas companies, to become more competitive in the domestic market, to make use of
excess production capacity; the company is seeking for a specified level of return on investment from
export activities and the company is expecting the export activities to become self sustaining (one
year, two years ect.).
After deciding upon the overweighing reasons, the company may then establish their export strategy
accordingly. This way the strategy will be more realistic and precise while pulled away from being
general and useless.
1.2.4 Review of Company Profile
After drafting a rough outline of export objectives, the company should again draft an outline of the
business being done; in terms of products, services, capability and business functions. The very first
question of this phase should be; is my product/service appropriate for exporting? The answer of
course would necessitate a very detailed analysis which will be needed later on in the strategy
development. However, a rough answer “yes” or “no” would help the development of following
phases.
Afterwards, a short review of the capabilities of company and availability of business functions for
export activities is necessary. Overall result from this phase should answer the following questions; is
my company ready for exporting at a very first glance and does exporting alter the essence of my
business any way?
1.2.5 Review of Company Objectives
In this phase, the company should measure whether the management will be available to be fully
committed to a concerted, long-term export effort. It should be very well understood by all relevant
bodies in the company that the export activities are not based on short-term objectives. On the
contrary, exporting should be recognized as a typical long-termed activity and the objectives should
be developed in this sense. So the management’s export expectations should not be short-sighted or
short-termed as exporting is a long term objective.
1.2.6 Export Readiness
Export activities require a considerable level of use of relevant administrative, financial and
productive resources. That is why there is a need of preliminary evaluation before deciding on taking
start in export activities by answering some specific questions. Even if the context of this evaluation
may take different forms, the questions given below are the ones that generally asked.
Domestic Performance
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Why is the firm performing well in the domestic market?
What is the present market share of the product that will be exported?
Commitment and desire of the company for exporting
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What is the export purpose of the company?
What is the level of export department in the hierarchical structure of the company?
In which level of staff will be assigned for export activities?
Is there a need for new recruitments?
What are the experiences of the company or its staff regarding foreign markets and exports?
Is the company willing to take start in exports?
Is the company willing to take risks?
Competitiveness
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What will make the products or services of the company competitive in a foreign market?
What are the unique aspects of the products or services?
What are the general competitive advantages of the company? (technology, patents, skills,
and etc.)
Target Markets
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Which groups in the market are targeted?
How are the foreign competitors performing in the target market?
Will the product be restricted by tariffs, quotas and other obstacles?
Is the product appropriate for the foreign customers’ culture, traditions and beliefs?
Is there a need for protection of product by patent/trademark rights?
What are the requirements of labelling?
Are there environmental restrictions? Is there a need for adaptation to environmental rules?
Product Marketing
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How will the product advertised?
Who will represent the company in the target market?
Will the company assign an intermediate agency for the operations in export market?
Is there a prototype of the product that can be presented to the target customers?
Will the product be sold with the same name?
Pricing and Trading Conditions
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How will the price be calculated?
What are the service conditions?
What are the payment and credit conditions?
How long is the warranty period of the product?
What are discount conditions?
1.3 Planning Exports
1.3.1 Why Plan?
Planning defined as a basic management function involving formulation of one or more detailed
plans to achieve optimum balance of needs or demands with the available resources. By containing
optimisation and resource allocation together, planning is a key for the future success in business
life. Planning as process; identifies the goals or objectives to be achieved; formulates strategies to
achieve them; arranges required resources; and implements, directs, and monitors all steps in their
proper sequence.1
When planning comes to trading in the global arena, there should be some other issues to consider
in this process. These issues can be regarded as unpredictability or riskiness of global market.
Planning and determining an export marketing strategy should therefore include these elements in
order to achieve the optimum level of success in international trade.
Starting an export business without an appropriate planning would undermine the prospects of
success and this failure in international trade would eventually affect the course of domestic trade.
That is why enterprises that intend start an export business should carefully screen the available
markets, options for entry to those markets and etc. in order not to overlook any of exporting
opportunities.
1
(http://www.businessdictionary.com/definition/planning.html)
In the case of lack of success in early exporting efforts, the company may be led to abandoning all
exporting activities. Formulation of an export strategy which is based on proper information and
assessment increases the possibility of choosing the best options, efficient allocation of available
resources and the success of all efforts as an ultimate goal.
1.3.2 What is an Export Plan?
Export plan is actually a business plan that focuses on international markets and a guideline for the
development on a global scale. It identifies the target market(s), export goals, necessary resources
and anticipated results in a quite comprehensive manner.
1.3.3 Export Plan, What is it for?
The main purpose of export plan is to show everything devised for commercial operations abroad. Its
purpose, function and content make it one of the most important strategic and tactical documents in
the business.
Individual purposes of export plan are;
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To bring all relevant exporting instruments together in a productive “mix”.
To give direction to all planned activities for optimal effect. This direction is outlined in the
objectives;
- Estimation of which activity should take place and when. This timing will clarify the
logical sequence,
- Estimation of how much the activities are going to cost, in order to make the financial
resources available whenever necessary,
- Estimation of feasibility by deducting all costs from the profit to establish if the results
are worth those costs.
Export plan functions as to;
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Inform all people involved in the accomplishment of objectives defined for export activities,
Give them specific instructions as to what their contributions to these activities will be,
Provide a certain justification for the financial resources that will be spent in the export
process.
The plan should be prepared as short, precise and complete. The answers to the following questions
should be contained therein;
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Which products are selected to be exported? Are there modifications needed in the
product(s) to go beyond the domestic market?
What are the target market(s) for the export business?
What is the basic customer profile?
Which marketing and distribution channels will be used to reach customers?
Are there special challenges to be faced in target market(s)?
How will be the pricing strategy?
What are the human and/or company resources to be used in exporting activities?
What are the operational actions?
What about timing?
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What is the amount of budget?
What are the feedback actions?
An export plan should include specific and clear set of instructions and to identify every step of the
process. The initial plan may need to be modified as the process goes on and results obtained.
1.3.4 Structure of Export Plan
Export plan has similar content with a business plan. Much like business plan, export plan focuses on
key factors such as strengths, weaknesses, opportunities and threats in the global arena. The main
differences between business and export plans lie in their purposes of use. While business plan is
generally used for having an overall picture of future of company, export plan focuses mainly on
international markets and used for the development in a global scale. Both give the company more
credibility with investors, who will ask the company to prove the capacity for exporting.
Export plan should cover a period of at least 3 to 5 years – although long-term plans can cover a
period of up to 10 years.
2. ANALYSIS OF INTERNAL ENVIRONMENT
Environmental analysis of a business enterprise includes both internal and external forces that affect
the operations of the business. The internal factors are generally regarded as controllable, while the
external factors are by and large beyond the control of the business. So, the success in the external
environment mostly depends on a large extent on the adaptability to the environment.
Expansion to international markets requires a testing of all organisational factors affecting current
operations of the business. The way that the company operates in the domestic market does not
always fit to international markets and that is why the company has to re-evaluate its business
functions and strategic actions in detail.
Planning of export operations requires a clear vision of the present situation and future expectations.
An internal analysis then leads to a realistic company profile, which is the determination of the firm’s
strategic competencies and weaknesses.
2.1 The Company
Development of company profile can be done in a four-step process:
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Examination of key aspects of the business’s operation and target areas for further
assessment,
Comparison of these aspects with past abilities of the firm,
Establishment of a comparative basis in relation to key market or product conditions in order
to more accurately determine whether the company’s condition on a particular factor
represents a potential strength or weakness,
Provision of results from previous steps as an input into the strategic management process
and decisions made for the entrance the foreign arena.
The objective of company analysis is to determine how export will affect the current business and to
identify the main capabilities and needs. This process should be done as objectively and honestly as
possible. The aim is to determine if the benefits of exporting exceed the anticipated costs.
2.1.1 The Product
Review of the products and services is necessary in order to determine whether they have export
potential. Other important aspects about the products or services to be exported are; their prices
and costs, channels that they perform best, their suitability for overseas markets in their current
form and the necessary modifications, requirement of licence or permit for export, additional
marketing materials or support.
2.1.2 Resources and Business Processes
- Management and Human Resources – The evaluation of current in-house expertise in
export and identification of whether additional facilities/manpower needed is very
crucial to grow the export capability of the company.
The company management should also develop the operational structure and lines for
authority for the export department.
- Legal and Intellectual Property (IP) – Evaluation of trademark and other IP; the need to
seek additional IP protection in potential overseas markets.
2.1.3 Operations and Production Capacity
Evaluation of production capacity consists of; identification of the current production/service
capacity and the capacity levels available for export markets, expandability of product/service
capabilities to meet market demand and the cost, the existence of seasonal fluctuations in demand
for the product/service, the minimum viable order quantity for orders placed to ensure corporate
profitability, changes required to design packaging for products specifically for export.
2.1.4 Financial Capacity
Evaluation of the availability of current financial situation for export consists of; determination of
whether additional capital commitment required by the company to enter export markets, other
company financial initiatives that may affect the export plans, approximate time that export effort
become self-sustaining financially.
2.2 SWOT Analysis
As an acronym for the (internal) Strengths and Weaknesses, (external) Opportunities and Threats of
an organization, SWOT Analysis is a well known and commonly used method for assessing a business,
its resources and environment. Businesses are not the only type of organizations that can be
analysed with this method; for products, places and persons, a SWOT Analysis can be carried out as
well.
The method has been created by Albert S. Humphrey in the 1960s and since then it kept its
importance and usefulness as the same it was then. SWOT Analysis is generally used in the form of a
2x2 matrix, strengths, weaknesses, opportunities and threats are listed singly in each of the matrix
boxes. This method is used to make easier the matching strengths to opportunities and converting
weaknesses or threats into strengths and opportunities.
2.2.1 Why and When SWOT Analysis?
The main idea of SWOT Analysis is; making the most of existing strengths and opportunities and,
setting plans and strategies to lower the adverse affects of weaknesses and threats to minimum, all
by identifying the internal and external factors of the organization. By analysing the activities being
performed well and the areas which need to be improved, one can easily set objectives; generate an
effective and comprehensive strategy towards.
SWOT Analysis will be a good pathfinder, when there is a need for; a strategic plan to be developed
to achieve a specific outcome, clarification of a problem and fast response to it. SWOT Analysis is a
good way to list down the facts in an easy manner and then picking the ones to be turned into
opportunities. This feature of the method is useful also when the quantitative information is not
enough and the facts are tacitly embedded in the people.
2.2.2 How to make a SWOT Analysis?
First of all, there are some prerequisites to be kept in mind before starting the analysis:
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SWOT Analysis needs to be made by the collective work of people from various departments
of the organization in order discuss the facts in detail with different points of view.
Having a realistic and objective stance would yield better results and thus correct strategies.
Looking from a wide angle and not focusing on just a few perfect or problematic areas are
important to clarify the missing pieces.
By considering the issues above, the elements of strengths, weaknesses, opportunities and threats
can be listed down.
Strengths
The very basic question of revealing the internal strengths of a company is; what do you do better
than anyone else? The question is narrowed down with the competitors around the company.
Because a good performance is not a strength anymore if others also has the same level of it.
However, for example, if you serve your customers by differentiating just a little part of your process
and if this increases the customer loyalty more than the others, this can be classified as a strength.
Strengths can be seen in terms of the staff, product or service quality, process, technology and etc.
and also customers’ opinion about your company. Listing down all the characteristics would help to
pick the ones fall under the strengths. Exaggeration of basic characteristics would not create realistic
results.
Weaknesses
The answers to the question of “What are the areas to be improved for not to fall behind the
competitors? ” would serve as weaknesses of the company. This can be considered again from both
internal and external basis; paying attention to the opinions of the people outside the company
would keep objectivity. Thinking about the competitors with realistic comparison of the main
characteristics and being ready for unpleasant results would again yield in realistic results and thus
better decisions.
Opportunities
What are the recent developments involving the company and how would they benefit it?
Opportunities in the external environment can be listed as; changes in technology and market both
in local and global, changes in the government policies in relation to the company’s field of activity,
changes in the socio-cultural environment and local events.
One could look at internal strengths and consider ways to convert them into opportunities.
Alternatively, another good idea would be considering the internal weaknesses, ways for addressing
them and making use of them by generating new opportunities.
Threats
What are the external obstacles that the company faces? The above listed conditions in the external
environment can also be threats as well, for instance; changing technology could be threatening the
company while some of the competitors have enough capacity to easily adapt the changes. There
could be danger of new competitors moving to the field or political environment is acting against
company’s field of activity and etc.
Thinking about the worst case is important in order to create contingency plans to deal with the
possible threats, before they already start to affect the business.
3. ANALYSIS OF EXTERNAL ENVIRONMENT
Before entering into a new market, the business should look around carefully and decide whether it
will bring success to start operations in that market. Analysis of this new environment should be
done in both micro and macro level. While micro environment consists of actors in the immediate
one that affect the performance of the firm, such as suppliers, competitors, marketing
intermediaries, customers etc.; macro environment consists of larger societal forces that affect the
actors in the company’s micro environment, such as demographic, economic, natural, legal,
technical, political and cultural forces.
3.1 Analysis of Micro Environment
Analysis of micro environment consists of identification of current internal status of the business in
relation to the external environment. This process also represents the export potential of the
company. In this step, company’s possible competitive advantages abroad should be analysed and a
decision made whether the available resources support export activities. As a summary of micro
environment analysis, main dimensions are given below:
1) Analysis of pros and cons of market expansion:
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Identification of success factors within the domestic market and determination of whether
the same factors, such as price and brand image, can be replicated in foreign markets.
Exploration of expansion possibilities in the domestic market, whether or not to expand at
all, or innovating new products for the domestic market.
2) Research of business’s competitive advantages abroad:
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Comparison of the product or service advantages and disadvantages with those of likely
competitors. Some questions to be asked while determining these advantages and
disadvantages would include: Can we sell the product abroad without changing its form or
the manner in which it is marketed? Can we sell the same product but for a different use? Will
we have to change the product to make it export worthy? Should we develop a new product
for targeted foreign markets?
3) Determination of financial resources:
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Once the competitive advantages, pros and cons of market expansion are determined,
necessary financial resources to support exporting and whether there is a need for additional
capital should be specified.
3.2 Market Characteristics
The ability to make successful export plans depends on the ability to collect appropriate and valid
information about international markets (Morgan et al., 2003). Without a deep understanding of the
foreign market, companies will not be able to develop efficient and effective export marketing
programmes. Therefore they should establish a clear system for collection, dissemination and
utilisation of information necessary for export activities.
The necessary information that the company should seek for consist of; the magnitude of the target
market, its growth rate, demographics, targeted segments or niches, consumption capacity of each
segment, total expenditure on similar products, the possibility of the product to be popular and
competitive in sophisticated markets or in developing countries, new trends, general future outlook
of the market and other opportunities, requirements for after-sales services.
3.3 Competition
Research and analysis of competitive conditions in the target market, starts with identifying the main
competitors in that markets. A SWOT analysis should be conducted for these competitors as well. An
outline of their strengths and weaknesses and which strategic moves they likely to make in response
to the opportunities and threats presented by the market would be helpful. Because these
opportunities and threats are not only drivers for the company’s own performance, but will also
direct the other players and possible new market entrants.
To make a specified identification for competitors, the information that will be collected should
include following dimensions; major and minor competitor details, their number, market share and
level of sales, which competitor dominates in which product segment/distribution channel;
assessment of the competitors in terms of quality, price, packaging/presentation, advertising and
promotion, delivery, performance, level of customer loyalty, credit terms and customer service; need
for emulating them for the purpose of penetration to the market; potential threats from substitute
products and new competitors and etc.
To have a more general picture or the competitive conditions in the target market, a useful tool,
Porter’s Five Forces Model, can be developed.
3.3.1 Porter’s Five Forces Model of Competition
The model is one of the various vital frameworks of Michael Porter (Management Researcher in
Harvard Business School) for developing an organization’s strategy. The model is useful because it
helps companies identify both strength of their current position, and strength of a position that is
desired to be moved into.
According to Porter, the nature of competition in any industry is personified in the following five
forces:2
Bargaining Power of Suppliers: Suppliers refer to the firms that provide inputs to the industry.
Bargaining power of the suppliers refer to the potential of the suppliers to increase the prices of
inputs (labour, raw materials, services, etc) or the costs of industry in other ways. Strong suppliers
can extract profits out of an industry by increasing costs of firms in the industry. Supplier’s products
have a few substitutes. Strong suppliers’ products are unique. They have high switching cost. Their
product is an important input to buyer’s product. They pose credible threat of forward integration.
Buyers are not significant to strong suppliers. In this way, they are regarded as a threat.
Bargaining Power of Buyers: Buyers refer to the customers who finally consume the product or the
firms who distribute the industry’s product to the final consumers. Bargaining power of buyers refer
to the potential of buyers to bargain down the prices charged by the firms in the industry or to
increase the firms cost in the industry by demanding better quality and service of product. Strong
buyers can extract profits out of an industry by lowering the prices and increasing the costs. They
purchase in large quantities. They have full information about the product and the market. They
emphasize upon quality products. They pose credible threat of backward integration. In this way,
they are regarded as a threat.
2
http://www.managementstudyguide.com/porters-model-of-competetion.htm (accessed on 27.02.2013)
Threat of Substitute Products: Substitute products refer to the products having ability of satisfying
customers’ needs effectively. Substitutes pose a ceiling (upper limit) on the potential returns of an
industry by putting a setting a limit on the price that firms can charge for their product in an industry.
Lesser the number of close substitutes a product has, greater is the opportunity for the firms in
industry to raise their product prices and earn greater profits (other things being equal).
Threat of New Entrants: Potential competitors refer to the firms which are not currently competing
in the industry but have the potential to do so if given a choice. Entry of new players increases the
industry capacity, begins a competition for market share and lowers the current costs. The threat of
entry by potential competitors is partially a function of extent of barriers to entry. The various
barriers to entry are:
 Economies of scale
 Brand loyalty
 Government Regulation
 Customer Switching Costs
 Absolute Cost Advantage
 Ease in distribution
 Strong Capital base
Rivalry among Current Competitors: Rivalry refers to the competitive struggle for market share
between firms in an industry. Extreme rivalry among established firms poses a strong threat to
profitability. The strength of rivalry among established firms within an industry is a function of
following factors:
 Extent of exit barriers
 Amount of fixed cost
 Competitive structure of industry
 Presence of global customers
 Absence of switching costs
 Growth Rate of industry
 Demand conditions
3.2 Analysis of Macro Environment
Macro Environment analysis is a review of all the factors that a company unable to control. The
market dictates the rules of the global play that the company is about to enter. The key questions
here: Can you deal with the market trends? Do the trends offer you chances or challenges for export
success? Together with the competitor analysis (Porters Five Forces), it will determine the decision
making for final market selection and market entry strategy.
3.2.1 PEST Analysis
An ideal tool for assessing macro-environment of business is PEST analysis which stands for “Political,
Economic, Social and Technological” analysis. There are several extended or varied versions of this
tool, in which some factors are dissociated from their families in PEST method and included
separately as Ecological, Ethical, Ethical or Legal. It is a matter of personal choice, but for most
situations original PEST analysis model arguably covers all of the ‘additional’ factors within the
original four main sections.
The main items that should be included in the analysis are given in the table below3. The items can
be described as whether they represent an opportunity or threat for the company to operate in the
target market. Another method to conduct the analysis would be scoring the items in each of the
sections. Scoring is particularly beneficial if more than one market is being analysed, for the purpose
of comparing which market or opportunity holds most potential and/or obstacles.
Political
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Ecological/environmental issues
Current legislation home market
Future legislation
International legislation
Regulatory bodies and processes
Government policies
Government term and change
Trading policies
Funding, grants and initiatives
Home market lobbying/pressure groups
International pressure groups
Wars and conflicts
Social
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3
Economic
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Home economy situation
Home economy trends
Overseas economies and trends
General taxation issues
Taxation specific to product/services
Seasonality/weather issues
Market and trade cycles
Specific industry factors
Market routes and distribution trends
Customer/end-user drivers
Interest and exchange rates
International trade/monetary issues
Technological
Lifestyle trends
Demographics
Consumer attitudes and opinions
Media views
Law changes affecting social factors
Brand, company, technology image
Consumer buying patterns
Fashion and role models
Major events and influences
Buying access and trends
Ethnic/religious factors
Advertising and publicity
Ethical issues
http://www.businessballs.com/pestanalysisfreetemplate.htm
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Competing technology development
Research funding
Associated/dependent technologies
Replacement technology/solutions
Maturity of technology
Manufacturing maturity and capacity
Information and communications
Consumer buying mechanisms/technology
Technology legislation
Innovation potential
Technology access, licensing, patents
Intellectual property issues
Global communications
4. SETTING EXPORT OBJECTIVES
Formulation of export objectives marks the start of strategy stage. This stage is meant to provide the
company with a sense of direction: a clear understanding of the future business activities,
elimination of doubts, second thoughts and a clear view of the tasks and challenges that lay ahead.
Based on the market conditions and developments analysed before and company’s state of export
readiness, it is time to define into detail what the company really want to achieve, where, when and
how. In other words, the company now should be able to formulate sound objectives. These
objectives should provide the building blocks for the company’s targets. Therefore they should be
SMART: Specific, Measurable, Achievable, Realistic and Time-led.
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Specific: Goals need to be clearly defined and unambiguous. When goals are specific they tell
you what you need to achieve, by when, by whom and how much it is going to cost.
Measurable: Objectives should be quantitative, expressed in terms of sales value, sales
growth, market share, number of customers and etc.
Achievable: Objectives should be set as attainable as possible. There is no point in setting
goals that are impossible to reach. They should be based on the company’s strengths and its
critical success factors (internal) and market opportunities (external).
Realistic: Realistic goals are also the ones that are achievable. To be realistic, one should be
willing and able to work towards the main objective and all the necessary resources should
be available.
Time-led: The goal should be set as they will be attained in a specific time period.
Specific objectives and their contexts can be regarded as follows:
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Financial Objectives: The level of profit and return on investment desired to achieve,
Sales Objectives: Number of foreign markets desired to export to and timing, level of export
sales desired to achieve in a specified time period,
Learning Objectives: New skills and knowledge desired to acquire,
Production Objectives: Level of production capacity that desired to operate.
5. EXPORT STRATEGY
Strategy is all about developing a sense of direction for the company. On the basis of the conclusions
of the environmental and competitor analyses, now it is time to develop a strategy for realising the
objectives.
The selected strategy will be determined by the nature of the product or service and by the
conditions and requirements in the company’s potential markets. Development of an export strategy
involves development of; market entry, product, business process, operations and financial
strategies.
The management team committed to exporting will take sufficient time to work through and
accurately address the below issues. They will establish the levels of corporate commitment and
responsibility the company is prepared to undertake to identify and develop expected export
opportunities.
5.1 Market Entry Strategy
This stage involves determining target market segments, choosing the market entry mode and
selecting the right trade partners.
After selecting target markets it is time decide on the mode of sales in overseas markets. There are
several ways of getting started in exports. Which path to chose will depend on the business’s broad
strategy, its commitment to export and its capacity to handle complexity.
5.1.2 Market Entry Modes4
Export Entry Modes:
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Direct exporting through local sales representatives or distributors,
Indirect exporting through intermediaries – agents,
Countertrade through barter or payment in kind or promises to make future purchases.
Contractual Entry Modes:
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Licensing - patents, copyrights, special formulas, designs, trademarks and brand names,
Franchising – hotels, fast food chains, car rentals and etc.
Investment Entry Modes – Foreign Direct Investment:
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Strategic alliances
Joint ventures
Wholly owned subsidiaries
5.2 Product Strategy
Selecting and preparing the product for export require not only product knowledge but also
knowledge of the unique characteristics of each target market. The company may need to do some
degree of adapting the selected product for sale outside domestic markets before starting exports.
The company will also need to conduct consultancy with prospective customers, wholesalers, agents
and other bodies to determine the best strategy for selling the products in overseas markets.
The company should carefully screen; the ability of product to satisfy foreign needs; the need for
modification or development of a new version for the foreign market; specific features, such as
design, colour, size, packaging, brand, labels and warranty that the product should have; pre and
post sale service requirements and etc.
The product may need to be adapted to target market’s government regulations, geographic and
climatic conditions, buyer preferences or standards of living. The most important aspect for product
adaptation is conforming to the foreign government product regulations. These regulations are being
imposed by the governments for the purposes of protection of domestic industries from foreign
competition, customer rights and etc.
4
Victorian Government Business Centre (2009), Opening Doors to Export – connects you to world-class export assistance,
Melbourne, Australia
5.2.1 Engineering & Redesign
Exporting may necessitate some fundamental changes in engineering and design of the products
before it is ready to be sold abroad. If the company is producing and planning to export electrical
products, it should consider the electrical standards of the target country. Because phases, cycles or
voltages may differ from region to region or country to country.
5.2.2 Labelling & Packaging
Language and culture of the target country are important factors to consider when preparing the
product for export. The package of the product is as important as the product itself when the cultural
differences are considered. Because what they first see is its package and they always prefer the
product to be labelled in their own language.
When labelling the product, the company may consult with its foreign partners and learn what kind
of a label would be more appealing in that market.
5.2.3 Installation & Warranties
Another element of product preparation that the company should consider is the ease of installing
the product overseas. Installation instructions are worthless unless they can be easily understood by
customers or technicians that are assigned for installation. Translations for installation instructions
should be made for target country language or to minimize confusion in any case, preassembling
certain parts of the product before shipping may help installation after purchase.
Likewise, warranty information can be source of confusion for foreign customers. The scope of
warranty should be clearly stated in customers’ language. Besides, the fact is that the stronger the
scope of warranty the easier to break into a new market.
5.2.4 Pricing
The last, but not least, issue about the preparation of the product for foreign markets is pricing
strategy. Price is important, because it is the only element of the marketing mix that generates
income, all others cost money. That is why all the aspects of pricing strategy should be carefully
screened. These aspects can be summarised as; the factors affect the prices settings, product
sensitivity to prices changes, type of pricing policy to be implemented (high profit/low turnover
and/or low profit/high turnover), discount policies and etc.
Detailed information about pricing strategy can be found in “Pricing, Financing and Payment
Methods”
5.3 Business Process Strategy
Export process has some other aspects like shipping, insurance, negotiation with buyers, intellectual
property rights, organisational and staff requirements.
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Shipping: In consultation with shippers, the company should find the right shipping method
for the delivery on time and affordable cost. The options are; trucking - still popular, but
declining; rail – a good option for shipping to seaports for transport abroad; air – faster and
safe but expensive and not covering all destinations; ocean - most common method,
economic but slow delivery.
Insurance: The company should decide whether to insure the goods for loss or damage
during transit and/or for default by the buyer.
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Negotiations: Through negotiations with buyers, the company should determine terms of
trade that will govern the sale. Detailed information can be found in “Trade Negotiations”.
Intellectual property protection needs should be determined.
Organisational Structure: The company should outline how the export function will be
organised, determine the place of this function in the organisational chart, and outline roles
and responsibilities, determine whether there is a need for additional staff and expertise.
5.4 Production & Operations Strategy
After a comprehensive evaluation of production capacity, the company should be able to determine
whether; the current production capacity will allow market expansion and thus the need for more
production, to expand product capabilities to meet market demand and additional cost, there are
seasonal fluctuations in demand for the product, the viable order quantity could be achieved to
ensure corporate profitability and there are changes required for design of packaging and labelling of
products.
5.5 Financial Strategy
The last, but certainly not the least important aspect of the export strategy is of course the export
financing. The company should finalise the decision of whether there will be a need for additional
capital commitment required for the entrance to export markets. An outline of financial needs in
relation to additional production capacity, pre-shipment finance, working capital and post-shipment
finance will be needed.
It is a fact that, the export drive needs the financial stability and strength that comes from a reliable
cash flow. So, a comprehensive financial plan that reflects the financial strength of company would
be helpful for the export venture. The most important objective of the plan is ensuring the company
always has sufficient cash or operating lines of credit.
Other important details about export financing and payment methods can be found in “Pricing,
Financing and Payment Methods”
6. ACTION PLAN
Putting all together the above issues, now it is time to prepare a clear outline for taking action in
exporting. Until now, the company should have the following:
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A full commitment to exporting,
Necessary skills and resources to undertake the challenge,
Knowledge about the target market, export and financial plan,
Market entry strategy and the support system – shippers and other intermediary bodies in
place.
A good way of drafting an outline for what needs to be done to achieve the previously set objectives
is using a simple table representing tasks, responsibilities and deadlines for getting started. Outlining
single tables for each activity, such as market entry, target market visit, product preparations,
marketing, business process, staffing and financial requirements would be helpful and each table
should include specific information about tasks to be realised, description of sub activities, by whom
and when these will be realised .
REFERENCES
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Saudi Industrial Development Fund, Guidelines for Export Plan
(http://www.sidf.gov.sa/En/MediaCenter/Documents/Export-Plan.pdf - Accessed on
01.03.2013)
New Zealand Trade & Enterprise (2002), Exporter Information Tools: Export Plan – A How to
Guide
Centre for the Promotion of Imports from Developing Countries (2009), Export Marketing
Planner – A Manual on How to Enter European Markets, Rotterdam, The Netherlands
Centre for the Promotion of Imports from Developing Countries (2009), Export Planner –
A comprehensive guide for prospective exporters in developing countries, Rotterdam, The
Netherlands
Köksal M. H. (2008), How export marketing research affects company export performance –
Evidence from Turkish companies, American University of Beirut, Beirut, Lebanon
http://www.managementstudyguide.com/porters-model-of-competetion.htm - Accessed on
27.02.2013
Victorian Government Business Centre (2009), Opening Doors to Export – connects you to
world-class export assistance, Melbourne, Australia