While exporting can give your business a big boost, it's not without its challenges. We give you our top exporting tips to help you develop an effective overseas business expansion strategy.
Benefits and risks of expanding your business overseas
Selling into export markets is more complicated than dealing with domestic customers. It requires an understanding of various logistical issues, a new skill set and a medium to long-term commitment to make it worthwhile. However, the rewards and expanded revenue streams can be very gratifying.
Research your market
The first step to exporting is to locate a promising market. You may find export prospects in several markets, but be careful of spreading your resources too thinly. One trial market at a time is a sensible approach, so narrow down the possibilities to one country.
Look at all the options
Choose a research method that suits your business. To keep costs down, you can do some of the basic research from Australia or you can commission a specialist to do the research. Be clear about the data you require and set a realistic budget. Get help from the Austrade, opens in new window website, where you’ll find country and industry profiles to help you identify export opportunities. You can learn more about how to do business overseas and check if your business qualifies for any export grants. Visiting trade exhibitions in your target market or joining a trade mission abroad can be good ways to build contacts. Search the internet and the events section of the Austrade website to find relevant events or contact your nearest Chamber of Commerce, opens in new window.
Learn from others
You’re unlikely to be the first Australian exporter in the market so minimise the learning curve by tapping into the experience of others who have built an international business. Most exporters will be willing to share their market insights, which can save you from pitfalls and help you find suitable agents and distributors. Contact Austrade about export networking opportunities.
Once you've found a likely market, establish whether there’s demand for your product or service. Try to drill down deeper by finding an overseas equivalent to the Australian Bureau of Statistics that provides trade figures. You need some idea of the strength of the economy and preferably growth areas in the target market that offer the best opportunities. The most convincing evidence of demand will be sales you’ve already secured (perhaps online) or inquiries and sales leads through emails or your website. Consider trialling your product or service in the market to confirm demand before you invest.
Validate your product
Can you sell your product or service just as it is, or will the product need modifications to make it acceptable for different cultures and regulations? Do your research into issues such as packaging, labelling, colours and quality and safety standards in the target country. For example, children’s toys will need to meet safety standards and electrical equipment may need anything from voltage and plug changes to local certification. Other issues to research include quotas, duties and tariffs or taxes that may apply which will affect your pricing.
Understand the competition
Examine the industry structure so you know who you’re competing against. Your competitors aren’t going to sit on their hands if you start taking market share - how will you manage this? One important step is to protect your brand, logo and any other intellectual property. Review the IP Australia, opens in new window website for more information.
Calculate the costs
Launching your product in an overseas market can be more costly than calculated. There’s no real substitute for travel to get a feel for the market and the local competition so include a travel budget in your export planning. You may need to travel repeatedly to your market to gain a foothold. Budget for product or service changes, producing suitable marketing materials and translating your website into another language. Also calculate the cost of launching and supporting your export activity, including product development and marketing. Indirect costs include time spent researching foreign regulations, standards and cultural preferences, and training staff to handle documentation and legal obligations.
Re-check your pricing
Remember to include any necessary commissions for agents or sales people. Your research into competitors in the overseas market should include their pricing structures. Can you bring your product or service to the market at a competitive price? If your prices will be higher than average, do you offer a compelling point of difference to justify the premium?
Confirm your capacity
If you gain a sudden large order from an overseas buyer, does your business have the capacity to fulfil this and sustain supplies for your Australian customers? Nothing can undermine your credibility more quickly than failure to meet an export deadline. It’s easy to forget your key suppliers, but you must confirm their capabilities too. Are they able to grow with you? Don’t take this for granted.
Understand the logistics
What’s the best way to sell your product in your targeted country? Here are some of the options.
- A sales agent finds buyers in return for a commission on sales. Find out how many other products the agent handles - too many and your product could be lost. Agents also tend to push products that offer the most commission.
- A distributor buys your products and on-sells them with a mark-up. This way you’re likely to have less control over pricing. Check the track records of both agents and distributors and consider a trial period first.
- A joint venture with a local business. This can give you access to established customers and markets.
- Opening a branch office overseas. This is usually the most expensive option and is often reserved until other methods have established strong, sustainable sales and you need more control over issues such as after-sales service.
- Selling online. This is the lowest-cost option but it may not work for your product or service type. You’ll also need to research internet trading regulations to stay on the right side of the law in your target market.
Service and backup
What will you need in the way of product or service warranties, spares, after-sales service or a help desk? What insurance cover do you need? Some markets like the United States are highly litigious, so you may need expert advice on product liability issues.
It can be difficult finding your way around a foreign market, particularly if there are language issues. Austrade, opens in new window may be able to help you find interpreters and other facilitators such as agents who can deal with customs and shipping clearances in foreign ports.
Identify the most suitable mode of transport for your goods and assess the cost. You might need to consider the climate of the countries the goods pass through or the best way to transport perishable or fragile goods. Freight forwarders offer a comprehensive goods transport service and may be able to save you costs by consolidating your goods with other consignments if you only need to ship a part-container load. A forwarder also assumes responsibility for documentation and bookings for air, rail, shipping and road transport. Ask your business colleagues or your trade or industry association to recommend suitable businesses.
Avoid the pitfalls
Here are a couple of pitfalls to look out for when you're launching an overseas business.
Be careful not to neglect existing customers in the excitement of developing an export market. You may need to delegate staff to cover some of your domestic market duties to ensure revenues don’t fall.
Keep your eye on finances
Keep your eye on finances. International trade transactions can be tricky. Pitfalls include currency volatility, the creditworthiness of your overseas customers and time lags between shipment and getting paid. Talk to your NAB Small Business Banker about the comprehensive range of products on offer to help you manage your transactions and help protect you from the impact of currency, commodity and interest rate fluctuations. Once you've done your homework, put your findings and decisions in an international market expansion strategy that fits within the framework of your existing business plan. This might help you get any funding you need. It’s also a good idea to create an export cash flow forecast that identifies all your anticipated likely costs before you commit to an export deal.
5 key points to bear in mind
- Exporting usually requires a medium to long-term commitment to repay the effort and investment.
- Don’t imagine you can crack new markets quickly.
- There’s no real substitute for face-to-face negotiations.
- Get to know the local market and understand its needs.
You might have to travel frequently or spend months negotiating a deal, so allocate sufficient business time and money to exporting.
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The information contained in this article is correct as of July 2018 and is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.