Michelle looked up from her computer monitors and directly at her business partner, Brian.
“Japan? Do we even know anyone in Japan? How did they find out about our company?”, asked Michelle.
Only 9 months ago, Michelle and Brian had launched their software startup. Things were going better than they ever dreamed it would. They were right about the need for their product in the market and the company was now hurdling forward at rapid pace – doubling size roughly every month. It was all that Michelle and Brian could do to keep up with the growth.
There had been some sales in Canada and then Ireland, but Japan? That meant non-English clients and many more unknowns. This would be a large client, but was it the right time to expand to a market not yet covered?
How do you respond to a sales lead in a market you do not yet know?
As with most international business questions, the answer is… it depends.
Companies that seek out products and services not yet offered in their country are normally seeking competitive advantage that they hope your product or service will provide. This is also true for distributors wanting to represent your product in a new market. They often want your product as is with little or no negotiated concessions, no trips to their country for sales presentations or other costly outlays. They are willing to pay in your currency and sign your contract terms. That’s probably how Michelle and Brian so quickly sold product to new customers in Canada and Ireland.
There are clear business risks for selling products to clients in markets where your company has no presence. Entrepreneurs need to watch for risks, including these:
- Intellectual Property Protections. For anyone relying on newly developed technology or a brand with growing market recognition, protecting your IP is paramount to long-term success. Trademarks, copyrights and patents can still be infringed upon, but at least if they are internationally registered you have the means to legally defend them. Once the damage has been done, it’s too late to register and try to recoup any losses.
- Compliance with Regulations. Sure, you can sell products or services into a country. But that does not mean that it was done in compliance with local, national and regional laws. International trade is governed by trade agreements, your own country’s laws, as well as the rules governing your customer’s location. Rules may govern your product’s packaging, tariffs, import restrictions, computer server locations, etc. This is an area where arming yourself with knowledge is smarter than learning through fines, penalties and bans.
- Logistics and Support. For products that need to be transported or assembled to the overseas location, logistics can be a costly part of the sale. Once a market is established, often shipping costs can be reduced with larger volumes and long-term contracts. But for early sales, be sure to fully understand logistics costs and build them into your price quotes. For Michelle and Brian looking at Japan, they need to consider how will they support their product with this customer? Will time difference be a challenge? Language? Discuss these issues up front so that there are no misunderstandings.
There are more risks, but this is a list of some of the most critical early considerations.
Entrepreneurs tend to approach their early international sales opportunities in one of three ways:
- Throw Caution to the Wind. This is a very common approach for young companies. The pressure to quickly show top-line company growth outweighs the perceived risks. Michelle and Brian assumed that all would be fine in selling to Canada and Ireland without checking for any issues. Normally this subsides around the same time as the first foreign fines are levied or IP piracy surfaces.
- Stall the Sale & Do Your Homework. This is a smart approach IF the sale’s margin is larger than the cost to pay for any in-country trademark registrations and to check for any cross-border regulatory issue. TIP: check your own country’s exporting resources first because they are often free or nearly free. Arming your company with knowledge also prepares the company for its impending growth into new markets. If further international expansion is imminent for Michelle and Brian’s company, this may be the best approach.
- Stick Your Head in the Sand. Ignorance can sometimes be bliss… if you need focus on a critical path to success that has no room for deviation. International can be a catalyst for intense revenue growth. But if your staff is tiny and your product development list is large, you may not have the bandwidth to research Japan or any other remotely located opportunity until your company grows larger. It’s not ideal, but sometimes it’s temporarily the smart choice. Since Michelle and Brian seem to have a market-ready product with traction in their home market, they should try to learn all they can about how to intelligently move forward into new markets.
No matter which approach a company takes to leads from new markets, it is important to start learning about where to find new high-growth markets overseas, how to enter those markets, and how to stay steps ahead of the competition.
Good luck to you in all of your international business efforts!
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