In a world where geographic boundaries are blurring, conquering overseas markets doesn’t have to be such a tough proposition.
It does raise some new operational issues for your business though, including whether this is something you should tackle yourself or engage the services of a local agent or distributor, which is why we’ve broken down some of the big issues to make international distribution sound less overwhelming, and more achievable. There are multiple distribution channel options available to you.
Taking the leap from local business to savvy eCommerce SME with a global footprint can be daunting. Where do you start and how do you make sure you’re breaking into the right markets? What steps do you need to take to ensure your investment in new markets has the best chance of long-term success?
In this step-by-step guide to international distribution, we’ll take you through the seven key stages of international expansion, from planning and research through to shipping, distribution, and managing your ongoing operations once you’re up and running.
International distribution is the processes, relationships and fulfillment that you set in place to get your products into overseas markets.
Not to be confused with international eCommerce. That’s just international shipping. International distribution is about wholesaling into new countries. If you choose to control distribution in each country you operate in you will need to research and understand your legal requirements regarding distribution agreements, customs & duty taxes, terms & conditions in each and every country.
The Fundamentals of International Distribution
The process at which you handle orders, fulfillments and customer data is crucial to successful international distribution and is the most underestimated.
Being in a different country makes it hard for you to manage and grow relationships, with issues such as debt collection you’ll find that your international customers, no matter how established, will take advantage of the physical and legal distance between you to drag out payments, if pay you at all. So having the correct terms for these customers is important.
So how do you overcome the issues of distance? You need to have good systems in place that create transparency and trust between you and your retailers. Having the correct distribution agreements, general terms of business and a general grasp of your legal requirements is important.
Having the right relationships in any market is key. You need the right people talking about your product. We have seen a number of TradeGecko customers relocate staff members into their target markets to establish relationships with key accounts, opinion leaders, agents and media. This can be quite an investment but there's nothing quite like face to face meetings to establish a personal connection with who you’re dealing with.
It’s your obligation to fulfil your orders and retailers hate it when they don’t get what they ordered. In fact it can destroy your reputation and hinder your ability to every branch into that market again.
It’s a common theme among growing brands who enter into bigger markets, that they are completely overwhelmed with orders, can’t meet the demand, under deliver and are never ordered from again.
Start small in a big market. Like anything in growing a business, starting with small tests is the best way to find the right formula. Utilising international distributors and agents will give you quick access to a large number of retailers, but of course you will end up paying for this with margins. You need good systems (like TradeGecko) in place to manage the orders as well as confidence that your suppliers and manufacturers can keep up with the new demand. You’ll also need to factor in shipping costs, taxes and other logistic fees which can be a nightmare if you are new to international distribution. Search for options and talk to others who are already shipping internationally.
Create an initial target list. Start by creating a preliminary list of countries or regions for consideration based on factors that are relevant to your business. At this stage, it’s important to look at overall macroeconomic factors (things like inflation, demand for goods and services, or trade regulation) and think about how your business would fit into the broader market in each country.
Size up each target. For each market, compare the following:
Determine market opportunity. Next assess opportunities by conducting market research on the following:
Conduct a competitor SWOT analysis. Understanding your key competitors is crucial to establishing your point of difference and place in a new market. Look at comparable businesses in your target markets to determine:
As you go through these factors, consider whether they will be an asset or a detriment to your business as you prepare to enter the market. Once you’ve finished your SWOT analysis, you’ll have a list of strengths, weaknesses, opportunities and threats to your expansion plans, and you’ll be able to identify how you can improve on the competitors’ offerings to provide a better service to customers. Going through this step will also help you determine if you’re realistically prepared to enter the next stages of international expansion, or if you need to rethink your strategy.
Set goals for your competitive position in each market that you plan to enter based on your previous market research. For example, while you might set a goal of being one of the largest players in your local market, a realistic goal for a foreign market with strong domestic competitors might be a modest market share that allows you to maintain reasonable profit margins.
Entering a new market doesn’t just mean making your products available internationally. Set some objectives for how you’re going to build brand awareness and drive sales through marketing and advertising tactics. When you launch, record your monthly results by channel, so you can identify areas where you’re achieving your KPIs, as well as areas where you need to revisit your tactics.
Very few businesses manage international expansion without some source of additional funding. Set a budget for growing internationally (which will help you secure funding further down the track) and outline a trajectory for profitability so you have a plan in place to pay back the money you’ve acquired.
Forming partnerships in foreign markets is key to keeping international costs down and running your business efficiently. Set a goal of establishing a local supplier in each region you do business in, or sourcing a domestic customer-support partner. You can also include your partners in other expansion goals to track the success of each relationship.
Once you’ve identified your goals and KPIs for expansion, set them against a timeline that’s realistic based on your resources and budget.
Export legislation for your products. Requirements also depend on the types of products you sell and the country you’re importing into so check local regulations.
Importing country requirements. The process for exporting products from your local country varies depending on the type of products you sell. Check local regulations to make sure you’re adhering to the rules.
Free Trade Agreements (FTAs). FTAs are designed to reduce the barriers to trade between two or more countries, but not all countries agree to the same terms. Make sure you understand the nuances of trade agreements between your home country and your international markets.
Request export permits or certificates. Depending on where you are and what you sell, you may need to obtain export permits from your local government before you can start to export products overseas.
Laws. Your legal obligations and trading regulations are likely to differ for each market you trade in. Make sure you understand:
Taxes & duty. Local standards for taxes and duty can differ greatly from market to market, so use government resources for each of your new markets to find out:
Pricing. From researching typical pricing structures of competitors in your target markets you’ll get a better picture of how much you should be charging. Don’t forget to factor in exchange rates, handling fees and taxes when putting together your pricing structure.
Cultural norms. Keep in mind that every culture is different, and it’s important to understand local customs and differences if you want to build a solid reputation in international markets.
To secure financing for expanding your eCommerce business overseas, you’ll first need to create a business plan.
Moving your sales and operations overseas isn’t just about taking your existing business plan and applying it to other markets. Now that you’ve identified key markets to target and your approach to expanding internationally, it’s time to put together a strategic business plan that’s specific to your overseas markets.
Your business plan should include the following:
Your business plan is an integral part of your SME toolkit and will create a framework for turning your expansion plan into action.
Establishing your business in a new market can be expensive, but the good news is there are several avenues you can explore to secure funding:
Government grants. Many governments have a vested interest in boosting importing and exporting activities, and offer grants to help facilitate trade in their country. Take a look at the government websites for your target markets to see which grants are available to you and what you need to do to apply.
Peer-to-peer (P2P) lending. In a nutshell, P2P lending is a method of financing where you acquire money from an investor through a lending platform. You don’t need to go through an official financial institution like a bank, which means you aren’t beholden to standard market interest rates. In many cases, you can also use a lending platform to match you with an investor as well.
Private loans. Like P2P lending, private business loans are made by investors rather than banks. Unlike an equity investor, though, you don’t have to give up a share of your equity to secure a loan. Private loans can be useful for getting access to capital quickly but typically come with higher interest rates than conventional financing.
Banks & financial institutions. Bank loans are fairly secure and low-risk, but usually need to be secured with an asset like property. There are typically two types of business bank loans to choose from:
Be sure you are embracing omnichannel selling. The more sales platform options you offer, the better the customer experience. Considering the following:
Although you probably already have an eCommerce store set up for sales in your local market, it’s important to make sure it’s also tailored for international markets before you expand overseas. That means customers should be able to see product prices in their local currency, and clearly be able to access local shipping rates and options (we’ll touch on more of that later). Also consider whether selling wholesale online (B2B eCommerce) is a viable option for your business.
Selling on platforms like Amazon and eBay can give you access to a wider net of potential clients that might otherwise not know you exist. Using these channels can also help cut down on your international shipping and marketing costs. For example, you could use Amazon FBA to manage your entire international picking, packing, shipping and customer service process – which can be especially useful if you’re pressed for time or struggling with the logistics of selling internationally.
There are several potential benefits of using a foreign distributor, including the opportunity to gain access to new customer bases in your target markets as well as having someone else handle customs formalities and paperwork. Keep in mind, though, that selling to a distributor usually means having to sell your goods at a discount or pay a commission, so they can sell at the recommended retail price (RRP).
Depending on your sales model and the type of products you sell, you might find that it’s worthwhile selling through affiliates to help increase sales volumes and gain exposure to more customers. Like foreign distributors, however, affiliates tend to charge commissions that can eat into your profits – so do your research before jumping in.
Choosing the right international shipping solution is crucial to keeping shipping costs low and making sure customers receive their goods on time. Here are some of the most important considerations when choosing a provider.
International freight-handling capabilities. You want to make sure that the shipping provider you choose knows the ins and outs of customs regulations, and has the right infrastructure in place to move your goods around the globe – ideally with various delivery timeframes such as express and standard to give your customers more choice.
Shipping rates. When you’re researching shipping providers, look for one that strikes a balance between good value for money, reputation and timely delivery. Ultimately, getting products to your international customers on time is what will help you build loyalty and further sales down the track.
Logistics & fulfillment. Most shipping providers will offer services such as automated label creation and postage calculation, but you’ll still be responsible for packaging and labeling products yourself. On the other hand, third-party logistics providers (3PL providers) can manage the entire fulfillment process from warehousing right through to delivery – so it’s worth exploring your options to see if having an external company manage your international orders is more cost-effective and time-efficient than self-fulfillment.
Integrations with your inventory management system. Whether you choose a shipping provider or a full 3PL solution, make sure it has the capability to integrate with your inventory management system, so you can manage operations centrally. In the case of TradeGecko, our inventory management system integrates with various providers including ShipStation, StarShipIT, Shippit, 3PL Central and more, plus we also enable custom integrations through our API.
Chances are you will need more staff to handle the increased pressure on your business of selling in new markets. You may even need to hire staff on the ground. Likewise, you’ll need to ensure you have the right infrastructure in place – including warehousing, tech, and so on – to get your business up and running overseas.
At the final assessment stage, ask yourself three key questions:
If the answer to all three questions above is yes, you’re on track and ready to go!
Maximizing efficiencies is incredibly important for any business owner, but especially for those who are trading in multiple markets. Once you’re up and running, take control of your expanding business by managing all your operations on one platform. Using TradeGecko, you can manage your inventory, sales orders, shipping, finances, logistics and more from a single dashboard – giving you the freedom and insights you need to work smarter and grow your business.