Six in 10 UK companies don’t currently export their products outside the UK, according to figures from the Department for International Trade (DIT) [1]. The reasons for this may include concerns about identifying the right export market, dealing with the administrative and legal side of exporting, and uncertainty surrounding pricing.
But while it can seem a daunting prospect, there are clear benefits associated with exporting. Access to new markets and customers, for example, as well as diversifying opportunities for your company and brand, increased competitiveness, and higher sales and profits. And many UK businesses are taking advantage of these benefits: in 2021, the UK's exports of goods and services totalled £636 billion [2], placing it in seventh place globally in terms of export [3].
In this article, we’ll explain how to evaluate the export potential of your business and how to ensure your export strategy covers all the critical factors for success.
What should you consider in your export strategy?
If you're able to identify export opportunities, your strategy needs to consider what you will export, where you will export, and what pricing will ensure you are competitive and make a profit.
A useful resource is the Department for International Trade (DIT), which publishes free advice and guides [4] on building an export strategy. Your local Chamber of Commerce can also offer free support.
What to Export
Simply put, certain products are easier to export than others, says business advisor Frances Fawcett, who specialises in business planning, marketing planning, and international trade. If you're looking to export heavy machinery, for example, the cost of shipping could outweigh potential returns. Whereas if you're exporting services over goods, you likely don't have to concern yourself with shipping costs.
Furthermore, it may be that there are many companies in one country selling your category of product, says Fawcett, meaning certain markets are already saturated with suppliers.
Where to Export
A key consideration for choosing where to export is whether there are 'quick win' opportunities where they are likely to find establishing a presence easier. Do you or your employees have any pre-existing connections to a particular market, for example? Do a significant percentage of your workforce speak a particular language? It's also important to consider export markets, like the US, where language isn't a barrier.
Another consideration should surround international payments, currency and exchange rates which will differ for various countries and markets.
It's also worth considering trade shows and networking events in potential export markets [5]. Spice Kitchen, a business who produce artisan spice tin gift sets, received a grant from the DIT to attend a trade show in Dubai, an export market they hadn't previously considered. But the event provided an opportunity to meet local retail chains and businesses. "By attending the show, we could see that Dubai was a good market for us, particularly if we tailored our product," says Sanjay Aggarwal, Spice Kitchen’s co-founder.
How to Export
If you want to sell in a market where you do not have a physical presence, you may consider:
Direct/Online: selling products direct to consumers in other parts of the world through an eCommerce website, which can be quick and easy to set up. However, you'll be responsible for fulfilment and shipping, meaning there is a risk that if problems arise overseas they may be difficult to resolve remotely.
Sales Agent: a local representative who sells on your behalf in a given market. This can be advantageous because you'll benefit from having someone who understands a local market (and language if applicable), and may already have established business connections. However, it's important to consider a sales agent carefully, as they will be responsible for your company's reputation overseas.
Distributor: a distributor is someone in a market who buys your product up front and then sells it on to businesses in a local market. The advantage of a distributor is that they will have a network of customers in your market sector and existing relationships, and they'll also handle fulfilment. However, distributors will charge a percentage of the product price for their service.
How to assess export market opportunities
Spice Kitchen is currently expanding its export business and, following research, has not only chosen a number of markets to target, but some to avoid, based on perceived opportunity. “What we found when we did research was that people in Belgium and Germany are familiar with world food and use a lot of spices," explains Aggarwal. "In Spain, people tend to cook more traditional Spanish food and world food is a smaller market.”
It’s also important to consider local market regulations and standards, which will vary depending on the type of product you’re looking to export. If you’re selling a manufactured product, for example, will it meet local safety regulations so it can be legally sold, or will it need to be modified? Will you need to pay for packaging and information leaflets to be translated? Are you prepared for your products to be inspected before they can be sold?
Fawcett adds: “you need to understand how long it will take to ship, what that will cost, and what administrative processes are involved around things like customs paperwork, HMRC reporting, and import duties."
How to build an export pricing strategy
To build an export pricing strategy, you'll need to run a full financial model that shows all the additional costs involved in exporting your product, and whether it’s possible to export there and make a profit.
Additional export costs to consider
- Shipping: what are the additional costs involved in packaging, shipping, customs and export duties?
- Regulations: does your product comply with local regulatory standards?
- Translations: do your packaging and products need to be labelled in a local language?
- Administrative costs: have you considered the cost of filing customs paperwork and HMRC reports?
“Customers are very adept at going online and finding out what things cost in other global markets,” says Fawcett. Because of this, Spice Kitchen sets its pricing overseas at a similar level to its UK products.
However, there may be instances where a company reduces the price of a product for export in the short-term. For example, in preemptive pricing, you might discount your product for six months to become established in the market and then increase prices later. This can be a useful strategy if there is a lot of competition in the market. However, the risk is that once prices increase, customers are reluctant to pay the premium.
Penetration pricing involves setting your export price low to create a mass market. While your profit margin per product might be lower than in the UK, the strategy is based on the assumption that the volume of sales will compensate for the lower profit per item. This strategy is best suited for products that are relatively profitable, where you can afford to reduce the margin, and you expect there is potential for a large volume of sales.
For most businesses, the best advice is to set prices similar to those in the domestic market and focus on export markets where it’s possible to make a profit through volume, advises Fawcett. “It’s a huge risk to price products lower and potentially make a loss for a business, in anything other than the very short term,” she says.
An international expansion will not be a small cost for a business of any size, and an American Express® Business Card can help you make every pound of your investment count. You can earn Membership Rewards® points when making international transfers using the Card, which can be turned into statement credit to offset other costs of doing business¹.
1. If you have an American Express Card enrolled in the Membership Rewards program, your business can earn points on eligible money transfers of £ 5,000 or more. Once you have registered your Card with both the central American Express Membership Rewards Programme and the FX International Payments Membership Rewards Programme, you can earn points on foreign currency transactions between the value of £1,000 to £100,000. For every £20 transacted, you will receive one Membership Rewards point, which will be automatically credited to your American Express Card. You can earn a maximum of 5,000 points per transaction. Please note, same currency transactions are not eligible. Points will be credited within 12 weeks after the transaction is completed.
Sources:
[1] DIT National Survey of UK Registered Businesses 2020
[3] UK Department for International Trade
[4] DIT
