Chapter 5: PREPARING PRODUCTS FOR EXPORT

Selecting and preparing a product for export requires not only product knowledge but also knowledge of the unique characteristics of each market being targeted. The market research conducted (see Market Research) and the contacts made with foreign representatives (see Methods of Exporting and Channels of Distribution) should give the U.S. company an idea of what products can be sold where. Before the sale can occur, however, the company may need to modify a particular product to satisfy buyer tastes or needs in foreign markets.

The extent to which the company will modify products sold in export markets is a key policy issue to be addressed by management. Some exporters believe the domestic product can be exported without significant changes. Others seek to consciously develop uniform products that are acceptable in all export markets.

If the company manufactures more than one product or offers many models of a single product, it should start with the one best suited to the targeted market. Ideally, the firm chooses one or two products that fit the market without major design or engineering modifications. Doing so is possible when the U.S. company

PRODUCT PREPARATION CONSIDERATIONS

PRODUCT ADAPTATION

To enter a foreign market successfully, a U.S. company may have to modify its product to conform to government regulations, geographic and climatic conditions, buyer preferences, or standard of living. The company may also need to modify its product to facilitate shipment or to compensate for possible differences in engineering or design standards.

Foreign government product regulations are common in international trade and are expected to expand in the future. These regulations can take the form of high tariffs or of nontariff barriers, such as regulations or product specifications. Governments impose these regulations to

Detailed information on regulations imposed by foreign countries is available from the country desk officers (see appendix II) of the Department of Commerce's IEP unit. Where particularly onerous or discriminatory barriers are imposed by a foreign government, a U.S. company may be able to get help from the U.S. government to press for their removal. The firm should contact a Department of Commerce district office (see appendix III) or the Office of the U.S. Trade Representative in Washington, D.C. (see appendix II) for further information.

It is often necessary for a company to adapt its product to account for geographic and climatic conditions as well as for availability of resources. Factors such as topography, humidity, and energy costs can affect the performance of a product or even define its use. The cost of petroleum products along with a country's infrastructure, for example, may indicate the demand for a company's energy-consuming products.

Buyer preferences in a foreign market may also lead a U.S. manufacturer to modify its product. Local customs, such as religion or the use of leisure time, often determine whether a product will sell. The sensory impact of a product, such as taste or visual impact, may also be a critical factor. The Japanese desire for beautiful packaging, for example, has led many U.S. companies to redesign cartons and packages specifically for this market.

A country's standard of living can also determine whether a company needs to modify a product. The level of income, the level of education, and the availability of energy are all factors that help predict the acceptance of a product in a foreign market. If a country's standard of living is lower than that of the United States, a manufacturer may find a market for less sophisticated product models that have become obsolete in the United States. Certain high-technology products are inappropriate in some countries not only because of their cost, but also because of their function. For example, a computerized industrial washing machine might replace workers in a country where employment is a high priority. In addition, these products may need a level of servicing that is unavailable in some countries.

Market potential must be large enough to justify the direct and indirect costs involved in product adaptation. The firm should assess the costs to be incurred and the increased revenues expected from adaptation (they may be difficult to determine). The decision to adapt a product is based in part on the degree of commitment to the specific foreign market; two firms, one with short-term goals and the other with long-term goals, may have different perspectives.

ENGINEERING AND REDESIGN

In addition to adaptations related to cultural and consumer preference, the exporter should be aware that even fundamental aspects of its products may require changing. For example, electrical standards in many foreign countries differ from U.S. electrical standards. It is not unusual to find phases, cycles, or voltages (both in home and commercial use) that would damage or impair the operating efficiency of equipment designed for use in the United States. These electrical standards sometimes vary even in the same country. Knowing this requirement, the manufacturer can determine whether a special motor must be substituted or arrange for a different drive ratio to achieve the desired operating revolutions per minute.

Similarly, many kinds of equipment must be engineered in the metric system for integration with other pieces of equipment or for compliance with the standards of a given country. The United States is virtually alone in its adherence to a nonmetric system, and U.S. firms that compete successfully in the global market have found metric measurement to be an important detail in selling to overseas customers. Even instruction or maintenance manuals should take care to give dimensions in centimeters, weights in grams or kilos, and temperatures in degrees Celsius. Information on foreign standards and certification systems is available from the National Center for Standards and Certificates Information, National Institute for Standards and Technology, Administration Building, A629, Gaithersburg, MD 20899; telephone 301-975-4040.

Since freight charges are usually assessed by weight or volume (whichever provides the greater revenue for the carrier), a company should give some consideration to shipping an item unassembled to reduce delivery costs. Shipping unassembled also facilitates movement on narrow roads or through doorways and elevators.

BRANDING, LABELING, AND PACKAGING

Consumers are concerned with both the product itself and the product's supplementary features, such as packaging, warranties, and service. Branding and labeling of products in foreign markets raise new considerations for the U.S. company:

A company may find that building international recognition for a brand is expensive. Protection for brand names varies from one country to another, and in some developing countries, barriers to the use of foreign brands or trademarks may exist. In other countries, piracy of a company's brand names and counterfeiting of its products are widespread. To protect its products and brand names, a company must comply with local laws on patents, copyrights, and trademarks. A U.S. firm may find it useful to obtain the advice of local lawyers and consultants where appropriate.

INSTALLATION

Another element of product preparation that a company should consider is the ease of installing that product overseas. If technicians or engineers are needed overseas to assist in installation, the company should minimize their time in the field if possible. To do so, the company may wish to preassemble or pretest the product before shipping.

Disassembling the product for shipment and reassembling abroad may be considered by the company. This method can save the firm shipping costs, but it may add to delay in payment if the sale is contingent on an assembled product. Even if trained personnel do not have to be sent, the company should be careful to provide all product information, such as training manuals, installation instructions, and parts lists, in the local language.

WARRANTIES

The company should include a warranty on the product, since the buyer expects a specific level of performance and a guarantee that it will be achieved. Levels of expectation for a warranty vary from country to country depending on its level of development, competitive practices, the activism of consumer groups, local standards of production quality, and other similar factors.

A company may use warranties for advertising purposes to distinguish its product from its competition. Strong warranties may be required to break into a new market, especially if the company is an unknown supplier. In some cases, warranties may be instrumental in making the sale and may be a major element of negotiation. In other cases, however, warranties similar to those in the United States are not expected. By providing an unnecessary warranty, the company may raise the cost of the product higher than the competitors' costs. When considering this point, exporters should keep in mind that servicing warranties will probably be more expensive and troublesome in foreign markets. It is desirable to arrange warranty service locally with the assistance of a representative or distributor.

SERVICING

Of special concern to foreign consumers is the service the U.S. company provides for its product. Service after the sale is critical for some products; generally, the more complex the product technology, the greater the demand for presale and postsale service. There is, therefore, pressure in some firms to offer simpler, more robust products overseas to reduce the need for maintenance and repairs. U.S. exporters who rely on a foreign distributor or agent to provide service backup must take steps to ensure an adequate level of service. These steps include training, periodically checking service quality, and monitoring inventories of spare parts. See chapter 15, After-Sales Service, for more on after-sales service.

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