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Part 1.-GETTING THE ORDER
Chapter 1.-EXPORT MARKET ANALYSIS

Not all American products are salable in every market in the world. The customs, manners, habits, and living conditions of people, varying from country to country, affect the demand for goods. The first step in export procedure, therefore, is to analyze as thoroughly as possible the markets into which it is proposed to introduce a product, to ascertain with reasonable accuracy its adaptability to the peculiar conditions existing in those markets. In this way, a great deal of lost motion and possible grief may be avoided. Also, the degree of intensity with which the product should be pushed can thus be more exactly determined. Many exporters feel that so long as they are receiving orders, there is no need for detailed market analysis. The mere fact that an order has been received from abroad, however, is no reason why export market analysis may be dispensed with. Foreign buyers sometimes place orders and ask for such credit arrangements as leave the responsibility and hazard of introducing an unknown product into a new market entirely to the exporter. Even where they may arrange to pay cash against documents or open a letter of credit, there is no assurance as to what the size of the potential market may be to the exporter, or whether the buyer who has placed the order is the best type of distributor to handle the business. These facts and others of equal importance can be determined only by a thorough analysis of the market in its relations to the product.

DETERMINATION OF ESSENTIAL FACTS Any analysis of a foreign market calls for the determination of certain essential facts, each of which is directly or indirectly related to the salability of the product. The first of these is the size of the market. This is not determined by the total population but is an estimate of that portion of the population which is able and willing to purchase the product in question. The second consideration is the purchasing power. This is estimated on the assumption that while all of a given group may be willing to buy a product and even desire to buy it, there is little-use in stimulating desire for it which cannot be satisfied because of limited purchasing power. A third consideration is local taste. Given both willingness and ability to consume a product of a certain type, the potential demand is always modified by certain tastes that are purely local in character and differ from the tastes of the people of the United States, for whom the product is (as a rule) primarily designed.

SECONDARY FACTORS

In addition to these three primary factors in any export market analysis, there are usually many factors--normally of a secondary

charactèr: but of great importance today—which tend to inhibit or prevent whole groups of people, with sufficient purchasing power, wþic find the product satisfactory, from actually purchasing it. Foreign tariffs have always been a factor of this character, constituting barriers to the free flow of commerce and the uninhibited satisfying of inherent need or desire to purchase foreign goods. Another barrier is typified in the more recent quotas on imports, which have been imposed by many countries. Others are exemplified in exchange restrictions which effectively prevent or delay the purchase of the necessary American dollars by foreign customers with their own currency, even though they wish to take such action. Another factor is competition from other exporting countries, either in price or quality. This also sometimes takes the form of competitive terms of sale, possibly better adapted to the conditions in a given market than the terms offered by American exporters. Added to these, there may be: better adapted means of distribution, more efficient shipping facilities, more effective sales methods. Some of these conditions can be met by the exporter himself, and others cannot. In case of official restriction, both the exporter and his agent abroad must rely upon their governments to create, by negotiation, conditions favorable to trading. This is usually accomplished by bargaining of one kind or another.

SIZE OF MARKET

Every market should first be analyzed as to its potential capacity to absorb the product of the exporter. It is quite meaningless to base such analysis upon total population. The 400,000,000 people of China do not buy as large an amount of American products as the 11,000,000 people of Canada. The character of the population must be analyzed. In Brazil, for example, there are at least three distinct population groups. The European colonists in the south, who raise cattle and wheat, differ in wants and purchasing power from the coffee planters and plantation laborers of central Brazil, while both in turn offer entirely different market possibilities from those afforded by the Indians of the Amazon Valley. Such disparate conditions will be found, with greater or less divergence, in every country in the world. An export market analysis should therefore begin with a division of the population into its component elements and the application to each of the measuring rod of potential demand for the product. The Division of Regional Information of the Bureau of Foreign and Domestic Commerce is able to supply basic data for this purpose.

PURCHASING POWER

Having determined the number of potential customers, the next step is to determine their group purchasing power. Here again the Division of Regional Information is able to furnish valuable aid of a direct and indirect character. One valuable guide to purchasing power as a whole is per capita imports. This will be found to vary greatly as between a country such as Australia, with a relatively small population of a comparatively high average standard of living, and a country such as India, with a large population but a low average standard of living. The character of the imports furnishes another

valuable guide. If a country is highly industrialized, as is Japan, the imports will be found to be mainly raw materials and foodstuffs. Such manufactured goods as are imported are usually of the more highly fabricated type such as automobiles and machinery. The Netherlands Indies on the other hand, import mostly manufactured goods of all descriptions. As a rule, a country dependent entirely upon its agricultural or mineral production for purchasing power affords a large market for low-priced manufactured essentials, while an industrial country which produces these commodities domestically is a market for raw materials or higher-priced specialties.

Further refinement of purchasing-power estimates can be obtained from a number of indexes, many of which are listed in the Foreign Commerce Yearbook of the Department of Commerce. Railroad mileage, number of telephones, volume of shipping, number of educational institutions, and other statistical data will give some indication of the standard of living and purchasing power, but such data as actual wages paid in industry and average farm income are far more tangible indexes where they can be obtained. In lieu of more specific data, the Foreign Commerce Yearbook will provide per capita production in agriculture and industry as a valuable comparative index of purchasing power as between countries.

LOCAL TASTES

One of the most intangible factors to be dealt with in any export market analysis is the matter of taste. In some respects, these tastes reflect not only the stage of development of the people, but also their racial and social relationships. Color and design of fabrics in demand by people in various parts of the world, for example, are factors of extreme importance, and exporters find that local taste is a factor of great moment in the sale of all kinds of packaged goods. The color and designs of labels assist or hinder the sale of goods in many markets. In China, colors and designs carry a religious significance, which is accentuated by the illiteracy of the people and their dependence upon the “chop” or design in making their choice rather than upon the written word. In such a market, the trade-mark and design must be chosen with utmost care. The exporter must decide whether to conform to these local prejudices or by salesmanship and educational processes attempt to overcome them. The latter course means additional sales expenses and is rarely completely successful, but carries many advantages to exporters of standard products, manufactured by mass-production methods. Specific information on individual commodities and their adaptability to particular markets may be obtained from the Industrial Divisions of the Bureau of Foreign and Domestic Commerce.

RESTRICTIONS AND FORMALITIES

Foreign tariffs are imposed by governments either for revenue or for protection, or both. The more modern forms of quotas and exchange restrictions have been imposed largely to effect a balance between imports and exports, both visible and invisible, and prevent disastrous gold drains from undermining the currency. Other types of restrictions such as pure-food and quarantine regulations, anti

dumping regulations, and regulations against goods produced by convict labor are designed to reduce imports for any number of open or obscure reasons. The effect of these restrictions on imports is obviously a matter which the exporter must determine with a high degree of accuracy before he embarks upon an export campaign in any particular market. They form an essential part of any export market analysis. The Foreign Tariffs Division of the Bureau is fully equipped to advise exporters along these lines.

COMPETITION

The existence of competition-by domestic producers, by other United States producers, or from other countries—must also be determined by the exporter before he can intelligently prepare to enter a market. Statistically, this can be ascertained from the import returns of the market under survey. If there are small imports coupled with obviously great demand it will usually be found that the product is being supplied by domestic producers, perhaps with tariff protection. The figures may show that a large amount

of the product is imported, practically all of it coming from the United States. This means that the exporter's principal competition will be from American firms already in the field. In that event, the exporter will have to decide whether he can or will meet this competition. He may find it possible to increase existing demand by reaching different levels of consuming power, and thus expand the market by adapting his product more closely to the needs of such levels, either as to quality or as to price. On the other hand, the figures may show that while large quantities of the product are being imported, only a small portion is coming from the United States. In that event he must study the quality, terms, and prices of the principal foreign suppliers and also survey the actual conditions under which they import. These may include such factors as greater proximity to the market, preferential tariff arrangements, heavy investments in industrial or agricultural enterprises carrying advantageous stipulations as to the purchase of supplies, and other special conditions. While the Bureau of Foreign and Domestic Commerce can supply information on these last-mentioned factors it cannot undertake to supply comparative data on quality, terms, and prices. These should be obtained through existing or prospective selling agencies.

Unless the evaluation of present and potential competition from domestic, United States, or other foreign sources—is approximately correct, the exporter is apt to find the introduction of his product into the market surrounded with difficulties almost insuperable in character. As an example, a superficial survey of Argentine imports of railway supplies and equipment would disclose heavy annual imports from Great Britain. Unless the exporter knows that most of the mileage in Argentina is British-owned, giving rise to specifications favoring British equipment, and that Argentina, by treaty, gives preferred treatment to British imports in view of heavy British imports of Argentine products, he might draw the erroneous conclusion that American railway equipment and supplies could compete successfully with British equipment in the Argentine market.

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