I love to talk about what I call our “accidental exporter” clients. These are companies (mostly in the United States, but Europe too) who literally lucked out into becoming Asia exporters. And by “lucked out,” I mean they were quietly going about their business when contacted out of the blue by someone in Asia (usually China, but Thailand, Vietnam, Taiwan, Indonesia and Korea too) who wanted to buy their products and did, and then things took off from there.
The interesting thing about this club is the diversity of the products they sell. The below are the ones that immediately spring to mind:
- A relatively small, very high end cookie maker was approached by a Taiwanese company in a completely unrelated industry about buying $800,000 worth of cookies every month. My law firm’s international lawyers were so skeptical about this transaction that we insisted on doing an extensive due diligence investigation on the potential cookie buyer and we all but forbid our client from doing anything until we completed it. Turned out this was not a fraud and our client did the deal and got paid.
- A Midwest USA factory machine equipment company that makes million dollar machines was approached out of nowhere by a large Chinese company and now this US company sells 3-4 of its machines to China every year, without anyone from the company ever having set foot in China, or planning to do so.
- A Canadian environmental equipment company was contacted by a quasi-competitor that makes similar (but different) equipment and told that a large Chinese municipality was looking for XYZ equipment and since the competitor did not make that equipment (but our client did), the competitor was letting our client know. Our client then sold more than five million dollars worth of equipment to China within a few months.
- And my favorite (and I wish I did not have to be so vague here), but a teeny-tiny Pacific Northwest woolen company (with a speciality product) started becoming really popular with Asian consumers (mostly in China, Japan, and Korea). They quickly tripled their sales.
Most exporters to Asia have to do more work to become Asia exporters than the above four companies, but I mention these four to highlight the plethora and diversity of Asia export opportunities. If these four companies can succeed as exporters to Asia by accident, just imagine what companies that work at it can accomplish.
I am focusing on exporting to Asia today because I just read a very good article by East-West Bank, 6 Strategies for Exporting Successfully to Asia [link no longer exist], that provides six tips for exporting to Asia (my comments are in italics):
1. Assess your potential to export. If you are going to export to Asia (other than by accident), the first thing you need to determine is whether there is a market (and where) in Asia for your product. The article recommends you secure help on this from U.S. SBA Export Assistance Centers and/or the U.S. Commercial Service. This is good advice, and most (all?) European countries and U.S. States have similar offices that can provide substantial assistance at sometimes ridiculously low prices. There are also many excellent consultants who provide similar and more in depth services.
2. Protect your ideas first. Protecting IP is the issue dearest to my heart and so I will just quote the whole thing from the article:
Asian countries have different laws regarding intellectual property than the United States, so make sure you get legal advice on how to safeguard your brand and product before you start marketing it. “If you are going to mess up on anything, don’t mess up on your intellectual property,” says attorney Dan Harris, partner and founder at Harris Bricken, and author of the well-known China Law Blog. It can be hard to undo the damage, says Harris.
Some American exporters lose rights to their intellectual property in China because they don’t realize they must actively file to protect their IP there – or it does not belong to them, says Harris. “Americans will go into China, sell on Tmall and all of a sudden, someone will have their name,” says Harris. “Then they will call one of my law firm’s international IP lawyers and say they want to sue this company in China.” These U.S. companies are generally out of luck, because they failed to register their brand name as a trademark in China, according to Harris.
3. Invest in relationships. The article recommends you “meet potential business associates and clients at least once before you make a deal, and ideally more than that.” I agree. Oh, and choose your relationships wisely.
4. Proceed carefully with partnerships. This is the other issue closest to my heart and so I will quote liberally on this from the article:
Many companies look for a distributor to sell their products overseas. That can be a good approach if you don’t plan to open an office in the Asian country, but it is important to vet distributors carefully. Be wary of any distributor that demands an arrangement to sell exclusively in one country with no minimum sales requirement of your product. “They are probably selling for your competitor and will block you out of the market,” says Harris. “We have had brands blocked for years from China. Americans are so eager to get in there that they sign these agreements.”
If you plan to license your brand name to a distribution partner overseas, do your due diligenceand invest in good legal advice on how to draft the agreement. “Americans fail to realize that a distributor can destroy their reputation,” says Harris. Some American companies have had distributors put the American company’s brand name on an inferior or even dangerous product, according to Harris. “They’ll try to stop the [Asian] company from selling it, but their contract doesn’t allow them to,” he says.
5. Consider selling online. If you sell a consumer product, marketing it through a large e-commerce marketplace – or more than one of them – may be the easiest way to break into Asian markets. In addition to eBay, Amazon and Tmall, sites such as Alibaba.com, JD.com and exportnow.com work with American entrepreneurs. These sites make getting started on selling to China much easier. However, two important things to know are that (1) you still need to protect your IP and (2) unless these sites really push your products, there is a good chance your products will simply languish.
6. Minimize financial risks. If disputes arise over sales you make from a distance, it will be harder to resolve them than if you and your client were both in the United States, operating under the same legal system. Many experts recommend getting trade receivables insurance and putting safeguards in place to make sure you get paid. Getting paid in full upfront is almost always best and easiest, but if that isn’t possible, try to get paid enough before you ship so that your costs of production and shipping are covered and you will at least break even even if you never receive any additional payments.
What strategies or tips would you add to the above?