Strategies for Exporting to Asia/China

It's a big world out there, so export. (Infographic is from FedEx)

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 own 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 that 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 one that we insisted on doing a full on due diligence investigation on the potential 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.
  • A Midwest USA factory machine equipment company that makes million dollar machines that 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.
  • Many years ago, an East Coast Canadian environmental equipment company (I’m being intentionally vague here) 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-to-be did), the competitor was letting our client know. Our client then sold at least five million dollars worth of its equipment to China within a few months.
  • And my favorite (and I wish I did not have to be so vague here), but a small (like $100,000 a month in total revenue small) Pacific Northwest woolen company (with a speciality) started becoming really popular with Asian consumers (mostly in China, Japan, and Korea), like to the tune of amazingly quickly tripling their monthly sales from Asian consumers alone.

Now obviously most exporters to Asia have to do a lot 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.

Anyway, I am focusing on exporting to Asia today because East-West Bank sent me a really good article listing out six good strategies (really more like tips) for exporting to Asia. Here are their six from their article, 6 Strategies for Exporting Successfully to Asia, with my comments.   

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 E-W Bank article recommends you secure help on this from U.S. SBA Export Assistance Centers . and/or the U.S. Commercial Service. This is really good advice, and most (all?) European countries and U.S. States have similar offices that also 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 does, 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, a partner and founder at Harris Bricken LLP in Seattle and author of the well-known China Law Blog. It can be very hard to undo the damage, by his account.

Some American exporters lose rights to their intellectual property in China, for instance, 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 us and say they want to sue this company in China.” These U.S. firms are generally out of luck, because they failed to register the Chinese version of their brand name in China, according to Harris. “The only exception is if you are a well-known brand, like Coca-Cola,” says Harris.

All true.

3. Invest in relationships.
The article rightly 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:

[M]any U.S. 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 you your due diligence—especially on the partner’s history of quality control—and 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 found that such a distributor has put their brand name on an inferior or even dangerous product, according to Harris. “They’ll try to stop the company from selling it, but their contract doesn’t allow them to,” he says. Enforcing even a carefully drafted contract can be tough. “It’s not as simple as people think,” he says.

All true.

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 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 that they will simply languish.

6. Minimize financial risks.
“If any 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.

Just do it….

What strategies or tips would you add to the above?

One response to “Strategies for Exporting to Asia/China”

  1. I would echo everything in the EWB article – this bank is quite knowledgeable about commercial activities in China. I would add an overall suggestion to make sure you have plenty of patience – market entry in China, if done correctly and for the long-term, can take quite a bit of time. I would also add that it is dangerous to “black box” China and place 100% faith and trust in your on-the-ground partners in China. Manufacturers need to stay connected to the market and visit customers in China at least once a year.

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