Searching for the Right Connection
By Claudine Williams
Are intermediaries your solution to solving export headaches?
William Johnson had high hopes for his Wisconsin-based tool company, Johnson Level and Tool Manufacturing. Although his tools were sold in four international markets, he knew that there were several untapped markets open to his business. So when M&P Export Management, an intermediary company, proposed to represent his company in Scandinavian markets, Johnson decided to give them a try. Today, Johnson Level and Tool Manufacturing sells its products to 40 overseas markets, including Scandinavia.
Why Hire an Intermediary?
Intermediaries like M&P Export have worldwide contacts and offer an immediate entree to the overseas markets something that could take the small manufacturer years to develop. One of the most popular kinds of intermediaries, export management companies, act as the marketing arm of the manufacturer.
In Johnson's case, M&P functions as the company's export sales department. "We sell all the majors here in the U.S., and we sell into over 40 countries, and yet Jeff Cowie, our director of Sales & Marketing, and I, are the only factory sales force we have," Johnson said.
Since larger manufacturers have little need for the export management companies, they usually seek out small to mid-sized companies to represent. Once they secure a client, they go out to the marketplace, solicit orders and place them with the manufacturer. They can take care of most of your export work. According to Nelson Joyner, chairman of the Federation of International Trade Association, they are usually paid a commission of about 10 percent for consumer goods or 15 percent for industrial products.
Because they want to make the highest profit for themselves, intermediaries are often quite selective in choosing new business, said Joyner, who is also a retired exporter. Export management companies (EMCs) will usually find you by networking with other clients, consultants, banks or government entities like the U.S. Department of Commerce.
What You Should Know About Your Intermediary
How ever you connect with an intermediary, its best to do some research before you make a deal, said Michael Fitzmorris, executive director of the International Business Resource Connection at the University of Kansas. Find out if the intermediary has handled a product similar to yours, he suggests. Learn the territory that the company will cover. "I want someone who will cover the whole region in a country," he said. "I much prefer to have one company that can do a great job of handling Colombia than to have someone who handles the northern areas and another for the southern. I don't want them fighting."
It's important to ask the intermediary for a list of the top companies with whom it has conducted business. "If I were selling amplifiers, I would want the people who can handle selling the high-end amplifiers to my customers. I want to make sure that they are placed correctly," Fitzmorris said. He also suggests that you contact the intermediary's business associates and ask them if they are happy with the company's performance.
Other questions to ask an intermediary:
- What types of products do you import?
- What are the applications?
- How is the market for your product?
- What is the foreign exchange rate?
- Which trade shows do you attend?
What EMCs Want in a Potential Client
On the client side, an export management company wants to make sure there is an actual project to be completed, said Scott Romeo, president of two Arizona-based intermediary companies, New Horizon International Consulting, Inc. and Uniglobal International, Inc. For instance, if a software company in India wants to have a joint venture with United States firms, the EMC will make sure they understand what the foreign company wants in a partner.
Here is how Romeo determines venture needs for the software company: First, he wants to know the criteria for a successful match, he said. He draws a continuum and asks clients to describe a "perfect" match. Romeo writes those ideas on the right side of the continuum. He writes the characteristics of an acceptable match in the center. The characteristics that do not represent a successful match are placed on the left side of the continuum. "This is very important in order to get the client to see that a good match that provides a profitable joint venture does not always come from a company that is viewed as a "perfect" match," he said. "Without this visualization, the client will always be waiting for the perfect world."
On the provider side, the first step is to make sure they can deliver what they say they can. In order to do this, an export management company will visit the organization and spend some valuable time analyzing the operations. "On one particular venture the president of the providing company said he could produce 5000 units. I turned to the vice president and told him that I just walked through the facility and looked at the capacity and the present workload and there was no way they could produce that quantity. The vice president turned to the president and said, 'he's right.' The provider and I agreed that 2000 was a more reasonable number," Romeo said. "This means the consultant has to be able to analyze the organization, regardless of the industry, and make critical decisions [about] whether this provider can actually perform."
Proving Your Readiness
An important step to securing an intermediary is to prove that you are ready for an international market. Although you are paying an intermediary to work for you, it takes a little marketing on your part for an intermediary to take on your business.
The first place to start is with past financial information and the current status, Romeo said. It costs money to complete international projects. Have on hand your company's sales revenues for at least three years. "I'm reminded of the old adage, 'If you can't afford to lose your money in the stock market you shouldn't put it in there in the first place,'" he said. "International business is similar in that regard."
An export management company would also want to review a client list and a description of any international business that has been completed. "This tells me profit margin expected [and] time frames for completion so I can anticipate how the future project might be completed," he said.
Finally, an export management company would want to review either a business or strategic plan. "You would be surprised at how many companies say 'yes' they want to participate in an international project, and then when you look at their strategic plan [and] they have no plans for international expansion," Romeo said. "They have not allocated any money for international markets in the budgeting section of the plan."
Before signing a contract with an intermediary consider the following downfalls from Joyner's "How to Find and Use an Export Management Company" (Federation of International Trade Association):
- EMCs, for the most part, are relatively small and may have limited financial resources. Thus, some may not be able to stock your product, or to offer extended in-house financing to foreign customers.
- EMCs focus their efforts on those products that bring them the most profits. New lines, or those with limited potential, may be overlooked.
- Most EMCs do not cover Canada, yet Canada is among the best potential export markets for many U.S. products.
- With EMCs, manufacturers relinquish some degree of control over the export effort. EMCs are independent businesses. When an EMC acts on a buy-sell basis, manufacturers sometimes have no control over who buys, the selling price, or the degree of promotion.
A Stepping Stone
You can always use an export management company for initial market entry and later branch out on your own. When Flambeau Products Corporation started in export, the company was contacted by EMCs, and they helped with initial sales. As sales grew and the Ohio-based company wanted to be in charge of its own export operation, a staff was hired to handle international sales, marketing & distribution. "We still work with a few EMCs. Some smaller customers cannot order in large enough quantities, and the EMC provides a consolidation service that the customer does not want to do themselves. Some of them also provide trade financing or credit terms, said Arnie Zvejnieks, president of the company. "I find that at Flambeau we do less and less with the EMCs every year."