It was the first time my British manufacturing client, an award-winning SME from Yorkshire and also a client of Strong and Herd, visited Latin America. They had invested in market research and in a thorough distributor recruitment exercise that together had taken me exactly a year. The pressure was on. The whole point of the trip was to recruit one distributor in each of three key markets: Chile, Peru and Colombia. Flying back to Uruguay, it occurred to me that a lot was learnt on this trip that I would like to share with you...
First of all, stereotypes hardly worked. The “mañana, mañana” attitude that so many Brits associate with Latin America was clearly not appropriate. Business meetings were highly professional, everyone was expecting us and, as both my client and I pointed out, everyone was perfectly on time.
Language was a bit more of a mismatch. Some potential distributors could speak English pretty fluently, but there was always someone asked to join the meeting who wouldn’t. Perhaps a sales assistant or a technical manager. Thankfully, rather than keeping quiet on the corner or relying on constant interpreting, I was able, as a fluent speaker of both English and Spanish, to involve them in the conversations. Communication, as we all know, is highly non-verbal, but to interpret non-verbal cues requires some cultural sensitivity. As a team, we could spot so much more of what was going on, interpret it and act accordingly. There was a lot of respect also about the fact that we had translated our marketing materials into Spanish and that we had made the effort to communicate with them in their native language.
My client was overwhelmed by the overall friendliness and openness of everyone he met. He wasn’t culturally shocked. He felt Latin America is nowhere near as “exotic” as a lot of people in the UK imagine. Business is a common language. And there were no scares, despite the (ignorant?) comments from the UK about us travelling to Medellin, often seen as the drug capital of the world and now an award-winning city chosen by the New York Times as the most innovative city on the planet. We felt safe, with the necessary precautions, like anywhere else.
One great lesson was the importance of having built relationships before landing in each market. I have been involved in “trade missions” that basically “parachute” foreign business people into Latin America and most don’t work or require an awful lot of effort during the visit and afterwards. They are usually not taken seriously by local business people. Having done so much preparatory work and having built relationships, the only challenge was to consolidate those relationships with a face-to-face meeting. We weren’t starting from scratch, and that paid off.
On another level, arranging the logistics for the trip, to cover the cities of Santiago, Lima, Bogota and Medellin in five days was challenging. Flights are expensive and irregular. Clearly better than 10 years ago, but distances are huge. Add to that having to adapt to weather and altitude changes, and you can see how tricky it could be. But again, preparation and research paid off and everything went according to plan. That was greatly due to the professionalism and efficiency of a Latin American airline that would put most European airlines to shame.
Friday, 29 March 2013
Posted by S+H LLP at 11:00
Friday, 22 March 2013
After working many years in international trade in numerous markets, the question continues to arise – is better to use an agent or a distributor to handle my local business? Frankly there is no one answer. However I do strongly believe that it is not effective or always appropriate to appoint one type of partner only on a global basis. This case study illustrates some practical reasons as to why a market by market solution is preferable.
Firstly let’s summarise a few of the pros and cons of each channel.
By comparison to Distributors, Agents are a low cost, low risk option. You pay on results through commission. You also benefit from having a direct contact with end-customers as you trade direct with each of them. As a result you are selling at your price. Agents are invariably self employed and are therefore low on resources. They can locate and sell to customers but can offer little additional services. You are also shipping to each customer which may be an expensive option in addition to a high number of potential credit risks.
Distributors, on the other hand, offer a company size resource not only by providing a team of salesmen but storage for stock and a local direct delivery to customers. Additionally they should be able to provide local marketing support as well as capably manage the importation of your products. So far so good. The main drawback is the loss of control. Key issues are no direct relationship with end customers as they are ‘owned’ by the distributor, trade prices are set locally by the distributor and you have no influence over sales operations. Additionally it may be difficult to gain feedback on the in-market sales performance of your products.
So nothing is perfect!
One factor that can influence your choice of channel is your international sales policy. You may work in an industry or provide a bespoke product which is better suited to be supplied to order and shipped direct to end customers. If there is little requirement for a local inventory of product this may better suit the use of an agent. If however you require, local sales & marketing expertise then the use of a distributor maybe more appropriate.
The majority of my experience was in the exporting of consumer goods to highly competitive markets. The key issue was never to be out of stock in the marketplace as consumers would seek competitive products in these instances. It was therefore appropriate to maintain inventory in the market to meet demand. Using a distributor not only provided this local stock facility but removed any need to place product in the market on a consignment basis. Product has already been sold to the distributor, albeit on a credit basis.
Stock holding was a main criterion for selecting this type of distribution channel alongside the use of a sales team who should be able to provide both regular and comprehensive expert sales coverage.
All of the above seems to imply the use of distributors was the global solution to our needs. But this was not always the case. Consider the situation when a new market is being developed and products are being launched for the first time. Whilst best efforts will have been made to assess market potential, particularly for the short term, there will always be a doubt until business is actually transacted. Yet the cost implications can be quite high particularly if using a distributor to who you have passed on some of your margin in your trade terms together with a possible credit risk.
From the distributor’s point of view he is also taking a calculated risk. He purchases your products in good faith on the assumption they will sell. He will commit resource before he is paid by his customers.
We therefore considered the tactical use of an agent for some market launches particularly where there were concerns over the short term development business opportunities which may not have been attractive to a distributor. Once again tactically if one is able to build some good early business using agent, at relatively low cost and risk, the equity of your business will become more valuable in the eyes of the beholder.
I can cite a number of instances where having launched into a market using an agent and built business incrementally over the first years, we suddenly became a more attractive proposition to prospective distributors and in turn our own bargaining power had increased. I have found that at the outset of any trading relationship with a new distributor in a new market they believe you need them more than they need you. Arguably they are right and, not surprisingly, they seek the best possible terms.
To be fair to the agent, an agreement will be set up for, say, two years, and he will be targeted to seek x type of customers in y geographical area. At the end of that period business will be reviewed and decisions taken on future handling. If we then decided to switch to a distributor we always tried to find ways of maintaining an on-going relationship with that agent, assuming he had performed well. We believed it was important for good local trade relations and goodwill to ensure all parties were treated with courtesy and respect. In a number of instances we were able to incorporate some of the agent’s good work with the newly appointed distributor.
We also possessed a few markets where it was practicable to supply the key customers direct with the agent acting as both a salesman and a facilitator. We gained the benefits of the direct relationship with end-customers whilst controlling our exposure to financial risks in those particular markets.
Tuesday, 19 March 2013
Being able to use “fast track” customs clearance facilities, hold goods in a customs bonded facility or at your premises without payment of duty under a suspension scheme, being accepted as “Approved Exporters” under Customs preference schemes, presenting missing paperwork after the goods have been delivered to you to avoid storage charges, knowing the majority of your imports won’t be examined by Customs before being released – all of these, and more, are actually simplifications under customs procedures. And in the UK we take them all for granted.
UK Customs – with its incredible computer system CHIEF (Customs Handling of Import and Export Freight) – have been making life simpler for UK exporters and importers over many years so we are now the 3rd fastest country in the world with regard to customs releases (Singapore and Hong Kong are 1 and 2). The rest of the EU, not to mention the world do not have the same level of simplification schemes available to all traders, they are only granted to “trusted traders”.
EU AEO “trusted trader”
Since the introduction of AEO approval in the EU in 2008 one of the “carrots” of the scheme has been the fact that approved companies can apply for simplification to standard customs procedures. In Italy where the customs clearance time for imports is said to be 3 days to reduce this to 1 hour is a great incentive – but not so in the UK.
The Customs Code under which the EU operates came into force in 1993 when the Single Market was established. That is 20 years ago and customs, like everything else, has moved on – a lot! In 2008 it was announced that the EU Commission was re-writing the Customs Codes to be launched in June 2013 – the Modernised Customs Code (MCC). As well as reducing the number of legal articles and making the language simpler it also linked the use of Customs Simplification Schemes to being an AEO approved company. Non-AEO approved companies could still apply to use simplified procedures but there would be restrictions to through-put times or financial guarantees required. These requirements would have to be applied in the UK as well.
With 2013 as the target date many companies, especially in Germany, applied for AEO, often just AEO Customs Simplification approval, so they would gain from the re-written regulations. Then the Lisbon Treaty came along and slowed the MCC implementation down and then stopped it by requiring unanimous acceptance by all member states of the new legislation. MCC faded into the background and the Union Customs Code (UCC) took over.
When will we see the changes?
A good question – the UCC has been drafted, lots of mention to AEO approved companies within areas of the Code but no actual dates. We are expecting gradual implementation of the changes from 2014 until 2020. The areas of “simplification” we are expecting are:
1. Waiver from financial guarantees when using duty suspension regimes, eg IPR, Customs Warehousing, etc
2. Faster import clearances without checks
3. If goods are selected for port authority checks the AEO approved business is given priority
4. Streamlined Customs approvals across different regimes, ie combining PCC, End-Use, IPR, OPR, Warehousing, etc
5. Reduced information required on customs entries
6. Use of approved exporter status with regard to preference movements
7. Granted increased benefits in existing regimes, eg through-put period up to 3 years, not 3 months
8. Setting your own tax point date when duty/VAT will become due
9. Making self-assessment reports for duty/VAT payments similar to normal VAT reports without the requirement for deferment accounts
10. Setting up a Central Customs Clearance point in any one of the EU Member States
In the UK, though, we are already seeing some tightening up on processes and procedures and limiting through put periods in regimes such as Inward Processing Relief (IP) for non-AEO approved companies. In 2010 all companies approved to use the UK fast track import/export procedures -Customs Freight Simplified Procedures (CFSP) – had to reapply proving they were either AEO or could meet AEO condition.
Companies that decided to just go for the AEO Customs Simplification approval are going to have to wait for the benefits to come in – irritating for almost half the AEO approved companies in Germany who sought this single approval. Mutual Recognition Agreements which require AEO Safety & Security or AEO Full approval will see more benefits in the short term. In the UK, though, being AEO or providing evidence you meet AEO conditions.in the short term may make the difference to whether you are granted 3 months or 12 months through-put under Inward Processing Relief or asked to provide a financial guarantee to run that Customs bonded warehouse or use CFSP.
As one of our clients said – “if I have to show I meet AEO conditions by jumping through hoops, I may as well go for the badge”.
Posted by S+H LLP at 16:07
Friday, 15 March 2013
This was the project that helped me over the line, to achieve £1million of carpet tile sales to our export markets in a year. The challenge for every sales person is that as one excellent year ends, a new year starts and you are expected to do even better! It’s what makes it fun. And while international sales can sometimes create a highly pressurised environment, you can take a lot of the pressure off yourself through good planning and organisation.
In 1999, our Turkish distributor worked long and hard to win a prestigious 10,000m2 job to supply and install carpet tiles to the new Treasury Building in Ankara. British companies did well out of the project, with Liquid Plastics from Preston winning the contract for the exterior walls. Everything was on a very tight schedule, and it was that plus the size of the project which caused me to take a slightly different approach.
The top cloth (carpet) for carpet tiles is made in colour batches. In this case each colour batch allowed for the production of 2,400m2 of tiles. Colours from different batches are generally very close, but on those occasions when they are not (but still within industry tolerance) the difference between two batches installed on the same open floor can be quite marked. So the first thing to try and understand was the configuration of the new building: how many storeys, what floor area per storey, what partitioning was planned, and so on. That way we could avoid any possible colour batch issues by ensuring that two different batches were never installed on the same storey, or at least not in an open floor area where there were no office dividing walls.
The products would be sent overland by truck, and we already knew that each truck would hold 2,400m2 of carpet tiles on 20 pallets each holding 120m2. So just about four truck loads. We were then pleased to learn from our distributor that the area of each floor of the new building was about 800m2 because it made the mathematics easy – three floors per truck! Every pallet was to be clearly labelled with a floor number to make it easy for the contractors to install the right batch on the right floor. And they did.
Truck one left us without any issues. Truck two was similarly without a hitch. But truck three presented an interesting problem. Turkish truck drivers had a habit of just arriving at the factory when it was convenient for them, and clogging up the delivery yard. This particular driver arrived to take his load on a Friday afternoon when actually it hadn’t been scheduled for production until at least that day. So he had to spend a weekend living out of his cab using truck radiator water for his kettle because all the factory facilities were under lock and key. Must have tasted lovely! The finished tiles were eventually inspected and passed ready for shipment on the Monday, by which time this poor guy positively hummed!
So truck three was all systems go, when there was a phone call to my office from the factory. In his broken English, the driver had persuaded the warehouse team that he could only load the carpet tile pallets down the centre of his truck due to weight constraints, which would have reduced by half the quantity his truck would take. “So why then…” I asked “…have two trucks left with full loads and no weight issues?”, which was met with the reply “Well he isn’t having any of it John”, so I walked down to the loading bay with my mobile phone in my hand, dialled the number of the Turkish haulage company, and asked the haulage manager to explain to his driver that he was going to take a full load or be turned away. I handed my phone to this rather smelly man who suddenly seemed to agree with me that it was possible a full load of 2,400m2 of carpet tiles was possible after all! Amazing. I pointed out to our warehouse guys that he was probably trying to secure a cash incentive to take what he was contracted to take anyway! I don’t think we saw that driver again after that day.
It was Christmas Eve 1999 when the final truck was loaded. I was already on my holidays with my feet up in front of the telly by then, so in order to get me over the line to my first £1million, my magnanimous boss, and his magnanimous boss both physically helped to load the truck so that it would leave, and be invoiced, within that financial year. Thinking about it now, they probably just wanted to cudos of telling their boss that it was on their watch that the company had achieved their first £1million export year!
Posted by S+H LLP at 15:19
Friday, 8 March 2013
I was in a hotel bar after a busy exhibition day in Atlanta. The barmaid asked me what I wanted to drink. I asked for a Guinness. “Whereabouts in Australia are you from?” she asked. “England” I said. “Oh is that near Sydney?” she replied. “Well not really…” I quipped…”it’s about 10,000 miles north”, to which she replied “I just love Australian accents”.
I was a tad offended at being thought of as an Australian. Just as Australians might recoil at being thought of as a Pommy, as Scots don’t like to be called English, Indians don’t like to be called Pakistanis, and Canadians don’t like to be called Americans. The list goes on. It’s because where we are from is actually very important to us. The flags of our countries also help in identifying where we are from, where our businesses are based. However there can be issues over the use of flags and emblems commercially, and businesses and individuals need to be sensitive to these.
To a British company, a Union Jack on a product brochure or sample book may just be intended as a ‘Made in Britain’ statement. However, where the Union Jack may be received well in Unionist areas of Northern Ireland, the EU flag is likely to be a better option in Republican areas of the North and more generally in the Republic of Ireland. Similarly, the Spanish national flag may not be a welcome symbol in the Basque country or Catalonia. These are not universal truths but they can be extremely important according to who is receiving the messages. Because it isn’t just about your identity, it’s also about the identity and cultural background of those you are presenting to, and your respect for it.
It really does cover everything. What you say and the way you conduct yourself will depend on the knowledge you have of a market and its customs and traditions. Some are very obvious, and others less so, but if you are serious about generating and retaining business in unfamiliar countries then you need to do your research, market by market. Probably one of the most important and simplest first steps in dealing with the markets of the Far East, is to understand the importance of business cards. In Japan they are referred to as ‘Meishi’ and represent loyalty & respect for the company you work for.
I was helping a young, and inexperienced salesman last year with a series of quick fire 15 minute meetings at a UK construction exhibition. One of our meetings was with two excellent gentlemen from Hong Kong. I took the lead with the introductions, handing over my card in the expected respectful two-handed manner, and received their cards with the same respect, commenting on their status within their company – one a Managing Director, the other a Technical Manager.
My colleague then placed his business cards in on the table in front of each guest and on receiving theirs, proceeded to put one of them in his shirt pocket while the other acted as a notepad for our meeting! Thankfully, it didn’t seem to matter. In the final analysis I was at fault for not preparing the salesman properly, and as things turned out the meeting went well and resulted (almost one year later) in an exclusive distribution deal being signed for them to distribute products into Hong Kong. So you can recover from the odd gaffe, but to repeat such lack of sensitivity and common courtesy would be a big mistake.
We all make mistakes and that’s acceptable, and there are numerous and often quoted examples of misunderstanding, literal translation and sometimes double entendre. There are also many more translations where the receiver gets the jist and knows exactly what is being said, but it might be rude to point it out! I encountered one of my favourites when first visiting Stockholm. There was a sign in the airport arrivals lounge that said ‘Thank you for staying and welcome back’ which of means something like ‘Thank you for visiting and we hope you return’. However expressed, it’s a really nice gesture. A year or so afterwards I was being dropped off by a bus at Stockholm airport when the driver announced ‘Thank you for staying and welcome back. Please take everything above you and beside you’ which of course I did, apart from the person in the adjoining seat.
So it isn’t just about what is done or said, it is also about the meaning and intention behind what you say and how you conduct yourself, understanding what other people who don’t speak your language as a first language are trying to say, and in some instances how you recover from making unintended gaffes!
Posted by S+H LLP at 13:56
Tuesday, 5 March 2013
One of the real pleasures about international trade is that you are able to experience a snapshot of the lives of other peoples and cultures. I frequently returned from overseas trips having been royally entertained by both selling partners and customers alike, and with the feeling that perhaps I needed to look at how well I reciprocated on their visits to the UK. However, in thinking about it over the last few days, I have decided that actually I seem to have done a pretty good job, and these are some of the ways in which I have entertained business visitors over the years.
My Turkish distributors brought a group of buyers from Garanti Bank to visit our factory near Blackburn, so we took them for a meal at a typical English pub, and as they were five in number, we matched that by including two customer service operators as well as my boss and his boss! Those two hours remain etched on my mind because although Garanti Bank placed their orders elsewhere, my distributor saw how our company was prepared to support them with their more important clients. It was in both our interests to combine effort and resource in making customers want to buy from us. That one meal felt like a shot in the arm for the relationship between our two companies, and we enjoyed several years of excellent business together.
I found that most of my Central European distributors and their customers were obsessed with football. Prague Electricity was our main customer in the Czech Republic, so we attempted to earn and retain their loyalty by ensuring a Premier League football match with every visit. From memory, we entertained them at Manchester United, Manchester City, Blackburn Rovers, and Bolton Wanderers (with the latter two having since slipped a division!). In return, I was taken to the top of a windswept hill in the middle of nowhere to view the tiny stadium of a third division team with an unpronounceable name, but it’s all part of what makes a connection and gave us all a conversation outside our business relationship.
With business continuing to go well with Prague Electricity I helped our Czech distributor to take them and their wives on a whistlestop minibus tour of Scotland, taking in Edinburgh, the Edradour distillery, a boat trip on Loch Ness, Stirling Castle, Glencoe, and a seaside village whose name escapes me where we were treated to an unexpected display of traditional Scottish music and dancing. My role combined tour guide and bus driver! And the bus driving theme continues because several years previously a group of four Australian machinery dealers visited our engineering factory in Windermere, and I drove a 12 seater minibus over Hardknott and Wrynose Passes by way of showing our guests some of the real Lake District. This well-intentioned and mainly enjoyable tour was slightly marred by the main man in their group becoming hideously car sick because Australians are not accustomed to steep gradients and bendy roads!
In 2007, I was invited to present to a visiting delegation of nineteen Chinese government regional trade officials in London, to provide them with a snapshot of how UK businesses do international trade. When I found out their visit to the UK was for a full two weeks, I offered to host the presentation in Manchester, where RBS’s Global Transaction Team kindly provided facilities in their new Deansgate offices. They arrived by coach for a lunchtime meal in Chinatown, and I had arranged speakers on various international trade topics to cover the following two days. After lunch I took the group on a coach tour of Manchester City centre, when unfortunately the heavens opened with such a downpour that it was impossible to see a thing! So plan B had to spring into action and I directed the coach to Manchester City’s stadium, where I recall standing in the club shop wondering what the heck to do next!
I asked one of the stewards whether or not it would be possible to arrange for the group to take photographs inside the stadium, and he directed me to a manager who immediately offered a cut-price mini tour. The club were incredibly accommodating and after each of the delegation of 19 had their photograph taken with Mr. John Reed (lifelong Manchester United fan) with a backdrop of blue Manchester City seats, then with each other, our tour guide pulled a rabbit out of the hat. She took us into the Dressing room where each of the delegation of 19 then had their photograph taken with Mr. John Reed and the shirt of Sun Ji Hai, City’s Chinese full back at that time! It was all so slick that my Chinese visitors refused to believe it was not pre-planned. City went the extra mile that day.
None of these activities was hugely costly, but the goodwill generated proved invaluable and secured the commitment of our distributors and the loyalty of some very important customers. So when you budget to entertain your overseas visitors, show them both what they want to see and something of the country that they would not normally see. It is all too frequently the case that overseas visitors restrict themselves to the sights and sounds of capital cities, when with just a little imagination you can make their visit even more memorable.
Posted by S+H LLP at 15:03
Friday, 1 March 2013
Don’t get me wrong. It isn’t always a fear thing. I’m just not that great in confined spaces! Most seasoned international travellers and business people will have similar stories to the ones that follow, because part of the territory is learning to appear comfortable in uncomfortable situations.
I admit that a heavy night out at the English pub in Charlotte, North Carolina (run by a Scotsman but what did they know?) probably wasn’t the best preparation for my 7am flight to Montgomery Alabama the following morning. I was flying to see a manufacturer of veranda spindles who was very interested in our high production woodturning machinery. I assumed that our meetings might last until after lunchtime and to be on the safe side I booked a late afternoon flight back to Charlotte. I had not expected a small plane for the outward journey. It had not crossed my mind. But there it stood, adjacent to the farthest gate, and when we were finally allowed to board I found myself hemmed into my window seat by a rather large man for the 90 minute, rather turbulent flight.
Feeling somewhat crumpled, I took a short cab ride to the factory in an industrial area adjacent to the airport and had an interesting meeting with the company President. He showed me around the facility. There was a chasm of difference between the modern day, clean, computerised offices and the dark and dusty factory floor where machines were running without sufficient guarding, as testified by the number of tooling blades that had embedded themselves over the years in various parts of the ceiling. If ever a factory needed our safer, quieter, faster machines it was this one and I consider it one of my biggest failures in business to have not sold them at least one!
I was at the factory no more than 90 minutes, when my customer happily drove me the few minutes back to the airport. I was back there before 11am with my return flight not scheduled until after 6pm. So I decided to sit it out and do some work and maybe some writing in the airport café. As my flight time approached, I started to wonder whether I would have another hemmed in flight back, and guess what. The same plane, the same seat, the same man! So that is why I was not a fan of that small plane.
On the same two week trip, I went to visit a number of existing distributors, potential distributors, and potential end users of our machines, and my journey took me to some interesting regional airports. I took a two hour flight from Harrisburg, Pennsylvania to Boston in another small plane on a windy Monday morning. There were no spare seats, and plenty of travellers on standby for this seemingly very popular flight. Well it wasn’t so popular with me! It was one of those flights where the passengers clapped with relief when it landed safely at Boston. It was truly the most terrifying flight I have ever had, with our small plane being tossed about the sky through dense cloud cover that eventually broke as we wobbled our way down to the tarmac. Platitudes from the pilot didn’t help much: “It may get a little bumpy as we make our descent” seemed to completely disregard the previous 90 minutes of airborne torture, but he had obviously been there before – what a way to earn a living?!
A small plane is also the subject of my most boring ever flight experience after a long week selling carpets in Scandinavia. My colleague and I arrived at Billund Airport in Denmark from Bergen to find that there was another Friday flight delay, and that we were destined to spend three hours in a large Nissen hut that at the time constituted Billund’s departure lounge. Eventually we were escorted across the desolate tarmac to a small British Airways flight. Relieved to finally be in my seat, but separated from my colleague, I then suffered the two hour flight in conversation with probably the most boring man in the world, who apparently had met me in my machinery selling days. I can’t think why I didn’t recognise him in return!
Another BA scheduled small plane flight took me to Lisbon from Manchester on a weekday, and everything was fine until we were on approach, when the pilot decided he had to abort and try again. It was a little disconcerting to go from nose downwards to nose very much upwards in a matter of seconds, but at least the second attempt was successful.
So small planes to me mainly mean discomfort, claustrophobia, boredom, illness, and fear, and other unpleasant things, but the job got done. Apart from the disappointment of Montgomery Alabama (I drove the seven hours from Charlotte on my next visit and didn’t go near the English Pub the night before), I succeeded in finding new business in Boston and on up to Vermont, generated new business with distributors in Scandinavia, and won an order from a Portuguese bank through our distributor there. Well I suppose you have to take the rough with the smooth!
Posted by S+H LLP at 15:33