The extent to which the company will modify products sold in export markets is a key policy issue to be addressed by management. Some exporters believe the domestic product can be exported without significant changes. Others seek to consciously develop uniform products that are acceptable in all markets.
If the company manufactures more than one product or offers many models of a single product, it should start with the one best suited to the targeted US market. Ideally, the firm chooses one or two products that fit the market without major design or engineering modifications. Doing so works best when the foreign company:
- Deals with international customers that have the same demographic characteristics or the same specifications for manufactured goods;
- Supplies parts that are exported to the US without modifications;
- Produces a unique product that is sold on the basis of its status or US appeal; or produces a product that has few or no distinguishing features and that is sold almost exclusively on a commodity or price basis.
Questions to Consider:
- What US needs does the product satisfy?
- What product should the firm offer abroad?
- Should the firm modify its domestic-market product for sale abroad? Should it develop a new product for the US market?
- What specific features, such as design, color, size, packaging, brand and warranty should the product have?
- What specific services are necessary abroad at the pre-sale and post-sale stages?
- Are the firm's service and repair facilities adequate?
To enter a foreign market successfully, a foreign company may have to modify its product to conform to government regulations, geographic and climatic conditions, buyer preferences, or standards of living. The company may also need to modify its product to facilitate shipment or to compensate for possible differences in engineering and design standards.
Foreign government product regulations are common in international trade and are expected to expand in the future. These regulations can take the form of high tariffs or nontariff barriers, such as regulations or product specifications. Governments impose these regulations to:
- Protect domestic industries from foreign competition;
- Protect the health of their citizens;
- Force importers to comply with environmental controls;
- Ensure that importers meet local requirements;
- Restrict the flow of goods originating in or having components from certain countries; and
- Protect their citizens from cultural influences deemed inappropriate.
It is often necessary for a company to adapt its product to account for geographic and climatic conditions as well as for the availability of resources. Factors such as topography, humidity, and energy costs can affect the performance of a product or even define its use.
Buyer preferences in the US market may also lead a foreign manufacturer to modify its product. Local customs, such as religious practices or the use of leisure time, often determine whether a product is marketable. The sensory impact of a product, such as taste or visual impact, may also be a critical factor.
Market potential must be large enough to justify the direct and indirect costs involved in product adaptation. The firm should assess the costs to be incurred and though it may be difficult, determine the increased revenues expected from adaptation. The decision to adapt a product is based partly on the degree of commitment to the US market; a firm with short-term goals will probably have a different perspective than a firm with long-term goals.
Engineering and Redesign
In addition to adaptations related to cultural and consumer preference, the exporter should be aware that even fundamental aspects of its products may require changing. For example, electrical standards in many foreign countries differ from U.S. electrical standards.
Similarly, many kinds of equipment must be engineered in the metric system for integration with other pieces of equipment or for compliance with the standards of the US. The United States is virtually alone in its adherence to a non-metric system, and foreign firms that compete successfully in the US market realize that conversion to metric measurement is an important detail in selling to overseas customers. Even instruction or maintenance manuals should take care to give dimensions in inches/feet/yards, weights in pounds, and temperatures in Fahrenheit degrees.
Branding, Labeling, and Packaging
Consumers are concerned with both the product itself and the product's supplementary features, such as packaging, warranties, and service. Branding and labeling products in the US market raise new considerations for a foreign company such as:
- Are international brand names important to promote and distinguish a product? Conversely, should local brands or private labels be employed to heighten local interest?
- Are the colors used on labels and packages offensive or attractive to the US buyer? For example, in some countries certain colors are associated with death.
- Can labels be produced in official or customary languages if required by law or practice?
- Does information on product content and country of origin have to be provided?
- Are weights and measures stated in the local unit?
- Must each item be labeled individually?
- Are local tastes and knowledge considered? A dry cereal box picturing a foreign athlete may not be as attractive to US consumers as the picture of a local sports hero.
A firm may find it useful to obtain the advice of local lawyers and consultants when appropriate. The foreign company may also find it advantageous to apply for a patent for its product, as well as applying for an international patent for the countries where it will be conducting business. At Global Export Consulting, we can advise in your best interest on this matter.
Another element of product preparation that a company should consider is the ease of installing that product overseas. If technicians or engineers are needed overseas to assist in installation, the company should minimize their time in the field if possible. To do so, the company may wish to preassemble or pretest the product before shipping.
Disassembling the product for shipment and reassembling abroad may be considered by the company. This method can save the firm shipping costs, but it may add to delay in payment if the sale is contingent on an assembled product. The company should be careful to provide all product information, such as training manuals, installation instructions, and parts lists - all in the local language - even relatively simple instructions.
As a sidenote, because freight charges are usually assessed by weight or volume (whichever provides the greater revenue for the carrier), a company should give some consideration to shipping an item unassembled to reduce delivery costs. Shipping unassembled goods also facilitates movement on narrow roads or through doorways and elevators.
The company should include a warranty on the product (and be very specific as to the warranty's coverage) since the buyer expects a specific level of performance and a guarantee that it will be achieved. Levels of expectation for a warranty vary depending upon its level of development, competitive practices, the activism of consumer groups, local standards of production quality, and other factors. Product service guarantees are important since customers in the US typically have service expectations as high or greater than the country of origin.
A company may use warranties for advertising purposes to distinguish its product from the competition. Strong warranties may be required to break into a new market, especially if the company is an unknown supplier. In some cases, warranties may be instrumental in making the sale and become a major element in negotiations. In other cases, warranties similar to those in the United States are not expected. By providing an unnecessary warranty, the company may raise the cost of the product higher than the competitors' costs. When considering this point, exporters should keep in mind that servicing warranties will probably be more expensive and troublesome in the US market. It is desirable to arrange warranty service locally with the assistance of a representative or distributor.
Of special concern to US consumers is the service the foreign company provides for its product. Service after the sale is critical for some products. Generally, the more complex the product's technology, the greater the demand for pre-sale and post-sale service. Therefore, there is pressure in some firms to offer simpler, more robust products overseas thereby reducing the need for maintenance and repairs. Foreign suppliers who rely on US distributors or agents to provide service backup must take steps to ensure an adequate level of service. These steps include training, periodically checking service quality, and monitoring inventories of spare parts.