Basics of Exporting - Market Research

Technical Assistance for Food Exporters
   The Product
   The Label
   The Package

Systematic Market Research

A Step-by-Step Approach to Market Research
   Screen Potential Markets
   Assess Targeted Markets
   Draw Conclusions

Tariffs and Harmonized System Codes

Locating a Foreign Buyer

Benefits of Trade Show Participation

Preparations and Budgeting for Trade Show Participation

Now that you have decided to commit valuable resources to exporting, it is time to research and make the necessary, technical changes to your product so that it may enter foreign markets. Your product may only require a label change; however, it could require ingredient modification and new packaging. Due to the variety and number of enforcement and regulation requirements, exporters of agricultural products must address certain technical issues to ensure the product's success overseas.

Besides obtaining required certificates prior to the export of certain products, changes to the product itself and its packaging may also be necessary. You should fully research the technical changes needed for each market. Modifications add expenses.

The Product — Will it need adaptation? Regulations for food additives differ from country to country. The U.S. "Generally Recognized as Safe", or GRAS, additives may have maximum content levels or may be prohibited altogether in foreign countries. Documentation is important not only for the amount of additive, but also the source of the product; secondary or indirect additives are also regulated in most countries. Many times, additives must appear on the label in the list of ingredients.

Exporters must assure the safety of their products. Pesticide tolerance or maximum residue levels (MRL's) of the import country must be met. Documenting pesticide use and residues throughout your entire production process will increase your knowledge of your product and assist your compliance with the regulations. The best method of monitoring pesticide applications is to follow the established state or national guidelines. The national guidelines require that for a period of two years, the producer must record within the span of 14 days the brand or product name of the pesticide, the EPA registration number, and be aware of any contract requiring that certain residue standards be met.

Good sanitation procedures are a must! Give special care to microbial growth during the shipment and storage of products since the distribution time is longer than that for domestic sales. Also, fresh foods must be pathogen controlled while processed foods should be pathogen free. Countries may differ on their bacterial standards, so once again know the regulations before the contracts are signed.

Another aspect of your product may need modification. The product formula or recipe may have to be modified to satisfy tastes of the local population of the target country. For instance, a new flavor to which the locals are accustomed may need to be developed.

The Label — What changes will be needed? The product label is an important element in the promotion of your product. Labeling provides required information and a further opportunity to position the product in the market through attractive graphics. To present your product favorably to a foreign buyer, your label may need certain alterations. Product and brand names as well as label colors must be carefully considered for their cultural significance in each country. For example, in Japan white signifies death while green is a favorable color in Saudi Arabia.

Like the United States, each country has label standards designed to inform and protect its consumers. The gravitation toward a more nutritionally informed consumer has caused global labeling requirements to become more stringent. Even though this move toward higher standards exists, there is not one standard set of requirements but rather the particulars differ from nation to nation. Some nations will allow "stickering" of your U.S. label in order to comply with their requirements, whereas other nations will not. Every label should include certain elements: the common name of the product, the net weight or volume in metric units, the brand name, the name and address of the packer or shipper, the country of origin, the recommended storage temperature, special handling instructions, and the name of officially approved fungicides or bactericides used in the packaging process. It is also beneficial, and many times required, to include all information in the native language of the country to which you are exporting. Remember that these as well as other changes will result in additional costs, which should be calculated in your selling price. In addition to these items your company should calculate the cost of registering your brand name or trademark in the foreign country. It is possible your exact brand is already in use in the foreign country. Do this research before investing lots of money. You can search at the U.S. Patent office to find out if your trademark is already registered in the USA: http://www.uspto.gov.

The Package — What needs to be modified? Depending upon the product(s) shipped, companies will encounter varied constraints based upon the type, size, condition and environmental impact of the container/package utilized. Be aware of the regulations before a contract is signed, because an adaptation of the packaging will increase your production costs. The portion size of the package may also need changes to conform to local eating habits. Additionally, the package may need to be changed so that the product has an adequate shelf life for the new market to which it will be shipped.

In today's world of environmental concerns, the environmental impact of packaging has become a major issue regarding packaging requirements. Many countries have established mandatory recycling programs, packaging bans, and solid waste reduction programs. Many of these laws such as the German Waste Recycling Ordinance, require the importer of a product to return the excess packaging to the exporting country or recycle/reuse all transportation package material.

In conclusion, agricultural exporters need to prepare themselves for the technical requirements of each target market. Know which questions to ask and to whom these questions should be directed. For answers to technical questions, ask your foreign customer, your freight forwarder or the Foreign Agricultural Service of the USDA.

The Foreign Agricultural Service's Office of Food Safety and Technical Services Division provides technical information about allowable pesticide requirements, food labeling and standards, sanitary and phytosanitary requirements, acceptable food additives, and the certification and testing requirements of countries importing U.S. agricultural and food products. In addition, the office is responsible for monitoring the interagency working group on trade and environmental issues and responding to inquiries that relate to the sanitary and phytosanitary texts of the General Agreement on Tariffs and Trade (GATT) and the North American Free Trade Agreement (NAFTA). Additionally, you might contact the consular office of the country to which you wish to export.

Systematic Market Research

A systematic method of market research should involve a preliminary screening of potential markets followed by a careful assessment of the targeted markets. Exporters engage in market research primarily to identify their marketing opportunities and constraints within individual foreign markets and also to identify prospective buyers and customers. Results of this research should inform the company of the largest markets for its product, the fastest growing markets, market trends and outlook, market conditions and practices, and competitive firms and products. Based on all the information gathered, a company must decide which markets are the most promising and the number of markets the company is prepared to enter. Even if the firm is planning on utilizing an export intermediary, it should select its markets before selecting the intermediary, because many EMC's and ETC's have strengths in some markets but not others.

Markets may be researched using primary or secondary data sources. Primary market research consists of a company collecting data directly from the foreign marketplace through interviews, surveys, and other direct contact with representatives and potential buyers. Primary research has the advantage of being tailor fit to meet company's needs and provide answers to specific questions, but this data collection is very time-consuming and expensive. Most companies employ secondary data sources such as trade statistics for a country or a product, to focus its marketing efforts. This type of research is a valuable and a relatively easy first step for a company to take. Many times, it may be the only step necessary if the company decides to utilize an export intermediary and export indirectly.

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A Step-by-Step Approach to Market Research

1. Screen Potential Markets
Step 1: Obtain export statistics that indicate product exports to various countries. The Foreign Agricultural Service (FAS) compiles historical data on the value and volume of agricultural exports to pinpoint trends in exports of particular commodities and products in specific markets. The agency's BICO reports contain U.S. trade data on agricultural, fish and forest products. The agency also analyzes and tracks the U.S. agricultural trends worldwide, for both the calendar and fiscal years. BICO data is available from the FAS homepage www.fas.usda.gov.
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Both the Department of Commerce and Small Business Administration (SBA) have many services that can assist with the process of market research. Many cities have U.S. Export Assistance Centers (USEAC) containing both offices. Companies may also purchase PIERS data, which includes detailed information on shipments from many major seaports. PIERS can be contacted at www.piers.com.
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Companies should also consult the National Trade Data Bank (NTDB) for current and historical trade related releases, international market research, trade opportunities, country analysis and access to their trade library. The trade library consists of over 40,000 documents related to international trade. Through the NTDB companies can also gain access to Country Commercial guides, Market Research Reports, Best Market Reports and U.S. import-export statistics. Access to the NTDB or individual reports can be purchased through the STAT-USA website or by contacting them via mail, fax or by phoning 1-800-782-8872.

If you are still encountering problems with your research after consulting these sources, pursue other avenues. These are several questions to consider that may lead you to the information you are seeking. Do your domestic competitors export to certain countries? Could demographic, government expenditure, health, investment, labor and employment data of foreign countries help you?

Step 2: Identify 5 to 10 large and fast growing markets for your company's product. Look at the performance of that product during the past 3 to 5 years. Has market growth been consistent year to year? Did import growth occur even during periods of economic recession? If not, did growth resume with economic recovery?

Step 3: Identify some smaller but fast-emerging markets that may provide ground-floor opportunities. If the market is just beginning to open up, there may be fewer competitors than in established markets. Growth rates should be substantially higher in these countries to qualify as up-and-coming markets, given the lower starting point.

Step 4: Target 3 to 5 of the most statistically promising markets for further assessment. Consult with the Southern United States Trade Association (SUSTA), The Foreign Agricultural Service, your state department of agriculture, the U.S. Department of Commerce, Small Business Development Centers, business associates, industry associations, freight forwarders, the National Trade Data Base (NTDB) and others to help refine targeted markets.

After completing the preliminary research assessment of the possible target markets, use the Market Research and Assessment Appendix D and Market Factor Assessment sheet included in Appendix E to compare the possible market choices:

1. Select two countries in which you think your product has the best market potential;
2. Review the market factors for each country;
3. Research data/information for each country;
4. Rate each factor on a scale of 1-5 with 5 being the best;
5. Select a target market/country based on your ratings.

2. Assess Targeted Markets
Step 1: For each country, examine trends for your company's product, as well as trends for related products that could influence demand. Calculate overall consumption of the products and the amount accounted for by imports. To obtain the reports of this service of the Foreign Agricultural Service visit www.fas.usda.gov, or contact the Trade Assistance and Promotion Office (TAPO) of FAS. Additional services are available from the U.S. Department of Commerce such as Industry sector analyses (ISA's), alert reports and country marketing plans. These services provide the economic background and market trends for each country. Additionally, demographic information (population, age, etc.) can be obtained from World Population, a Bureau of the Census publication and the Statistical Yearbook published by the United Nations.

Step 2: Ascertain the sources of competition, including the extent and quality of domestic industry production and the major foreign countries the company is competing against in each targeted market. International Market Research Studies (from the U.S. Department of Commerce) can help with its U.S. market share figures.

Step 3: Analyze factors affecting marketing and use of the product in each market, such as end-user sectors, technological developments, local pricing practices, channels of distribution, cultural idiosyncrasies and business practices.

Step 4: Identify any foreign barriers (tariff or non-tariff) for the product being imported into the country. Identify any U.S. barriers (such as export controls) affecting exports to the country. The best way to find out barriers to trade of agricultural products is to contact the International Trade Policy Office of the Foreign Agricultural Service. This office has the lead role in USDA international trade negotiations and monitors foreign governmental actions that affect U.S. agricultural products in world markets. International Market Research Studies and Country Market Surveys are useful resources.

Step 5: Identify any U.S. or foreign government incentives to promote exporting the product. Once again, International Market Research Studies and Country Market Surveys are helpful.

3. Draw Conclusions
After analyzing the data, your company may conclude that its marketing resources would be better utilized if applied to only a few countries. In general, a company's efforts should be directed to fewer than 6 markets if the company is new to exporting, but in many cases one or two countries may be enough with which to start. The company's internal resources should help determine its level of effort.

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Tariffs and Harmonized System Codes

In order to export your product it is necessary to determine your product's Harmonized System or Schedule B code. The Harmonized Code System classifies transactions under the categories of approximately 8,000 different products leaving the United States. Every item is assigned a unique 10-digit code and then is placed into broader categories of 6 and 4 digit codes. This code is part of a system in which worldwide tariffs are levied by harmonized code. For help in determining your product's harmonized code, contact the U.S. Bureau of the Census.

Once you have the harmonized system or HS code for each of your company's products, visit the Trade Information Center homepage or contact FAS to find the tariff rate for your product in the country you want to export to.

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Locating a Foreign Buyer

Once you have determined that your company is in a position to export and the target markets have been selected, locate customers. You should employ any and all which seem appropriate for your product.

AgExport: The AgExport Services Division of the Foreign Agricultural Service is an excellent contact for initiating the search for foreign buyers. It has AgExport Action kits which include information on many services: sales leads from foreign buyers, free advertising for your product overseas, lists of foreign buyers of food and agricultural products, assistance in presenting your products at international trade shows and many more services.

For more information about the services offered, contact the Trade Assistance and Promotion Office (TAPO). This office can serve as a first point of contact for information on foreign markets, export counseling and referrals to all other programs and services of the U.S. Department of Agriculture.

USDA Export Development Cooperators: The cooperator program is one of the oldest FAS market development efforts abroad. The Cooperators International Offices provide the contact points for foreign representatives of industry associations, according to market sector and country. These international offices can assist you to develop your channels of distribution and contact with potential buyers. A list of cooperators is available on the FAS homepage.

State Regional Export Associations: SUSTA is one of four state regional trade groups, which serve all fifty states. These state regional trade groups offer many services including advice and assistance in the process of locating foreign buyers.

Agricultural Trade Officers (ATO's): The agricultural trade officers or attaches are the official representatives for the U.S. Department of Agriculture overseas. They are in frequent contact with foreign buyers and overseas representatives of U.S. companies and associations. Additionally, ATO's help exporters establish contacts with government officials and participants in foreign trade. The agricultural trade officers are also responsible for compiling reports about their respective markets, which may be obtained through the FAS website. Requests for assistance from the ATOs should be as specific as possible. For general information about a country utilize the FAS homepage.

Trade Shows: Trade shows are one of the most effective means of introducing and promoting food and agricultural products overseas. Trade shows offer the opportunity to contact a great number of companies in one trip without incurring the expenses of numerous visits to the market. There are trade shows aimed at many different sectors of the food industry. Your company should look carefully at they type of buyers that will be attending a show, before deciding to participate. For information about international shows contact the International Trade Shows Office of the Foreign Agricultural Service (FAS) or visit the FAS homepage. Another source of foreign buyer contact is the International Buyer Program sponsored by the International Trade Administration of the U.S. Department of Commerce. In this program, qualified buyers and prospective representatives and distributors are recruited from all over the world to participate in US domestic trade shows.

Other Sources:

• The International Divisions of Commercial Banks
• International Freight Forwarders
• State Port Authority Offices

These three sources all possess a vested interest in exporting. By promoting U.S. products, these sources are increasing the chances that their services will be needed. In addition to their interest, these sources can be extremely helpful because they have ongoing contact with international trade representatives.

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Benefits of Trade Show Participation

As previously mentioned, trade shows are an excellent opportunity to introduce and promote food and agricultural products overseas. Because so many buyers and sellers are convened in one location, participation in a trade show has many benefits including:

• Trade shows are one of the least expensive methods of conducting in-country market research and testing to gauge customer attitudes
• Trade shows provide face-to-face contact with buyers
• Trade shows permit product demonstrations, which is an excellent way to promote and sell your product
• Trade shows provide cost-effective direct sales opportunities
• Trade shows offer opportunities to meet important agents and distributors
• Trade shows provide a positive sales and public relations environment. Also, they provide the opportunity for members of your staff to meet other companies' personnel.
• Trade shows offer the opportunity to conduct market intelligence and monitor the activities of competitors
• Trade shows can be useful for staff training, education, and recruiting

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Preparations and Budgeting for Trade Show Participation

Thorough planning for participation in a trade show is essential for the success of the exhibit. Unfortunately, many companies overlook the essential preparatory step of adequately budgeting for the show. While budgeting is more difficult for the first trade show, the costs of future shows should be easier to ascertain. To help you construct your budget for participation in a trade show, we have included a Budget Framework for Trade Show Participation in Appendix F. On the most basic level, the expenses involved in trade show participation are:

Space Rental — Prepayment of booth space is vital. Having paid in advance, your company is more likely to obtain a prime location at the show and will also benefit from early payment discounts. In addition, late payments could result in the cancellation of your booth reservation or additional late charges.

Exhibition Booth Design and Construction — At FAS-sponsored trade shows, booth rental cost includes booth construction and basic furnishing for the booth. However, in most trade shows rental space does not mean that you will receive a constructed booth. Thus, your company will have to make arrangements for the design and construction of a booth. In such instances, booth fittings will also need to be rented. Such fittings include shelves, tables, chairs, telephone, water, plants, carpeting, electrical fittings and a chiller or freezer, etc. Due to these additional rental needs, this component is often the most expensive portion of trade show participation costs.

Promotion — Effective promotion both before and during the trade show is necessary to ensure your success. While the organizers' promotion will bring visitors to the trade show, your company must carry out its own promotion in order to attract visitors to its booth. Your company will benefit most from trade show participation if you do research and contact potential customers prior to the show.

Shipping and Customs — The costs of shipping samples and booth materials to the show should be well planned. Depending upon the location of the show, your company needs to allocate the adequate amount for shipping expenses. Forethought and careful scheduling are vital in order to avoid additional charges, which can be incurred from delays in shipping, improper completion of customs documents or storage charges.

Personnel Costs — The costs incurred by the company representatives who attend the show are considered personnel costs. The major components of these costs would include accommodation, airfare, ground transportation and meals.

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