But First, Have You Protected Your Intellectual Property ?

Don’t venture into a target foreign market without first protecting the assets and intellectual property (IP) that form the basis of your firm’s product and service offerings. For your own firm, And for that matter for the U.S. economy, IP-intense industries, directly and indirectly, support millions of jobs and billions of exported merchandise.^iv It’s almost impossible to overstate the importance and value of your firm’s intellectual property, critical to its competitive success and continued economic growth. Your firm’s intellectual property should already be protected by registered trademarks,^v copyrights,^vi and patents^vii here at home in the United States. It also needs to be protected from unscrupulous companies, organized and individual criminals, even corrupt governments that seek to steal trade secrets, patented products and processes, designs and copyrighted material overseas.

If you have not already acted, your most immediate protective steps start with contacting the U.S. Department of Commerce and its bureaus, the U.S. Patent and Trademark Office^viii (USPTO) and the International Trade Administration^ix (ITA) to register and secure your firm’s intellectual property rights here at home and abroad. The ITA’s Office of Intellectual Property Rights^x oversees the U.S. government’s STOPfakes.gov website^xi coordinating the efforts of all the government agencies involved.

Internationally, the United Nation’s World Intellectual Property Organization^xii (WIPO) agency leads the development of an international intellectual property registration and protection system for 188 member states. WIPO administers several key international treaties that comprise its IP system:

• The Patent Cooperation Treaty^xiii (PCT) assists applicants in seeking patent protection internationally in 148 countries.

• The Madrid International Trademark System^xiv provides for the centralized registration and management of trademarks worldwide. A single application can provide trademark protection in the territories of up to 97 member countries.

• The Hague International Design System^xv for the international registration of industrial designs allows applicants to register up to 100 designs in more than 65 territories with one application.

In addition, the WIPO Arbitration and Mediation Center^xvi provides mechanisms to resolve Internet domain name disputes. Beyond this global intellectual property protection system, take several required actions^xvii.

• Register copyrights and trademarks at the U.S. Copyright Office^xviii and the U.S. Trademark Office.^xix

• Confirm the company’s name and brand are available for use in the new country either online or at the target market’s trademark office.

• Register all brand names at the target market’s trademark office.

• Extend U.S. trademark registrations to foreign countries after examining the Madrid Protocol,^xx a treaty allowing trademark owners to extend trademark rights to member countries.

• Apply international copyright notice on catalogs, blueprints, websites, software and other publications and materials in accordance with the Berne Convention,^xxi a treaty that protects works in the foreign country to the same level and extent they are protected in home markets.

• Register Internet domain names in the target market.

• Obtain non-disclosure agreements (NDAs) from local business partners and subcontractors.

• Split production among foreign manufacturers to maintain proprietary information and control of final product assembly.

• Retain legal counsel abroad in the target country market and here at home in the United States.

• Establish and regularly maintain/update a database listing of intellectual property. Management should regularly monitor this database for IP expiration and taking action against infringement.

These steps, reinforced by sound protection strategies, may not ensure success of your firm’s new market expansion efforts, but they are likely to dramatically improve your firm’s ability to protect its intellectual property rights and avoid costly foreign law suits.

Is Your Product Ready for Exporting?¹

The steps you take to prepare your product for export are best determined not only by your knowledge of the product, but also the market research you have of the target market’s needs and requirements. In market contacts, this knowledge can provide significant help and insight enabling you to determine what you can sell and where. It will also enable you to determine the extent of product modification required before you can sell. You may find there is no need to adapt your product to the target market; you may have or even develop generic products all markets can accept. Your product redesign may include satisfying packaging to comply with target market labeling standards and cultural preferences. Essentially, you need to do your homework, and if necessary, consult with experts to ensure you have the product that most appeals to your international customer prospects. That means making sure of these things:

• You have a market. Just because you have been successful with your domestic market does not mean you will be equally successful with a target foreign market. Identify the competition, if any. If there is no competition, find out why. There may be laws or market characteristics that make distributing your product difficult.

• You can deliver. Can your prospective customers obtain your product by some other means? Can you manufacture in-country? Check local laws and make sure your products comply with local laws, standards for construction, use of chemicals, disposal, and proper labeling.

• Your business and product names make cultural sense in English and local translation. Use in-country translators to communicate what you intend. What you think is an effective name may not be effective and could be offensive to potential customers.

• Packaging colors supporting buying behavior. Be aware of your brand’s perception in the target country market. Even if your colors and design principles are effective in domestic markets, you may need to change them starting fresh in marketing products in a foreign market. For example, in Western countries the color red urges caution or danger; it symbolizes prosperity and good fortune in many Eastern countries.

• Your packaging and labeling design are appropriate, appealing, understandable to your end user, and compliant. If your product does not anticipate display for sales as customers and retailers expect, you may put your product at a disadvantage. Bar-coding your product may be essential, if you sell the product in stores.

• The size or quantity of your product is perfect for patterns of consumption in the target market. In many countries, consumers do not purchase in bulk. The correct sizing of your offering can lead to success or confusion despite survey results that indicate great interest in your product.

• Weights and measurements on your label comply with local standard measures. It would be smart to reflect both volume and weight measurements of your product in U.S. and metric systems.

• Labeling does not always need to be bilingual. Ask if it is necessary to have bilingual packaging if you are targeting a particular population segment. Packaging can be your most important advertisement aside from communicating the essentials—ingredients, nutrition, Universal Product Code and size, preparation and expiration date. Emphasize your trademark while you are at it. Illustrations are acceptable so your customer knows what he or she is buying.

• There is no significance in the number of units in a package. Make sure the quantity of product in a package is not considered unlucky in the overseas market. Package quantities convey meaning in some markets. In the West, 7 is lucky and 13 is unlucky. In Japan, the number 4 is the sign of death. In China, 8 signifies prosperity.

• The packaging material is cutting edge. Your packaging needs to be the newest and best in the category. You may have to order packaging to cover domestic and foreign market demand.

• You extend current product applications where possible. Maybe living in a foreign country for a few months will shed light on how locals do things and what they need to live better. Ask simple questions about how time is spent and how products in your product category are used.

• Electrical products can be used internationally. If your products are domestic appliances, you may need to redesign them for plugs (types A and C)/outlets and voltages/frequencies used in your target market. You don’t want to ship a product that can’t be used in the target market.

• You can handle warranties, guarantees, and service calls overseas. You may want to establish service centers, telephone and fax numbers, addresses, and hours of operation to address customer contact needs and even identify what is not covered.

• Environmental impact on your product is minimal to none. Is there high humidity, high energy costs, poor water supply, extreme temperature, or poor infrastructure? All can affect product integrity in a new market.

• Country of origin for your product is identified. Check to determine if a certificate of origin is needed to accompany a standard invoice on international shipments.

As you can see, adapting your product to customer needs and legal requirements is no small proposition in terms of time and money. Determine the time and cost it takes for product adaptation and the likely return on investment. From there you can grow and expand your success.

What about Going Global with Services?²

As countries grow richer, services tend to become the dominant sector of their economy. You have noticed that here at home. Looking at Asia, the service sector now accounts for more than half of the gross domestic production in newly industrialized economies such as Hong Kong and China. As of 2015, the service sector accounted for 69% of world output (GDP)^xxii and the global dollar value of commercial services exports reached $4,754.6 billion.^xxiii In 2013, the value of international U.S. private service exports alone amounted to about $64.8 billion.^xxiv These statistics demonstrate the increasing clout of services in the global economy and the United States.

Service exports usually offer original knowledge, superior know-how, great ideas, and value.

If you have marketed services in your home market, no doubt you are aware of their intangibility and the need to tailor them to the individual needs of your client, making it necessary to directly involve your client’s participation and cooperation. These factors make marketing services difficult domestically and even more so internationally because you, as the service provider, must exercise interpersonal skills and cultural sensitivity. Nevertheless, exporting a service attracts customers because the service usually offers original knowledge, superior know-how, great ideas, and value. Disseminating that knowledge aggressively and at a profit worldwide is a winning formula for global success. With the rapid advance of technology, the Internet, and worldwide communications becoming faster, now is an ideal time to consider exporting your services.

The market is wide open to savvy service providers despite rampant protectionism in some markets and restrictions that target service firms going abroad. Sectors that were traditionally off-limits to foreigners are opening up in numerous countries. So just as with exporting products, you will need to research new markets for your service exports. Highly skilled, specialized services in sectors such as the following have high export potential:

• Travel and tourism.

• Transportation services.

• Architectural, construction, and engineering.

• Education and training services.

• Banking, financial, and insurance services.

• Entertainment.

• Information services.

• Professional business services.

• Legal and accounting services.

• Computer and data services.

To compete in foreign markets service, you should customize your service to the local market by identifying opportunities the culture of a particular market has to offer. You might set up a service offering that meets the cultural needs of that market, such as selling to the boss first. Authority-conscious employees will then realize it is acceptable to buy. Another approach involves standardizing and customizing the service. The core service can be enhanced with localized support features that cater to local market conditions. Last, you differentiate your service by offering benefits not offered by competitors and/or by lowering costs or offering premium products.

If you are just starting to export services, you might follow the path of the products you export. Many accounting and banking firms assist their international clients abroad. Smaller service exporters cooperate with manufacturers aiming to support those products in overseas markets. As with product exports, you will need to research the most likely new market and determine whether or not you need an export license by checking Export Administration Regulations^xxv (EAR) and the U.S. Bureau of Industry and Security.^xxvi

Determine Your Firm’s Export Potential

Determining your product’s export potential is much like working this issue at home and its importance cannot be overemphasized. For example, in most developed countries, information suppliers, like European Marketing Data and Statistics can provide you a current estimate of category volume and market share based on scanning technology similar to that you have seen collected by food stores and other merchandisers. Absent established data sources in foreign markets, you can generate your own estimate of foreign market size using alternative estimating techniques. Massaki Kotabe and Kristiaan Helsen^xxvii identify four methods to assess the size of the market for any particular product: method of analogy, trade audit, chain ratio method, and cross-sectional regression analysis. We’ll examine only the first two since the other are overly complicated.

The first technique, the analogy method, selects a country at roughly the same level of economic development as the country of interest and for which the market size is known. The method is based on the relationship between demand for a product and an indicator of the demand for a similar product in both countries. For example, suppose Samsung wants to estimate the market size for computer monitors in Poland. For the base country, we take another Central European country, say Hungary, for which it knows the sales of computer monitors. Here we choose color TV sales as an indicator. So, in this example we assume that the ratio of a computer monitor to color TV ownership in Hungary and Poland is roughly equivalent and derive an estimate based on the following relationship:
or,
Based on the following information,^xxviii

Inserting those numbers, we get an estimate of 246,600 units based on the following calculation: The critical part in using this estimating method is identifying a comparable country and a good surrogate measure.

An alternate approach, the trade audit, bases the market estimate size on local production and import and export figures for the product category. Here is the logic:

Marker Size in Country A = Local Production + Imports – Exports

Technically, you should adjust for in-country inventory levels, should you be able to obtain that information. The problem in relying on this method is the availability of data. It may be unavailable, inaccurate, even outdated so as not to be reliable. Be sure to examine and verify the quality of the data you use in your calculations.

The last two methods, chain ratio, and cross-sectional regression analysis, are a little more complicated and beyond the scope of this publication. Still, they are worth investigating as prospects for estimating market size. Even so, there is potential for a wide gap between the estimates these methods generate. Make sure you understand the nature of the numbers. You might even rely on cocktail napkin estimates and see how your estimates change based on changes in your underlying assumptions. You may even look for range estimates, that is, estimates with upper and lower limits that can be used in market simulation exercises that determine your company’s bottom line under various situations.

Focusing on Foreign Market Risk

In 2015, there were 294,800 American companies identified as U.S. exporters, accounting for $1,335 billion in exports of goods (of $1.503 trillion total exports of goods, down from 305.2 thousand in 2014).^xxix You should be passionate about encouraging your business to get a footprint in foreign markets. Growing your business and developing additional competitive advantage requires looking beyond your national borders and it also means managing risk. If you operate a small- to medium-sized business in your home market, by definition you are a risk taker and you no doubt take steps to reduce risk. “The number-one risk for most small businesses is improper cash-flow management,” says Scott Lovingood, CEO of The Wealth Squad, Inc., a small-business consultancy in Riceville, Tennessee. As a business owner, you have probably thought about your own illness and death as well as those of your employees. Other human risks are theft, fraud, and low employee morale, all of which are major risks businesses face in addition to older equipment and information technology risks.

To address the prospect of any risk, you manage, mitigate, or eliminate risk.

Externally, you face competition and market risk. In today’s economy, competitors can be unrelenting and marketplace changes cause you to change your business. Competitors advertise sales; costs, like rent and floor space, fluctuate for your own business and your vendors. You may even lose employees to competitors and, possibly with them, valuable customers. You may even encounter risk in the business environment. Federal, state, and local laws will change. Weather and natural disaster can shut operations down for short periods or shutter the business.

To address the prospect of risk, your objective is to manage, mitigate, or eliminate it. Similarly, aside from evaluating market potential of target countries, there are risks to be evaluated in exporting to particular countries. Not recognizing foreign risk or implementing mechanisms that mitigate them can impact overall company performance and profitability. Such risk can include country and political risk, legal and credit risk, currency exchange risk, transfer and nonperformance risk, and lastly, the risk associated with social and geographic issues. These risks can be overcome with the same prudence you deal with risk in serving your domestic customers. You can assess risk annually, depending on the market, and establish an internal risk management system that monthly identifies, assesses, and mitigates them for target markets, even individual customers. A risk management system monitors these risks and hedges against them should risk potentials change.

Globalizing your business offers your company tremendous potential for business expansion. Unlocking that potential is a task that has become increasing complex given the increased connectivity and interrelation of countries and companies. In its 2014 survey^xxx designed to offer organizations the insights necessary to compete in this increasingly complex operating environment, Aon PLC, A global provider of risk management and insurance services, collected the response of 1,418 respondents at public and private companies of all sizes and industry sectors around the world. Aon’s 2015 top risk list for global business includes the following:

1. Damage to reputation/brand – Reputation, the sum of many intangible parts, among them a good public image, a reputation for honesty, quality products and services, good management, and social responsibility, exerts a direct impact on a company’s bottom line, should the tools used to manage company reputation be ineffective. The immediate case in point is the self-inflicted Volkswagen (VW) scandal in which VW admitted to circumventing the 2.0-liter diesel engine emissions control system in about 550,000 vehicles sold in the United States since 2008. VW’s most urgent tasks are to win back U.S. Auto consumer trust, setting aside the cost of vehicle recall, paying a $14.7 billion Environmental Protection Agency settlement, and addressing possible legal action by car owners and shareholders. It is unlikely a small- to medium-sized business will have to overcome a self-inflicted wound of this magnitude, but no business can afford an ethical “escape” damaging its reputation/brand.

2. Economic slowdown/slow recovery – The World Bank^xxxi and International Monetary Fund^xxxii confirm the overall health of the global economy is improving for both advanced economies and emerging markets; however, businesses, large and small, must take economic slowdowns and slow recovery into account in their financial planning.

3. Regulatory/legislative changes – Avoiding the risk/cost of non-compliance to home and customer country regulatory and legislative changes requires establishing a compliance team responsive to home and customer country regulatory enforcement.

4. Increasing competition – Competitors are emerging across the global marketplace. Avoiding this risk requires constant innovation, differentiating, and promoting your company brand(s).

5. Failure to attract or retain top talent. Attracting and retaining top talent is a key competitive factor in the global marketplace, given an aging workforce, the entry of millennials to the global workforce, and the impermanent relationship today between employees and their employers. To avoid this failure, aggressively recruit talent with skills, and offer training and opportunities aligned to the strategic and competitive needs of your firm and its place in the global marketplace.

6. Failure to innovate/meet customer needs – Remember Blockbuster Video,^xxxiii Borders Books,^xxxiv Blackberry,^xxxv and Polaroid.^xxxvi Each of these firms, for that matter the entire publishing industry, failed to innovate and have been overcome by innovation and customer needs that outgrew them—Blockbuster by Netflix,^xxxvii Borders Books by the Amazon Kindle e-readers and the Barnes and Noble Nook, Blackberry by the iPhone, Polaroid by digital cameras, and the publishing industry by electronic print.^xxxviii The global marketplace has changed and technology is a key to disruptive and strategic innovation.^xxxix To avoid the risk of failing to innovate, firms competing in the global marketplace must create a business culture that is agile, innovative, and responsive to their customer base.

7. Business Interruption and Supply Chain Risk – Today’s supply chains rely on “just-in-time” and “lean manufacturing” as standard practices. This reliance combined with global sourcing and natural and man-made disruptions has led to an increase in business interruptions. Avoiding the risk of business disruption requires continuous planning and developing options that mitigate threats to continuous operations.

8. Third-party liability – Refers to the legal liability of one party to another for claims of bodily injury, loss or damage caused to a third party as a result of the action, inaction, or negligence from acts committed by employees. To avoid this risk, a business firm can, among other steps, improve health and safety standards, establish assisted return-to-work programs, even the extreme of discontinuing the manufacture of certain products or performance of services that might lead to being sued.

9. Cyber-risk (computer crime/hacking/ viruses/malicious codes) – Over the last couple of years we have seen high-end data breaches of private industry, for example, Target Corporation and Sony Pictures and government—the U.S. Office of Personnel Management, clearly highlighting how vulnerable retailers, educational facilities, government contractors, and other organizations are to cyber-crime. To avoid this risk avoidance, a firm can implement a number of steps detailed in ISO 27001,^xl Information Security Management and/or I SO 27002,^xli Information technology—Security Techniques ISO 27002 in addition to taking out insurance designed to cover this exposure.

10. Property Damage – Natural hazards will cause substantial property damage and disruption to businesses developed with costly machinery and new technology that are difficult to replace. A firm can avoid this risk by determining the potential of property damage to its facilities, training on-site staff, and developing business continuity plans.

With a little reflection, you may agree with this listing, however, Aon PLC’s top risk listing excluded issues that can’t be overlooked by a firm entering the global marketplace. Let’s take a closer look at the following avoidable hazards:

1. Country and political risk – countries experiencing social unrest and disorder, such as Venezuela, will cause drastic changes in a business environment leading to the prospect of expropriation, confiscation, campaigns against foreign goods, mandatory labor benefits legislation, kidnapping and terrorist threats, currency devaluation, And increased taxation. These risks can be avoided by educating yourself and your firm about your target market, its government, law, and politics prior to investing time, effort, and funds in a particular market.

2. Differences in legal systems before you negotiate an international sales contract, ask for advice on the contractual/legal implications from an attorney who specializes in international contracts. You will need to address issues such as:

   • The definition of terms of agreement (e.g., Incoterms 2010), the standard in international contracts.

   • Limiting the agreement to terms of the contract.

   • Specific description of goods and/or services addressed in the sale.

   • The terms and mode of payment – method of payment (cash in advance, open account, consignment, sight/time/date draft, letter of credit, etc.).

   • The “retain the property until payment” clause, that is, the right to retain possession and title until payment is received.

   • Force majeure (acts of God and unforeseen occurrences).

   • Dispute resolution – the place, language, Assumption of costs, the form of resolution, (e.g., Arbitration and choice of arbitrators).

   • Applicable law and jurisdiction (e.g., common or code law and that of the specific country.

   • Fees and charges – including what you are responsible for and what your customer is responsible for.

3. Credit risk – involves assessing the likelihood that your foreign customer will be unable to pay its debts. There may not be in-country credit reporting sources that enable you to determine a customer’s credit worthiness; thus, you may have to resort to alternate sources of credit information.

4. Currency exchange risk – arises from the potential of unexpected change in exchange rates that will alter the value of a U.S. dollar payment. To avoid this prospect, it is best to quote and sell in your home country currency, if not the U.S. dollar, preferably one that is heavily traded in financial markets. If the specifics of your transaction disallow quoting in U.S. dollars, it is best to consider hedging, a way to minimize or eliminate currency exchange risk. Commercial banks and regulated foreign exchange brokers^xlii are among the best foreign exchange service providers offering a number of techniques for managing exchange rate exposure that include:

   • Forward Contracts – the most popular option used by U.S. firms when they have an agreement to pay (receive) a fixed amount of foreign currency at some date in the future. In most currencies, firms can obtain a contract today that specifies a price at which it can buy (sell) the foreign currency at the specified date in the future.

   • Futures Contracts – contracts equivalent to forward contracts in function and have standardized and limited contract sizes, maturity dates, and initial collateral.

   • Money Market Hedge – a form of financing for the foreign currency transaction in which a firm that has an agreement to pay foreign currency at a specified date in the future can determine the present value of the foreign currency obligation at the foreign currency lending rate and convert the appropriate amount of home currency, given the current spot exchange rate.

   • Options – the second most preferred hedging instrument, are contracts that have an up-front fee and give the owner the right, but not the obligation, to trade domestic currency for foreign currency (or vice versa) in a specified quantity at a specified price over a specified time period.

   Note The best way to get started is to find a broker you trust and make sure you fully understand how a contract works before entering into it.

5. Transfer and nonperformance risk – The risk that a local currency cannot be converted into the currency that a debt is denominated in due to a currency not being widely traded. Thus, it is best to trade in a heavily traded currency, such as the U.S. Dollar, Japanese Yen, etc. Nonperformance risk is the risk that your customer will not fulfill its payment obligation.

6. In-transit risk – in looking to export, you not only have to make sure the shipment departs and arrives on time and at the right place, with handlers there to assume the responsibility for the goods once they arrive at a foreign port. You must also take into account the possibility of damage, loss, and theft. Solid logistical planning, insurance, and the services of a respectable freight forwarder and shipping companies are, therefore, a must to ensure the safety and timely arrival of your shipments.

7. Social and geographic issues – refers to the probability of financial loss trading in a foreign market. The best risk avoidance measure is market research and knowing your customer. Confer with home country government and banking sources to learn more.

The risks identified are some of the challenges that you and your firm need to address to ensure the viability of your firm’s entrance and continued success in the global marketplace. Expanding the management and practice of risk management in global trade are feasible just as they are in home markets! There is really nothing to fear about exporting to foreign markets. It’s really about thorough research and planning from your firm’s response to a request for pro forma invoice through entry into a contract, getting paid, contract close-out, And record retention!