Passive Rather Than Proactive Action: A Fatal Mistake of International Business

PRA GLOBAL │WHITE PAPER JULY 2020

Introduction

What is a passive rather than a proactive approach to international business?

Many companies opportunistically begin an export model with little or no research or planning. International revenue is not a primary focus and not even considered in the forecast. Distributors are signed upon a first come first serve basis, or perhaps international revenue growth is solely reliant upon e-commerce website. Some companies are forced to follow a key account into a new market, not realizing the adaptations necessary to remain profitable.

These are all characteristics of a passive approach to international business, which create numerous mid and long-term problems.

What are the primary consequences of a passive approach to international business?
  • Unprofitable or low value business
  • Weak distributor relationships resulting in low sales, poor brand, and service issues
  • Entering the wrong market for your product
  • Lowering your possible market share in key markets
  • Opportunity cost of misallocated resources

The key to successful international trade lies in the careful planning of the whole process, taking into account economic, business, regulatory, and cultural considerations. The biggest difference between active and passive action is in the level of preparation and adaption of the product or service sold abroad. Companies that take an active approach invest in a thorough research process to see which products will be best accepted in new markets, how best to reach the end customers, and which products, processes, and packaging need to be adapted in order to be competitive.

On the other hand, a passive model does not involve as many arrangements. Markets and channels are not vetted properly. Often the product is exported as it is with the hope that it will be accepted by the local market. Only basic research of regulations is made and translation is often an afterthought.

How to Take a Proactive Approach

When you consider selling into a new market, you have to first understand the opportunity, the risks, and the feasibility of being successful. You must determine the optimal channels to market and be prepared to meet the needs of that new market and the specific requirements of the consumers. A comprehensive understanding of the local requirements and regulations is also very important, otherwise the product cannot be marketed and sold. Below we will provide the four key steps we have proven are necessary to successfully penetrate a new market.

  • Opportunity Validation:

    Understand the market opportunity by analyzing opportunity clusters, competition, country-specific practical business considerations, and the total landed cost to get the product to the customers’ door.

  • Channel Assessment:

    Determine the sales and distribution channels available in the market and understand what is required to implement each channel strategy.

  • Understand Requirements and Buying Process:

    Conduct primary research to gather data on product requirements and the buying process in the market. Understand trends and analyze customer preferences.

  • Channel Partner Identification and Evaluation:

    Conduct a systematic investigation to understand which organizations are potential sales and distribution channel partners for your product.