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Find your place in the global marketplace through research and resources

The international aspect of business and the economy is continually growing. The Internet and the global economy have eroded national borders with respect to business and trade. The European Community and NAFTA have reduced trade barriers. With an estimated $350 billion in the world-wide industrial MRO market according to Forrester Research, many American-based distributors may be considering finding their piece of the international distribution market.

According to INDUSTRIAL DISTRIBUTION's 54th Annual Survey of Distributor Operations, 57 percent of distributors are doing or are planning to do business in foreign countries. For those involved in foreign business, it makes up, on average, 11 percent of their business. Twenty-five percent of distributors were asked by existing customers to support plants abroad.

Perhaps a company for which you already provide services is opening a plant in a foreign country. Maybe an emerging market is a good opportunity for growth. Do you want to start a new, wholly owned subsidiary, buy a local firm already in the market, or form a partnership with a firm already operating in that region?

There are hurdles to overcome and risks to face in any of these strategies. Exporting may reduce these hurdles and risk factors, but there is the cost of shipping and the difficulty in providing technical and value-added services to customers when there is no face-to-face relationship.

Unexpected opportunities

Bethel Park, Pa.'s R.L. Miller, Inc., never intended to solicit business outside of the U.S., says vice president and sales manager Richard Simoni. Nonetheless, the fluid power distributor has well-established relationships supplying companies in Germany and Italy.

"The German firm had a domestic location that we supplied," says Simoni. "We were soon asked to provide services for their German facilities as well. The Italian firm acquired a domestic company that we serviced."
Simoni says a large part of what R.L. Miller provides is engineered solutions of fluid power systems. He says the language barrier and distance requires translators and logistical maneuvering.

As more of its customers expand into Mexico, R.L. Miller has begun to supply customers' Mexican operations as well. Simoni says the Internet has brought inquiries from around the world but it is difficult to provide value-added services to foreign customers and even harder to collect payment internationally.

Sweet deals

For Voorhies Supply Co., Inc., international trade is a chance to explore new markets, says Ken McGrew, president of the New Iberia, La.,-based distributor. Voorhies carries general mill and MRO supplies but specializes in power transmission distribution. It exports to the sugar industry in Central and South America.

"We have no interest at this time to expand into foreign locations," says McGrew. "We chose an industry that we understand and can support from here. The sugar industry is similar wherever it is, so we can give the support they need."

McGrew says his company does business abroad in a manner similar to the way they do in the U.S. He says by exporting, it has encountered few legal hurdles to overcome.

"With the high cost of shipping, there is no room for error," says McGrew. "Correcting for mistakes would be very costly."

The cultural barriers can be difficult to overcome, says McGrew. To assist in overcoming this, Voorhies Supply has hired a Guatemalan as sales manager within its foreign territories.

South of the border

Briggs-Weaver also serves only a select sector of the international market. It opened locations in the Mexican border towns of Juarez and Reynosa. It primarily serves the maquiladoras, operating in Mexico as ASPI, a wholly-owned subsidiary.

"[ASPI] is an important and growing part of our business," says president Terry L. Taylor. "The opportunities are excellent and growing as new manufacturing and assembly plants are opened."

Taylor says ASPI is able to conduct business in a manner similar to domestic operations.

"We conduct business through regular purchase orders and billing with open accounts," says Taylor. "Although the peso is relatively stable, we prefer payment in dollars."

Taylor says there is great potential for sales, as manufacturing is transferred from other parts of world to Mexico. He says he doesn't foresee the growth declining.

"Bilingual is not enough," says Taylor. "ASPI has an American management team of Mexican heritage so they are bicultural and fully fluent."

Going global

Barnes Distribution includes wholly-owned subsidiaries in North America, Brazil, France and the U.K. It is opening operations in Singapore and has franchise and distribution agreements in several other countries, says president A. Keith Drewett.

He says Barnes Distribution provides global service, but not uniform service. It must be tailored to fit the local markets, he says. He prefers to use local management teams that understand the local laws and customs.

"It is hard to understand foreign markets," he says. "And even the European Community is not a homogeneous market."

Drewett says American companies fail when they try to impose an American business model on foreign markets.
"One crucial question is to decide how to enter foreign markets," says Drewett. "It is a matter of risk and liability tolerance versus the desire for greater control."

Drewett says that wholly owned subsidiaries offer more control, but can present some difficult problems. They can bring about issues that must be solved via long-distance management.

"Imagine the headaches involved in terminating and replacing an executive in a distant country," says Drewett.
He cautions that just because an existing customer is opening in a foreign country, that does not mean the distributor will be able to transfer their relationship to the foreign market. First, it may not be possible to sell a vendor's product in that territory. Distributors must also overcome all of the barriers to entry and discern how to operate within the new business culture.

Global alliances

One company that is using the alternate strategy of partnering alliances with foreign distributors to provide global service is Pioneer-Standard Electronics, Inc., a distributor of electronic components. Walter E. Tobin, vice president of value added services, global/corporate accounts, says more and more manufacturers are becoming multinational because of consolidations, acquisitions and labor markets.

"Now they want us to support them anywhere in the world," says Tobin. "To gain this worldwide presence ... we prefer alliances."

Pioneer-Standard Electron World components group is the strategic alliance of Eurodis Electron PLC in Europe and World Peace Industrial Co., LTD in Asia.

Alliances can be quicker to establish, he says, and they allow the management of the local distributorship to remain intact. They also provide partners with the experience and expertise of a local business. That can be an important part of being respectful of local custom and cultures, he explains.

"This allows a company that does not even speak the language, know the tax laws or local currency and business relationships to enter that market," says Tobin. "But it must work with the local infrastructure."

As companies begin to demand global service, those that can't provide it are at a competitive disadvantage, says Tobin. He also points out that a distributor with a global presence can be valuable to its vendors by marketing worldwide.

"International trade a very exciting. There is no rule book," he says. "We are writing it as we go."

Exploiting resources

Aside from the resources available through the Department of Commerce, there are consulting firms that can assist distributors in developing a strategy.

"First we research all of the secondary sources and market research and then supplement it with our own primary research," says Christopher "Kit" Lisle, managing director of Acclaro Growth Partners.

The next step, says Lisle, is analysis of all of the research.

"We find niches open to the distributor and identify risk factors and barriers to entry," says Lisle.

He also researches the customer base and determines their needs. It is also important to research established competitors and determine what barriers and risks they pose.

""When entering a market, do you form an alliance, acquire, or 'green field' by starting a wholly owned subsidiary?," asks Lisle.

He says each has its merits and flaws. The choice depends upon researching all the options and weighing the risks and benefits.

Lisle suggests assistance can be obtained from a distributor's multi-national vendors. Customers may present a great resource to the distributor following them abroad. Lisle cites the example of an automaker assisting a rubber distributor in opening overseas operations.

Another resource may be found through professional associations. Members can network with other distributors that are currently involved in international markets and the association itself may be able to provide resources and information.

COPYRIGHT 2001 Cahners Business Information in association with The Gale Group and LookSmart.