Exporting is the most traditional and well-established form of market entry strategies. Simply stated, exporting refers to the marketing of goods produced in one country into another.
While exporting requires no direct manufacturing in a foreign country, successful exporting warrants a need for significant investments in marketing-related initiatives. Done right it can be an expensive but lucrative proposition.
Though there are multiple complexities in export marketing, this article will concentrate on issues and challenges relating to the need for product adaptation for export markets. Even though there's an obvious benefit to designing products to meet a variety of standards, the idea of a fully standardized global product that is identical all over the world is a near myth. Stated differently, to be successful in marketing products in international markets, most products require some level of adaptation or localization.
Scope of Product Adaptation
Product adaptation deals with a whole range of issues ranging from quality and appearance of products to materials, processing, production equipment, packaging, style and modeling. A product may have to be adapted in a number of ways to meet the physical, social or mandatory requirements of a new market. It may have to be modified to conform to government regulations or to operate effectively in country specific geographic and climatic conditions. It may be redesigned or repackaged to meet the diverse buyer preferences, or standard of living conditions.
A product’s size and packaging may have to be modified to facilitate shipment or to conform to possible differences in engineering or design standards in a country or regional markets. Product adaptations may even include changes in one or more combinations of brand name, color, size, taste, design, style, features, materials, warranties, after-sale service, technological sophistication and performance.
Motivating Factors for Product Adaptation
Marketers often find the need for some changes to be obvious while other changes may require in-depth analysis of societal customs and cultures, the local economy, technological sophistication of people living in the country, customers’ purchasing power, and purchase behavior. Legal, economic, political, technological and climatic requirements of a country market often dictate some level of localization or adaptation.
I've highlighted some of the motivating factors for adaptation.
Conformity Requirements and Regulatory Mandates
As tariff barriers (tariffs, duties and quotas) are eliminated around the world in accordance with the requirements of participation in the World Trade Organization (WTO), other non-tariff barriers, such as product standards, are proliferating. Foreign government product regulations now common in international trade are expected to expand in the future.
Regulations for food additives, for example, differ from country to country. The United States' Generally Recognized as Safe (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. Your labeling and packaging may have to be altered to comply with the country's labeling or environmental regulations.
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 a given country. The U.S. is virtually alone in its adherence to a non-metric system, and U.S. firms that compete successfully in the global market have found metric measurement to be an important detail in selling to overseas customers. Even instruction or maintenance manual, for example, should be made available in centimeters, weights in grams or kilos, and temperatures in degrees Celsius.
Common engineering changes needed to conform to the country specific requirements include, but are not limited to:
- Electrical Requirements—cycles and voltages.
- Measurement Systems—specifications, manuals, instructions, labels, dimensions and parts may need to be converted to the metric system.
- Environmental Requirements—Combustion engines, for example, may be required to use unleaded fuel only.
Physical Environment and Commercial Infrastructure
It is often necessary for an exporter to adapt its product to account for geographic and climatic conditions. Factors such as topography, humidity and energy costs can affect the performance of a product or even define its use in a foreign market. The cost of petroleum products along with a country's infrastructure, for example, may mandate the need to develop products with a greater level of energy efficiency.
Hot dusty climates of countries in the Middle East and other emerging markets may force the automakers to adapt the automobiles with different types of filters and clutch systems than those used in North America, Japan and Europe countries. Even shampoo and cosmetic product makers have to chemically reformulate their shampoo and cosmetic products to make them more suited for people living in hot humid climates.
The availability, performance and level of sophistication of commercial infrastructure will also warrant a need for adaptation or localization of products. For example, an exporter may decide not to market its frozen line of food products in countries where retailers do not have adequate freezer space. It would make perfect sense to develop (unless such products are already available) and export dehydrated vegetables in such country markets.
Size of packaging, material used in packaging, before- and after-sale service and warranties may have to be adapted in view of the scope and level of service provided by the distribution structure in the country markets targeted. In markets lacking post-sale servicing facilities, companies may need to offer simpler, more robust products in overseas markets to reduce the need for maintenance and repairs.
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Buyer preferences in a foreign market may also lead an exporter based in more advanced countries to modify its product. Local customs, such as religion or the use of leisure time, often determine whether a product will gain market acceptance. The sensory impact of a product, such as taste or visual impact, may also be a critical factor. The Japanese consumers’ desire for beautiful packaging, for example, has led many U.S. companies to redesign cartons and packages specifically for this market.
To make purchases of mass marketed consumer products more affordable in lesser developed country, makers of products such as razor blades, cigarettes, chewing gum, ball point pens and candy bars have been known to have repackaged them in small single units rather than multiple units prevalent in the developed and more advanced economies.
Product Usage Conditions
Levels of expectation for product warranties vary from country to country depending on its level of development, competitive practices, and the activism of consumer groups, local standards of production quality, and differing usage frequency and patterns. Strong warranties may be required to break into a new market, especially if the company is an unknown supplier. (See also, Five Steps for Creating Great International Customer Service.)
In other cases, warranties similar to those in the home country market may not be 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 calculate the cost of servicing the warranties and adapt the warranty service so that it is in sync with local usage conditions and customer expectations. For more detail on warranty management, see my article, Global Warranty Management, Do You Have a Process in Place?
The packaging design should be based on the customer needs. In industrial products the pack should be considered for its usage and for its amenability to storing, pouring, re-use, etc. For consumer products the pack might have various functions: protective, informative, merchandising and conforming to legal requirements and buying habits (e.g. Americans tend to buy less frequently than Europeans, so the largest size is more popular in the United States).
Quality packaging for shipment is vital, even in this day of containerization and air-freight systems. Poor quality packaging can mean poor quality product, costly delivery and storage, and failure to meet legal requirements. Establishing local customer preferences and evaluating competitive products and companies in the target market is elemental. Local product market scanning, competitive product sampling, and evaluation are also needed to determine the appropriate level of warranties in country markets where the products are being exported.
When analyzing the need for adaptation or determining the extent to which adaptation may be necessary, a close look at cultural differences between the target customers in home (country of origin) and those in the host country is extremely important. The greater the cultural differences between the two target markets, the greater the need for adaptation. Cultural considerations and customs may influence branding, labeling and package considerations. Certain colors used on labels and packages may be found unattractive or offensive. Language, legal and cultural differences may require you to consider the need for product changes. Such changes may include product design, branding, labeling, packaging and service arrangements.
A country's standard of living and the target market’s purchasing power can also determine whether a company needs to modify a product. The level of income, the level of education, and the availability of energy are all factors that help predict the acceptance of a product in a foreign market. If a country's standard of living is lower than that of the United States, a manufacturer may find a market for less sophisticated product models that have become obsolete in the United States.
Certain high-technology products are inappropriate in some countries not only because of their cost but also because of their function. For example, a computerized industrial washing machine might replace workers in a country where employment is a high priority. In addition, these products may need a level of servicing that is unavailable in some countries.
When potential customers have limited purchasing power, the exporter may actually need to develop an entirely new product (innovation) designed to address the market opportunity at a price point that is within the reach of a potential target market. Conversely companies in lesser developed countries that have achieved local success may find it necessary to adopt an up-market strategy whereby the product may have to be designed to meet world class standards.
If an exporter can find a virgin market that is devoid of current and potential competition, there may be no need to adapt or localize the product since the potential buyers have no choice. But it is very hard to find a country in the current market environment where there is no competition. Domestic, regional and multinational corporations are scanning the globe to source and market their products, which is forcing the exporter to critically evaluate the kind and level of adaptation needed for various country markets.
Corporate Culture and Growth Strategies
Companies differ in terms of both their willingness and capability to identify and undertake profitable product adaptations. A thorough corporate self analysis or self audit is needed to understand to what extent the exporter is willing to gather information and invest in adaptation of the product for customers in a specific country market or region of the world.
If a corporate self audit brings to light ethnocentric orientation, the leadership at the top may be seeking to sell the same products around the world with an attitude: “If it is good enough for the U.S. of A. it has to be good enough for India, China, Malaysia, South Korea or Japan.”
The decision to adapt a product is based in part on the degree of commitment to the foreign market. Some exporters believe the domestic product can be exported without significant changes. Others seek to consciously develop uniform products (global product design strategy) that are acceptable in all markets with little or mo modification.
Corporate growth strategies may take one of the following forms:
- Sell the standard products you make for your country market in as many foreign markets as will accept them.
- Adapt your standard products to meet foreign market needs more closely.
- Adapt your products to meet both foreign and domestic market criteria at the same time, i.e. create a universal (global) product.
- Invent new products to satisfy both your domestic and foreign markets.
If management is uncertain that the profit potential in foreign markets is large enough to recover costs for product adaptations or it is driven by a risk-averse culture, it is likely to limit its export activity to products that require only minimal changes to existing domestic products by exporting the products to only those countries that are politically, physically and culturally similar to their own.
A major change in the cultural shift is taking place within the corporate world, and the one size fits all business practice is becoming obsolete. Studies reveal that companies willing to invest, to innovate and design their products for a specific export market are most likely to succeed.
In view of this phenomenon, the decision to be made by the exporter should not rest on whether or not it should adapt. The decision, more appropriately, should track what aspects of product offering should be adapted and what aspects should be standardized.
In the final analysis, the extent of adaptation will be driven by the corporate culture, customer and market orientation, the market potential for the product scheduled to be exported, and the importance of international marketing for corporate growth and survival.
This article was first published in October 2005, and has been updated to include current information and formatting.