WHY B-to-B SUCCEEDS OVERSEAS

With notable exceptions, such as apparel mailers Lands’ End and Eddie Bauer, few U.S.-based consumer catalogers have created a significant presence in overseas markets. The business-to-business side of the market, however, boasts far more international success stories.

Office supplies cataloger Viking Office Products, identification products marketer Seton Name Plate, medical products mailer Henry Schein, industrial plumbing and electrical supplies cataloger Barnett, and computer products marketers Systemax, Black Box, and Programmer’s Paradise are just a few of the U.S. b-to-b companies to develop a significant international catalog presence.

Many business catalogs have bought their way overseas via alliances or acquisitions. Systemax (or Global DirectMail, as it was then called) launched internationally by buying small U.K.-based computer supplier HCS in the early ’90s, and shortly after built a large distribution center in Scotland. Programmer’s Paradise got its start overseas by purchasing a controlling interest in Italian wholesale software distributor Lifeboat Associates Italia Srl in 1993. The company then acquired a German software dealer in ’94, a U.K. software reseller in ’95, and The Netherland’s largest software reseller in ’97.

Several U.S. b-to-b catalogers are proponents of building local operations in overseas markets. Delray Beach, FL-based Viking Office Products – considered by many to be the shining success story of business mailers going international – began its overseas quest 10 years ago by setting up a full-service fulfillment operation in Leicester, U.K. Since then, the company, which merged with Office Depot in August 1998, has launched operations in Germany, France, Belgium, Australia, Italy, and Japan – to name only a few countries. Even before Viking entered the U.K., Branford, CT-based Seton Name Plate had set up operations in the U.K., Canada, Germany, and France. Seton has since expanded into many more countries, including Italy, Belgium, The Netherlands, Australia, and Brazil.

Other b-to-b companies have launched internationally without setting up full operations overseas. Norwell, MA-based work apparel cataloger WearGuard, for one, entered the U.K. in January 1995 by contracting with a local third-party fulfillment house. And industrial optical products cataloger Edmund Scientific began mailing into Japan in December 1995 by fulfilling orders from the U.S. The Barrington, NJ-based cataloger would ship a master box of merchandise for Japanese orders to Japan each week, where its local staff would then label and send out the individual orders to customers.

B-to-b advantages

So what’s the secret to b-to-b catalog success overseas? While no one would ever say that international marketing is easy for any U.S.-based company, industry observers agree that b-to-b marketers have some advantages over consumer catalogers. For one, business merchandise tends to be more generic and more necessity-driven than consumer goods, which typically appeal to specific tastes and lifestyles. Unlike consumer apparel, for instance, “there’s not a lot of style or preference to business commodity products” such as healthcare products and computer supplies, says Jack Schmid, a Shawnee Mission, KS-based catalog consultant.

For the same reason, Schmid says, business products catalogs are easier to adapt to foreign markets. Creatively, you might only need to do a black-ink plate change to convert the language and pricing for an overseas mailing of a b-to-b book. Consumer marketers, on the other hand, often have to consider style, sizing, and color preferences in the merchandise offering, as well as the choice of models and lifestyle backgrounds in the creative approach when adapting their books for an international audience.

In many categories, it’s also easier and more cost-effective to fulfill b-to-b merchandise, says Chatham, MA-based international direct marketing consultant Dick Miller. “B-to-b products tend to be more consistent in size and weight than consumer goods,” he says. If you have to ship merchandise overseas from the U.S., the freight on business products tends to be more cost-efficient.

For example, if you’re paying for a bulk shipping container, Miller says, “it’s a waste of money if you’re shipping apparel or something light. But business items such as computer parts weigh more but take up little space, so your shipping cost per unit is less.” Product return rates also tend to be lower in b-to-b, since business customers typically know what they’re getting. That’s another plus for U.S. catalogers, Miller says, because processing, shipping, and handling returns internationally is more expensive.

But the main reason that businesses tend to succeed overseas is that corporate orders overall are larger than sales to individual consumers. The average order size for any catalog will depend on the product line, but b-to-b orders average three to five times the size of consumer orders, says Schmid, and in some cases as high as 10 times. Moreover, “you’re getting customers buying goods they need for business with some regularity,” he says.

The higher dollar size and frequency of orders are important factors, because marketing overseas is expensive. In addition to the expenses inherent in setting up an international operation, contracting with a third-party, or shipping goods from the U.S., it simply costs more to do busines s in smaller foreign markets than in the U.S. For example, mailing lists cost more – in some markets twice as much per 1,000 names as in the States. So any American catalog company, whether consumer or b-to-b, will need sizable and frequent orders to offset the expense of doing business overseas.

The marketers generating average orders on the high end “are more likely to move rapidly to get international business” and remain committed to the venture, McNutt says. “So even if you’re only getting a handful of orders from Singapore, it may be worth it to get your international operations in line in that country if each of those orders is worth more than $1,000.”

The role of the Web

The growth of the Internet will make it easier for all U.S. catalogers to find and sell to overseas customers. “If you are selling on the Web, you are international” to some extent, says Bill McNutt, a Dallas-based international marketing consultant. Still, studies have shown that only about 45% of stateside Websites will ship orders outside the U.S., he says.

Certainly in the U.S, b-to-b online sales are booming. Cambridge, MA-based Forrester Research predicts that b-to-b e-commerce in the States will hit $2.7 trillion in 2004. Forrester also finds that 93% of all businesses expect to move at least part of their transactions to the Web by 2002. This projected b-to-b Internet growth should fuel sales from international markets, since the global nature of the Internet will reduce many of the hurdles of catalog marketing overseas.

For one, a Website reduces the paper and postage costs associated with mailing a print catalog. This is advantageous in business marketing because the average b-to-b catalog – many of which sell thousands of SKUs – is larger and heavier than a consumer book, “so it’s more feasible to go overseas via the Web,” McNutt says.

And in general, business customers may be more receptive to buying goods online than consumers, considering that many users have access to the ‘Net only at work. Ordering goods online also takes away some of the human element from the transaction – a benefit in some developing markets in which you might be concerned about graft or theft, McNutt says.

Numerous b-to-b catalogers in the U.S. already sell products overseas online. OfficeMax, for one, operates Websites in Japan, Mexico, and Brazil. Viking Office Products operates Websites in Germany and in the U.K., and in March it launched a Website in The Netherlands.

But it’s important to point out that these U.S. marketers could soon get tougher overseas competition online, particularly in Europe. As the Internet in Europe grows, it is rapidly becoming less dependent on the U.S., according to a recent report from research firm The Yankee Group. Its study shows that about 66 percent of international Internet traffic originating in Europe stayed in Europe in 1999 – a major shift, considering that more than half of the region’s Internet traffic went to the U.S. in 1998.

Any company considering heading overseas needs to develop a formal plan for a market strategy and stick to it. Often, that involves setting up a local operation in the international market – building, buying, or partnering with a local company. Compared to some of the larger business catalogers, says international consultant Bill McNutt, consumer niche marketers may not have the financing to build an overseas operation (unless it’s a $1 billion-plus cataloger such as Lands’ End), and they may not have the inclination to partner with another firm. “Organically grown consumer catalogers were built without a dependence on partners,” he says, and may not be as receptive to an acquisition of or a partnership with another firm overseas.

But most experts agree that you should set up locally as much as possible. This requires extensive advance research and planning – and talking with other U.S. catalogers that have been marketing overseas. One of the best resources for U.S. companies considering overseas expansion is the International Trade Administration, the international arm of the U.S. Department of Commerce, consultant Dick Miller says. This administration has a tremendous number of contacts and international offices, “which can help you get a handle on local competition and prospective partners.” After all, he says, “their job is to identify good overseas business partners for U.S. companies.”

If you can’t fund the venture yourself, you should consider a partnership or acquisition with a local company, says Miller. True, you might have to defer profits a bit longer with an alliance strategy, but remember that international success will likely take a few years anyway. “If you’re looking for a short-term return on investment, stay home,” he warns.

The good news is that some U.S. b-to-b catalogers have already blazed a trail into the larger European markets, which has improved the direct marketing infrastructure and gained greater acceptance for American catalogs. The bad news is that these trailblazers may already have cornered the market in some merchandise categories, so you may need to look elsewhere for uncharted – and possibly more responsive – territory.

Without question, says consultant Dick Miller, major European markets – such as the U.K., Germany, and France – have traditionally been the best bet for U.S. business catalogers. But Spain is beginning to catch up, Poland is becoming a viable market, and Scandinavia is already a good destination for catalogers selling business products. Japan is still a fairly strong market, though not as good as it was in the mid-to-late ’90s.

You might also consider targeting some of the emerging markets in Latin America, including Brazil, Chile, and Argentina, Miller says, or even larger developing nations. “Some of the newly industrialized markets are good for selling basic business products that aren’t made or available locally.” For instance, China is a good market for basic office products, business equipment, and paper goods, “provided you stick to the industrial areas along the coast” and avoid the impoverished regions inland. India is also a “sleeping giant that can’t be ignored for much longer,” he says.

But don’t think you can unload your obsolete technology on some of these developing nations. These countries are often buying technology products “right at the top of the curve” like the rest of the world, Miller says. In fact, countries just now seriously investing in technology are buying at the high end because they didn’t have to spend the time and money developing products and dealing with the obsolescence that occurs in more advanced nations.

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