At first glance, this may not seem like the best time for a company to expand its operations and fulfillment globally. Worldwide economic woes, uncertainty caused by the U.S. involvement in Iraq, and reduced demand for American goods have left many companies cautious. Still, many enterprising companies have significant global business and have kept their eye on the horizon for new markets. This month, six influential executives describe their global strategies and new target markets that are worth watching.
We plan to have a strategic focus on the United Kingdom and Germany, followed by France, Italy, and Scandinavia, and then we will probably expand toward the Pacific Rim.
Our products are picked, packed, and shipped using USPS Global Mail from our headquarters in Santa Barbara. In shipping to these countries we face two major challenges: first, that we need to pay value-added tax and duty; and second, that the shipping charges in the U.K. are fixed and very low relative to the U.S. This means that we need to absorb the extra shipping costs, particularly for heavier items.
We think the Pacific Rim countries, including Japan and Australia, will come back strong. The only challenge will be to operate in countries that don’t have that infrastructure. Otherwise, we don’t see any limit on distribution. Catalogs tend to rely on a carrier with capability in the market, and major carriers like FedEx and DHL deal internationally on an almost casual basis these days.
Bob Manning, COO,
Magellan’s, Santa Barbara, CA
We have been working globally since 1997; 10% of our business is currently global. Canada and the U.K. are the biggest markets for us outside the U.S., and more recently we have also sold items to customers in Brazil, Argentina, Japan, Scandinavian countries, Australia, and Germany. The most exotic order we ever got came from the Seychelles Islands. We’ve definitely seen an increase in the number of global customers, most notably from Brazil. More people are wired, with access to the Internet.
We ship most of our items via the USPS. We charge the exact postage as it costs us, add a $3.50 minimum handling fee, and customers are also responsible for any VAT or duty. We find that when customers want a particular item that’s not available locally, they are willing to pay the higher shipping costs. Also, we are a small enough company that we can be flexible and we can do custom orders. Most of our items are lightweight (typically under four pounds), so the shipping charges aren’t excessive. Occasionally, we send items via FedEx and UPS, which require more documentation.
Annette Zientek, president and co-founder,
Fashion apparel, sporting goods, and home entertainment electronics have increased sales in certain countries, including Scandinavia, from 2001 to 2002. In Northern Europe, overall sales of home electronic equipment have increased 43%. Sales of non-durable sporting equipment have increased in Taiwan (38%), Mexico (10%), and Brazil.
When it comes to global fulfillment, selling is the easy part; getting the product into the hands of the consumer is harder. For example, with home electronics, the cost of shipping internationally can be up to 50% of the value of the good, compared to 7%-10% to ship the same item domestically. Most small to mid-sized companies opt to ship using a carrier service like UPS or FedEx or a third-party service.
During the Internet peak from 1999 to 2000, research organizations predicted 100% to 300% growth in global fulfillment. Right now I don’t predict global fulfillment will have more than single-digit growth for most regions.
Satish Jindel, principal,
SJ Consulting Group, Sewickley, PA
We have been set up in the U.K. for between two and three years now. Through the Acorn catalog we sell VHS tapes and DVDs directly to the consumer. We mail the catalog twice a year and have a circulation of less than 200,000 a year. We are looking to expand and develop the U.K. market before we consider any other markets. If we were to expand to Europe we would have a range of licensing issues to deal with.
The U.K. market is probably 18 months behind the U.S. market. We have found that there is a lot of synergy in our market since we offer English-language videos, and also because we offer anglophile programs it makes sense to have a U.K. arm. However, there’s very little overlap between our U.S. and U.K. catalogs, in terms of both marketing and product make-up. The product is generated in the U.K. mainly because of the differences in packaging.
Pete Smart, acquisitions and marketing director, U.K.,
The Acorn Catalog
In terms of international markets, eBags is involved in Canada. We have been looking at the U.K., Japan, and Germany too but we haven’t made any official moves in those directions yet. As for sourcing, we do buy products directly out of Taiwan, China, and the Philippines right now. All those countries are getting higher and higher Internet penetration. That is why we are interested in them.
We expect these markets to grow much like the U.S. Unfortunately, Europe has tax issues that are different than the U.S. That will slow down our desire to go there, and also the acceptance of Internet shopping. Japan, while a bit behind the U.S. on Internet penetration, is rapidly growing. And it is also a big bag-buying market. Both Europeans and Japanese on a per capita basis buy more bags than people in the U.S.
We have a unique model, where we have to teach suppliers how to operate within our system. They need to fulfill orders direct to the consumer for us. It just takes some time to get our systems up and running, one supplier at a time.
Jon Nordmark, president and CEO,
We talk to more than 250 companies a year with an interest in doing business in the Netherlands. One of the biggest trends we see is that the expansion of the European Union to include Central and Eastern European countries next year will have an effect on supply chains. Central and Eastern European countries have lower wages than Western European countries, so you see more and more production going east.
Some estimates say that there will be a 25% increase in the number of consumers from Eastern Europe, but only a 5% increase in spending capability from Eastern Europe. So your major European markets will still be France, the U.K., and Germany. A trend now is to have production in Eastern European countries and have distribution or fulfillment in the Netherlands, because from there you have shorter lead times toward the final customer and lower distribution costs. Once the Eastern European countries join the E.U. the flow of goods will move more freely. Right now some companies have to have 25% more in product inventory both inbound and outbound because they don’t know how much time will be spent at the border.
For most companies a pan-European distribution center works well, and we still see growth in that area.
Edgar Kasteel, vice president,
Holland International Distribution Council (HIDC),
Zoetermeer, The Netherlands