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A challenge and an opportunity25th of November 2010
For many European companies, exporting to, setting up a sales office or a subsidiary in the US can be a real headache, as well as a costly exercise. A number of different steps should be taken in order to make sure the investment will not result in a financial disaster, as Ruediger Schroeder at BBinc writes for ECJ.
Exporting, setting up a sales office or starting their own subsidiary in the US is for many European companies a real headache or has been very often a costly exercise. The US market with its nearly 310 million people, the enormous geographical size with four time zones and quite different sales channels compared to Europe are posing a big challenge to Europeans companies. Also communication with Americans and the American way of doing business are quite different and many misunderstandings are happening despite the fact most Europeans speak English
To enter the US market a number of different steps have to be taken to make sure the investment will not end in a financial disaster.
Each market entry should start with good market research to find out whether the products are suited for the US market and all regulations and necessary approvals can be met. This should also include a proposal about the best sales channels. There are four ways to do it: on your own; ask government bodies like your trade commissioner in the US; the overseas trade missions in your US Embassy; or the US representation of the chamber of commerce of your home country as well market research companies are all offering this kind of service. It is difficult to give a recommendation but I would always start with the chamber or the trade commissioner of your home country or a market research company recommended to you by a really reliable source - there are many disreputable businesses out there.
Once you have a good understanding that there is market for your products in the US and the basic product requirements are met it is a recommendable next step to show your products at one of the many trade shows in the US - your market research company could recommend which ones. You will get from the visitors good feedback about your products but be aware Americans always are very positive and enthusiastic - which does not always mean they will start to buy or to sell your products even if they say so while talking to you in your booth.
Sales with no support – not a way to success
American customers, whether they are dealers or end-users, don’t like the hassle of importing. They want to talk to people in their time zone in (American) English, get products the next day, like to get warranty exchanges right away and expect to pay with cheques. So how to do that without starting your own subsidiary and building up an expensive infrastructure?
Very often companies take this route as it is relatively simple and without high costs. The distributor imports the products, keeps them in stock and sells them in the US. He is usually not really promoting your brand name but more concerned about his own company brand. Also your products are one of many so you will normally just get some attention but never the full attention of the distributor and his sales team. In many cases European companies become frustrated after some years that the business is stagnant or even declining, and the very optimistic outlook from the distributor in the beginning does not materialise. Then they realise that taking the easy route is not always the best route.
US sales office, deliveries from Europe
To take your destiny into your own hands the foundation of your own sales office in the US makes sense. Any chamber, consultant or specialised lawyer can help you to set this up in a short time. Your sales manager can then build up his own sales organisation, usually with rep groups and dealers depending on the type of product and the industry you are in. Due to the nature of the physical distance between the sales office and especially smaller dealers, a rep group - usually working on commission only - takes the function of district or zone manager. They select dealers, train them and visit them regularly to grow the business. Dealers operating nationwide or covering a number of states are normally dealt with directly.
In addition you very often have in the US strong dealer organisations which are customer focused (government, hospitality, health, education, etc) or focused, for example, on safety covering complete regions or the whole country.
However when you have built up your the sales structure and you still ship from Europe the logistics will always be a problem, and this will lead to many arguments with your US customers as they are expecting faster and less complicated deliveries and better local support.
Think long-term – found your own subsidiary
The US is still the biggest single market in the world, it will also in the future grow stronger than Europe and it comes with relatively low political or other risks compared to most Asian markets. Therefore if you think about long term growth in the US, the foundation of a US subsidiary is the best way to secure your future, including of course also higher risks than having only a distributor. If you start to develop your business plan most companies will see that during the the first two to four years they hardly have a chance to reach break-even, never mind to be profitable. Why? Well you have to create a certain infrastructure which includes a warehouse and office with lease contracts of usually two to three years, computers, racking, furniture etc, and at least two or three employees.
Location in the US
Very often the location of your US operation is determined where your sales manager or distributor is located, however if you are free to decide you should select centrally located cities like Atlanta or Chicago which usually have several direct daily flights to your country in Europe and from which you can also easily travel to any part of the US. For your warehouse location it is even more important to be close to a central hub. If your main customer focus is only regional ie, at the west coast, then of course you should move there.
US – the home of the service industry
Well there is more or less nothing in the US which you can’t get from service providers, so the back-up for a newly founded subsidiary can also be completely outsourced - how?
Outsourced back -up services for sales offices and newly founded subsidiaries
If you are looking around in the US for a company offering back-up for your US sales office or subsidiary you need a trustworthy partner with years of experience and dedicated employees as they do the work in your name! BBinc in Chicago, close to the international airport O’Hare has offered for many years offices; a large warehouse clearly structured for each customer with a separate area for sensitive product; inventory control with reordering, repackaging and light assembly work; preparation of quotations; order taking; shipping to Canada and Mexico; invoicing; accounts receivable management; warranty procedures; call centre function; bookkeeping; reports to the parent company. To summarise, the services are 'a la carte', you pay for what you select and use. In the initial contact phase BBinc - with its years of experience working for European companies in the US - will analyse and discuss all aspects of the potential client's business in the US and after completion a detailed offer will be prepared. With three months' notice the scope of services can be changed or cancelled so no long term commitment is required. If things are not working out the European company can retreat, or if things are going so well that the decision is to build up their own infrastructure in their subsidiary it can be done at any time with three months' notice.
Depending on the warehouse space required and the number of transactions the costs in the first year normally rank between US $30,000 (22,000 euros) and $50,000 (36,500 euros) however this can only be taken as a rough guideline. BBinc also offers sales support with follow-ups on trade show enquiries, contacting existing customers or earlier leads.
•Ruediger Schroeder at BBinc. has been working for over 25 years in the cleaning industry and can be reached at email@example.com - German, French and Spanish speaking staff are available to support you in your local language.