How to Grow Your Business as an Exporter
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Lorraine Goodman didn’t launch Lavenderlane with the goal of becoming an exporter. In fact, she wanted to become a household name in South Africa as a top-quality brand in the natural healing products space.
She thought exporting was expensive and therefore unreachable. This perception changed when she was introduced to the Cosmetics Export Council for South Africa (CECOSA) in 2016.
“I discovered that the Department of Trade and Industry (dti) assists small cosmetic manufacturers to exhibit at international beauty expos, to look for distributors, buyers — everything you need to get started.
On top of that, CECOSA helps with all the documentation you need,” Lorraine explains. And just like that, exporting Lavenderlane’s products became a real possibility.
Accessing international markets
On the one hand, Lorraine still can’t understand why South Africans don’t support local products. “I know 35 other small cosmetics brands that will tell you the same story,” she says. “If you do manage to get into a big retailer, you often wait 90 days for payment, which many small businesses can’t afford.”
After ten years of being in business, exporting opened a whole new world of opportunities for Lavenderlane. “I’ve been blown away by the opportunity that the dti has created. I’d rejected the idea of exporting because I didn’t think I could afford to exhibit internationally.
Instead, it’s a simple process, with a lot of support. I spent so many years wanting to throw in the towel. On my first trip to Australia I almost couldn’t believe what was happening.”
Since that trip, Lorraine has travelled to India, Dubai, Kenya and Saudi Arabia. “I’ve discovered that other countries love South African products because we’re known for our quality. As a rule of thumb, it takes three trips to the same country to secure a distributor. You’ll also find countries where your product just clicks. For us, that’s Dubai and Kenya.”
Focus on exporting
In early 2018, Lorraine received a key piece of advice from the owner of a well-known local brand: Put every cent you have into exporting your products. “She’s been operating for more than twenty years and has almost lost her business three times, and this is the lesson she’s learnt.
In her experience, South African consumers shop on price, which means Chinese products will beat our local offerings. It’s extremely difficult for local manufacturers to rely on South African sales as a result.” Lorraine understands the reality of South Africa’s financial situation. As a business owner, she’s adjusting her model accordingly.
If you’re interested in exporting your product, Lorraine has some key advice. First, ensure your potential buyer or distributor is legitimate. “You’ll often be asked for sole distribution rights, but there is fine print involved,” she says. “Do all of your paperwork properly. There are a lot of people who will guide you through the process but there are also no shortcuts.
In the beauty and cosmetics industry, you will always find CECOSA at beauty expos, but there are many export councils. Find the one in your industry. The dti is also always at industry expos and will guide you in finding different countries that suit your product.” In addition, Lorraine advises that you ensure your product is far superior to anything that your potential clients already have access to.
SUCCEEDING AS AN EXPORTER
Most markets suffer from the same problem: Everyone is inclined to do the same thing, which floods a market. Add to that a tight economy that often purchases on price alone and doesn’t always support local manufacturers, and exporting your product might be a viable growth strategy — provided you understand the landscape.
There’s also a wide range of funding available for businesses that want to explore this route. Theresa Möller, executive director of CECOSA, unpacks what you need to get started.
1. Choosing the right market for your product
There are two key secrets to choosing the right market for your product. First, is there product acceptability, and second, does the country import more in your category than it exports?
“The first thing we ask our members is why they want to target that country,” says Theresa. “What’s the benefit to them? Have they done their research or are they just aiming for the biggest market? Big isn’t necessarily better if the product/market fit isn’t right.”
According to Theresa, too many business owners focus on the size of the market and exchange rates instead of their products and where they will be well-received. “There are also higher requirements when you’re targeting the US or Europe, and meeting those requirements comes at a cost.
“Within Africa, the requirements for product listing are much lower than international markets, and if you comply with South African requirements, you already comply with most of Africa. The barriers to entry are therefore lower than Europe and US, where you need CE and FDA markings respectively.
The costs and time involved are huge. “You might be earning euros, pounds or dollars, but the return on investment might still not be worth it unless you’re a higher-end product.” One area that manufacturers must consider is the ingredients they use. “We have members who use goat’s milk, yoghurt and even crocodile oil in their products.
You can’t send crocodile oil to Europe and Australia. They’re both very vegetarian and vegan-dominated markets and animal-based products don’t perform well. Saudi Arabia and Dubai on the other hand are perfect for those types of products.”
Theresa’s advice is to look at the stats.
“It’s a pointless, costly exercise to go into a market that is exporting more than it’s importing of your line of product. We, like all industry councils, do a lot of market research through our foreign offices. Research firms also exist. The data is out there — you just need to tap into it.”
What you’re looking for in particular is import parity: Every product has a tariff number. Find your tariff number on Stats SA and IT Trade Map’s database — and the local equivalent in the country you’re researching — and then see how much of your product is imported from South Africa to that country, and how much is exported from that country into South Africa.
“If they’re exporting more than they’re importing, it’s not a great product/market fit. They’ve flooded their own market and need to get rid of excess product. If it’s the reverse of that, but they’re only importing 10% from South Africa, then you need to look at world statistics and extrapolate from there.
“You’re trying to determine if it’s a good market for you. If, for example, you’re looking at the UK as a potential market, and the UK exports 10% to South Africa, but 80% to Europe, then this is not a market that they see. They do however see potential in Europe. Why? Start researching that market.”
Before you look across the ocean, however, Theresa advises looking a bit closer to home. “From a logistics point of view, the closer the market is to you, the lower the freight and logistics costs you’re incurring.”
2. Be as cost-effective as possible (without sacrificing quality)
At the end of the day, all manufacturers are competing with Chinese imports, so cost is an issue. “You can be cost-effective and still offer quality products,” says Theresa. One way many manufacturers — particularly start-ups — achieve this is through joint ventures with bigger manufacturers and by outsourcing to contract manufacturers.
“There are high start-up costs to manufacturing, particularly in our industry, which requires pharmaceutical evaluations and specialised equipment and ingredients,” says Theresa.
“Smaller businesses that are linked to larger manufacturers can start producing and trading while they build up their cash reserves, until eventually they are large enough to manufacture on their own, if they choose to do so. Many companies continue to outsource production to contract manufacturers.”
The good news for business owners who choose to start manufacturing themselves is that there’s a lot of funding available to assist them in their initial set-up costs. “Once you’ve built up cash reserves and you’re ready to start manufacturing, you can join a buyer park, like Riversands Incubation Hub or the Innovation Hub. Funding then helps with rentals and equipment, although there is a time limit — business owners are expected to ween themselves off the funding.”
3. Get assistance
With government funding and assistance comes paperwork and bureaucracy. It’s a time-consuming activity and you must understand the process. “This is a big barrier, and one we encounter all the time. So many business owners don’t understand the documentation — and why would they? This isn’t their area of expertise.
“The reality is that you can’t just ask for money. You need a growth plan, a development plan, a business plan, and a marketing plan. You need to understand the industry and why you need funding. You need to be able to demonstrate what you want to achieve, what growth you expect and your long-term view."
You need to answer every ‘why’ and ‘how’ the funder might have. What is your intention with this business and why? What do you want to achieve? How many jobs are you wanting to grow? You need to provide a one-year plan, three-year plan and five-year plan.
Bear in mind, most government funding doesn’t require equity and either doesn’t need to be paid back at all or is interest-free. That’s why the process is so thorough and often arduous.” Fortunately, this is one of the reasons export councils exist — they are the experts in the processes and paperwork that government funders require.
“Too often, paperwork goes backwards and forwards for six months because it’s not done correctly, until eventually the business owner just gives up. It’s not necessary to do this alone. We have service level agreements with provinces, reserves and resources of provinces to assist our members in that area.
For example, if Western Cape growers, farmers or manufacturers need assistance in logistics, funding for a show or expo or training, we send them to our partner in that province. There’s a lot of assistance available if you know how to tap into it.” This assistance includes money for advertising, banners, promotional material and even a business or marketing plan. It’s all there — you just need to do the legwork and fill in the paperwork.
“We also host weekly training sessions for start-ups. They’re free and any member can come and spend the day with us to learn how to do market research, complete documents, what incoterms are (this is the set of rules that define the responsibilities of sellers and buyers for the delivery of goods under sales contracts), contracts of sale, export licences, and basically what all these terms mean. You’ll lose your business if you don’t understand them — particularly if you’re planning to export your goods.”
4. Find a buyer or a distributor
Just as you need an export licence, which you receive through the SARS customs office, your customer needs an import licence, or your goods won’t be allowed off the ship. “You can find a distributor through expos and market research. Sole agents are expensive and a lot rests on you, from market research to supply advertising material and managing them on a day-to-day basis.
Distributors on the other hand should already be plugged into the industry with retail contacts. They do business based on a distribution fee that is usually between 10% and 30% based on product volume and pricing. “A distributor also has a warehouse and distributes your product as part of their overall offering.
To choose the right distributor, look at their product mix. You want to choose someone who has the right connections and who you can train on your product, but who isn’t also distributing a competitor product. You want a deal in place that promotes volume — the more they sell, the higher their margins, for example.
You can also give extra product as an incentive if you can’t discount on your margin. Make sure you know exactly what you need to make from each sale so that you can give clear pricing and discounting directives. There’s a balance between incentivising your distributors and ensuring you make the margins you need.
According to Theresa, if someone offshore wants to do business with you, you need to start with a credit check. “Do some research on them. Are they a legitimate company? You want proof of banking details, company documentation and registration documents.”
You need a fool-proof contract that details your distribution agreement and includes your landed price, your selling price, your three discounted prices and any other selling criteria. “Pricing is critical and will be based on your market research. What pricing will your target market tolerate? Can you make the margins you need or does it make more sense to walk away?
If you have a higher-end product that can ask for more, can you afford the level of advertising you’ll need to do? Can you justify your price? These are all points to consider. “And if you’re wrong, withdraw from that market and look for other markets as quickly as you can. As soon as you discount, you become a commodity.”
If you find you’re priced incorrectly for your market of choice, you can try to find a way to cut costs, possibly through slight adjustments to your ingredients. “Perhaps you don’t use the ingredients or components you wanted, which allows you to come in at a slightly less expensive option that the market still wants. You can offer leather uppers in shoes for example, instead of 100% leather.
There are a lot of ways to adjust costs. “If you can’t adjust your costs, you need to market or promote your products heavily. The dti offers primary market research funding, based on approval, at an 80/20 ratio — they give you 80% and you cover 20% of the costs. They want you to have skin in the game.”
5. Market your product
There are many ways to market your product internationally. If you’ve gone the distributor route a lot of this will rest on them, but you can also get involved through social media channels. Theresa’s advice is to always ride on the back of the success of high-end multi-nationals. “If the likes of a L’Oréal or Proctor and Gamble have just done a whole promotion into Kenya, opened a new company and sold some great new products, go onto your social media and give them accolades.
You’re sharing the good news: ‘L’Oréal has just opened in Kenya, shouldn’t South African products be focusing on this great market? Maybe our product should be in Kenya too’… by using a multinational, you’ve just promoted your product and company. “Too many brands do the exact opposite.
By giving recognition you’re actually placing your brand and Brand South Africa on an almost equal footing with multinationals.” Theresa’s advice is to always ride on the success of the world’s biggest brands. “When we do research for our members, one of the first things we look at is where the multi-nationals are, how long they’ve been there, and whether they’ve opened their own factories or are only supplying into another entity there. This gives us a benchmark because they’ve already done the homework.”
Exporting is not a quick fix for growth or poor local sales. It requires a strategic intention to implement, and dedicated efforts in assessing the potential in export markets. It’s therefore important to commit to the process. That said, there is a lot of assistance available to businesses interested in exporting their products.
If you do want to tap into these options, however, you need to ensure you have all the detailed information at hand that will be asked of you, and this means you need to have covered all of your bases. Nadia Rawjee, director of strategy and finance at Uzenzele Holdings unpacks the seven key steps to becoming export ready.
Select and research countries and potential export markets
- Desktop research: Understand different countries and how the markets work by reading industry news and papers, trade data and other material online.
- Field research: Given the ability to connect with global buyers through digital and electronic means, a fair amount of research can be done from the office with email, video-conferencing and other tools to connect and communicate with prospective buyers before even setting foot on a plane.
- If you’re already exporting to a specific country, ask yourself, “how can I strengthen the market?” Can you look into the wider region?
Export readiness assessment
- Are you in a position to finance your export endeavours for a period of 12 to 24 months without necessarily generating any immediate income?
- Do you have any prior experience in exporting, or do you have experts that are able to assist you?
- Is your firm established and successful locally?
- Are you competing well with imported products?
Obtaining finance for your exports and managing FOREX risks
- You’ll need to budget time and money to research, promote and become export ready and then you’ll need to be ready to finance the export orders and manage exchange rate risks.
- Make use of the dti’s export marketing incentive EMIA to assist you exhibit and promote at up to six tradeshows per year
Promoting your products in foreign markets
- Make a hitlist of ten or more prospective buyers, agents or distributors of your product.
- Advertise and promote to potential buyers before leaving the country and make use of tradeshows to seal the deal.
- Promoting your products in a country should be well planned, and exhibiting at trade shows in foreign markets allows for your product to be on display.
Selling in foreign markets
- Sell through local distributors or agents who have access to the buyers of your products.
- Pricing must take tariffs, marketing and distribution costs into account.
Handling, export logistics and paperwork
- Deciding between air, rail, road or sea is dependent on various factors, including the weight of your product, the infrastructure available both in South Africa and in the destination country which will affect cost, distribution lead times, the value of your product and the life of the product.
- With all these options, and more, it’s best to have a freight forwarder that has experience in transporting your type of product to the destination country to ensure the best logistics solution and that all paperwork is in place.
Collections and international receipts
- Remember that there are different monetary regulations in various countries, including tax considerations.
- There is also a significant amount of paperwork attached to the process of receiving payment from foreign countries.
- When researching countries, assess whether there is liquidity or if getting money out is a challenge — this is particularly important when exporting into developing markets.
For those already exporting, being more focused and deliberate about expanding your markets, making use of financial support — such as EMIA — and exposing your business networks to exports will show growth in your business and is a crucial element to the growth and re-industrialisation of the South African economy.
- You must be an export registered company
- You must have traded for 12 months in South Africa
- Your products must be acceptable, conforming to the requirements of your industry
- You must be a local manufacturer or a trader of locally manufactured products
THE dti’s SUPPORT INCLUDES:
- Cost of the exhibition stand
- Freight of samples to the expo
- Plane tickets
For a full list of South Africa’s export councils, visit www.thedti.gov.za/trade_investment/export_organisations_contacts.jsp