Original Article appeared in TradeReady 31/01/2019
I’ve learned a lot of lessons from over a decade of observing the efforts of senior trade development professionals, combined with research that included trade mission/show follow-ups, interviews with SME exporters, and extensive conversations with foreign government trade development officials.
One of the most important is that all of these sources revealed a critical gap in export market entry.
Canada’s SME exporters still mainly rely on the traditional “push” export approach, which involves selecting a potential market, building and launching a market entry strategy, and attempting to penetrate a new market from what is perceived to be a low risk or safe distance.
However, the vast majority of potential buyers, as well as Canada’s international competitors, transitioned many years ago to a “pull” procurement approach.
Buyers prefer to purchase from local suppliers who offer fast delivery, local invoicing, and produce service and warranty.
Exporters using the pull approach, rather than trying to force their way into an established and usually highly competitive market from afar, take a longer term view and become part of the local supply chain that allows them to instantly identify opportunities and pull any good or service from head office.
In contrast, the typical SME exporter seeking to enter new markets is to focus on managing risk and guaranteeing ROI over the near term. This is most easily accomplished by a simple push approach that relies on selling goods into markets without a previous invitation or request, and doing so with the minimal risk or expense.
But with service exports or services integral to product exports like software, licensing, R&D, custom design and fabrication, etc. becoming an increasingly important part of international trade, companies lacking the ability to provide these services are falling behind.
As more countries require a certain percentage of local or domestic involvement, many companies not already in those markets are immediately excluded.
And if a buyer is looking for a supplier, they will often find several local options and limit their search to those options, rather than expanding their search further to international options.
I suggest that the focus on push exporting of goods, and systematically failing to encourage and support potential exporters to use the pull approach are the primary causes of why Canadian SMEs export less than SMEs in many of Canada’s primary trading partners.
By encouraging more businesses to set up local presences in international markets, new doors will open for them and their exports should increase as a result.
How pull procurement tilts the odds towards businesses with a local presence
The pull approach is nothing new and has been in common use by international competitors and large Canadian exporters for decades, but has largely been ignored by most SMEs.
The fundamental success factor in any pull application requires only that SME have an established presence in the target country that allows them to identify, quantify and access opportunities from inside that market.
They can then pull goods, services and value-added intellectual property in as required.
This presence can take several forms, and is almost always much lower cost than trade missions or even trade shows.
So why does pull work so much better than push?
Put simply, suppliers are easy to find in any given market: they advertise, have websites, are often members of highly effective international trade promotion groups, focus exclusively on getting product into the hands of buyers, and compared to buyers are relatively few in number.
In contrast, buyers are much greater in number, do not advertise, and the vast majority rarely, if ever, attend trade shows.
But more importantly, procurement has changed and now often focuses on services or service-intensive goods that demand a local presence.
In addition, the vast majority of buyers depend on local supply chains, either by preference or to comply with local regulation or procurement contracts, as mentioned above.
This puts buyers (pull) in control of the procurement relationship. With the entire world and often literally thousands of suppliers to choose from, the chance a buyer will find one specific seller is low – and despite all we are told, a website is never going to solve your marketing problems.
How does this play out in real-world examples?
Our international market research in 15 countries has shown that most of Canada’s SME competitors have been using a “pull” approach since at least the mid-1990s.
In many markets they have dominated and have effectively shut out push type export sales into these countries.
EDC has successfully used the pull approach on larger projects and foreign buyers for years, although despite their best efforts, this approach generally does not benefit the majority of SME firms as much as larger companies.
A clear example of the power of the buyer vs the supplier is a Latin American startup importer that easily identified and qualified providers and signed procurement and services agreements with over 30 suppliers in 14 countries (pull) in under 120 days.
Over the next two years they grew to dominate their multi-million dollar national market, yet only one international exporter reached out to them (push) to carry their product.
Another recent example of the gap between push and pull exporters is a country actively trying to develop a new oil and gas services and support cluster, that offers excellent (potentially huge) opportunities and facilitated access to market for significant numbers of Canadian SME.
While these opportunities are obvious, easy to identify and quantify, and offer immediate revenue generation, over the past two years, dozens of Canadian firms have visited this country on push type trade visits, but to date few, if any, have achieved meaningful success.
One reason is obvious: local content procurement regulations systematically eliminate push exporters, and direct procurement towards registered local pull type providers who must meet minimum local supply and service levels.
How can I take greater advantage of buyers using a pull approach?
Any effective approach must address the gap between SME needs to manage risk and provide a low cost, facilitated market entry, as well as recognize the constraints of the offshore buyers and their requirement to operate within their supply chain as pull importers.
Unfortunately, while simple and inexpensive, this is not as easy as it should be.
Any SME can do it on their own, but very few will, so it usually comes down to developing a group (shared risk/cost) approach.
The most successful examples are where industry groups and associations, usually working with various levels of government engage private sector consultants who are subject matter experts in the various industries and have a strong understanding of the local and target country markets.
These consultants can then package export investment opportunities and present them in a format that is easy to understand and promote.
The generic approach that has been observed to offer a success rate of well over 50% for each opportunity identified is to:
- Assess the target sector.
- Identify strategic operational areas in services and value added supply chain where there is a demonstrated need that is expected to grow strongly for at least 5 years.
- Identify the ideal profile of the target SME firms they would need to attract.
- Review the local operating environment with respect to constraints that could restrict trade and develop effective solutions before these constraints become problems. Develop a comprehensive business case on each opportunity with sufficient detail to allow an SME to make an informed decision.
- Where possible, partner with the provincial and federal government trade promotion agencies and various industry associations to promote it to their members and constituents, as this can sharply reduce the cost of any due diligence.