There are few alternatives these days for a European National Fishing Tackle Company than to aim towards the development of new sales in neighbouring countries.
Numerous are the European brands that are presently selling outside of their original market as companies are doing everything they can to generate positive growth inside an oversupplied and rapidly shrinking European market.
As the number of players increases in each country through this process and through Globalization, those companies still only “national” are feeling the pinch from a decreasing market share and will soon have no option than that to follow suit and go Pan-European.
We shall, in order to illustrate this article, cover the example of a fictitious company that has a solid market share in its own country.
Getcarp, Ltd is a 20 year old British company that has established a solid market share in Britain through the successful development of a complete range of Carp Angling products. Its original range was composed only of carp bait, but the owner and creator of the company, a young engineer and fishing enthusiast, rapidly understood the potentials of the Carp Fishing Market and used his newly prominent brand to expand into sales of specialised terminal tackle, rods and reels.
He has nevertheless been feeling the pinch in the last couple of years.
His product development has been excellent and so has his pricing, but domestic sales are stagnating, gross margin has started to wince and he is finding it hard to control his overheads.
The Getcarp brand enjoys strong market recognition and its products are commonly used by top British carp anglers.
Our still young engineer has analysed the situation and concluded he has no other option than to expand his business by selling into neighbouring markets.
A rapid study helps him to establish which markets could accept his range of products and he concludes that most of western and central Europe is potentially feasible.
Many questions remain to be answered:
How to sell?
How to price?
How to handle logistics and service?
What investment is required?
What return to expect in the short and medium term?
Our entrepreneur quickly decides that it would be a mistake to attack all potential markets in one time. He is not structured to respond to what could turn out to be damageable success. He also adds up that it’s not worthwhile diluting his marketing budget. So he decides to enter the potential markets one at a time and his first target is rapidly established as France, a neighbouring market with a large population of regular anglers, actually, one of the largest markets in Europe! Carp fishing is popular; many British brands are successfully established in France, some of them, with smaller market shares in UK than his.
The young businessman knows the French market pretty well, he regularly travels to France for holidays or events and has kept up to date with the evolutions of the market, he knows however that market awareness from abroad is very different from reality on the terrain and he doesn’t expect an easy ride.
What to do? Find a distributor: A very difficult task, most European companies are not looking for distributions these days or at least not for such a large range as Getcarp’s. Most strong European national distributors already have similar ranges of carp product of their own brand or through a distribution agreement with one of the majors.
Getcarp’s boss believes nevertheless that the French consumers will naturally accept his products; it’s just a question of creating brand awareness and ensuring the consumers gain access to the product.
He basically has two options if he is going to prospect the French dealer network.
a/ Recruit commissioned agents. It’s however important to note that French law requires an indemnity equal to no less than 17 month’s average commission to be paid as soon as the contract ceases and calculated on the last three years of sales.
It may be difficult to find agents for a range that counts over 1000 items.
Nevertheless, using sales agents is cheap in the short term, and can remain a good solution in the long-term if no major sales policy changes are required. Using sales agents could also allow him to function without the creation of a subsidiary company in France as he would be in fact just paying commission and not directly employing staff. He would then just have to issue net export invoices and his customers would then handle VAT declarations and intra-community acquisitions when necessary.
Payment from customers can either be made directly to the company’s UK account or things can be made easier for the dealers by the opening of a bank account in France. Invoices should also be made out in the local currency and the currency risk handled by Getcarp.
b/ Employ a team of full time house salesmen. This long-term solution is expensive in the immediate until sales grow enough to cover staffing costs. Again, this is a durable commitment; recruiting capable salesmen is not an easy task, furthermore in a country with a different culture. One of the greatest difficulties is recruitment itself; to trust or not to trust employment agencies. Our trade is very specific and requires salesmen that can understand the technicalities and relay the message to the dealer network. These salesmen have to be employed by a French company and this requires the creation of a subsidiary in France.
In effect, deliveries will be made from the company’s warehouse in the UK, but the invoicing will have to be made through a newly created French company, 100% a subsidiary of Getcarp, Ltd. Actually, French dealers prefer to have lighter paperwork and receive a French company’s VAT invoice than to have to make declarations of intra-community acquisitions.
Its simple thinking: If you make it complicated for the dealer to buy from you, you’re being uncompetitive! By placing itself at the same level as its French competitors, Getcarp would be preparing the way into the market with a long-term commitment and projecting that image to the dealers.
The subsidiary should not require any ancillary staff. An accountant and a good relation with the bank would suffice. The salesmen will act as relays for communication, but the language issue will have to be resolved within the company.
French VAT invoices will be printed on the same printer as the UK ones and will accompany deliveries to the new French dealers.
The most important decision must be taken from these two options, the first one: Using commissioned sales agents is a variable costs solution, making purchases by the French dealers a little more complicated due to still existing intra-European bureaucracy. It’s important to realize that the commissioned agents will not only be selling Getcarp’s products and that marketing budgets will have to be consequent in order to generate interest.
The second is a long term investment involving immediate important costs but a dedicated sales force that should certainly reap results quite rapidly. Marketing budgets can be less prominent due to a stronger presence on the terrain.
Pricing: In the case using commissioned agents, the price list can be the UK price list, converted into Euros and integrating discounts as required by the market. It’s by far the easiest way to function and does not require a complete re-evaluation of pricing. The theory being that in Europe, if you are competitive in one of the markets, there is a fair chance you are competitive in other markets as well.
Logistics: On paper, it’s the easy part, although it’s often surprising to find out how different the actual service of the major express shipping companies differs from their projected image. Again, trial and error will be the only way to select a good shipping company that provides good tracking of the goods and on time deliveries.
Investment: The first investment will be to include the French language onto all the packaging of the products of the brand. Bar coding with EAN 13 gencodes is also indispensable. Promotion of the brand in the specialised media will have to be budgeted and negotiated together with PR accompaniment. A second stage will follow with the development of market specific product, once that knowledge is acquired.
In all, a lot of work for any small to medium size business! Entering a new market in a serious manner is not an easy task and should not be undertaken lightly if one is to achieve long term growth. So many companies show initial dynamism, only to slow down and wear out after a fashion but in our shrinking markets, do we have any other alternative but European growth?
Louis Tchertoff 2007-04-03