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Step 8: Preparing your export plan

You are here:Step 8: Preparing your export plan >Preparing an export marketing strategy for your firm > Export distribution > Contracting


 

 

Contracting

 

What is contracting?

Contracting involves entering into an agreement with a company that provides your firm with a service. In the case of the market-entry options we have been discussing, this service would involve the contract to manufacture and/or market your goods in an overseas target market.

Management contracts

A management contract is an agreement whereby a company (the management company) manages some or all of the operations of another company in return for management fees and, sometimes, a share of the profits. Many hotel groups have management contracts with hotels in other countries and earn fees for consulting and for providing management services. With management contracts, there is minimal risk associated with market entry, no expropriation risk, and no need for capital investment. These contracts capitalise on management skills and provide a guaranteed minimum income.

Manufacturing contracts

Contract manufacture involves a formal, long-term contract between parties in two different countries for the manufacture or assembly of a product. The company that places the contract retains full control over distribution and marketing.

There are a number of advantages to contract manufacturing:

  • As there is no need to invest in manufacturing plant, the company placing the contract does not need vast capital resources, nor does it have to be concerned about the possible political instability of a market
  • There is no risk of the company experiencing financial loss because of adverse movements in foreign exchange rates
  • The company placing the contract can avoid labour and other problems that could result from a lack of familiarity with the country concerned; at the same time, it enjoys the advantage of being able to advertise its product as locally made
  • Cost advantages could include savings in transport costs and lower production costs
  • If a market proves to be too small or too risky, it is easier and less costly to terminate a manufacturing contract than shut down a wholly-owned off-shore production unit

Contract manufacturing, however, also has its drawbacks. It is often difficult to find a foreign producer with the ability to manufacture the product to the required standards and in satisfactory quantities; even when a suitable manufacturer is identified, the company placing the contract runs the risk of training a future competitor!

You may want to consider the following factors when deciding on whether to go the contracting route.

 

 
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Step 8: more information

Step 8: Preparing your export plan
      Synopsis of research already done
      Revisiting an export SWOT analysis of the firm
      Setting the export objectives of the firm
      Preparing an export marketing strategy for your firm
                  The export product
                  The export price
                  Export promotion
                  Export distribution
                        Market entry channels
                              .Indirect exporting
                              .Different forms of representation in international trade
                              .Licensing and franchising
                                    .Factors affecting the investment decision
                              .Manufacturing abroad
                        In-market distribution decisions
                        The influence of payment and Incoterms on distribution
                        Physical distribution
                        The Whole Channel concept
      Preparing an export budget for your firm
      Outlining an implementation schedule for your export activities
      Preparing and presenting your export plan
      Obtaining approval for your export plan

 

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More information on Step 8
Learning to export...
The export process in 21 easy steps
Step 1: Considering exporting
Step 2:Current business viability
Step 3:Export readiness
Step 4:Broad mission statement and initial budget
Step 5:Confirming management's commitment to exports
Step 6: Undertaking an initial SWOT analysis of the firm
Step 7:Selecting and researching potential countries abroad
Step 8: Preparing and implementing your export plan
Step 9: Obtaining financing for your exports
Step 10: Managing your export risk
Step 11: Promoting the firm and its products abroad
Step 12: Negotiating and quoting in exports
Step 13: Revising your export costings and price
Step 14: Obtaining the export order
Step 15: Producing the goods
Step 16: Handling the export logistics
Step 17: Export documentation
Step 18: Providing follow-up support
Step 19: Getting paid
Step 20: Reviewing and improving the export process
Step 21: Export Management
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