At Gongs Unlimited LLC in Lincoln, Neb., owner Andrew Borakove gets excited every time he exports one of his products to Asia. "Usually gongs come from Asia," says Borakove, who has sold his wares to clients ranging from musicians to meditative groups. "Every time we ship to Asia, I consider that a huge success." Borakove's nine-person business – which generates more than $1 million in annual revenue by selling gongs on its own website and through eBay and Amazon – has shipped gongs to Fiji, Hong Kong, Japan, Malaysia and South Korea.
Like Borakove, many U.S. entrepreneurs are excited about the chance to grow their businesses in Asia, where the number of middle-class consumers in countries such as China and India is rising quickly. In the next five years, Asia and Australasia – the region made up of Australia, New Zealand, New Guinea and nearby Pacific Islands – will have the fastest growth in retail sales volume in the world, averaging 4.6 percent, according to a report by PricewaterhouseCoopers LLP published in February 2015. And e-commerce sites like Tmall.com are making it easier for U.S. businesses to reach consumers in Asia.
While it is hard to match these opportunities in other parts of the world, you will need to master some challenges to tap into them, ranging from understanding business etiquette to protecting yourself from legal misunderstandings. Here is some advice from entrepreneurs and experts on how to succeed in exporting to Asia.
Getting into exporting can take time to research, so look for ways to streamline the process. The U.S. Small Business Administration runs Export Assistance Centers in many cities, where you can get free, personalized advice on whether it makes sense to export your product or service to Asia. The U.S. Commercial Service can also connect you to a network of exporting experts who can advise you on whether there is a demand for your product in Asia and how to meet it.
Asian countries have different laws regarding intellectual property than the United States does, so make sure you get legal advice on how to safeguard your brand and product before you start marketing it. "If you are going to mess up on anything, don't mess up on your intellectual property," says attorney Dan Harris, a partner and founder at Harris Moure PLLC in Seattle and author of the well-known China Law Blog. It can be very hard to undo the damage, by his account.
Some American exporters lose rights to their intellectual property in China, for instance, because they don't realize they must actively file to protect their IP there – or it does not belong to them, says Harris. "Americans will go into China, sell on Tmall and all of a sudden, someone will have their name," says Harris. "Then they will call us and say they want to sue this company in China." These U.S. firms are generally out of luck, because they failed to register the Chinese version of their brand name in China, according to Harris. "The only exception is if you are a well-known brand, like Coca-Cola," says Harris.
Exporting to Asia will generally go more smoothly if you can meet potential business associates and clients at least once before you make a deal, and ideally more than that, experts say. "Americans like to get down to business right away, but in Asia, there's more of a long view of relationships," says Greg Cullison, a senior executive at Big Sky Associates, an operations management advisory firm in Charlotte, N.C., and Washington, D.C., and an expert in geopolitical risk analysis. "That may mean if you don't have the money to keep an office in the country, you may need to think about a local partner who understands the market and does speak Chinese."
Peter Mann, CEO and founder of Oransi, a company in Austin, Texas, opted to open a small office in Beijing when his firm, founded in 2009, began exporting U.S.-made, high-end home and office air purifiers to China at the beginning of 2014. "We hired a person who is Chinese to set up our office," says Mann, CEO and founder. "She's also lived in the [United States] and understands both cultures. She speaks English and Chinese." That made it easier to do business in China.
Like Oransi, many U.S. companies look for a distributor to sell their products overseas. That can be a good approach if you don't plan to open an office in the Asian country, but it is important to vet distributors carefully. Be wary of any distributor that demands an arrangement to sell exclusively in one country with no minimum sales requirement of your product. "They are probably selling for your competitor and will block you out of the market," says Harris. "We have had brands blocked for years from China. Americans are so eager to get in there [that] they sign these agreements."
That doesn't mean that there aren't trustworthy distribution partners who will work with you in Asia. Lara Hodgson, an Atlanta entrepreneur, teamed with local nonprofits to distribute her product, Nourish Water, a spill-proof water product for children, in Japan to disaster-relief projects after the 2011 earthquake and tsunami. "They were sending doctors and offered to bring the product with them," says Hodgson. "We ended up doing a campaign where our customers here would donate products abroad, we would package it and the partner would ship it."
If you plan to license your brand name to a distribution partner overseas, do you your due diligence—especially on the partner's history of quality control—and invest in good legal advice on how to draft the agreement. "Americans fail to realize that a distributor can destroy their reputation," says Harris. Some American companies have found that such a distributor has put their brand name on an inferior or even dangerous product, according to Harris. "They'll try to stop the company from selling it, but their contract doesn't allow them to," he says. Enforcing even a carefully drafted contract can be tough. "It's not as simple as people think," he says.
If you sell a consumer product, marketing it through a large e-commerce marketplace – or more than one of them – may be the easiest way to break into Asian markets. As the PricewaterhouseCoopers report points out, China is on its way to being the world's largest e-commerce market, and its larger e-commerce business, Alibaba Group Holding Ltd., had a record-setting initial public offering. In addition to eBay, Amazon and Tmall, sites such as Alibaba.com, JD.com and exportnow.com work with American entrepreneurs. Mann sells through Alibaba and Amazon and recently began setting up his firm to sell through JD.com. "Two or three years ago, air purifiers were sold in department stores," he says. "It's moved quickly to be an online business."
While you will generally have to pay setup fees and other charges to do business through a well-known online platform, using one can make exporting easier. The sites are already set up to handle financial transactions for you, so you won't have to figure out the best way to do this from scratch. On Alibaba, for instance, consumers can use Alipay.com, a third-party online payment system with no transaction fees. "In China, it's largely a cash society," says Mann. "They don't have the credit system we have. That's where people are comfortable."
If any disputes arise over sales you make from a distance, it will be harder to resolve them than if you and your client were both in the United States, operating under the same legal system. Many experts recommend getting trade receivables insurance and putting safeguards in place to make sure you get paid. Harris advises a client in Illinois who sells pieces of equipment in China that are worth $1 million to $2 million each. He advises this client to ask for $1 million up front, another $500,000 before each item is shipped, another $250,000 when it arrives in China and $250,000 after client inspection. "There's always the assumption that they are not going to get paid," says Harris. "They always make sure there is money in the bank before they take the next step on behalf of the Chinese company. [That way,] if there is ever a point where the client doesn't pay, our client doesn't go negative." Ideally, the worst won't happen, but just as in doing business in the United States, exporting in Asia goes most smoothly when you are prepared.