Thinking of opening a new market but don’t know its business landscape? Rely on an experienced 3PL that does.
Global trade has inspired businesses to expand their footprints into new markets—but they are discovering that opening new markets brings unforeseen challenges.
Sufficient infrastructure must be in place to support sales, timely, high-quality order fulfillment and, when necessary, the processing of returns. There are also issues with new market taxes, shipping and regulatory compliance.
Enter third-party logistics providers or 3PLs. Experienced in many different world markets, 3PLs can assist companies in not only entering markets but making strong impressions with new customers so they can thrive in them.
How 3PLs Open New Markets for Businesses
Companies begin their new market entries with “paper assessments” before they enter. If the opportunity looks good, the next step is to start with the sales effort and early contact with customers. Warm customer welcomes are what sales wants to see—but for those farther down the supply chain, an early “warm welcome” can also spell risk.
What if the customers want the new product now and there is only a limited time to maintain their enthusiasm? In situations like this, companies need agility so they can capitalize on opportunities while they exist. This is also why companies can find themselves ahead of the game in a prospective new market if they engage those that already have experience there.
“There are many new market entry risks,” says Sheila Hewitt, vice president of International at Transplace, a global 3PL. “These risks can range from supplier and quality problems to regulatory compliance violations, transportation infrastructure or inherent logistics constraints. Part of what our job is, is to help our customers as they enter new markets to determine the risks of entry—and whether these markets are likely to be smart business moves in the long run.”
Hewitt says that when her organization works with customers, it already knows the regions and the markets in which they want to participate. “As a 3PL, we see ourselves as a logical extension of service for our customers,” says Hewitt. “We analyze regulatory requirements and trade laws for these markets.”
Many 3PLs have also extended their lines of service and in-market representation. They give customers a “long arm” into new markets by directly representing their customers’ best interests in the checkouts of supplier manufacturing facilities or in the quality of goods being produced in and for the new market.
“As a packager, we have to be ready to enter all the new markets that our customers enter as they expand,” says Scott Stuckenschneider, vice president at Huhtamaki, a packaging company that counts Chinet among its brands. “We are not of a size where we can bring in the expertise required for regulatory compliance, trade law and customs. This is where a 3PL really helps.”
New Market Mistakes that Companies Make
Sometimes companies rush to market because they don’t want to risk losing momentum—and they decide that they will fix the things that go wrong “on the fly.” “When this happens, companies find that they quickly end up at the point of assuring deliverables and service—and they might not have the amount of preparation that is required,” says Mark Robinson, vice president at UPS Capital, the financial services arm of UPS that serves businesses whose supply chains span international borders.
Robinson says there is a significant upfront investment required to support the logistics of bringing products to new markets. “Beyond sales, you have to determine what your service infrastructure and facilities are going to be in the market,” he says. “Do you handle order processing and fulfillment in-country? If so, do you hire employees? Do you buy or rent a local warehouse? A 3PL experienced in the new market can help companies answer these questions. It also is in a position to negotiate the best transportation rates with local carriers, because it already knows the market.”
Many companies will opt to use a 3PL initially, even if their ultimate preference is to establish direct corporate bases in its new markets. In other cases, companies might determine to permanently outsource their in-field operations to a 3PL if they feel it can provide premium services at a price that makes sense.
“What happens initially is that we get a call from a customer,” says Hewitt. “The request could be something like, ‘I’d like to ship goods from Madagascar to Charleston, South Carolina.’”
Hewitt says that the 3PL responds by asking such questions as what the product timeline is from build to market and what shipment volumes are projected to be. “It is at that juncture that we begin to open the door,” says Hewitt. “We enter into a research effort that encompasses customs, regulatory requirements, financial risk, etc., for the new market. We cover all of these bases because, in our world, we believe we are obligated to assist and to aid our customers in taking a holistic approach to any new market they are considering.”
High risk characterizes inaugural shipments to new markets, because companies are likely to uncover regulatory requirements overlooked in their initial due diligence. Egypt, for example, has numerous market entry requirements. China can be problematic because there is a preponderance of regulations for U.S. exports. In Europe there are tax implications, depending on where you export goods from. Some Eurozone locations are also better than others for holding inventory. Finally, duty impacts can be significant—to where it becomes advisable for companies to use an alternate freight-on-board (FOB) approach to shipments.
“One mistake that companies entering new markets make is not fully understanding all of the needs and requirements for entering a new market,” says Robinson. “You might say that they ‘can’t know what they don’t know’ for lack of experience. Even if you outsource some of your new-market work initially at a higher cost, you can minimize your upfront investment in infrastructure and operational costs while you are learning the market, and then make those investments after you really understand what you are going to need.”
There are also inherent risks in using new-market suppliers with which a company has little or no prior experience.
Many of these suppliers don’t always forward information. In some cases, it might even appear that a supplier has a significant profit margin. A 3PL with local presence in the new market can uncover this and relay it to its customer-company, which can in turn act to eliminate the excess margin. “In the end, the last thing our customers want in a new market launch is late deliveries, slow shipments or customer or regulatory issues,” says Hewitt. “We can help our customers determine upfront the terms of sale they are going to use for new markets they are entering.”
How Companies Can Capitalize on their New Market-3PL Relationships
Finding an experienced 3PL in the market you wish to enter can help mitigate risk, so it goes without saying that companies should consider 3PLs. However, there is still a “danger point” when it comes to procuring 3PLs—because the tendency is also very strong to retain services from the least-cost 3PL.
This isn’t to say that you can’t find both the best performing and the “least cost” 3PL, only that companies should carefully assess how well a 3PL can deliver in the new market before signing up.
“Choosing a 3PL partner is a really big decision,” says Robinson. “In a very real sense, companies are consigning their service levels and their ‘face to the customer’ in a new market when they engage a 3PL to represent them in that market. This is why choosing a strong 3PL with the resources and the know-how to deliver a value-added presence in a new market is vital. If you don’t do this right—it takes great time and energy to get out of a relationship with a 3PL when you see that it isn’t working.”
In a competitive global marketplace, companies continue to seek out new materials for use in manufacturing and to cope with how to turn a profit in an ongoing worldwide economic slowdown. Many companies seek expansion to growing markets in India, South America and Africa—at the same time they are considering doing more near-sourcing of goods and materials, and are even beginning to look at the U.S. as a sound and stable alternative for their supplier base.
This is a lot to put on the table for a single corporate regulatory department—or even the supply chain and sales functions tasked with opening up new markets and delivering timely, quality product to them. “In this environment, there is no need to recreate the wheel,” says Huhtamaki’s Stuckenschneider. “3PLs can get the new market work done quickly and without mistakes. This speed to market is essential.”
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