MLM International Market Entry: Practical Issues

Haphazard Hazards

There are a shocking number of direct selling companies that fail to plan appropriately before entering a new country. I know of companies where they have even gone so far as to start shipping product by sea to a country, and say that they will figure out all the details by the time the product shows up! The pressures to expand internationally invariably come from respected and successful sales associates who claim that they can get the company into the country quickly and effortlessly. The entrepreneurial nature of very successful sales associates can literally know no borders, and in fact, neither may they restrict their sales efforts to countries where your company is "officially" doing business.

I would strongly suggest that as a responsible executive, it is your duty to not play the part of the three monkeys (Hear No Evil, See No Evil, Speak No Evil). If you don't have a strong international growth plan, then some of your sales associates will plan for you, and you may be forced to make up continuous "work around" systems for individual sales associates that will eat up your company resources, and put your international reputation at risk.

Product Registration

One of the most important, and often overlooked, elements of taking your product to a global market is international product registration. Most products, and especially those that are used directly on people such as cosmetics, foods and nutritionals, must be registered with the local ministry or department of health before they can be sold in a given market. Will Halterman, President of Global Trade Services says, "One of the most common pitfalls of many companies is not understanding the regulatory environment of the country they want to do business in. Companies need to understand, or contract with companies who do understand, the regulatory requirements for distributing their products in foreign markets. Without this knowledge, companies face stiff financial penalties, public action and even preclusion from doing business in a given market."

While it makes sense for you to keep different formulations of the same product to a minimum, Mr. Halterman concludes that "Another pitfall many companies fall into is not customizing their product for the country they want to do business in. Just as different people around the world have different tastes and preferences, governments have different formulation requirements for product marketed within their borders. What are the preservative level requirements? What colors are permitted? Are certain ingredients prohibited or restricted in a given country? These and many other questions must be asked when considering the movement of any product into a foreign market."

Testing the Waters

In countries where it is permitted, a Not-For-Resale (NFR) model makes sense for companies that want to test the viability of their formal entry into a foreign market. The NFR model is based upon local "personal import" laws that in some countries, allows your product to come into the country with its original labeling and formulation for personal use only. Used wisely, this method can slowly build a base of product consumers with whom you can build around when you decide to officially open up for business in that country.

While the NFR model is a very effective tool, company executives must understand that this model is by no means a "catch-all" method of getting your products through customs. There are specific rules and regulations that must be followed, and again, personal imports of your product may not be allowed in the country that you wish to enter. I have been approached many times by companies who say that they are having trouble with their NFR products going into a particular country, and I have to explain to them that it is because there is no such thing as NFR allowed in that particular country. As an executive, be aware of the rules and don't get caught in the trap of assuming that NFR is a type of carte blanche that can be wielded in any country you choose.

Distribution

For the direct selling industry in particular, logistical distribution of your products tends to be unique country by country. Generally speaking, outside of the United States, credit cards are not the preferred method of payment, so several different types of payment collection are needed. In some countries, your customers may not even have a physical address for delivery, so key pick up and payment points may be appropriate.

As an executive, address each country as a unique challenge, and try to refrain from automatically copying a method that another direct selling company may be employing. In many countries in South-East Asia and South America, direct selling companies have formed a habit of having sales associates act as mini-distribution centers whereby they pre-pay for the product and sell it on a retail basis out of their home or office. The advantages are that the direct selling company can distribute their product in areas that don't have reliable services and can collect cash payments. The disadvantages are that your company is severely limited in sales growth by geographic areas, and that your company rarely knows who the end consumer actually is. Another big disadvantage is that you end up having a nightmare of inventory and supply chain issues that your IT system may find impossible to track. Take the time to understand the "lay of the land" of each country and spend time with the right people to develop the right distribution method for your company.

Where possible, look into the feasibility of using regional distribution centers in countries such as Singapore and Hong Kong to store your products. In cases where you are able to use the same formulas for several different countries, you can find vendors who will store your product in bulk, then label your product individually with the appropriate country label on demand. Backorders can be the death of momentum in this industry, and the amount of inventory that direct selling companies keep is much larger than other industries because of this fact. Accordingly, if you don't take advantage of regional distribution hubs, then you may find that the money you have tied up in huge inventories in every country you do business in becomes crippling to future growth.

Tax and Legal

Do not make the mistake of starting to do business in a country without consulting country experts in tax and legal services. It is essential that you find the right partners in who can help you develop your tax and legal strategies for each country individually, and as a worldwide company as a whole. The right partners can also smooth the way with government officials and can simplify the process enormously. While the right kind of consultants in these areas are relatively expensive, I can't think of a more critical and appropriate use of budgeted funds as you consider the costs of opening for business in a new country.

International Growth

In conclusion, there are no hard and fast rules that can be applied to every country. The temptation to "jump right in" into a given country is great, but give yourselves realistic deadlines when trying to launch your product in a country. Be aware that just the registration process alone in some countries can last up to a couple of years, though for the most part can be done in 3-6 months. The opportunities for growth internationally can literally be exponential, and have made some of the big players in this industry what they are today. With the proper foresight and planning, you can make the operational part of your international expansion a tool in creating an environment where your products are sold smoothly and efficiently.

Charlie Smith is the President of Operational Insights, a consulting group specializing in operational and logistics issues confronting the direct selling industry. Charlie has been the COO of two large multi-national direct selling companies, and is an expert in international and domestic distribution of products. You can find out more about Operational Insights at www.opinsights.com.