A Case Study

Normally any exporter would wish to export to markets and customers where they know businesses can afford to pay. But what if there is a market where you wish to be involved but money is either restricted or almost non-existent?

I can provide one such example. Though it would appear a little dated I would suggest the case could be applied today. The market in question was Yugoslavia just before the break-up into sovereign states One of the many downsides locally of that situation was that people had no money and literally were living from day to day. My company sold branded consumer products which were normally sold in most countries through distributors.  These products would normally enjoy good market shares based on brand image, pricing and product performance. We required local stock holdings and sales teams to market and sell to all elements in the trade.

In this country goods were now being sold only when people had money to pay for them. Brand and heritage of products no longer counted for anything. What mattered was availability. If you were a consumer of our type of products once you had money you would immediately purchase the product that was available. The brands had now become commodities.

Obviously it was not possible in this situation to use a distributor to purchase and store products, He would not have any guaranteed sale and maybe could not afford to buy from us.

My company had to make both a strategic and commercial decision about our business in that market and for the future. Although we could not predict the future it was clear to us these would be key markets for our business. We could not afford to withdraw from the market and return when the economy had stabilised – our competitors would happily take over our customer franchise. And gain benefit from their own product visibility and purchase habits. It would then be extremely difficult then to re-enter having lost our core customer loyalty.

Having taken the key decision to remain, the next issue was how? Normally the company’s worldwide policy was to avoid using consignment stocks. In fact at that time we did not use that facility anywhere in the world. For our products the risks were generally too high. The products were high value for a consignment situation where the liability for the product was entirely ours with no guaranteed sale. The matter was further compounded by the fact that our products were perishable and possessed limited shelf-lives. Normally a distributor would manage both the inventory and the storage conditions as part of his responsibilities.

So having taken the hard decision to proceed we then had to consider how best to set up a controlled situation where to take immediate advantage whenever a buyer with money presented themselves.

We also required the services of an agent who was alert to the market situation and could quickly respond.

We first evaluated the market and decided to concentrate our efforts on the Istrian peninsula which attracted many holiday makers who were purchasers of our products.  We used the main local town of Rijeka as our operational base and recruited a local agent based in the area. Together we identified a secure warehouse facility in the town and were now ready to start our new operation.

We had to be particularly careful in the selection of the agent as he would be carrying out additional responsibilities to those of selling. He would be handling local payments, generally in the form of cash, and have to ensure they were securely banked to the company’s credit. He would be entrusted with the local release of product to a customer and the on-going stock inventory was properly accounted for. Remember these were the days before the internet so we were reliant on good use of the fax and telephone for basic communications.

An initial inventory of stock was shipped and placed into the warehouse. Safe receipt was confirmed both by the warehousing facility and the agent. He was now able to sell but not in the traditional way. He sought potential buyers who could afford to pay when money became available, made them aware of the product and its price and provide methods of how they could contact him. In practice he found he had to call key buyers daily, either by telephone or in person, to check on what was a fluid situation.

Whilst there were naturally some teething problems, the process worked. Business grew and we were able operationally to meet requirements. As the summer period ended there was potentially going to be a drop in demand. Our agent was alert to this issue and had already developed contacts with nearby Ljubljana and Zagreb. As a result we carried a limited supply, from our Istrian base, to these cities.

Incidentally we had to devise a special remuneration package for the agent to recompense both his responsibilities and the variable levels of sales. He was provided with commission on sales plus a guaranteed standard fee per month plus payment of exceptional expenses.

So what was the commercial outcome of this venture? It was an expensive operation to mount but had the one advantage of maintaining a level of sales to both local and visiting consumers. We were able to keep a foothold in this market and were able to establish some good local trade relations and contacts.

We maintained the consignment stock facility for one year when market conditions then deteriorated further due to the political and economic collapse of the country. We had established good relationships with a couple of trade customers and switched to supplying limited quantities direct. There was then a further period before the new independent states were created. We were able to immediately commence trading in Croatia and Slovenia based on our previous experience and then move relatively easily into Serbia.

During this whole period we retained the services of the agent on a fee basis and asked him to keep abreast of trade developments and seek potential customers for the future.

The main learning points of the exercise were that to gain future business, the company had to take a calculated risk and operate outside of standard worldwide operational policy.


Written 8th August 2013 by Dick Brentnall S&H LLP Associate/ Trainer

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