CHAPTER 15

AFTER-SALES SERVICE

Three factors are critical to the success of any export sales effort:
quality, price, and service. Quality and price are dealt with in other
chapters. Service should be an integral part of any company's export
strategy from the start. Properly handled, service can be a foundation
for growth. Ignored or left to chance, it can cause an export effort to
fail.

Service is the prompt delivery of the product. It is courteous sales
personnel. It is a localized user manual or service manual. It is ready
access to a service facility. It is knowledgeable, cost-effective
maintenance, repair, or replacement. Service is location. Service is
dealer support.

Service varies by the product type, the quality of the product, the
price of the product, and the distribution channel employed. For export
products that require no service _ such as food products, some consumer
goods, and commercial disposables _ the issue is resolved once
distribution channels, quality criteria, and return policies have been
identified.

On the other hand, the characteristics of consumer durables and some
consumables demand that service be available. For such products, service
is a feature expected by the consumer. In fact, foreign buyers of
industrial goods typically place service at the forefront of the
criteria they evaluate when making a purchase decision.

All foreign markets are sophisticated, and each has its own expectations
of suppliers and vendors. U.S. manufacturers or distributors must
therefore ensure that their service performance is comparable to that of
the predominant competitors in the market. This level of performance is
an important determinant in ensuring a reasonable competitive position,
given the other factors of product quality, price, promotion, and
delivery.

An exporting firm's strategy and market entry decision may dictate that
it does not provide after-sale service. It may determine that its export
objective is the single or multiple opportunistic entry into export
markets. Although this approach may work in the short term, subsequent
product offerings will be less successful as buyers recall the failure
to provide expected levels of service. As a result, market development
and sales expenditures may result in one-time sales. Instead of saving
money by cutting back on service, the company will see lower profits
(because expenses are not spread over longer production runs), ongoing
sales programs, and multiple sales to developed buyers.

SERVICE DELIVERY OPTIONS

Service is an important factor in the initial export sale and ongoing
success of products in foreign markets. U.S. firms have many options for
the delivery of service to foreign buyers.

A high-cost option _ and the most inconvenient for the foreign retail,
wholesale, commercial, or industrial buyer _ is for the product to be
returned to the manufacturing or distribution facility in the United
States for service or repair. The buyer incurs a high cost and loses the
use of the product for an extended period, while the seller must incur
the export cost of the same product a second time to return it.
Fortunately, there are practical, cost-effective alternatives to this
approach.

If the selected export distribution channel is a joint venture or other
partnership arrangement, the overseas partner may have a service or
repair capability in the markets to be penetrated. An exporting firm's
negotiations and agreements with its partner should include explicit
provisions for repairs, maintenance, and warranty service. The cost of
providing this service should be negotiated into the agreement.

For goods sold at retail outlets, a preferred service option is to
identify and use local service facilities. Doing so requires front-end
expenses to identify and train local service outlets, but such costs are
more than repaid in the long run.

An excellent case study on this issue involves a foreign firm's service
approach to the U.S. market. A leading Canadian manufacturer of consumer
personal care items uses U.S. distributors and sales representatives to
generate purchases by large and small retailers across the United
States. The products are purchased at retail by individual consumers.
The Canadian firm contracted with local consumer electronic repair
facilities in leading U.S. cities to provide service or replacement for
its product line. Consequently, the manufacturer can include a
certificate with each product listing "authorized" local warranty and
service centers.

There are administrative, training, and supervisory overhead costs
associated with such a warranty and service program. The benefit,
however, is that the company is now perceived to be a local company that
competes on equal footing with domestic U.S. manufacturers. U.S.
exporters should keep this example in mind when entering foreign
markets.

Exporting a product into commercial or industrial markets may dictate a
different approach. For the many U.S. companies that sell through
distributors, selection of a representative to serve a region, a nation,
or a market should be based not only on the distributing company's
ability to sell effectively but also on its ability and willingness to
service the product.

Assessing that ability to service requires that the exporter ask
questions about existing service facilities; about the types, models,
and age of existing service equipment; about training practices for
service personnel; and about the firm's experience in servicing similar
products.

If the product being exported is to be sold directly to end users,
service and timely performance are critical to success. The nature of
the product may require delivery of on-site service to the buyer within
very specific time parameters. These are negotiable issues for which the
U.S. exporter must be prepared. Such on-site service may be available
from service organizations in the buyer's country; or the exporting
company may have to send personnel to the site to provide service. The
sales contract should anticipate a reasonable level of on-site service
and should include the associated costs. Existing performance and
service history can serve as a guide for estimating service and warranty
requirements on export sales, and sales can be costed accordingly. This
practice is accepted among small and large exporters alike.

At some level of export activity, it may become cost-effective for a
U.S. company to establish its own branch or subsidiary operation in the
foreign market. The branch or subsidiary may be a one-person operation
or a more extensive facility staffed with sales, administration,
service, and other personnel, most of whom are nationals in the market.
This high-cost option enables the exporter to ensure sales and service
quality, provided that personnel are trained in sales, products, and
service on an ongoing basis. The benefits of this option include the
control it gives to the exporter and the ability to serve multiple
markets in a single region.

Manufacturers of similar or related products may find it cost-effective
to consolidate service, training, and support in each export market.
Service can be delivered by U.S.-based personnel, a foreign facility
under contract, or a jointly owned foreign-based service facility.
Despite its cost benefits, this option raises a number of issues. Such
joint activity may be interpreted as being in restraint of trade or
otherwise market controlling or monopolistic. Exporters that are
considering it should therefore obtain competent legal counsel when
developing this joint operating arrangement. Exporters may wish to
consider obtaining an export trade certificate of review, which provides
limited immunity from U.S. antitrust laws.

LEGAL CONSIDERATIONS

Service is a very important part of many types of representation
agreements. For better or worse, the quality of service in a country or
region affects the U.S. manufacturer's reputation there.

Quality of service also affects the intellectual property rights of the
manufacturer. A trademark is a mark of source, with associated quality
and performance. If quality control is not maintained, the manufacturer
can lose its rights to the product, because one can argue that, within
that foreign market, the manufacturer has abandoned the trademark to the
distributor.

It is, therefore, imperative that agreements with a representative be
specific about the form of the repair or service facility, the number of
people on the staff, inspection provisions, training programs, and
payment of costs associated with maintaining a suitable facility. The
depth or breadth of a warranty in a given country or region should be
tied to the service facility to which the manufacturer has access in
that market; it is important to promise only what can be delivered.

Another part of the representative agreement may detail the training the
exporter will provide to its foreign representative. This detail can
include frequency of training, who must be trained, where the training
is provided, and which party absorbs travel and per diem costs.

NEW SALES OPPORTUNITIES ADN IMPROVED CUSTOMER RELATIONS

Foreign buyers of U.S.-manufactured products typically have limited
contact with the manufacturer or its personnel. The foreign service
facility is, in fact, one of the major contact points between the
exporter and the buyer. To a great extent, the U.S. manufacturer's
reputation is made by the overseas service facility.

The service experience can be a positive and reinforcing sales and
service encounter. It can also be an excellent sales opportunity if the
service personnel are trained to take advantage of the situation.
Service personnel can help the customer make life cycle decisions
regarding the efficient operation of the product, how to update it for
more and longer cost-effective operation, and when to replace it as the
task expands or changes. Each service contact is an opportunity to
educate the customer and expand the exporter's sales opportunities.

Service is also an important aspect of selling solutions and benefits
rather than product features. More than one leading U.S. industrial
products exporter sells its products as a "tool to do the job" rather
than as a "truck" or a "cutting machine" or "software." Service
capability enables customers to complete their jobs more efficiently
with the exporter's "tool." Training service managers and personnel in
this type of thinking vitalizes service facilities and generates new
sales opportunities.

Each foreign market offers a unique opportunity for the U.S. exporter.
Care and attention to the development of in-country sales and
distribution capabilities is paramount. Delivery of after-sales service
is critical to the near- and long-term success of the U.S. company's
efforts in any market.

Senior personnel should commit to a program of regular travel to each
foreign market to meet with the company's representatives, clients, and
others who are important to the success of the firm in that market.
Among those persons would be the commercial officer at the US&FCS post
and representatives of the American chamber of commerce and the local
chamber of commerce or business association.

The benefits of such a program are twofold. First, executive management
learns more about the foreign marketplace and the firm's capabilities.
Second, the in-country representative appreciates the attention and
understands the importance of the foreign market in the exporter's
long-term plans. As a result, such visits help build a strong,
productive relationship