U.S.

Bureau of Foreign
and Domestic Commerce
Developing machinery
markets abroad
Washington
1 926
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Developing machiner^r markets abroad. Industrial

...

machinery division. Washington, Govt, print, ^ff., 1926.

ii, 17 p. incL tab. 24*-. I

At head of title Department of commerce.

:
Bureau of -f oreign and do-
mestic commerce. Julius Klein, director. i

4
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Another copy in Business Library*
1. Macfatnery—Trade and manufacture—U. S. i. Title.

26-26677
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•
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DEPARTMENT OF COMMERCE
BUREAU OF FOREIGN AND DOMESTIC COMMERCE
JUUUS KLEIN. Diraetwr •
3) ^ ^

DEVELOPING ^r^^t

MACHINERY MARKETS
ABROAD
^ -
.
- ', . .
» .

INDUSTRIAL MACHINERY DIVISION

WASHINGTON
GOVERNMENT PRINTING OFFICE
1926
 FOREWORD
DEVELOPING MACHINERY MARKETS ABROAD
Exports of factory, mining, and construction machinery from
the United States occupy a unique position in our business world.
American machinery is distinguished for its labor-saving features FUNQAMENTAL FACTORS
and superior technical position and is in great demand in paractically
all foreign countries, including those that are usually considered our To a considerable degree the problem of increasing American
machinery sales abroad is that of marketing standardized products
most serious competitors in this general field. In 1925 these exports
of superior quality and relatively high price, in competition, if that
totaled nearly $150,000,000, as compared with a value of $87,000,000 word is appropriate, with foreign products whose designs, fre-
in 1913—an increase that is considered all the more gratifying be- quently do not embody the same excellence, whose materials are not
cause the corresponding exports from Great Britain and Germany selected with such good judgment, if indeed such materials M*e ob-
have not yet regained the volume of pre-war years. tainable, and whose workmanship is not so good, especially if
judged by standards of accuracy and appropriate finish as dikin-
While Europe continues to absorb a very large volume of such
guiSied from paint and mmeeessary polish. It introduces ako the
machinery, much larger than in pre-war years, it is also significant problem of advertising, which can be employed effectively in many
that the volume absorbed in Latin America and in Aaa is increas- instances.
ing very rapidly. In Australia and Africa there is a strong No broad campaign for foreign business should be started until
tendency to establish manufacturing facilities and undertake impor- the necessary domestic organization has been developed. Instances
have been known where firms have actively advertised in foreign
tant engineering construction, with the result that these regions
countries and later, when confronted witii an export order, did
that were formerly considered industrially backward are now
devel-
not know how to execute it. Such methods are inexcusable and dis*
oping a certain measure of self-sufficiency and coming to occupy a credit the manufacturer at home and abroad. Export busdness is
much more important position in the commerce of the world. This food business and wortibi sustained effort. Some lai^ Americui
diffusion of manufacture, which has developed since 1914, is to be a rms depend to a very considerable extent upon their foreign
markets. Our industrial machinery export trade is becoming of
permanent factor in world trade and should be carefully noted by our
vital interest; it represents the difference between profit and loss in
business community. the operation of the average plant.
This bulletin has been prepared by the Industrial Machinery Export business can be secured on terms that are clean and at-
Division to indicate concisely the methods that have been successfully tractive, but to sell without proper preparation is only to sell
used by a large number of machinery manufacturers in developing trouble. Bungling methods, neglect of foreign customers, in fact
The subject has necessarily been all of the kmg li^ of export sins, accumulate ^^bad will'' against
their business in foreign countries.
the day when a serious effort is to be made. Also, these failures
treated in a general way and the pamphlet does not include consid-
create a handicap for other Americans who are at work overseas.
eration of many special problems which arise from time to time and
Manufacturers should keep out of foreign trade until prepared to
constantly receive the attention of that division. handle it properly. These remarks should not be interpreted to
Julius Klein, Director^ mean that foreign trade is especially difficult, for, properly ap-
Bweceub of Foreign and I}ome8iie Commerce, proached by competent people, it is easily handled and clean busi-
ness. Americans can handle the trade as well as anyone else, as is
•
101134— 2G (II)
demonstrated by the volume of our machinery sales abroad.
The volume and distribution of the exports of strictly industrial
machinery from the United States are ^own in the accompanying
table.

(1)
 3

328
005 100
CO
CO 582 039 251
1,252
379

cent
35.1 11.1 16.2 30.6
4.0 2.2
.8
fOBBIGN SALES POUCY
26, 13, 13, 16, 6, 3,
1925
^4 149,

While it is possible to imagine any number of different forms

Per
u9eg

297 159
r^.
cs
^
o CO
C4
00 o
to
a of organizataon that might be employed in the sale of American
cs ic 00 ^ CO ^ machinery in foreign countries, the problem is really venr simple,
23, 32, JHUJCO
1924

^ CO
St ^9
for industrial madiinery sold abroad, whether American, European,
f-H 1-H

.8
or of other origin, is usually marketed through the madiinery dealers
who are established in the various foreign cities and who act as im-
827 598 5.2 2.1
965 608 254 577 cent 28.2 18.3 22.4 23.0
6,476 2,543 1,029
27,719 28,427

1923 14, 9, 10, 34, 22, 123,

Per
,a ^ tH
port merchants. Usually the problem of developing an organiza-
years

5 tion abroad consists in establishing and maintaining the best possible

010 609 026 4. 1.4
.8
23,236 11,385
9, 7, 28,020
037
4,516 1,564
906 289 cent 24.9 27.6
2e.
20.7
contacts with these dealers.
23, 31,
It is important that a definite foreign sales policy be established.
1922 112,
Per
ilendar

M fl O This policy may not be the same for the varying conditions of dif-
o C30'^r«coo»t>>cocteo
966 100 181 373 780
334 599 605 487 707
S %>cocpcsa»e4^'^ ferent territories, hut in each case it should be definitely decided
7, 4, 2,
1921 26, 41, 23, 23, 23, 70, 55,
whether the manufacturer will quote only f. o. b. works, 1 a. s.
New York (or other port), or c. i. f. destination; whether he will
00 044
Ilia open a branch, send his own salesman, grant an exd-usive sales repre-
157

90,731
736
21,235
387
cs
308

8,
5,314 3,440 = §15"
' • '

. .
'
1920 63, 28, 38,
§8
65,
sentation, or operate in an open market, etc.

Jw 3 The manufacturer should, of course, thoroughly investigate the

<
cot* 048 144 369 561
CS-gCSl-TjHCS-HOOCO
responsibilities and obligations involved in each case before selecting
CO CO ^WrH CO
1919
NO 24, 11, 19, 54,
CO
lO «3 ^ .
' oB t the policy he will pursue as the most effective ujader the circum-
f-H
c3 2 ^ stances.
OS OS
457
013
l>.
00 Ol 00
o ^"J^^Mi-hNOO-^ In order to insure that equipment is supported by genuindy
01 CS
constructive salesmanship in each territory, manufacturers usually
2,590
11,060
4, 4, CO
QQ
1915
lO 00 CO C^»-H
52 I-I CO
cs CO 25
find the most practicable method is to arrange an exclusive sales
g. '3
' d) a> cd *
years
877 129
agreement for each particular market, at the same time arranging
cs .5
to have the distributer employ a sales engineer who has been trained
637 683 739 cent 1.8
6,209 00 COuStQ^ 21.6
5.02
35. 31.9
4.1

&4 CO 30, 27, 7, 4, 87,

1913
00
o a Fiscal
Per
by the manufacturer. Beyond this there are many other plans that
§ coos
niay be followed, but they all depend upon the careful, selection of
666 353 152

o 1-H rH CO
3,
2,200
1, the foreign distributer.
O 1910
CO
HH 1-H iH 1-H

SELECTION OF A DXSTBIBUTER ABROAD

. 1
1 '
I 1 II I
1

t
1
WW
1 1 1 <

Unquestionably the best way to select a representative is to gather

all possible information in the United States and then visit the
*
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•
v
foreign countries to inveitigate the matter and ecKne* lo an a^zree-
ment on the spot. When conditions justify, this should be done,
but if attempted it should be done properly. It is a great mistake
- O u M)
to think that it is possible to rush into a foreign country and in
a short time acquire the necessary information, make a decision, and
I—
' CO hurry on. Furthermore, each country has its own peculiarities, so
that it is scarcely safe to draw conclusions from one with respect
to another. Each constitutes a sepan^ 8»les problem and deserves
t
a careful and deliberate study. ^ <

«S '5—.
cd_ $0 fct 0* The trip abroad gives most valuable opportunities for establish*
03
ing friendly relationships and learning market conditions. When
o 13 cd GQ u
o ^ 3^ OS circumstances prevent the executive from making such a trip, some-
«! a times it is wise to send a substitute, if a qualified man is available.
u ^ 0? g ce
In any case, this method of selecting foreign representatives is the
most satisfactory, and wh^ tlie <urcumstances justify it should be
So employed.
Is
"
On the other hand, it is eocpensive in time and money. Many
^ r-.

manufacturers have been able to establish a good series of exdumve

sales agreements by correspondence and by negotiating with the
OH
 4

American offices of eli«rible export firms. Information regarclin£i; Similarly, from a list of representations it may be possible to
machinery dealers in the A^arious forei<zn that should be
cities make sure that the candidate does not already represent competing
valuable for the above purposes can be obtained from the Bureau of equipment. Representations are sometimes solicited in ord^ that
Foreign and Domestic Commerce, Washington, upon application. the manufacturer's sales efforts may be throttled.
The bureau has a very good collection of such information covering Under other circumstances a dealer may be so placed as to be
peculiarly fitted to market a certain line of machinery. One already
the entire world. When circumstances make it at all practicable,
the best results will be obtained by a personal visit to the bureau, as wdll established in the sale of textile machinery would be in a good
a great deal of information is collected there regarding the qualifi-
position to sell humidifying equipment. A
dealer who is well es^
cations and limitations of these various dealers which it is not ad- tabUshed in the sale of pumping machinery would probably be in a
visable to send through the mails. The commercial library in the
position to handle filters and water softeners to advantage. One
Department of Commerce is one of the best in the world.
* who has a reputation for selling machine tools would be in a position
In addition to the above sources, further information regarding to market files.
It will ordinarily be possible to collect a good deal of information
these dealers can be obtained through the American consuls, com-
about a prospective representative not only along the lines already
mercial attaches, and trade commissioners who are maintained in
tliese foreign countries by the GJovettiment and who will gladly an-
suggested but also with regard to his moral and financial qualifica-
tions. It goes without saying that integrity is one of the most
swer specific requests for information. These reports can*be verified
and credit information secured through the banks and credit bu- important eseentiids. In any case, no effort ^ould be spared to
reaus. In some cases the various manufacturers' associations can obtain asurance on such fundamental points.
assist. Business friends can often be helpful-
Xaturally, the idea of granting an exclusive sales agreiement is to
PLAONG A SALBSIIAN IK TUB FOBBIGN ORICE W TEE BSnOgBNTAnVE
stimulate tJie machinery distributer abroad to creative, constructive When arranging for the appointment of a representative, the
sales effort, thereby adding to the profits of both manufacturer and manufacturer snomd also arrange for such supervision of this dealer
dealer. If business is not stimulated, the arrangement is a failure. as is necessary to protect and promote the interests of the manufac-
To make a success a dealer first of all needs to have an organization turer. There are many ways by which this can be done. More
for and an interest in the sale of machinery, and he must be in a and more the better merchants and manufacturers are arranging
position to cover the entire territory under consideration. He to have a qualified salesman (really sales manager) join the staff
should have his engineering department in the hands of qualified of the representative in each important foreign office. The details
engineers who understand the class of machinery involved and the of the arrangement vary a ^at deal, but the plan is very effective
country in which they are to work. where circumstances make it practicable, and it overcomes many
The matter of covering the territory adequately is very important. difficulties. An alternative method is to have this man travel to
Many American business men use the political boundaries, thinking —
supervise a number of offices an arrangemelit that has been used
' that they mark out the business districts. This is a great, though a good deal in the automobile trade.
common, mistake. The fact that a firm has an office in Shanghai is If a man is to be sent abroad, extreme care should be exercised in
no proof that it can cover properly the Hongkong or the Peking making the selection. Records of American concerns with interests
districts. In point of time Peking is as far from Shanghai in Buenos Aires, for instance, show that, of the men sent from the
as Salt Lake City is from New York. Very often a Calcutta dealer United States during the last few years to tiiat city (one of the most
is not prepared to cover either Burma or Bombay ; a concern in Bio attractive in South America), over 80 per cent returned, or were
de Janeiro may have no connections in Sao Paulo. returned, home inside of 12 months.'' (Selling in Foreign Markets,
There is, it need scarcely be said^ a great diff^ence in firms. To p. 288.) A good man can accomplish a great deal. A
poor selection
a remarkable degree each develops a bent for a certain kind of trade. • is very expensive, not only because of the way the representative
Each has its own business methods, its special clientele, and a certain spends money, but also in the effect upon the reputation of his
line of work that conmiands its attention, and it will prove cor- company. The man should be one* with a fine sense of the better
respondingly more or less valuable in selling a given commodity. things in life and of demonstrated integrity. " Capitalists, as a rule,
For instance, if a firm specializes in machine tools, unless elaborately do not intrust their interests abroad to persons without character.
organized, it will give inferior results in the sale of textile machinery The character of their representatives abroad is even more important
or ice planta The direction of this bent can often be discerned than the character of their representatives at home, because a larger
from a stu^ of the list of the lines it handles (olt^oi on file in the responsibility rests on those who serve th^
abroad." (American
Bureau of Foreign and Domestic Commeroe) . From time to time Foreign Trade, p. 296.). "Many American firms make the mistake
these firms may discover special opportunities because of which of thinking that they can establish a permanent business by sending
they may want what might be called an "outside line," but the to South America the well-known ' rough-and-ready type of
'

interests of the manufacturer lie with the dealer who will give his American salesman, who wears his hat and smokes a cigar in his
line consecutive sales effort. customer's office, and has no interest bi^yond sending in ordeis.

i
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6

These men often get an initial order, but the business is apt to
—
production, standardization of method and product in short, the
work of a production man. Their sales and advertising methods
end there. The South American does not do business that way." differ from those followed bv Americans, makinjr it difficult to link
(Wall Street Journal; see also CommerGe Beports for August 28, up the foreign-office plans with those of the home office. These
1922.) remarks apply with peculiar force in English-speaking countries.
In foreign countries a special representative of a manufacturer In territories where sales are to be made to those unfamiliar with
occupies a position of real importance, corresponding somewhat to
English, good results can sometimes be secured through foreign
that of a branch-office manager at home, except that he has greater representation, not because the above remarks do not apply, but
responsibilities. He is in competition with the whole world. He
because it is difficult to find Americans who are sufficiently familiar
is thrown into intimate contact with all sorts of people and must
with the foreign language and ideas. In Japan a Japanese firm
maintain his position and adequately represent the interests of his undoubtedly has certain advantages in the appeal it can make to
principals at all times. He must m equal to any emergency. If
persons of that nationality. In Java the Dutch have a similar advan-
anyone makes a mistake, whether in the home office, in the factory, tage. But even under these favorable circumstances it will be found
or on the 5,000 or 10,000 mile line to the ultimate buyer, this man di^cult to Americanize the sales campaign. In selling engineering
must " absorb the shock," rise above all complications, and handle" equipment in these markets the salesman sells American ideas as
the matter in a creditable way. He is a " business ambassador much as he sells American machinery. Hie outstanding problem in
and should not be sent unless he knows his business, his line, and is working through these foreign firms will be to convince the ultimate
loyal to the interests of his principals, with confidence in their
products and organization. Without full confidence satisfactory
—
buyer of the superiority of the American method to arrange for
one Japanese to persuade another Japanese to adopt American
results can not be secured. Unless the manufacturer has full con-
methods in his shop or to manage so that one Hollander persuades
fidence in the man he should not be selected or sent; unless the another Hollander to adopt American practices. It is always very
man has full confidence in his principals he should decline to go, desirable to arrange to have the representative employ a good Amer-
because in foreign countries he will meet endless difficulties in the
ican salesman, preferably one who bus been trained in the pkmt
day's work. An exchange of letters will require two or three
of the manufacturer.
months; cables are very costly and often mutilated. Lost orders,
COST OF UVING ABROAD
sacrifices in commissions, heat, discomforts, disease, and a thousand
other annoyances tend to undermine one's determuxi^Qn, and real From what has been said above it is clear that the man needed
stamina will be needed. abroad isa superior type of sales engineer with a really good com-
The special representative should be intensely American. While mercial instinct, who has moral qualities that will surmount the
this requirement has always existed, it has recently become of in- numerous temptations, and social qualities that will make him per-
creased importance. Although it is unfortunate that nationalism sona grata with all the world. Such a man has qualifications con-
is emphasized abroad, the fact remains that Europeans do so em-
siderably above those of the ordinary domestic salesman and can
phasize it that it is not at all uncommon to find men in important command a good sidary at home. His standard of living abroad is
positions who look at the matter from a very narrow point of view. necessarily hljgh. If he has children, their education is a very serious
The American engineering salesman abroad sells more than an in- problem and is expensive, and if they are to have university training
dividual machine or even a complete factory. He sells the American at home (as their father undoubtedly had) much costly traveling is
way of doing things ; his machines will not prove to be a real success involved. In addition to all this (which deserves a good deal of
unless they are operated in the American way, and the American sympathetic consideration) the man must feel some inducement to
way differs from the way most familiar to Europeans, natives, and keep him abroad. No such man wants to " lose touch " and fossilize
others. Of what value is automatic machinery unless it produces abroad, and ordinarily wiU not be satisfied to remain abroad unless
a standardized product? Why have a standardized product unless he can show a substwtiid net saving eadi year.
interchangeability is important? Through t[uantity production, in-
ventiveness, and' clear thinking, American engineering has been COST OF OPENING A BRANCH OFFICB
raised to a position that is in advance of all others, and it requires
men who are thoroughly familiar with these American methods, In view of the cost,only a limited number of manufacturers will
developments, and ideas to properly represent American goods feel that they are justified in sending one of their own men abroad
abroad. to handle their own lines exclusively at the manufacturer's expense.
I«BEIGN DEALEBS AS REPBESENTATIVBS Fewer still will be in a position to open up a branch office.
\

This suggests that it is not usually advisable to grant agencies raPBESKNTATION BY DEALERS ABROAD
to foreign firms. Experience shows that it is somewhat dangerous.
Entirely apart from those who deliberately act in bad faith, it is Because of the costliness of maintaining direct representatives,
very seldom that foreigners sufficiently appreciate the merits of
most American manufacturers of machinery will secure the best
results by making an exclusive arrangement with one
American designs to represent them properly. They do not ade- of the machin-
quately understand American ideas oi economy of labor, speed in lOUM—26 2
 8 9

ery dealers (importing merchants) in each of the more important the business, that department should be put in charge of no less an
officer than a vice president. If the size of your establishment does
of the foreign cities, and this appears to be the most successful
not warrant the organization of a separate department for the
metiiod followed, not only by Americui producers but bv British,
German, Swedish, and ower producers also. Even the largest of export trade, the export business should then have the personal at-
our manufacturers—firms that export from $1,000,000 to $3,000,000 tention of the executive head of your business." (Selling in Foreign
worth of machinery per month, firms that export 60 per cent of their Markets, p. 21.) A staff should be developed that can be depended

—
production have sales arrangements with these machinery importers upon to bundle correspondence and documents with a full realiza-
tion of their meaning. The routine of shipping, insurance, and
m the various cities of Europe, Asia, Latin America, etc., and, when
customs should be fully understood, as should also the meaning of
necessary, send ex]3erts to cooperate with the merchants.
Before leaving:; the subject of dealers and salesmen abroad, we various terms used on bills of lading, insurance policies, etc.
should refCT to those firms that are disinclined to appoint an exclu- The division of responsibility between manufacturer, carrier, ex-
sive representative of any kind anywhere "just on general principles.''
port merchant, and consignee as involved in oversea trade should
Unless some special reasons apply, there is usually nothing conitruc- be ftilly appreciated. Weakness in these matters results in discredit
tive in such a policy. It is absolutely without method. If the abroad, while punctilious attention to them goes a long way toward
product has high inherent merit it may " sell itself " for a time, establishingjconfidence not only in the manu&cturer but also in his
the result being a more or less unseemly scramble for the business products. The foreign customs buys service. The machine offered
on the part of the merchants, but no one has any inducement to may be the best conceivable equipment for a given purpose, but it
maintain the market and ultimately it will probably fail from a is useless unless it can be put into operation. There are countless
difficulties that may arise before it is running in the foreign coimtry.
variety of causes. The best plan is to work through these merchants
and as constructively as posEable. The home organization is expected to overcome these difficulties or,
failing that, to be sure that all responsibility for failure lies else-
HOME ORGANIZATION where. Business depends upon confidence. Errors, substitutions,
alterations, etc., destroy this confidence. On the other hand, if
VITAL mPOKTANCB OF SOUND llsriHODS AND HIGH SXANDAJKDS buyers abroad can be made to feel that the organization is thoroughly
competent in business as well as engineering matters, a good will
In domestic business it is necessary to adopt sound business meth-
is established that is invaluable. Cases are known where busing in-
ods. In foreign trade the need is far more urgent. In domestic
volving millions has been secured at a 25 per cent higher price be-
trade errors can be corrected. It is easy and not expensive for the
cause the buyer had confidence in the American firm making this
branch office to write or tel^raph in case of trouble. Branch
quotation and did not have confidence in a company of another na-
managers can often step on a train in the evening and be at the
tionality offering the lower price.
plant in the morning. The business has the advantage of the ver-
bal message and close contact between factory and user, but in trade BELATION OF £XFOBT I>£PABXMENT XO TH£ REPlKESfiNTATIVES
with distant foreign countries these methods are not possible. To
visit the plant is impracticable; the telephone does not connect, The home office should carefully plan to furnish dealers with
cablegrams are very costly, and letters require, say a month each materials needed in promoting sales. They require a liberal supply
way. Mistcdces are very expensive and must not occur. Substitu- of catalo^es and advertising matter if they are to do constructive
tions mean trouble and dissatisfaction. No matter how perfect the work, ^r each salesman- in each foreign office there should be a
organization abroad may be, it can accomplish only as much as the complete price list, discount sheet, and set of any omfidential sales
home organization makes possible, and for a given standard of per- data issued. If at all practical, representatives should have 60
formance the foreign department needs to be far more perfectly days' notice of price changes, especially for the larger transactions.
organized than that for domestic business. The standard established Their foreign customer does not like to meet a price advance just
for the foreign department must be set as high as possible. Errors at the moment of closing a deal. It goes far toward disturbing his
must not get out. Prevention is far better than cure and is also far confidence. Whenever a line of machinery involves unusual techni-
cheaper. cfUities a cable code should be provided that will offer facilities for
SUnSEVISXON OF EXPORT OEPJLBmSKT communication on these subjects, having regard to onergencies and
unusual transactions as well as-to routine matters.
In domestic business the head office must ordinarily take the initio It will also probably be found necessary to cmisalt witfc the
ative in matters of policy it must supervise the whole organizaticKpt^
;
dealers on the subjfect of advertising. Sometimes a manufacturer
and it must cooperate with the branches. In foreign business this can promote his own sales by assisting a dealer to secure control
is all necessary to an even higher degree. "The export business re- of a line of supplementary equipment. For example, a manufac-
quires perhaps a greater amount of executive oversight than any turer of saws should encourage his agent to sell a complete line of
other portion of vour business, if you decide to embark in the ex- filing-room machineiy and supplies.
port trade, and, if you decide to establish a department for handling
 1.

w U
If a manufacturer takes interest in his re}iresentative and estab- above points is very necessary, and ordinarily a manufacturer will
lishes close relations with hiiU} it then becomes easy to exercise find that his interests are served best when the first seven
of the
supervision over these foreign sales. Obviously nothing will be questions listed above are answered positively, emphatically, and
gamed by mere interference, but constructive efforts will be appre- without exception in the affirmative. Similarly the representative
ciated. Close contact will demcmstrate the vaim of a given terri- should be remembered and protected in those cases where buyers
tory, the reason why orders are secured or business lost, and the return to America to place oraers, as presumably this is more or less
needs of the sales organization. Frequently it will be cliscovered the result of his activities.
that the dealer needs additional sales data. Ordinarily he is not
an expert in every particular line and needs guidance and in- EXPORT POLICY IN TIMES OP DEPBBS8I0N
struction.
This raises again the question of the sales policy.Manufacturers There is something far more enduring about these dealer agree-
seem to be guiUy of confused thinking on the fundam^tals of an ments than is usually realized. Many of these contracts are con-
arrangement cov«nng their representation. Some seem mudous cluded in a somewhat casual manner and treated casually there-
to receive everything and give nothing. They are anxious to de- after—a method that is not to be recommended. These agreements,
if successful, are lasting. There are many of them that are more
velop a good business abroad, but being unable to do so themselves
are unwilling to allow a representative suc^i an opportunity and than 20 years old and to all appearances are going to live 20 years
such protection as are necessary, if constructive methods are to be more. In America for a givMi fine of machinery there are, say,
applied. Pioneering work in the building of business is hard, 10 competing manufacturers; sometimes there are many more than
10. Similarly in each of the competing European countries tliere
coi^y work, and a merchant is not justified in incurring the ex-
pense it involves unless he is assured that he will participate in it&
are other manufacturers. But in the foreign markets the number
profits. If a manufacturer wants to develop a territory and expects of really good distributers is small. A manufacturer who has a
a representative to do constructive work to i^at end, he should satisfactory representative has an asset of value. Also, as the years
have a clear understanding on the following points pass a reputation is built. The name of the representative is as-
sociated in the minds of the purchasers with that of his principal
Are all inquiries from the territory
to be referred to the representative?
1.
the representative to be protected on aU quotations that he may ask to-
2. Is
and the product. The common good will becomes a real asset.
be madedirect? When conditions develop as they did in 1920-21 and manufactur-
** overhead " ab-
8. Is the representative to receive commission on sales made in his territory ers find the market gone, their stocks heavy, and
through others? Will these be paid before the representative requests them? sorbin^r all of the profit of the business and more, tiiere is a tendency
4. Is he to have full stalls r^arding these sales, so as to derive advertising
to be strict with the representative. But it should be realized that
value from the Installatiioiis when tiiis may be possible?
5. Are prices quoted to him to equal tlie lowest domestic price less the cost the representative is in a worse plight than the manufacturer. His
of domestic sales? (His sales ezp^ise corresponds to that of the domestic stock, though probably smaller, represents a larger proportion of
sales force.) his working capital. He probably has bank loans outstanding
6. Is a definite amount of product to be allocated to his territory even to-
against it. The banks are demanding setti^ents. Interest rates
the disadvantage of the domestic business in prosperous times?
7. Is he to be allowed an appropriation for advertising comparable to the are higher. Freight, duty, and other charges have been advanced.
domestic allowance? The cost per unit is very high. The market to be supplied is greatiy
8. How will the home organization cooperate with the agent? restricted. His clients have repudiated their contracts. All fore-
9. How is the sales-promotion work to be supervised?
sight is wasted because of unsuspected developments. The profits
These questions are only suggestive and offered because experience of years are reabsorbed by the business in a very few months. At
in foreign countries shows the necessity of clearer thinking and such times a representative deserves sympathy.
sustained effort along these lines. The energv and activity of the If he asks credit to cover at least « part of the shrinkage of his
agent can go onl^ as far as the coo^ration of the princmal allows. inventory, consideration should include due allowance for the good
In America inquiries from the territory of a branch o^e are an- work done during a long period of years. The entire future of that
swered through that branch. European manufacturers make it a market is involved in the decision. It is more than a matter of co<^-
practice to find out the destination of the goods before quoting and eration. If the representative has overstocked his market, the man-
do not quote direct on equipment to go into a representative's ter- ufacturer has similarly oversold the same market, and that equip-
ritory. Loyal adherence to this policy is being adopted more and ment will hang over that market until it is liquidated. There is no
more by well-organized firms. Many of the governments of for- escape. Furthermore, no constructive development can take place
eign countries have purchasing oflSices in New Tork or London. through any representative until this liquidation is complete. As
If the representative is expected to adv^ise among ^e depart- a market the territory is demoralized.
ments of these governments in foreign countries and perscmally ^Unsympathetic ti^atment at such time encourages disloyalty.
solicit their business, he is entitled to control prices quoted to the If the dealer abandons the line for producte of foreign manufacture,
above-mentioned purchasing offices. A
clear understanding on the the work of years is destroyed; the old stock still hangs oreie the
market and no other dealer can develop new business.
 : ;

;i3

In dealing with representatives the export department should can machine abroad, and, no matter what the nature of the organi-
realize that the businesses of manufacturer and dealer continue to zation, if the trade is handled properly some one performs each of
be associated decade after decade, and it should develop constructive these functions and there is a fair cost chargeable to each one of
plans to correspond with that realization. these tasks
1. Manufacturer : Produces the goods ; initiates railway shipment
SUPERVISION OF B£rB£S£NTATIV£;S issues invoices.
It has been recommended above that the manufacturer supervise
2. Am^oan distributer: Sells products of manufacturer.

the work of his representatives. This is of great consequence, for

Export merdiant: Beceives goods from railway; initiates
3.
ocean shipment; insures shipment; finances shipment; draws draft
Otherwise it is not possible for the manufacturer to defend his inter-
ests; but, on the other hand, this supervision must not degenerate
on importer.
4. Import merchant: Meets the draft; receives the ocean ship-
into mere meddlesomeness. The relation between principal and
repres^talive must be thoroughly businesslike. An amusing, if ment delivers the goods to the user.
;

not absurd, situation arises aknost invariably when a manufacturer

The manufacturer will always perform function 1 and his sales
first sees a quotation as issued by his representative. He may fe^ departm^t will usually cover function 2. It is impractical for him
to perform function 4. The cost of performing function 3 is, say,
that his business is being ruined by a greedy and unfaithful repre- "
sentative. Although a seasoned business man, he seems in a panic;
per cent. It should be noted that the demand for " direct trade
his imagination is excited. He makes a rapid mental or penciled cal-
is a plea put forth on behalf of the small impoi-ter abroad to escape
dealing through an export merchant in America. The big houses
culation of cost, exchange, freight, duty, and is convinced that the
— with branches in this country prefer to do business the other way.
price quoted is very high and almost invariably he is wrong. In
If a merchant undertakes "direct trade" he must expand his or-
the first place, he will idways und^estimate all of the items he
ganization to do the work that would be handled by these export
does indude, and he will omit many that he eitiier forgets &c has
never heard about.
offices —
function 3. This work involves responsibility and expense,
For instance, in attempting to check up on the cost of delivering and if a given manufacturer quotes the same discount to a firm in
a certain machine to a certain place in Asia it should be remembered
Bombay that it quotes to the New York branch of a firm in Calcutta,
it is really allowing the Bombay house an extra 2^ per cent, pro-
that it is very difficult to make these estimates correctly. The appli-
vided the manufacturer's organization arranges for ocean shipment
cation of varying rates for freight, landing, and delivery, with the
complication of diJSerent lift sc^es for each, followed by a calcula-
—
and draws the draft all of which may be all right if it is done
consciously, but is all wrong if it is done unconsciously.
tion of the duty, results in an intricate calculation. '^E.ule of
Correspondingly, it will be noted that the question of foreign
thumb " is very dangerous. But there are other iten^ entering into
credits and sales terms does not enter the problem if a manufacturer
the problem that even experienced men 8<»n^nies omit. Also, there
confines his transactions to machinery dealers abroad that maintain
are further considerations that upset the whole analysis ; one of the
offices, or export connections, in the United States. These merchants
most important of these results in including an " allowance for
negotiation " in the quoted price. will usually pay cash against the documents at port of export. The
credit question narrows itself down to the credit of the
This also introduces the subject of secret commissions. Business
.

in* Asia, for instance, pays many secret commissions, but it should
American office during the period of manufacture, perhaps six
months, as contrasted with the problem of examining the credit of
be remembered that the commissions are not always illegitimate
The orients^ peoples do not employ all of the methods we use. an unknown foreigner 6,000 miles away, who probably will not re-
lieve the manufacturer of financial responsibility in less than a year.
What is needed is intelligent, forceful salesmanship. This coop-
Furthermore, in case of difficulty, the problem of collecting from an
eration will bring orders toM;he home factory. The sales policy
adopted should allow the representative ample profit. Then he wiu American firm in this country is simple as compared with the task
be interested. If the manufacturer gets his price, it should be satis- of collecting on a repudiated draft in a remote city under alien laws.
factory to both if the volume of sales increases properly.
There is also a situation where it is all right to arrange to deal di-
rectly with merchants in foreign cities and extend them terms of,
DIRECT TRADE perhaps, draft at 120 days' date, provided the manufacturer does
so deliberately and in so doing realizes all that is involved. If done
One hears a great deal about "direct trade." In America we unconsciously, it is wrong. The amount of work and financial re-
hear demands for improved banking facilities and the need for more sponsibility added to the duties of the manufacturer's organization
liberal terms in connection with our foreign business. Much of the by absorbing the tasks of the exporter (function 3 above) is very
comment is the result of confused thinking. It has been shown that considerable.
from the practical viewpoint the ordinary machinery manufactur-
ing corporation, whether American, British, or German, is not in a TERMS OF PAYMENT FOB EXPORTED MACHINERY
positioil to act as a sales organization in foreign countries. It is
interesting to analyze tiie nmtter a little farther. The following Before and since the World War many articles have appeared in
outline shows the different functions inherent in placing an Amen* the press on the subject of ei^ort trade which have given speciiUl
 15

emphasis to the matter of the terms that should be smtpd, and it Furthermore, comparatively few manufacturers have an export
would appear that, so far as machinery is ccmoemea, a great deal business of simcient magnitude, to justify them in expanding their
of confusion has arisen. In this way a situation has developed that organization enough to handle (luotations direct to buyers in forei^
makes a better understanding desirable. countries, as such an arrangement implies that they will maintain
In the first place, it should be recognized that practically all in their organization men qualified to manage the financmg of the
machinery represents a capital investment, as contrasted with hard- transaction while the goods are at sea, which will also usually imply
ware, haberdashery, and other classes of commodities that pass di- that the organization must be able to arrange for ocean frei^rht
rectly into consumption. As §ood bulking makes it necessary for and marine insurance, consular invoices, packing lists in foreign
lending institutions to maintain their accounts in liquid form, if languages, etc., matters which seem simple at first but run into a
possible, it is perfectly obvious that a banker is justified in restriet- great many complications in the end. These are responsibilities
mg his loans in so far as they apply to machinery. It will also be which should not be assumed lightly.
recognized that the ordinary machinery manufacturer will not have
sufficient capital invested in his business to justify him in tying it
imEOmBtASCKB SHOULD K 8nnBiB»
up for long periods. There are exceptions and a concise statement of the
to all rules,
conditions affecting the terms of payment employed in connection
UNBUSiNSSSLlKE PRACTICES UNNECES^RY
with machinery transactipns of great variety, involving all countries
There is nothing about export business that makes it necessary to in the world, is subject to many limitations. The above paragraphs
represent an effort to state the situation in its elementary form.
engage in unbusinesslike practices. Properly handled, export trade
in machinery is one of the cleanest and most attractive kinds of busi- There are circumstances when a thoroughly businesslike organization
is justified in extending liberal terms to foreign
buyers. But not-
ness, and should be kept upon a sound basis. It is not a kindness
withstanding such exceptions, the fundamentals outlined above will
to encourage an oversea buyer to engage in business without suf- manufacturers, who should be
be found to apply to most of our
iSdent fixed capital, as this arrangement suggests that there would
be almost no working capital, and the particular enterprise would be exceedingly, careful to handle their foreign business wisely and re-
strict their operations to method^ that are strictly buanesslike,
dis-
seriously handicapped from its inception. In ordinary cases, there-
criminating between transactions that involve the investm^t of
fore, it appears that so far as factory and industrial machinery are
fixed capital £^nd those applying to consumable goods.
concerned, the user should have funds witli which to buy before
being allowed to sign a contract. This fact in itself suggests that OVEBSIOCSlil'G LBAiDB TO DBMORAUZATION
it will not ordinarily be necessary to grant inordinate terms in con-
.'
: .
I

nection with machinery aides when these transactions represent in- In this latter class will be found inachinOTy stocks carried abroad
vestments of fixed capital. However, every case must be handled by foreign dealers. It is undoubtedly to the interest of the manu-
according to the individual circumstances, as generalizations may facturer of standard lines of machinery to have his foreign repre-
be very misleading. The conditions applying to a certain trans- sentative keep on hand a reasonable stock of such equipment as
action may make long terms "good business," is regularly in demand, in order that buyers
may secure prompt
For the sake of simplicity, the above has been so worded as to delivery, may have the privilege of inspecting the goods before
pur-
suggest a transaction executed directly between the machinery manu- chase, or may even see tne equipment in operation. This method of
facturer in this country and a factory owner abroad. But to this doing business has some furflier advantage, and although it is
extent the above remaps are misleading, because such transactions ordinarily desirable that the foreign machinery dealer invest suf-
are unusual. Almost invariably American industrial machinery is ficient capital in his enterprise to cover the cost of these stocks,
sold in foreign countries through machinery dealers residing in the there are also circumstances where it is to the interest of all con-
various foreign cities. The question of terms may therefore be cerned to allow this dealer a reasonable amount of time before it is
complicated somewhat out of regard for the wishes of the machinery necessary to tie up his capital in such equipment.
dealer as distinguished from the ultimate consumer. Furthermore, Such circumstances may prove an exception to the general rule,
equipment for the dealer's stock constitutes a different problem as stated in the earlier part of this article, but even in these cases
altogether. the matter should be handled with great discretion, as the dealer
mien the manufacturer agrees to sell direct to a foreign consumer should not be encouraged to load up his warehouses with unsalable
or dealer, it becomes clear mat he accepts very definite responsibili- material. Any stocks so placed should be turned over rapidly ; they
ties in addition to those involved when he sells to an export house, should be kept down to limits that will not prove embarrassing in
and it is suggested that care be exercised in making a decision of times of depression, and it will be remembered that depressions
this character. It is clear that when the manufacturer sells to the sometimes come very suddenly. Demoralization is certain to result
exporter he is not called upon to give unsual terms and will ordi- from overstocked markets, and demoralization destroys business.
narily be able to secure cadi on delivery, thereby placing the business The granting of unusual terms in order to encourage unjustified
upon a very attractive bads. stock orders is consequently subject to decided limitations;
 17
*

staff that will perform

sarv to develop in the home organization a
ROUTINE OF HOMB OFFICE the work usually handled by the exporter.
If attempted, this work
done, tracing the goods until they are actually
attention to a should be thoroughly
Success in foreifrn business involves punctilious a buyer abroad
Every shipment requires a bill of on board ship and at sea. It is small satisfaction to
large volume of detail work. if he is not also assured
packing list, and sometimes to know that his goods have left the factory
lad&ig, an insurance policy, an invoice, a that they have left the country. Many instances have occurred in
forms ot affi-
ITMrBficate of origin, an agency certificate, or other which buyers in foreign countries have found it necessary
to tafce
manufacturer, railway, ex-
davit-—aU to m€iet the requirements of up drafts there for goods that were still on the do<^
in America.
porter, export customs, steamship company,
insurance company American railways.
In some instances the goods were lost on the
etc.— and
bank, importer, customs officials, erecting superintendent, Such a situation is hard to justify and probably would
not occur
these documents will be
a varying number of copies of each 6i in America by a competent ex-
Omissions and if the merchant were represented
needed, according to the country of destination. porting office. The difficulty seems to arise where a manufacturer
at des^nation.
inaccuracies will cause trouble somewhere, usually attention to
should have the same Sgrees to quote c i. f. and then fails to give adequate
UsuaUv, also, they will involve expense. All the details of exporting. It seems to show that
the shippers did
there may
mark of identification and the same description, otherwise not have a clear conception of export proceedings and responsibiUty.
or a fine in the cus-
be loss in an insurance or steamship adjustment Some of the better American firms cable a notification of the name
order. .Some
of the ship carrying the particular goods covered by the
^^Thrmcking list should be most carefully prepared to meet the of the less dependable firms absolve themselves from all
responsibility
needs of many people. For staple articles, hke
canned peaches, it railway.
after the goods have been delivered to the
is verv simple indeed, but for an
article like a compound Corliss
endless bolts, nuts, As a foreign buyer can not have a traffic department in America,
eno'ine that knocks down into 20 to 40 cases, with is a weak element in the
mater deserves great care. it is obvious that in the latter case there
lubricators, etc. (and no two alike), the distribution, and no manufacturer should be satisfied
with such a
dimensions of the heavy parts should be shown and
The weights and system. The manufacturer who is building a reputation and a
future
properly identify each
the contents of each case so detailed as to can not afford to do business in that way, for it should be reniem-
connection with pil-
item at the customs, for insurance purposes, in bered that European countries are comparatively small, and it is
ferage claims, and the like. Any one or any
number of these cdses at sea.
at sea, the practice there to follow up the shipment until it is
may be lost through scattered diipments, fire, wreck, jettisonthey do Americans must expect to be held fully accountable, and in quot-
OT- other cause. While these are excepticmal experiences, arrange
be ready at all times to duplicate ing for delivery outside the United States must, in fact,
occur, and it is very good policy to
particular case for such delivery.
correctly and interchangeably the contents of any
<• •

The Industrial Machinery Division in the Bureau ot l^oreign

abstract theory. Jlixpe-
in answer to a cable request. This is not and Domestic Commerce is in a position to cooperate with manu-
riences have occurred when it was most important. and
Sometime facturers confronted with problems along the lines indicated
Punctiliousness in all these details is very necessary. will probably be in a position to offer useful suggestions in
connec-
" packages
ago an ocean bill of lading was executed to read several tion with specific problems. American manufacturers are inv^d
was no way for the consignee to protect
of nails." Obviously there
to discuss such problems with the above division by mail,
or pr^r-
his interests. There was no way to determine whMi
deUvery was com-
ably verbally, by visiting the division in Washington or consulting
plete and no way to be sure that aU packages »nt
by rail actually
with its representatives elsewhere as opportunity offers.
Simikirly,
got on board ship. Such a bill of lading is ridiculous.
others stamped with clauses relieving the carrier from
responsibility
evidence that something
for one thing or another are in thems(jilves
was wrong with the shipment before it started. Barring
those in-
clean bills of lading
stances whw^ it is obviously unreasonable, only
similar supervision
should be sent forward. Correspondence needs
in order that the recipient abroad may be
protected from that endless
variety of errors and omisaoBS that creep into aU
but the most care-
fully prepared letters. In planning for foreign
trade and laying
for the guidance of the export department,
down business policies
policy to
manufacturers of machinery will ordinarily find it good
confijie themselves strictly to the business
of manufacturing, leaving
abroad those who specialize in such work,
the exporting and sales to
at the «ime time building up a home
organization that will be entirely
transaction.
competent to handle the manufacturer's part of the
the
In those cases where a manufacturer decides to absorb also
task of exporting and undertakes to deal with
merchants in foreign
ports, engaging in so-called direct trade, it will also be
found neces-