“Taking the Overseas Plunge: How to Make Exporting Pay Off”

OVERVIEW [top]You’ve pondered the benefits of making your business’s products available overseas for some time. Perhaps you’ve read books on exporting, consulted some experts, and watched as competitors have started to tap overseas markets.

You’re growing restless. Yet as much as you’re tempted to begin exporting, you don’t want to do anything to jeopardize the domestic growth you’ve already achieved.

The key is to lay the groundwork in a methodical manner. If you rush into exporting, you may wind up making costly mistakes, such as entering too many countries too soon or establishing relationships with the wrong distributors.

In this Quick-Read you will find:

• A systematic approach to exporting your company’s products.
• How to reduce risks of exporting.
• How to assemble the right team to export successfully.

SOLUTION [top]

Typically, an entrepreneur starts exporting after attending a trade show and learning that a rival company has “beaten us” into new countries. But that’s hardly a reason to plunge in.

While you should monitor your competitors’ global strategy, don’t assume that the only way to protect your turf is to match their exporting efforts tit for tat. Playing such a reactive game dooms your success. It’s wiser to begin with a systematic plan.

• Research the best overseas markets. Start by contacting the U.S. Department of Commerce district offices that provide trade guidance. Find the nearest offices of the DOC Bureau of Industry and Security (formerly Bureau of Export Administration) and International Trade Administration on the “Commerce Offices and Services Near You” Web site. ITA representatives will help you identify assistance programs, gather trade information from U.S. embassies and consulates, and obtain country-specific market research reports.
• Get guidance from other interested agencies. Contact your nearest Small Business Administration Office of International Trade Export Assistance Center, where you can get legal advice, training, and counseling on exporting issues. Your state’s economic development agency may also offer export-development programs and even trade missions to countries you’re targeting for export. Find it at the National Association of State Development Agencies Member Agencies Web site. Find other economic development program offices in your state in the DOC Economic Development Directory.
• Narrow your search.Armed with federal and state government data, you can determine where to export. Don’t assume that just because your products sell in the United States that they’ll fly off the shelves in Western Europe or another English-speaking country. Variables ranging from cultural preferences to foreign-exchange rates to availability of raw materials can affect sales abroad. You’ll need to assemble a price structure that’s customized for the countries you’ve targeted.
• Decide on distribution.In developing an export strategy, you may want to use a major distributor, commission representative, or trading house. One approach is to start with a distributor in a major market, such as England, that carries your product line and shepherds its introduction.
• Create a financial plan.You’ll need to understand and predict several financial factors that can make or break your exporting operation:
  • Transportation and warehouse costs.
  • Costs for sturdy packaging for overseas shipments.
  • Import licensing fees, tariffs, and taxes in the target country.
  • Costs of documentation compliance, especially product labeling to comply with local laws and ISO 9000certification.
  • Effect on cash flow of delivery and accounts receivable lag time.
  • Costs of competing products in the target market.
  • Exporting startup capitalization and time to profitability.

Forming your export team

Operating through intermediaries, such as export management companies, can save time and simplify the process. In exchange for commissions or a retainer, these firms provide trade contacts and market know-how to help you establish relationships with retailers and other overseas customers. At their best, these companies can handle every aspect of exporting except filling orders.

If you’re eager to bypass intermediaries and export directly, begin with relatively simple markets with fewer trade barriers, such as Mexico or the Bahamas. Export management firms might provide more value-added expertise if you’re exporting to, say, the Middle East or Asia, where restrictive markets and complex rules can stymie a novice.

In any case, you’ll want to form an export team comprising:

1. A lawyerwho can draft and review distributor agreements and exclusivity agreements, interpret global regulations, and advise you on intellectual property protection if you’re worried about your products being copied overseas.
2. A bankerwho can structure financing, assess payment methods, and advise you of financial risks and how to offset those risks.
3. A freight forwarder who’ll handle shipping, insurance, and any licensing hurdles involved in getting your product from the United States to its destination.

Finally, talk to noncompetitors in your region who’ve already begun exporting. Contact related businesses that have experience working with the countries that you’re targeting. For example, if you sell model trains and other specialty toys, interview executives at nearby companies who export box games or novelty items.

REAL-LIFE EXAMPLE [top]

In the six years since William Jeffery started exporting his company’s products, export sales have grown to contribute 25% of his company’s profit. Jeffery runs IRMCO, which makes lubricants for the automotive, lawn and garden, and appliance industries.

IRMCO now sells to England, Holland, Australia, Brazil, Mexico, Canada, and South Africa. It’s in the process of adding Spain, Malaysia, Italy, and Germany.

Jeffery favors the use of partners, not distributors. “Distributors just warehouse and sell your product or put it in a catalog and nothing else,” he says. “A partner needs your product to sell, fits into your strategy, and has full buy-in to create a win-win relationship.”

He gauges the value of potential partners by asking them to invest in a trip to his Evanston, Ill.-based company. If they balk, that’s strike one. He also likes to partner with privately owned firms, not corporations.

“I want to know the owners and build trust with them,” he says. “After all, I’m sharing my intellectual property with them. And I let their employees participate in our internal sales training. I don’t want to deal with a VP of some big company who might quit in a year, making me rebuild trust all over again with someone else.”

Jeffery emphasizes the need for patience. It took him four years of steady exporting in each country to become profitable. But now he has gained confidence from his company’s ability to win on the home turf of foreign competitors.

DO IT [top]

1. Once you identify a country as a candidate for exporting, contact that country’s embassy or consulate in Washington, D.C. Its trade commissioners may provide research and guidance to help you do business in that country. Start at Embassy-Worldwide.com.
2. Test an overseas market before you make a substantial investment. For example, if you’re exporting to a wired country, such as England, use the Internet to introduce your product and generate interest among distributors and retailers.
3. Before you expand into a new country, prepare to ramp up your production capacity. Some overseas buyers request surprisingly large bulk orders that can catch a smaller company off guard and unprepared. Determine in advance how you can fill export orders without hurting domestic sales.
4. Use specific, compelling product descriptions to captivate overseas buyers. Consider using an informal focus groupof consumers, marketers, and distributors in your target country to get input on how you should describe your product.
5. Survey your domestic customers to learn if they’re buying your product for sale or shipment overseas. If so, ask them which countries show the most interest.

RESOURCES [top]

Books

Export Sales and Marketing Manual, 14th edition, by John R. Jagoe (Export Institute, 2002). (800) 943-3171.

Exporting: A Manager’s Guide to the World Market, by Carl A. Nelson (International Thomson Business, 1999). Perspective for the CEO/manager.

Ultimate Guide to Export Management, by Thomas A. Cook (AMACOM, 2001). Details for the professionals in the exporting business unit.

Basic Guide to Exporting, 3rd edition, by Alexandra Wosnick (World Trade Press for the U.S. Department of Commerce, 2000). Guidance and referrals to sources of more advice and information: Web sites, government agencies, books, and so on.

Internet Sites

U.S. International Trade Administration

U.S. Bureau of Industry & Security

Export-Import Bank of the United States

Country Commercial Guides. U.S. Department of State. CCGs are annual business climate reports prepared by U.S. Embassy personnel.

Formerly STAT-USA. Currently a UCF research guide. This page provides resource trade statistics.

Journal articles

“Going Global.” Fortune Small Business.

“Emerging Markets: An Entrepreneur’s Guide to Staying Sane, Safe, and Profitable,” by R.W. Nelson. EntreWorld, Kauffman Center, 1998.

Article Contributors

Writer: Morey Stettner