Lesson 11: Tapping a Global Marketplace
What You’ll Learn: Most of your customers live in countries other than the U.S., and 75% of the buying power is overseas. This lesson will walk you through the ins and outs of exporting, from planning to execution and how to measure success.
Tapping the Global Marketplace
“Trade isn’t about goods. Trade is about information. Goods sit in the warehouse until information moves them.”
Carolyn Janice Cherry, aka C.J. Cherryh
Even if you’ve conquered the U.S. market, 95% of consumers and three-quarters of global purchasing power lies outside of America’s border. Strikingly, only about 12,000 businesses in Washington are engaged in international trade at the moment. Most of these are small to medium-sized companies rather than the big corporate behemoths we associate with imports and exports. Before the pandemic, the value of exports was an impressive $2.5 trillion, and there’s every indication that this level of interest and demand will return as economies worldwide recover and rebuild.
When it comes to the idea of exporting, the question for many small business owners is, “Is it worth all the effort?”
The short answer is “in most cases.” Exporting has many advantages, including:
- Increasing your bottom line. Exporters report being 17% more profitable than those companies that don’t.
- Smoothing sales cycles, so they aren’t as seasonal or dependent on a single economy.
- Using production capabilities fully.
- Protecting your domestic market by discouraging foreign competitors from entering your markets.
- Increasing the value of your intellectual property should you choose to license it.
- Increasing the value of your business should you choose to sell it.
That may all sound well and good, but you may also ask why anyone would want to buy what you sell? Even with the best research, no one can predict with any certainty where a particular product or service will catch on, or if it does, if it will generate enough revenue to keep the business in business.
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But you would be surprised what people need and want. You may be selling the exact thing someone halfway across the world has been looking for forever. They just don’t know you have it. And if you’re a manufacturer, you can expand your business by selling wholesale to other businesses overseas. The possibilities are almost endless.
Engaging in trade isn’t just about expanding market share and increasing profits. Finding customers overseas allows you to get up close and personal with customers in another culture; customers who may ask for improvements in your product and service lines that will result in exponential growth elsewhere. It will also make you more resistant to fluctuations in the American economy. Exports can be a lifeline when the U.S. has an economic downturn. Exporting not only opens your eyes; it opens doors.
Best of all, engaging in trade doesn’t require a substantial investment in materials, equipment or human capital. You can start small and grow organically. You can strategically choose your markets, suppliers and customers and determine when it’s the right time to expand your exports.
Assessing Your Export Readiness
The more pressing question isn’t whether you should engage in trade, but whether you’re ready for it. For many businesses, the process can seem daunting. Granted, it’s not as easy as ringing up a sale in your store and handing a bag to your customer over the counter. But it’s not as difficult as you may think.
Here are some questions to guide you in an initial assessment.
1. Do you currently have a product or service that is selling well in domestic markets?
If your product or service has demand in the U.S., the chances are good that customers in other countries will be interested in it as well. However, as noted earlier, 95% of the world’s customers lie beyond the U.S.’s borders. Selling to only 5% of the potential market may not be the best growth strategy.
2. Do you have an interest in developing new markets and devoting some time and energy to the process?
If you aren’t, then it’s time to close this lesson and move to the next. The #1 determining factor in a successful export program is commitment at the highest level. It requires initial research and the development of an export plan with specific targets, options for entering initial markets and a target list of prospects. Unfortunately, many companies tackle exporting halfheartedly, which can be a costly mistake.
3. Do you have the capacity to commit to exporting, and do you have the supply chain and financing required to handle it?
Sales usually won’t shoot up overnight, but anything can happen in this age of social media and global shares. Before you dip your toes in the water, do some forecasts on potential sales volumes, required inventory, cash flow and short-term financial needs to handle a rapid expansion or last-minute product modifications to comply with government regulations. This guide on determining your export potential should help with these decisions.
4. Do you have the financial resources to support an international sales effort?
As the pandemic cools and markets open up again, you may need to get some of your team to press the flesh in overseas markets. This may include travel and hotel costs, trade show participation, market research and business training.
Commerce’s Small Business Export Assistance (SBEA) team can provide you with assistance in these matters. They can connect you to the state’s foreign representatives, perform market research, business matchmaking, risk mitigation and export training.
The SBEA team can also assist you with applying for Export Vouchers. Made possible by a grant from the SBA, you can get up to $10,000 to offset the cost of international marketing, website design and e-commerce, online listing fees, accepting international payments online, services of the U.S. Commerce Service, shipping samples overseas, export research tool subscriptions, international trade show and trade mission fees, air travel and other expenses.
5. What level of protection do you have for intellectual property?
Just because you have intellectual property protected in the United States doesn’t mean those protections extend overseas. If you have a unique or highly innovative product, speak with an intellectual property attorney to discuss other protections or filings you would need to protect your IP and the potential risk of doing trade in specific countries.
6. Are there any modifications that need to be made to your product or service to meet foreign regulations, cultural nuances or entrenched competition?
When Chevrolet introduced the Vega in the 1970s, it was a hard sell in Spanish-speaking countries. The reason? “Vega” means “no go” in Spanish. Before you get too far down the road, make sure that your product complies with relevant laws in the country you want to do business with and make sure your packaging and messaging aligns with the culture.
7. Does your company have the knowledge needed to ship products overseas?
This isn’t a deal-breaker, mind you, since you can acquire this knowledge. Packing, labeling, documentation and insurance are areas you need to understand, along with the various shipping methods, U.S. export regulations and import rules of the country you’re targeting. You’ll also want to know what you’re getting into before you launch a major overseas initiative in terms of shipping and logistics.
8. Does your company have the mechanism and experience with export payment methods, such as letters of credit?
Exporters compete in a global marketplace, so you need to offer your customers attractive sales terms that are supported by the market’s traditional payment methods. The most secure of these are cash in advance and letters of credit, which minimize risk while addressing the buyer’s needs. The higher risk methods are documentary collections, open accounts and consignment. As you negotiate your contracts, consider which method is best for you and your customer to build trust in the relationship while minimizing risk for both parties. The most secure terms for you are the least secure for your customer, so you may need to meet in the middle somewhere, especially if the relationship is new.