Exporting U.S. products to overseas markets is not limited to large companies. A new study by the Small Business Administration/U.S. Commerce Department shows that small businesses play a major role in exports. Companies with fewer than 20 employees accounted for 65 percent of all the U.S. firms involved in exporting in 1997, up sharply from 59 percent in 1992. Small businesses accounted for nearly 31 percent of total U.S. export sales in 1997, up from 26 percent in 1987.
Meanwhile, the number of small firms that export has tripled during the last decade, rising from 69,354 in 1987 to 209,455 firms in 1997. In the past five years, the value of small-business exports has increased 300 percent.
The opportunities to export have never been greater. For example, the trade agreement recently concluded between the United States and China will allow more U.S. companies to export to China.
However, there are other reasons to export, which may not be as obvious but are worth considering. Exporting spreads your risk and reduces your vulnerability to domestic-market cyclical or seasonal fluctuations. You become more aware of global market trends and developments and thus are better prepared for change. Increased sales volume can mean lower unit costs and extended product life cycles.
Steps to take
The first step to take in order to prepare your company to join the ranks of successful exporters is to develop an export plan. The plan should establish realistic sales goals, and the strategies and tactics necessary to achieve them.
The plan should include a market study that explores opportunities and demographic targets for your products or services in the importing countries. There should also be a marketing plan that details specific advertising and promotion strategies your company will use to tap into those markets.
The export plan should also include a competitive analysis determining who your company’s competition is in the importing countries, and why your firm has a competitive advantage.
The export plan should discuss any production or operations costs associated with exporting, and weigh these costs against economies of scale to determine whether exporting will be profitable for your company.
Consider ways your products or services may have to be altered to accommodate local tastes or cultural preferences. Import regulations will also have a bearing on packaging and labeling, so make sure you consider the associated costs. If the product does not conform to local regulations, it will not be allowed to enter the destination country. Not only will you lose the sale, you will have to cover the cost of returning or destroying the shipment.
The plan should also set forth your pricing strategy, so that you can cover your cost of goods sold, while allowing for a reasonable profit margin. Also make sure you have the human and production resources necessary to fill any increases in sales orders generated by your exporting efforts.
You’ll also want to make sure you have the financial resources necessary to carry out your export plan. You may need additional financing in order to launch an export operation. The marketing, production, operations, and shipping costs associated with exporting, and longer billing cycles, may require an investment on your part before you see a return. The state and federal governments, Small Business Administration, and banks’ international departments provide a variety of programs and resources to support exporting companies.
Bridging the gap
Servicing customers in other countries can also require considerable effort. You must be willing to provide your overseas customers with the same or greater level of service you provide your domestic customers.
Because of language and cultural differences, contrasting expectations and unfamiliar business practices, it is possible that you will have to provide a higher level of service to your overseas customers, especially at the outset. If you are willing to do this, you will have the beginning of a strong business relationship on which to build.
Before you begin an export operation, you should familiarize yourself with international shipping regulations. Processing the necessary documents can be the most complicated aspect of doing business in foreign markets. Hiring a professional freight forwarder is often the most effective method in handling export documentation and procedures.
A professional freight forwarder can estimate freight charges and will assemble and submit required forms and documents, such as bills of sale, letters of credit, ocean and airway bills, dock receipts, shippers export declarations, certificates of pre-shipping inspection, health certificates, and certificates of origin. A professional freight forwarder can also help find channels of distribution in your target countries while handling U.S. and foreign customs regulations, expediting freight movements and advising your company about risks and insurance.
By writing an export plan and conducting the necessary research and preparation, even small companies can take advantage of the benefits of exporting. New and expanded information tools and services make it easier for firms of all sizes to enter and succeed in the international marketplace.
Joseph Burns is an international business consultant for Applied Insight Consulting Group. He can be reached at [email protected].
Entrepreneur’s Notebook is a regular column contributed by EC2, The Annenberg Incubator Project, a center for multimedia and electronic communications at the University of Southern California. Contact James Klein at (213) 743-1759 with feedback and topic suggestions.
