Going GlobalPosted on Monday, September 4th, 2006 by Sheryl NanceNash
Small firms that take on the challenge of selling overseas find new frontiers and untapped opportunities.
Four years ago, Tomer Gendler was fresh out of college, with three credit cards in his pocket and a burning desire to take on the international fashion industry. Today, Gendler’s company, TOMER, with just four employees but an expanding array of clients and suppliers overseas, is rapidly establishing itself as an emerging player in the world of upscale men’s fashion.
Gendler designs his collections at his firm’s New York City headquarters, and has the first sample set made in the U.S. Then he sends his patterns and samples to Italy or China for manufacturing, often incorporating unique fabrics and trims that he finds in France, Britain, or Germany. The manufacturers ship the clothes back to Gendler’s New York showroom for quality inspection, and then TOMER ships the clothing to stores across America as well as to private clients in London, Tel Aviv, and Tokyo. “Each part of our global business framework adds its own element to the overall success of our products,” says Gendler.
Looking beyond U.S. borders for strategic partners as well as customers has given Gendler one or two gray hairs, but his firm’s sales have grown at a double-digit annual rate since he began exporting two years ago. “Once you learn how to deal with one or two key countries in a given region, things get much easier,” he says. “Meanwhile, the opportunities for further growth abroad are huge.”
TAKING THE PLUNGE
Gendler’s firm is just one among many small U.S. businesses breaking into foreign markets. According to Globetrade. com, a Chicago marketing and management consulting firm, the number of small business exporters rose 250 percent from 1987 to 2001; the U.S. Census Bureau identified 231,736 U.S. exporters in 2004. The result of this trend, according to the Small Business Administration, is that American small businesses now export $1 billion worth of goods and services each day.
It’s no wonder that more small firms are turning to overseas markets. Foreign sales offer a hedge against the ups and downs of the U.S. economy, not to mention a great source of new revenues: Roughly 95 percent of the world’s consumers live outside the U.S. “Small and medium-sized businesses that engage in international trade are 20 percent more productive than nonexporters, have 20 percent greater job growth and are nine percent more likely to stay financially solvent,” says Janet Shearn, Director of Customs and Trade Compliance for United Parcel Service.
Josef Blumenfeld is the founder of Tradewind Strategies, a small public relations consulting firm in Natick, Massachusetts. His company derives 80 percent of its revenues from overseas clients in countries such as China and India, or from American companies doing business in Asia and the Persian Gulf. “Small business owners are broadening their horizons,” he says. “There is a lot of opportunity out there.”
That said, doing business abroad calls for initiative, hard work, patience, and perseverance. Interested? Here are some tips to keep in mind:
Get the help you need to get started.
You probably will need assistance evaluating your prospects, choosing potential markets, and meeting the logistical, legal, and other challenges that will arise once you start selling overseas. For example, even the smallest shipments require commercial invoices detailing the origin, destination, and value of the goods, as well as their typical use. You’ll also need to obtain and process certificates of origin, export licenses, and insurance documents.
Fortunately, there is a lot of help available. Many countries sponsor promotional agencies that can assist with challenges such as finding a location and recruiting staff. Your local chamber of commerce might provide advice and referrals to potential partners or customers. The U.S. Small Business Administration and other federal and state government agencies also can help with financing and expert advice. Small business development centers at universities are another potential resource.
You might eventually decide to hire a consultant who specializes in assisting small companies to enter foreign markets. An Internet search may turn up some likely prospects, and local trade councils also can provide leads. Look for a consultant who has experience with clients in your industry. And check references, says Donald DePalma, president of Common Sense Advisory, a Lowell, Massachusetts, research and consulting firm specializing in international business. (See “Getting Help with Going Global” at left.)
Consider financing risks and opportunities.
Cathy Hagan is a certified business analyst with the Small Business Development Center at the University of North Florida in Jacksonville. She recommends that would-be exporters consider whether they are willing to make the capital investment required. Bear in mind that it can be challenging (and expensive) to establish the infrastructure you need, including shipping, communications, and the like. What’s more, it’s a good bet that your expenses will exceed initial projections by 10% to 25%. “Generally, entrepreneurs underestimate the expense of entering overseas markets,” says Christoph Besmer, Executive Director North America of the Greater Zurich Area, which promotes exports to the European market.
Your analysis should also reflect the fact that you’ll need to charge more for your products when you sell them abroad. “If it ordinarily costs $1 to produce and sell a widget, that figure might rise to $1.50 by the time the widget gets to China,” says Laurel Delaney of Globetrade.com.
Raising money may be another concern. The Export-Import Bank of the United States (www.exim.gov) and the SBA (www.sba.gov) may offer low-interest financing. UPS Capital (www.upscapital.com) also provides small business loans, lines of credit, and help with establishing a process for receiving payment for goods.
Size up potential markets very carefully. Choosing your target markets requires incisive analysis of the competitive landscape, including market size, relevant cultural issues, and local costs. Look for foreign customers who resemble your domestic clients and customers. They may not be as difficult to find as you expect. “Tastes around the world are converging,” points out Tomas Hult, Director of the Center for International Business Education and Research at Michigan State University. “A 20-year-old in Russia or China or Sweden will probably like your product if it appeals to a 20-year-old in the U.S.”
Look for markets where there is a strong demand for your product, and where you may have a competitive advantage such as superior quality or service. But be sure to factor into your analysis potential barriers to entry, which might include tariffs, restrictions, or even mandated product modifications.
Take shipping seriously. Bear in mind that shipping and the individual logistics in a particular country or region may determine much of your cost. Tomer Gendler of TOMER stresses the importance of being able to track every shipment and make sure it leaves and arrives on time. “If one shipment is late, lost, damaged, or stolen, it can interrupt the whole production process,” he says. “I regard my shipping company as an important logistical partner.”
Cross the cultural divide. Language will almost certainly be an issue. “You have to deal with the language issue, even if the person is in another English-speaking country,” says Donald DePalma, president of Common Sense Advisory. “Make sure your website and other materials reflect language differences.”
Cynthia McKay is CEO of Le Gourmet Gift Basket, a gift basket franchise company based in Castle Rock, Colorado that sells its products in the United States as well as Malaysia, Canada, Mexico, Australia, New Zealand, Japan, and China. “When we expanded beyond U.S. borders, we encountered cultural differences in contracts, mailing costs, and other areas,” she says. “For example, a white basket for a wedding is the expected gift here— but white is the color of mourning in Japan.” The lesson: Make sure you learn as much as you can about the culture of the country in which you’re selling.
Invest in technology.
Josef Blumenfeld of Tradewind Strategies found that his overseas business required him to invest more time and money in technology. “A nasty e-mail virus in China shut down my computers there,” he says. “I had to bring in an IT person to help with that and other issues.” Blumenfeld also invested in VOIP—Voice over Internet Protocol, which uses the Internet as a channel for voice communications—for his small Beijing and his U.S. office. Calling his Chinese and Indian clients over the Internet is vastly cheaper than using regular phone service.
Make sure you get paid.
Be wary of establishing an open account with a new customer. “If you make a mistake on labeling, regulations, transportation, documentation, or product quality, the customer may decide not to pay,” says Laurel Delaney of Globetrade. com. “Even when the purchase is made on a credit card, there’s room for waffling.”
A good banker can help prevent that kind of problem by setting up secure and effective payment procedures and helping you explore options like an irrevocable letter of credit, or methods to structure the deal so that you get payment in advance.
Going global requires considerable work, and carries some risk— but it can also bring tremendous benefits. Delaney sums them up in a sentence: “Go global today, and you could fulfill your own version of the American dream.