May 2014

Being Global in the Right Markets

Jim Herrin, MBA, CGBP

Assistant State Director

Utah SBDC Network

 

Should your company export?  Are your products in the right markets?  These are a couple of very important questions small business owners must ask themselves if they are concerned with maximizing the value of their products and company.

If a company has an exportable product, adequate cash flow (or access to adequate capital) and the capacity/capability to export, then all that remains is a full commitment to do it.  The next issue is which markets to enter first.  For the company that currently exports, it’s a matter of determining if they are in the best markets for their products.

Should We Export?

Whether or not to export is a true dilemma for many companies.  However, the vast majority of reasons companies don’t export are rarely valid.  A U.S. Commerce Department study found the primary reasons were the following:

       We have better market prospects here in the U.S. (36 percent)

        Exporting would not be profitable for us (21 percent)

        We are just too small for exporting -- it is for large firms (15 percent)

        We don’t have enough information about foreign markets (8 percent)

        Exporting is too risky for small firms like ours (6 percent)

        We cannot finance export sales (4 percent)

        Other reasons (10 percent)

Nearly every reason listed represents a lack of knowledge and misunderstanding of exporting, and a myopic focus on the domestic market.  In fact, a company that doesn’t export when it can, is more risky and is not maximizing its value because exporting can:

       grow sales and profits

       increase market share (competitors are taking yours now)

       reduce risk through diversification of economies, markets and customers

       utilize excess capacity, thus reducing per unit overhead costs

 

Am I in the Right Markets?

The worst reasons to export to a specific foreign market include receiving unsolicited inquiries and orders from a market, experience living in or visiting a specific country, having friends or relatives in a country, or because you’re interested in a country.  Without a systematic review and screening of markets, you may be missing the best opportunities for your product and value maximization.  There are a number of resources of market information, many of them at no cost, available to help you determine best markets for your product, including the U.S. Commercial Service, U.S. Small Business Administration, Utah Governor’s Office of Economic Development (GOED) and the Utah Small Business Development Centers (SBDC), the Utah World Trade Center, industry trade organizations, various foreign government and trade organizations, etc.

It is important to understand that markets need to be evaluated on a number of criteria.  For example, many think China is a great place to sell any product solely due to the size of population.  However, a John Stockton bobblehead may not have much demand there.  The Utah SBDC has developed an Excel model as a screening tool for potential top markets based on the following quantitative variables:

       Population

       Per capita income

       Level of imports into countries of goods in that product category

       Import growth into countries in that product category

This will provide a list of potential best markets to target for further research.  Other more qualitative variables also need to be evaluated, including regulatory issues (foreign country and U.S.), pricing/cost structures, infrastructure and logistics, business culture, etc.

How do I Export or Expand into New Markets?

Don’t go it alone!  Entering a foreign market seems immensely intimidating to many small businesses, especially if management has no previous experience exporting.  However, there is an incredible amount of assistance to help your business enter the export arena, or to expand into new markets.  Most companies, even those that already export, do not realize these services and resources exist. 

The methods for entering and expanding to a global business presence include, from least control to most control:

       utilizing an export management company that handles everything

       piggy-backing with another company who is already in the market

       engaging agents or distributors in the countries

       establishing a physical presence in a foreign market, i.e. branch office

Most companies utilize agents and distributors in a foreign market which allows a direct presence without the cost of putting in a branch or sales office.  The challenge is to find a good representative in a country.  Where do you start?  Well, there are several ways; some better than other.  Below are a few suggestions:

       Utilize the U.S. Commercial Service’s Gold Key Program, which identifies and screens potential partners and sets up appointments with them when you visit the country.  This may be one of the best, cost-effective resources that exist. 

       Exhibit or visit an industry-specific trade show in the country.

       Participate in a trade mission. The Utah Governor’s Office of Economic Development (GOED) organizes several trade missions every years.  This can opens some doors, but you need to do some pre-mission work to ensure your time is productive.  GOED has representatives in several countries that can assist in setting up meetings.  Some participants use the U.S. Commercial Service’s Gold Key Program for this purpose also.

       Web searches.   Look at websites of companies that are in your industry.   Sometimes they list the agents or distributors they use.

       Promote that you are looking for an agent/distributor through various channels, i.e. business/industry trades in the country. 

Each of these methods, and others, need to be investigated to determine which is best for your company’s circumstance.