Between 5 and 10% of the UK’s SME’s engage in International business. In the US, only about 1% of SME’s participate in global trade. Consequently, there seems to exist a lot of untapped opportunity for Export Growth.
Barriers to Exporting
While experts agree that Export Growth can have important benefits for smaller business, there exist a wide variety of barriers (real or perceived) which stop SME’s from pursuing overseas business.
Some of the often-mentioned barriers are lack of understanding of the foreign market. Learning about a foreign market requires a certain investment. You can assign a team to investigate, engage an International Business Development consultant to help you research and find out whether there exist opportunities for your products in the overseas markets, or you can hope and wait for an overseas customer to contact you and place an order.
After you learn about a foreign market, you will need to maintain contact with your end-user, to continue the dialogue. It may make financial sense for an SME to set up a foreign subsidiary (or employ US based traveling salespeople) to promote your products to overseas customers. Alternatively, intermediaries can link you with your end-user without the associated expense and burden of establishing and managing a subsidiary. While the selection of good, trustworthy partners can be left to trial and error, it’s better to use a systematic approach in establishing a long-lasting profitable relationship.
One of these challenges you will face is the exchange rate. Whenever the US Dollar is strong in comparison with the currency of the trading partner, US exports become expensive and competitiveness suffers. Because currency rates are entirely outside of your control, it becomes extremely important that you develop a resistant international strategy. Obviously, if it is your strategy to be the lowest cost provider, it’s hard to build a solid international presence. Based on currency volatility, one day you may be in and the next you may be out.
An exporter will inevitably encounter payment and cash flow challenges. Because your customer is based overseas, you need to be extra diligent when you extend credit, if you do so at all. While there are many ways you can cover your payment risk and while banks can help you with that, I know from personal experience that it may be difficult to find people familiar with these international financial tools, even at the largest US banks.
New to International Business Development? 3 Tips for Export Growth
1. Do not wait for an overseas customer to contact you. Take the Initiative
Most SME’s start exporting because they receive an unsolicited International opportunity. A foreign buyer visiting a trade show, or someone browsing the internet may have developed an interest in SME’s product. But, even when these ad-hoc trade opportunities turn out to be profitable, the resulting partner relationships may turn out to be ill advised. You could later discover that your partner is underfunded, destroys your brand, or is unsuitable to support your growth. Furthermore, in some markets it can be quite expensive to terminate a partner.
Your chances for success are significantly higher if you take a systematic proactive approach to building your International presence. Consciously select those markets where you have the best opportunities. Appoint those partners that will best complement your organization in implementing your strategy and reaching your goals for Export Growth.
2. Learn about International Business Development. Everybody wants to help.
There are many organizations that can teach you much about international trade. The US Small Business Administration and the US Export.gov website provides many educational programs where you can learn about foreign trade. The US Small Business Administration can provide one-to-one mentoring at no charge. Oftentimes the local Chamber of Commerce offers export help.
Alternatively, you can contact a consultant familiar with international growth. They’ve already gone through the learning process (with the scars top show for it) and can help you develop a proactive International Strategy and implement an International Business Development plan.
3. Establish contact with your Banker’s International Commerce Department. Let them worry about your Money
It is inevitable that you will face payment challenges. Luckily there exist may tools to protect you. Establish contact with your banker and gauge their familiarity with these tools and services. You may want to ask them to explain the use of a Letter of Credit. For example; ask how L/C’s works, or how you can protect yourself by outsourcing the inspection and certification of the goods before loading them into a container (to a 3rd party service such as Bureau Veritas S.A.). You may very well learn that you will need to establish a relationship with the bank’s International Commerce Department one or two time zones away.
Most SME’s start exporting because of an opportunistic event. This is neither the best, nor the shortest route to International success. It would help SME’s to purposely explore International markets, develop a deliberate International Strategy and implement a proactive International Business Plan. There exist many organizations that can assist your Export Growth.