Growing globally is one way to expand your business. The rules of the road to global expansion apply equally to all businesses, large and small. The only difference is resources: small businesses often lack the resources to help guide them through this process. Here, I bring some key and important issues small businesses must know before they export as part of our education series of articles on this subject.
To do so we will follow Holmes who is a small business manufacturer of electronics, testing and measurement equipment. Holmes has decided to grow his business internationally. He has a few locations in mind and believes these will be good markets for his small business. He has decided to export to Germany, China, South Korea, Vietnam, Mexico, and Canada. Holmes has no contacts in these countries and doesn’t know how to reach these markets. He has had contacts from people in these countries wanting to buy his products but has yet to take any actions. As a result, the first step for Holmes is business development and understanding these markets. The two are interconnected, however, because each task is a separate activity we’ll focus on each individually.
- Questions to Ask Before Exporting
Let’s begin first with business development. As in domestic markets, so too in international markets, a company like Holmes’s will begin to assess internally what it all means for the company to expand internationally and what steps that need to take to get started. In plain English, an export plan needs to be in place and the company’s management needs to have a tȇte à tȇte to determine whether it makes sense to export, and if yes, what’s it going to take, and by when should they export. Holmes should answer these questions: 1. Why should I bother with export? 2. Am I running after a shiny object or is this aligned with my company’s goals? 3. What’s it going to take, financially and otherwise? 4. What products are we going to sell? 5.How do we know they will do well? 6. Who’s buying our products and selling them overseas? 7. Who can help us export? 8. When are we going to get started? The foregoing are questions to help Holmes get started and think and documenting in paper about the prospect of exporting. Is it a daunting task? Not necessarily, yet it is an effort that must be taken seriously because as we’ll see many steps need to be thought through and need to be implemented before exporting.
- Marketing Research
For Holmes and companies like Holmes’s an important part of the business development plan or the export plan is the market research. Holmes has identified the countries where he wants to sell his products. This makes the market research more focused. Fortunately for Holmes, there are in United States several resources that can help Holmes in this process. These resources I will share here for ease of access. To begin the process Holmes can reach out to local, national, and international resources. Locally, Holmes can contact the Small Business Administration www.sba.gov, the local District Export Council – two Districts serve Michigan, eastern district www.eastmichigandec.org and western district www.exportwestmichigan.com - nationally and internationally the U.S. Commercial Services is a valuable resource to receive information locally and to vet international potential customers and markets www.trade.gov . An important source for Holmes is trade counsel, while the division of work can happen with agreement it is crucial to involve trade counsel from the beginning so counsel can not only provide feedback and guide but can think well ahead of the issues and prepare knowing what is taking place. That way efficiency in execution of the plan is created from the start. Other resources helpful to Holmes are: to obtain statistics www.census.gov/foreigntrade ; to examine product trends www.census.gov/ipc/www/idb and United Nations Division http://unstats.un.org/unsd/databases.htm; for country specific data www.export.gov; for Europe www.eurotradeonline.gov; Asia Now www.buyusa.gov/asianow, and Europe www.buyusa.gov/europe These are great resources to start Holmes on Marketing Research to then develop the marketing plan along side business development.
All business contains risk, so too international trade. The risks, however, in international trade is often overlooked. Many start trade without the right risk assessment or appreciating the actual risk of entering a transaction. The result is that business goes wrong. Holmes has selected a few markets he wants to export his product. He has to think carefully about each market because each market’s risk level is different. Germany for example is a low-risk country whereas Vietnam, being an emerging market, stands on the opposite spectrum. Therefore, the degree of risk Holmes is to take on varies for each market. Being aware of risk should not be cause for panic or anxiety, it only need not be ignored. The risks that Holes has to assess include financial risks, political risks, product risks, transportation risks, currency risks, commercial risks, and business risks. Note, Holmes need not be obsessed about each of these for every transaction, because not all of them show up in the same transaction. Important for Holmes is to know these risks, assess them then try to secure against the assessed risk, and, more important, decide whether as a business they want to enter into a deal. It is best to decide at the outset whether a transaction is worth the trouble pursuing then discovering later it was a costly mistake.
- Finding Willing and Able Buyers
No product or service can accomplish anything unless there is a demand for it. If Holmes has not been contacted by potential overseas buyers, then Holmes has some work to do to identify potential qualified buyers, buyers willing and able to buy. Any of us involved in business development knows this is no easy task. Luckily Holmes has many vehicles to his assistance to help him find buyers. Holmes can follow two paths: register his company on one of the U.S Commercial Services websites such as www.buyusa.gov to find matchmaking opportunities with foreign buyers or become a featured U.S. exporter. There are certain procedures Holmes needs to follow to qualify for these services, however, these are valuable because they will give the company access to target markets and the opportunity to contact potential buyers overseas. Another way that could benefit Holmes to find buyers is to plan on attending one of the trade missions organized at state and federal level. These trade missions help U.S. companies meet with pre-screened businesses to maximize the opportunity to contact potential buyers or interested parties. Holmes, through counsel, would also benefit from reaching directly to U.S. Commercial Services abroad to get a feel for the local markets and get the insiders view on possible qualified buyers on the industries he is targeting. Holmes would also benefit from connecting with the local resources at state level to discover when foreign trade missions to the United States are taking place so Holmes can participate in any of them. And, last, if Holmes has any contacts, friends, acquaintances, social media connections, in the countries he is interested to do business these are a valuable resource to get local intel about many aspects of doing business in the specific countries but also get a hold of companies that could interest Holmes.
Equally important for Holmes to consider in this process is culture. Some underestimate the importance of culture in international business transactions. By that I mean not only culture, but also the history, the customs and business customs of a country, it would greatly help if one, also, learns the basic greetings. While people may forgive most aspects one behavior in a foreign country, rarely do they appreciate one not having taken the time to learn facts about the culture of a place. Although this rarely is expressed. Recently, I was reminded of the importance of culture in international business transactions while watching a show where one man had contacted a businessman in another country wanting to do business with him. The businessman asked: “what do you know about my culture?” To which the man answered: “you’re one of the largest economies in world”. The businessman repeated the question “what do you know about my culture?” After another back and forth the businessman answered: “you know nothing about my culture” and hung up. Business is about relationships, so being well acquainted with culture, history, customs create stronger relationships. Binding through culture is the difference of being treated as an honored guest, a friend, or a stranger. For Holmes to succeed in his transactions he must spend some time getting acquainted will the culture of the countries he intends to export and he will be helped tremendously if he also visited these countries to get the feel for how business is done by having boots on the ground.
Attorney Aida Dismondy writes about international trade and government contract issues. This article is the first in a series. If you want to receive updates on your inbox reach out to Aida at email@example.com .