Global Connection - May 2013: The Top Ten Things a 21st Century Exporter Should Know

by Snell & Wilmer

There are a myriad of things a U.S. company seeking to export will want to consider prior to entering the global marketplace, but, because I am a big David Letterman fan, and the fact that exporting has never been easier, I am limiting the topics discussed in this article to a Top Ten list. Listed below are the top ten things an exporter in the 21st Century should know:

Number 10: Perfect Planning Makes Perfect
Venturing into international trade is like starting a new business: you need good organization, financial planning/support, dedication and a long-term commitment to the target market. Careful, detailed planning should occur prior to entering a foreign market, not after a company has already committed significant resources and commenced exporting.

Companies that have successfully penetrated foreign markets have spent time formulating a viable export plan. The ingredients of a successful export plan have as much to do with a company internally as it does with understanding global markets. The exporter should spend time identifying a number of internal and external factors that impact its potential for success. The exporter should perform a “SWOTT” analysis, which stands for Strengths, Weaknesses, Opportunities, Threats and Trends. Strengths are factors that lean in the exporter’s favor, such as a hot product or a sustained period of domestic growth. Weaknesses hinder the exporter’s ability to enter a global market and can obviously be troublesome, but, over time, these things can be corrected. Opportunities are changes that build on a company’s strengths. Threats can be as damaging as weaknesses, but are largely outside the control of the exporter. Trends are changes occurring within the marketplace. A successful exporter will perform a SWOTT analysis and set a course of action that, to the extent possible, maximizes strengths and opportunities and minimizes weaknesses and threats.

Another key component of an export plan is for the exporter to conduct a market analysis of the target market. There are numerous resources available to the exporter to obtain helpful, relevant information, including the National Trade Data Bank and The National Trade Data Bank is the quickest, single source to see where goods and services are going and who is shipping them. The bottom line is that for an exporter to be successful, it must have a good export plan.

Number 9: Diversification Pays Off
It is estimated that by 2050, the world’s population will reach over 7.4 billion people. Most of the people (i.e. potential customers) will be living outside the United States. Currently, approximately 75 percent of all exports are done by large companies, and these large companies represent only about 20 percent of all the companies that could be exporting.

Entering global markets will enable a company to remain competitive and can balance out uneven or seasonal demand in the domestic market and prolong the production cycle for its products. Over 5,000 jobs are created domestically with every $1 billion increase in exports. Thus, one key to economic prosperity in the U.S. is to promote global exports. One need only look at countries that enjoy a trade surplus (i.e., they export more goods and services than they import) to see the advantages and prosperity that exporting brings. Germany exports upwards of 65 percent of the goods it produces, while the United States exports only around 12 percent. Reversing a massive trade deficit through expanding exports will benefit the United States as a whole and the individual U.S. companies that enter global markets.

Number 8: Information Technology Levels the Playing Field
In the past, larger companies had a competitive advantage over smaller companies in the export arena, because larger companies could absorb the significant costs associated with researching, preparing and beginning to export before ultimately turning a profit in their foreign markets.

Now, the Internet and other forms of information technology have made obtaining information for developing an export plan and communicating with potential customers easier than ever. The Internet has become the great equalizer and enables small and mid-sized companies to compete with the big boys.

Number 7: Less Competition in Global Markets Means Greater Opportunities
Only about one percent of all U.S. companies export outside of the United States, while over 70 percent of the world’s purchasing power resides outside the United States. This means there are vast and varied markets waiting to be penetrated by U.S. companies. Because so few U.S. companies currently export, there is also likely to be less competition for an exporter’s products abroad.

Over 80 percent of small and medium-sized businesses could begin exporting now. By seeking a presence in foreign markets where there is little domestic competition, an exporter can build a competitive advantage, as products bearing the “Made in the USA” sticker are well regarded. Through due diligence and careful planning, as above, a company can have a good sense of whether its products are likely to have less competition in foreign markets.

Number 6: FTZs and FTAs Can Reduce Export Costs
There are over 4,600 free trade zones in the world, which have been established to encourage international trade. A free trade zone, also called a foreign trade zone (FTZ), is an area in or near a port within which goods may be landed, warehoused, handled, manufactured or reconfigured and re-exported without the intervention of customs authorities. Only when the goods are moved to consumers within the country in which the zone is located do they become subject to the prevailing customs duties or tariffs. FTZs can be used to delay, minimize or eliminate the payment of customs duties and tariffs, among numerous other cost-saving benefits. There are over 250 FTZs in the United States and these areas can be extremely useful in a company’s export plan.

Free trade agreements (FTA), such as NAFTA or the U.S.-Israel Free Trade Agreement, minimize trade barriers among participating nations and promote increased commerce. A U.S. company seeking to enter a particular global market should research whether a FTA is in effect with the United States, as this agreement could provide valuable costs savings on tariffs and duties accruing to the company.

Number 5: Avoid Ethnocentrism
Long gone are the days when people viewed and judged the world strictly through the lens of their own country, culture, language and experience. The world has become much more open and accessible with the proliferation of communication and information technologies. These advances should allow companies and company executives to have the information needed to make well-reasoned and unbiased business decisions.

Understanding linguistic and cultural differences in a foreign market can help a company avoid making damaging or insensitive decisions. Before engaging in business travel to a foreign market to meet with global partners, company executives should become well versed in business etiquette for that market. An exporter should be prepared to modify its products and company literature to meet foreign cultural preferences and regulations.

For example, Heineken engaged in a special promotional campaign during the 1994 World Cup soccer tournament. Among other activities, the company had the flags of all of the countries qualifying for World Cup Finals imprinted under the bottle cap of their leading brand of beer. Among the numerous flags portrayed was that of Saudi Arabia, which depicts a holy verse. In response to this, Muslims from all over the world reacted angrily to the fact that holy verse was associated with an alcoholic beverage. Subsequently, the brewer had to recall all bottles and discontinue its promotion.

Once a foreign market has been poisoned by poor marketing or a poor product, it can take years to undo the damage, if ever, so it pays to think globally when one exports globally.

Number 4: Choose Global Partners Carefully
Numerous sources of information exist for companies seeking to find out about potential global partners. The U.S. Commercial Service exists for the sole purpose of helping U.S. companies to export. With offices located at consulates around the globe, and in most states in the United States, the U.S. Commercial Service has people on the ground who can help make introductions to potential global partners. For a relatively small fee of $700, face-to-face meetings with potential partners can be arranged through the U.S. Commercial Service.

Also, the Agent/Distributor Service (A/DS) may be used to locate foreign import agents or distributors, and the World Trader Data Reports supply credit data on potential agents, distributors, customers and suppliers.

All contracts that an exporter signs with a global partner should be reviewed by experienced counsel to avoid adverse or unintended contractual obligations.

Number 3: Logistics Management is Key
Distribution of and payment for shipments can be complicated for a first-time exporter. Fortunately, there are numerous experts who can help the uninitiated, including international freight forwarders, third-party logistics specialists (3PLs), international bankers, international carriers, customs brokers and legal counsel.

Also, supply chain management tools allow exporting companies to obtain efficiencies in manufacturing, warehousing, transportation and sales, and increase the sharing of information among supply chain actors, so that variability in the supply chain decreases and profits increase.

Number 2: Rely On Experts
Embarking upon an export strategy may seem a bit overwhelming for a U.S. company, especially one that is new to exporting. An exporter can rely on experts to assist in complying with applicable rules and regulations, such as a sophisticated accountant, an experienced law firm, an international banker, a customs broker, a freight forwarder, an international insurance company, and local, state and federal agencies established to promote exports.

These experts can guide an exporter through the export process and help the exporter avoid the pitfalls that may exist in reaching global markets.

Number 1: Ask the Question: Am I Ready?
A company seeking to export should ask itself a number of critical questions: Is the company’s CEO and senior management on board? Does the company have sufficient capacity to expand manufacturing and sales globally (i.e., financial, capital and human resources capabilities)? Has the company conducted sufficient market research and formulated an honest evaluation of its current products’ export potential and created a viable export plan? Does the company know where to obtain financing? Can the company make a profit selling its products abroad? If a company is able to answer in the affirmative to each of these questions, then it may be ready to export.

As with any domestic business enterprise, it will take time before a profit is achieved in global markets, maybe even years; however, the most competitive and enduring companies in America have successfully exported globally. It could happen to your company, but you’ll have to take the plunge. Wayne Gretzky, the greatest hockey player of all time and scorer of 894 goals, said, “You’ll always miss 100 percent of the shots you don’t take.” Now is the time for U.S. companies to take a shot at exporting.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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