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Exporting to new markets
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August 28, 1998: 2:53 p.m. ET
Exports can yield big sales, but you must be committed to the long haul
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NEW YORK (CNNfn) - Everybody's always talking about expanding their horizons, but how many people actually go out and do it?
If your business has been successful on the home front, it may be time to consider an international expansion.
Becoming an exporter has a variety of benefits.
It can increase sales and profits, reduce dependence on existing markets and stabilize seasonal market fluctuations. It is also a great way to sell off excess inventory.
In fact, studies show exporting firms regularly outperform those that stay at home.
But an international expansion also can create a lot of extra work.
Exporting "cannot not be a short-term deal," said Martin Duggan, president and CEO of the Small Business Exporters Association. "A business has to be committed to the process."
Your company may be forced to apply for additional financing, obtain special export licenses and give up short-term profits for long-term gains.
"The lag time in getting an export transaction to fruition is very different than when you are just selling across the street or to another state," said Eileen Cassidy, director of international trade for the Small Business Administration.
It may take as long as two years to generate profit with cash outflow during that period, though most transactions are completed within 90 to 120 days.
Where to start
Before jumping in, you need to assess your company's export potential and develop a business plan. You will have to evaluate what effects exporting may have on present operations and you will have to target and assess potential markets.
Without proper guidance and assistance, this process can be time consuming and costly -- especially for a small business.
Luckily, there are plenty of resources at your disposal.
"Whether or not a business uses (the available resources) makes all the difference," Duggan said. "There's too much help around for them not to be trying to do something to give them better insight."
The SBA and the Commerce Department, as well as a variety of trade and exporters' associations, can help you evaluate whether your company is ready to compete in an overseas market and guide you through your first business plan.
An international business plan is important for defining your company's present status, internal goals and commitment, but it is also required if you plan to seek export financing assistance.
Research shows that small business failure rates among new businesses are significantly lower for new businesses that have developed a business plan.
A common misperception is that selling abroad is as easy as selling to another state, according to Cassidy.
But "it takes time and research. You really need to have an international plan and good marketing research," Cassidy said.
A plan forces you to look at your future business operations and anticipate what lies ahead.
It should include potential export customers and methods of overseas market entry, as well as:
- exporting costs and projected revenues
- export financing
- legal requirements
Identifying potential markets
Identifying the fastest-growing, most penetrable market for your product is the key to exporting success.
When assessing a market, ask yourself how the quality of your product compares with that of goods already available in your target overseas market. Is your price competitive in the market you are considering?
Make sure you evaluate how demographic patterns and cultural considerations could affect market penetration. For example, you may have to modify packaging or labeling to make your product more "exportable."
Overseas government representatives at embassies and consulates can help you with specific market and product information.
Ask them what market barriers, such as tariffs or import restrictions, exist for your product. Often tariffs become barriers to imported goods because the amount of tax imposed makes it impossible for exporters to profitably sell their products in overseas markets.
Do not try and get into too many markets at the start. For most small businesses, three is more than enough initially. You may want to test one market and then move on to the secondary markets as your expertise develops. Focusing on regional, geographic clusters of countries can be more cost-effective than choosing markets scattered across the globe.
"The best way to start out is with a country that is most like us," Cassidy said.
Because Canada shares a common culture with the United States and its financial system and ways of doing business are similar, that country may be a good place to start.
Mexico is another one of Cassidy's recommendations, though she adds "every country has different things they don't have that we can sell them."
Middleman or go it alone?
Once you have determined the best market for your product or service, you will have to decide on an export strategy.
You can sell your product directly to an overseas firm, or indirectly through the use of an export intermediary.
Exporting directly requires your company to find an overseas buyer and make all arrangements for shipping your products overseas. If this method seems beyond the scope of your business' in-house capabilities, you may want to consider using an export intermediary.
Types of export intermediaries include commissioned agents, Export Management Companies (EMCs) and Export Trading Companies (ETCs).
The experience and well-established network of contacts of these companies could help you gain faster access to international markets than if you established your own relationship with an overseas-based partner.
Using an intermediary also lowers or eliminates your export start-up costs and many of the risks associated with exporting.
In addition, you can negotiate your contract with an EMC so that you pay nothing until the first order is received.
Your intermediary will guide you through the export process step-by-step. Over time, you can develop your own export skills.
But by using an intermediary, you could also lose some control over the way in which your product is marketed and serviced. You will want to incorporate any concerns you may have into your contract, and you will want to monitor closely the activities and progress of your intermediary.
While indirect exporting offers many advantages, direct exporting also has its rewards. Although initial outlays and the associated risks are greater, so are the profits.
But it will require a big commitment on your company's part to fully engage in international trade. It may require you to dedicate a staff person or even several personnel to support your export efforts, and company management may have to travel abroad frequently.
Financing opportunities
One of the most common concerns of new-to-export small businesses is financing.
But getting financial support is actually "very easy," according to the SBA's Cassidy.
The SBA's export working capital program, or EWCP, provides pre-export financing of labor and materials for loans of $833,333 or less.
To find out more about the EWCP or other export loan programs, ask your local bank. While many banks do not have their own international divisions, they will likely be able to refer you to a partner bank that does. 
-- by staff writer Nicole Jacoby
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