Expert debunk common misconceptions that might be holding you back and share tips for a successful global expansion.
When companies evaluate options for growth, many medium and small business owners don't even consider going international. In fact, the U.S. Department of Commerce estimates that less than 1 percent of U.S. businesses export – a much smaller percentage than in other developed countries.
Why hesitate? There are several sound reasons to consider exporting: a weakening U.S. dollar, improved technology, lower taxes and tariffs, and increasing incomes abroad. Too many business owners miss exciting opportunities because of common misconceptions. Let’s explore some of the myths surrounding exporting.
Myth No. 1: It's Just Too Risky
Let's face it: Running a business locally is hard enough, let alone in an unfamiliar country. Did you know that, according to a 2010 report from the National Small Business Association, companies that export are actually 9 percent less likely to fail than strictly domestic companies? While this may seem counterintuitive, the diminished risk is a result of the diversification and expansion afforded a company's customer base by going global.
Financial tools such as a letter of credit (LC) can help mitigate risk. An LC guarantees that a buyer's payment to a seller will be received on time and for the correct amount. An LC is a commitment by a bank, on behalf of the buyer, that payment will be made to you, the exporter, as long as the terms and conditions of the deal have been met. The buyer pays its bank to render this service. An LC is useful when reliable credit information about a foreign buyer is difficult to obtain, but you are satisfied with the creditworthiness of your buyer's foreign bank. An LC also protects the buyer since no payment obligation arises until the goods have been shipped or delivered as promised.
Myth No. 2: It's Too Complicated
Doing business internationally can appear incredibly complex. However, once you learn just a handful of new business procedures, you'll be able to grow in any market with few complications. The list of agencies, companies and websites devoted to international trade is almost endless. UPS offers a wealth of information online, and a great start is ups.com/tradeability. Plus, many cities have world trade centers that provide forums for exporters and importers, and every state offers support to exporters.
The U.S. Commercial Service (USCS) assists smaller companies in finding the right overseas business contacts (visit buyusa.gov). It has numerous regional offices and free or low-cost services that can introduce you to overseas clients and help with legal requirements.
In recent years, the USCS has organized small business trade missions to the Far East. As the result of one such visit, Nebraska-based Behlen Manufacturing won the contract to build the swimming facility for the 2008 Olympics in Beijing.
Myth No. 3: Competition Is Too Tough
Many business owners assume competition will be more fierce overseas. But many overseas markets are underserved, making it easier for small businesses to establish a niche. Growing economies can create unique opportunities. For example, Vietnam and Russia import items such as used trucks, while countries like Japan are interested in luxury items not available domestically, like Christmas trees.
As the global economy continues to expand, small businesses may have significant competitive advantages. As incomes rise, people demand specialized products that are not mass produced. Consumers in, say, China and India may be willing to pay a premium for authentic niche goods that only small businesses can provide. Customers value diversity and demand more choices. Why else would a country like Japan that exports so many cars import the Ford Taurus?
Myth No. 4: We're Too Small
International trade is not reserved for corporate giants. In fact, 72 percent of U.S. exporters have fewer than 20 employees, according to the U.S. Department of Commerce. Small companies often have greater flexibility and may be able, therefore, to satisfy international partners better. Name recognition, extra resources and export departments do not make up for the drive, motivation and tenacity of a small business.
Look at Christopher Norman Chocolates from New York City. This 15-person firm creates hand-painted, hand-sculpted chocolate designs that have captured a niche market in Tokyo. The company now has negotiated a licensing agreement with a local Tokyo distributor to manufacture its specialty chocolates, and sales continue to flourish for this unique American product.
Myth No. 5: We Can't Reach Customers
The Internet has leveled the playing field when it comes to matching buyers and sellers. Businesses no longer need to incur the expense of extensive global travel. Also, businesses can use Google AdWords, the Internet advertising platform, to direct keyword ads to people in specific markets.
Industry trade shows are often a good place to find foreign importers eager to carry U.S. products. Two of my former students went to a trade show in Atlanta as part of a class exercise and came back with a business importing unique Indian art. The Export Yellow Pages, in partnership with the U.S. Chamber of Commerce, can be a great source to find customers. USCS and the Small Business Administration’s network of Small Business Development Centers (sba.gov) also help small businesses find markets and customers. You can find a small or medium-sized business internationally to serve as your partner overseas, which can then, in turn, find a customer base for your product.
As you can see, despite these common myths, many small businesses are finding it easier and more profitable to expand their business internationally. A well-conceived strategy to go global can actually reduce risk for your business and build sales.
Chris Hanks is director of the Entrepreneurship Program at the University of Georgia in Athens, Ga. He and Jim Beach facilitated a series of Growth Through Global Trade seminars with UPS.