How to Reduce the Risks of International Trade and Succeed Overseas
The United States is a wealthy nation and filled with more than 350 million people, yet America only represents a quarter of the world’s wealth and five percent of its population. There’s an incredible amount of untapped marketing potential in the world just waiting for the right manufacturer to capitalize on it. Are you that manufacturer? Could your brand be a global brand?
“With so much purchasing power located overseas, the greatest opportunity for market expansion isn’t here at home, it’s beyond our borders,” says Pat McRae, contracts manager for Eaton Aerospace, LLC., a former foreign service officer with the U.S. Department of Commerce and a member of the Michigan District Export Council.
Michigan manufacturing is full of great innovators who could absolutely succeed overseas, yet something holds them back from taking that next step.
“Companies new to exporting are frequently afraid of the costs,” says Jade Sims, international trade specialist with MSU’s International Business Center. “Market research, foreign travel and participation in overseas trade shows can be expensive. In addition, companies need to consider hiring an international trade attorney to assist with foreign contracts or to help determine any foreign filings for intellectual property—a significant investment for small businesses.”
Another challenge is the belief that a small manufacturer, someone used to local sales and a domestic marketing strategy, would be ill-equipped as a global company.
“You don’t have to be large or rich to export,” says McRae. “If your product is competitive domestically, it can probably compete internationally as well.”
Then there are the other challenges — knowing where to start, how to locate the right local partners, dealing with the various rules and regulations unique to other countries, and all the cultural issues that could arise. Once totaled, it’s understandable that many manufacturers might hesitate to expand, however, the numbers cannot be denied. It’s worth it for every manufacturer to look at exporting as a potential source of new revenue, new markets and a more globalized brand.
You just need to do it the right way.
Prepare to Succeed and You Can Succeed
There’s an old adage that success is 90 percent preparation and 10 percent perspiration. For many manufacturers, it’s a statement that rings true. The more prepared you are, the better you can deal with the unexpected and the more likely you are to thrive.
“Exporting is definitely an option worth exploring,” says Don DeCorte, vice president of RoMan Mfg. Inc., a Wyoming-based manufacturer. “Don't decide to export until you do the homework — like the development of any other business strategy, being prepared can be the difference between success and failure.”
With 14 free trade agreements in force with 20 countries, the international market is full of opportunities to develop new relationships. An effective export plan can make any Michigan manufacturer a global force if they have the right resources at hand. Turn to page XX for the questions you need to ask when developing yours.
The Right Partners Make All the Difference
The proactive manufacturer sees the opportunities available to them. Rather than jumping in with both feet to an uncertain situation, the company does its research, asks the right questions, and with the help of local and regional resources develops a strategy to find the best opportunity rather than the first opportunity.
“There is a lot more support for small manufacturers looking to export than ever before. American-made products are considered high quality by foreign buyers,” says DeCorte. “Many organizations in Michigan can offer good guidance and assurance.”
Consider asking the following questions:
- Where in the world is this industry or product category growing?
- What are potential barriers?
- How do I avoid the risks?
- Am I prepared for the cultural issues that could pop up?
Michigan’s Resources for Export Assistance (http://globaledge.msu.edu/medc): Discover Michigan’s top 10 export markets, top 12 export industries, fill out an Export Readiness Assessment, and find other free/low-cost statewide resources.
Whether your company is an experienced exporter or one looking at global markets for the first time, you don’t have to go it alone.
“I would advise small to mid-sized businesses to first identify the readily available contacts and resources in Michigan that are geared toward export promotion and development,” says McRae.
Start connecting with groups like the Michigan District Export Council (DEC), the Michigan Economic Development Corporation (MEDC), the U.S. Commercial Service, and resources at local universities such as Michigan State University’s International Business Center and Grand Valley State University’s Van Andel Global Trade Center.
"The Michigan District Export Council (DEC) aids executives looking to grow their sales through exporting,” says Kendra Kuo, director for the U.S. Commercial Service’s Grand Rapids office. “The DEC works in conjunction with the U.S. Commercial Service to provide practical hands-on consulting for small and medium-sized exporters. Council members are all volunteers appointed by the U.S. Secretary of Commerce to assist with export promotion.”
Looking for a great local resource? Check out page XX for this month’s Key Conversation with Tomas Hult, director of the International Business Center at Michigan State University.
New Countries Mean New Challenges
You don’t know what you don’t know and when you’re new to a region there can be a lot you are not prepared for. The first steps to overcoming potential cultural hiccups are networking with colleagues, asking questions, participating in trainings, and taking advantage of available resources.
“A big risk is a company entering the wrong market for the wrong reasons,” says McRae. “Take your time and do your homework. By researching and understanding your target market thoroughly, you reduce the risks and increase your chances of success.”
One of the best resources in Michigan are the opportunities to participate in actual trade missions through the MEDC. These missions allow you to experience the cultures your business may soon be immersed in.
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Regulatory compliance is another constant concern as the rules and regulations of you’ll face can vary greatly across borders. U.S. law may prohibit exports to certain countries. Some countries may require licenses, paperwork, and shipping standards not required in others. Ignorance of these regulations could result in your products being held up in customs or other costly headaches.
“There are no shortcuts with standards,” says Kuo. “It is important for manufacturers to identify regulations for their market of interest. This could mean meeting U.S. export compliance laws or complying with certain industry standards such as the CE Mark for exporting machinery to Europe. The good news is once you go through the process, future sales become significantly easier.”
The U.S. Commercial Service offices in Grand Rapids, Detroit, and East Michigan can work with companies to identify and overcome regulatory barriers. They can also help locate international distributors experienced with distribution channels and regional regulatory standards.
Reducing the Cost of Entering New Markets
Despite all the positive benefits to overseas trade and the many risk mitigation resources available, if the cost is too great, an export strategy may never happen. Luckily, most every organization in Michigan specializing in international trade provides resources or has connections to assist businesses with the often-overwhelming aspect of export affordability.
The U.S. Commercial Service at the U.S. Export Assistance Center in Detroit offers many programs enabling businesses to more easily access the cash needed to export. These include:
- Export Credit Insurance, offered through the U.S. Export-Import Bank (Eximbank) or private surety market, which enables the exporter to:
- Receive non-payment protection
- Increase sales opportunities by offering competitive terms
- Increase access to working capital by inclusion of foreign accounts receivable in the borrowing base
- Working Capital Guarantees, offered through the Eximbank or the U.S. Small Business Administration (SBA), which enables the exporter’s bank to:
- Provide lines of credit for export orders
- Allow advances of 100% of manufacturer’s costs to fill the order
- Allow for the issuance of bid, performance or advance payment guarantees
- Allow advances against foreign accounts receivable
Additionally, the SBA provides loan guarantees that allow the exporter’s bank to provide term loans for facilities, equipment or permanent working capital to be used to meet increased export sales activity.
The MEDC also works with local manufacturers. One program to consider is MEDC’s reimbursement of 50 percent of eligible international marketing expenses up to $12,000.
Designed to cover the costs of trade show and trade mission participation, website development for overseas markets, training workshops, marketing materials and consultants, the program has been incredibly successful in pushing new businesses to consider international trade.
You can begin by filling out an application here: http://medc.force.com/ExportAssistance
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International trade can be huge source of new revenue. With 95 percent of the population and 75 percent of the world’s wealth located overseas, it’s a business strategy worth considering. The risks exist, your local community has the resources you need to reduce those risks.
Are you ready to make your business a global business?
Contact Brett Gerrish
Communications Coordinator
Call 517-487-8533
E-mail gerrish@mimfg.org