If you're like many manufacturing and distribution executives, you recognize that exporting can play a compelling role in an organization's business strategy. There's a broad consensus among CEOs that exporting is a good idea and there's a fair amount of evidence that a successful export program enhances an organization's economic growth and sustainability.

Since 2006, the McGladrey Manufacturing & Distribution Monitor surveys have indicated that internationally active companies tend to fare better than those focused only on domestic markets. Even in 2009, during the deepest point of the recession, survey data indicated these companies tended to be less affected by the recession than domestic-only companies, showing fewer revenue declines and higher margins.

This held true throughout 2011, when survey participants in the McGladrey 2011 Fall Manufacturing & Distribution Monitor revealed a striking finding in the correlation between growth in exports and a company's health: 60 percent of companies that reported an increase in exports were "Thriving and Growing," a significantly higher percentage than companies who reported they were "Holding their Own" or "Declining." In other words, export sales are recognized by those thriving companies as a key driver for growth.

Exporting and other global business practices are generally associated with business health. In fact, it's already a significant part of our economy: according to The World Factbook, exports by U.S. companies in 2010 reached an estimated total of $1.289 trillion. And according to a National Association of Manufacturers/Industry Week survey of manufacturers in 2011, increased international sales are expected to be among the top four primary drivers of future growth.

But you might also be cautious about entering markets which are literally foreign to you. "Even a well-executed successful international growth strategy has its risks and inherent difficulties," says Frank Le Bihan, managing director of international services at RSM McGladrey, Inc., "so it's critical to understand the drivers and barriers businesses face when considering exporting to foreign locations or establishing a presence overseas."

Elements of Attraction

Several factors explain the link between exporting and success.

On the most basic level, exporting allows you to tap a growing market. This is especially true now, since the economic recovery has been more pronounced in certain areas of the globe. Asia, in particular, has a growing middle class. In 2010, estimates by The World Factbook reflected China's economic growth rate at greater than 10 percent, with much of this growth coming from domestic consumer spending. And that market appears to be expanding. The Brookings Institute Wolfensohn Center for Development, for example, estimated that "by 2015 the number of Asian middle-class consumers will exceed the number in Europe and North America."

Exporting also presents a sound strategic response to low-cost imports. For U.S.-based companies, finding new markets outside the U.S. for high-quality, differentiated goods is a compelling alternative to surrendering margin and commodifying products in a so-called "race to the bottom." For example according to the McGladrey Fall 2011 Manufacturing & Distribution Monitor, companies in the manufacturing space that have highly engineered products are able to differentiate themselves in foreign markets. This was particularly true for U.S.-based manufacturing companies in the biotech/medical; computers/electronics; and the industrial machinery sectors.

 In addition, while attractive global markets are expanding, the globe itself has effectively shrunk. The introduction of larger and faster vessels and cargo containerization has introduced permanent efficiencies in international shipping. Expanded fiber optics capacity has exerted similar downward pressure on international communication costs, including the ease with which your international customers are placing orders on your internet site.

Exporting Best Practices

Of course, exporting poses challenges. In fact, it might be useful to think of your export business as a promising new venture. Like all new ventures, it starts with a plan built upon a diligent and honest examination of your strengths, weaknesses, points of difference and purpose. While the broad case for exporting is clear, you need to identify how it furthers your mission and aligns with your capabilities.

  •  It starts with your customers — The most common mechanism for middle-market manufacturers and distributors to export appears to be a basic one: customer and/or key client demand. Are you already a domestic supplier to a company which does business internationally? Make enquiries about expanding your role with this part of your customer base. Following your customers as they expand internationally is typically the first foray into an offshore market—and it is relatively less risky than venturing out on your own. Your own customers can provide invaluable guidance.
  • Then be strategic — Reactionary exporting (i.e., following your existing customers as they expand globally) can cause companies to miss out on other potential markets that could present new opportunities. Questions companies should ask themselves before executing an export strategy include:
  1. Is our product exportable?
  2. What are the demographics in the U.S. that make my product acceptable in this marketplace?
  3. What foreign countries have demographics that could be synergistic with my company's product?
  4. What does the competitive landscape look like and how does my company match up.
  • Ensure you have the right resources in place — These should include:
  1. Executive team — The CEO needs to be involved in the process. Be sure the people leading the exporting charge in your organization are committed to travel, are good "ambassadors" for your organization, and are flexible and culturally sensitive. Dedicated executive support may also include hiring a sales or marketing executive with significant international experience.
  2. Financing — Discuss exporting financial needs with your existing commercial banker. Investigate resources available through The Export-Import Bank of the U.S. (EX-IM); the Small Business Administration and other export councils in your home state.
  • Leverage your advisors — Engage consultants or specialists who can make key introductions for you in new foreign markets. Your accounting firm, law firm or bank may have significant foreign experience and may have helped other clients establish global operations. They should be able to arrange visits with potential business associates and advisors. They should also assist you in exploring and understanding all tax and other relevant incentives for which your company may qualify.
  • Level the international playing field for your company — Understand U.S. Free Trade Agreements (the U.S. is currently a party of 14 FTAs) to overcoming trade obstacles. Understand and access U.S. government trade advocacy programs. These can assist your company with access to key foreign officials and U.S. officials stationed overseas.
  • Leverage industry and U.S. government resources — Take advantage of resources provided by trade associations and federal/state government entities, such as: 
  1. The National Association of Manufacturers (NAM), the U.S. Commerce Department and FedEx have teamed up to create the New Marketer Export Initiative, which offers NAM members "the export expertise of an experienced commercial officer as well as direct access to Department of Commerce Programs." The program's commitment is serious because its goal is ambitious: double exports by 2014.
  2. The National Export Initiative is focused on educating small- and medium-sized enterprises "about opportunities overseas, directly connecting them with new customers and advocating more forcefully for their interests." It also seeks to improve those businesses' access to credit and to continue the "rigorous enforcement" of international trade laws which remove barriers. The program is designed to help first-time and current exporters alike.
  3. Become a Feature U.S. Exporter (FUSE) and put your products on U.S. Commercial Service websites in more than 50 markets around the world.
  4. Websites such as export.gov provide an excellent starting place for research and planning for international sales strategies. In addition many states have their own international trade agencies.
  • Know your foreign markets — Approaching the sale of your product in another country the same way you approach it in the U.S. can be a recipe for trouble. Companies without experienced guides to foreign markets, for example, may fall out of compliance with local regulations and be barred from doing business in that country. Beyond regulatory issues, thinking strategically means having the right expertise and consultants along the way.

Together, these individuals and organizations can help you with business intelligence, relationship building, logistics, regulatory and legal assistance, financing, customs, tax and accounts payable/cash flow strategies.

Customizing for New Markets

Of course, there are some highly specific business challenges involved with exporting.

Some companies are reluctant to enter new markets because they suspect that this may require expensive product modifications and distinct marketing efforts. While you do have to acknowledge the new market, it is important to get a good sense of how much local adaptation is really required. In some cases, it may be little or none. Increasingly sophisticated design software allows mass customization of even complex engineered-to-order products by teams dispersed across the globe and throughout the supply chain.

If you are currently relying on your sales force for direct customer feedback, you will want to put similar processes in place in your new markets. You will want to conduct or review market research studies to access the feasibility of your current product design. Yet even if particular customers or markets require more extensive adaptation, it might still be worth it. According to a November 2010 Industry Week article, European companies with limited domestic markets have thrived in the international marketplace by improving their mass customization capabilities.

The article noted that North American manufacturers, on the other hand, were reluctant to make adjustments in their production capabilities despite global growth opportunities. Due to the differences in culture, business practices and regulations, however, certain tasks that are easy to complete in the U.S. could be difficult in other countries.

Good Neighbors Make Good Markets

While you need to be committed to exporting, you don't need to start with the most exotic, distant or daunting markets. Consider one of the NAFTA signatories. Canada and Mexico are nearby and, especially in the case of Canada, culturally and politically similar to the United States (although it should be noted that many companies make the mistake of thinking of Canada as "America Lite'; it is not). Once you learn the ropes in North America, you can take on more far-flung opportunities.

In the latest McGladrey national survey taken in the fall of 2011, an overwhelming 71 percent of participants indicated they export their products to customers in countries outside the U.S., which translated into 16 percent of their total company sales. This appears to continue a trend that was seen in a survey taken earlier in the year, where executives at almost half (48 percent) of participating companies said they planned to expand sales in non-U.S. markets where they already had a presence, or stage an entry into a new global market. When they looked outside the U.S., managers in the spring survey were increasingly likely to look beyond Canada or Mexico, traditionally the United States' largest trading partners. Increasing sales in emerging markets is important to a growing minority (approximately 25 percent) of all businesses participating in the survey.

You may want to consider four export markets which have shown robust recent growth: Australia, Brazil, Central America and India. And, of course, countries where you have manufacturing operations are often natural starting places.

Summary

Considering that 95 percent of the world's population resides outside the United States, exporting is a common-sense idea which is absolutely central to the mission of most manufacturers and distributors. It allows you to bring your product to the greatest number of people. On the other hand, it poses the challenges associated with new ventures. Fortunately, you have a wealth of resources nearby, including your own business acumen. Why not take the first step toward making the world your customer?

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Karen Kurek
About The Author Karen Kurek
Karen L. Kurek is a partner with McGladrey LLP. As national head of its Manufacturing & Distribution Practice, she oversees the audit, tax and consulting services to the firm's manufacturing and wholesale distribution clients.




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