During my past 22 years as a Commercial Diplomat and now as the President of Business Beyond Borders I have often been asked, what does a company need to do to begin expanding internationally. In this short essay, I will give a few lasting export pointers as well as a few contemporary pointers in response to our rapidly changing international political economy.
Many companies start exporting by making the occasional international sale. At some point you may find that the firm is selling enough that you want to consider broader overseas sales opportunities. That is when you need to be ready for a longer-term strategic commitment. The process to become export ready can take one to two years. This may seem like a long time, but the good news is that you learn from your experience in the first export market. This will make your expansion to second and third markets easier and more profitable.
Assistance is Available
Keep in mind that there are organizations that can assist you in your international business journey. Leverage support from state and federal trade agencies or a knowledgeable global business consulting firm. They are usually highly cost effective, although the value of each organization, as always, depends on the competence of its individuals. It is important to do research to identify appropriate export markets and specific sales opportunities as well as perform due diligence on potential buyers and partners. These organizations should be able to assist you with these efforts.
An owner of a firm selling pellet stoves approached me about pursuing export sales. He was serious enough to hire an international sales agent, and to work with me to prepare an export strategy. I identified potential export markets and arranged meetings for the sales agent. However, when the company received two major domestic orders, the international sales agent was laid off, the export strategy was forgotten, and potential foreign buyers didn’t get follow-up calls. My work had come to naught.
Two years later, when domestic sales were low, the owner showed renewed interest in exporting. By that time the market had changed, key potential buyers who had been previously ignored didn’t respond, and a search had to be started again for a new international sales agent. Time, money and opportunity had been lost. Consistency and commitment to a longer-term plan, even at a less ambitious level, would have been more fruitful. A competitor now dominates that export market.
You can follow broad business trends in The Economist and on Bloomberg News, but in most cases an exporter will be interested in selling a particular product or service in a selected market or two. Thus, it is best to track the trade journals and sign up online to obtain market-specific information. If you are a member of a trade association, make the organization work for you by asking about export opportunities for your product or service in certain markets. Some trade associations organize trade missions that could serve as a useful way to learn about markets and of make contacts.
In preparing to export, it is crucial, among other things, to:
- Understand the needs of the specific market;
- Be aware of your competition;
- Define your comparative advantage;
- Protect your intellectual property;
- Learn about the local business habits and culture;
- Attend trade shows in the United States to meet representatives from the target country or attend a show in the target market itself; and
- Visit, if possible, the office/store/factory of the potential buyer/partner.
How do you prepare for an international business trip? This can be difficult, but Westerners, particularly those from Anglo-Saxon cultures, are more fortunate than most because the global elite business culture is based on Western traditions such as the suit and tie, hand shake, commercial laws, and often the use of English for negotiation and contracts. You will need mental elasticity and emotional intelligence to be successful. Remember, some level of trust must be established before any business deal can be closed.
I advise a business person to read at least one or two books about the culture and habits of the relevant country. Major cities usually have different international organizations where you can meet international people or those who have lived overseas. Participate in their events. The expatriate organization called Internations is in 390 cities around the world. Contact the nearest World Trade Center or international Chamber of Commerce. Rotary Clubs and universities at times host international speakers.
Once you have gotten to the point of doing international business, the most important issue is how to get paid. A lesson learned by many companies, sometimes too late, is to be aware that payment methods and habits vary in different markets. If there are concerns, ensure that you get paid as you go. All countries have laws on the books about sales contracts and payment, but not all countries enforce those laws. Don’t be taken in by any red-carpet treatment when overseas (that is the 10% discount that you will end up giving). Hospitality is wonderful, but don’t lose sight of your bottom line and how you will be paid. In some markets, in order to keep your business partners on the level, they have to need you more than you need them. Think long-term and strategically.
What is Happening Now
Since the 2016 U.S. election, I have been asked how current events are affecting international business. The central issue affecting exports is the strong dollar. This makes U.S. exports more expensive. There are a few markets, such as Panama, Ecuador, El Salvador and Zimbabwe, that use the U.S. dollar as their domestic currency. Hedging currencies may be of interest, as well as an openness to getting paid in foreign currency if your firm is considering investments in overseas markets. Companies that have affiliates abroad could ramp up production at those plants until the dollar softens somewhat. Nevertheless, high technology, innovative and cutting edge products as well as advanced services from the United States will do fine despite the high dollar.
As the Federal Reserve increases rates, the return on investment in the United States will be relatively better than what is expected in Europe, South America and East Asia in 2017 and probably 2018. This makes investment in the United States interesting for overseas investors despite the strong dollar, and could open the door to getting needed investment for U.S. firms and projects. The Commerce Department’s SelectUSA program can facilitate such foreign direct investment into the United States. There could be a sweet spot in offering repayment rates that are above overseas rates yet lower than U.S. bank rates.
Recently, some American business people have mentioned that they feel that international buyers are not as keen to purchase U.S. goods and services as before. They say that there is a certain malaise toward the United States. In regards to Europe, the new U.S. Administration has questioned the future of NATO, criticized Germany for keeping the Euro low to increase exports, buried the Transatlantic Trade and Investment Partnership (T-TIP), and disparaged the immigration policies of countries such as Sweden and Germany. Europeans were already feeling vulnerable because of Russian saber-rattling, high energy dependence, Mediterranean country indebtedness, slow growth, terrorism, and the possible populist outcome of upcoming elections.
Now they feel abandoned and even insulted by what they hear from Washington. It appears as if the goodwill and trust that is essential for successful business is suffering, at least temporarily. But just remember that your company is global in its approach and that you are the person who is the face of the company. The buyer is engaging with you. If the buyer likes and trusts you, then your sales should go through.
If you have questions about overseas market entry or expansion, Business Beyond Borders offers a free-of-charge initial international business consultation. This will give you a head start and could save you months of time.
Get started on your international business journey!