Exporting

views updated

Exporting

Any enterprise doing business in the United States can also sell goods and/or services to customers located in foreign countries. A business engaged in such transactions is said to be exporting or to be an exporter. In functional terms the business is still doing what it always does—selling and delivering goods or services—but now across a border. The special phrase is used because export trade involves unusual arrangements. Exporting brings special benefits to the U.S. economy as a whole because we are a net importer of goods and commodities and have experienced a trade deficit for a very long time. The business engaged in export makes a contribution to balancing the uneven distribution of trade. For this reason government assistance is available to the business wishing to sell abroad—ranging from technical and marketing assistance to financing and guarantees of various sorts. Trade assistance is available to the small business from the Small Business Administration, the Export-Import Bank, the U.S. Department of Commerce, and frequently also from state government agencies. Trade associations also provide substantial services to the small business.

Under normal circumstances the small business will "run into" or "chance upon" export opportunities in the course of doing business—by meeting potential buyers at a trade show, for example, by attending some event sponsored by a governmental agency, or hearing of some unusual opportunity. Businesses located in states that border Canada or Mexico sometimes "grow up" exporting as a matter of course. In the Internet age businesses also sometimes get leads and inquiries because they have Web pages visible to foreigners; then, following up one or more promising leads, the business will discover the difficulties of exporting, learn the way to do it by getting help from a government agency, and, after a while, discover that it has added a substantial bit of sales to its business. Another natural route into exporting comes from the owner's personal interests in a foreign country; in the pursuit of that interest, business linkages may develop as well.

Exporting is by no means the exclusive domain of huge corporations and multinationals. In its Fiscal Year 2004 Annual Report, for instance, the U.S. Export-Import Bank reported that it approved 2,572 small business transactions—and these represented a surprising 83 percent of all of its transactions. Nor was FY 2004 unusual for the Ex-Im Bank. To be sure, these small businesses were unlikely to have been two- or three-employee shops but substantially larger (the bank did not provide a size breakdown). Nevertheless, the sheer numbers involved suggest that smallness is not a barrier to exporting. The Small Business Administration adds, by way of confirmation (in its introduction to Breaking into the Trade Game: A Small Business Guide ) that small businesses export at the rate of $1 billion a day.

WHO, WHY, AND WHY NOT

Most advice to small business about exporting—what to do, what to avoid, how to go about it—comes from experts in government agencies who actively participate in brokering foreign trade. The broad consensus of such expertise may be summed up under three rules: 1) the business should be doing well in the domestic market before it attempts to sell abroad; exporting is not a cure for a faltering enterprise; 2) the business should have an innovative or unusual product or service in order to differentiate itself; and 3) the business should first do the necessary homework before incurring expenses some of which may well be wasted. SBA's guide shows the following advantages and disadvantages:

Advantages include some of the following:

Increased sales and profits.
Reduced dependence on local markets.
Leveraged use of corporate technology and know-how.
Potentially less seasonal variation in sales.
Full use of production capacity.
Better information about foreign competition.

These positives are balanced by some negatives:

Need for additional staff.
Higher travel expenses.
Product modification for the new market.
New promotional material.
Higher administrative costs.
Need for additional financing.
Need for special export licenses.
Slower payment of receivables.

The SBA comments on this list as follows. "The disadvantages may justify a decision to forego direct exporting at the present time, although your company may be able to pursue exporting through an intermediary. If your company's financial situation is weak, attempting to sell into foreign markets may be ill-timed. The decision to export needs to be based on careful analysis and sound planning." The list of negatives also suggests that the business owner has a fairly steep mountain of knowledge to climb: exporting is not, repeat NOT business as usual.

EXPORT CHANNELS

Businesses will typically choose to sell to foreign markets directly or through intermediaries, the channel likely to be chosen because the opportunity came to the business in a certain way. A business that began exporting in response to an inquiry by a foreign retailer, for instance, will likely sell directly and then, later, applying the experience gained in the process, expand by contacting other retailers. Instead of a retailer, inquiries may have come from foreign individuals by way of the Internet—and direct sales to the final customers may become the type of exporting in the business. If the impetus came by way of a solicitation from an export management or an export trading company (EMCs and ETCs respectively), the business is likely to cut its teeth in a relationship with one of these intermediaries and thus begin indirect exporting.

Direct Exporting

Direct exporting may involve the business in selling abroad and, if entirely managed in-house, will require the business to master the administrative requirement of exporting in order to deliver the goods to the customer. If selling costs are high or the administrative learning-curve proves to be steep, employment of sales agents already skilled in the process may be an alternative. A commonly utilized method is to use specialized distributors. These can be found through the Department of Commerce's Agent/Distributor Service program, trade associations, and U.S. and foreign chambers of commerce located in targeted foreign markets. The legal agreement between a company and a distributor can be tricky enough so that using a legal and/or accounting professional in its review may be advisable.

If the business has no leads as yet and wishes to find foreign buyers, the Small Business Administration recommends several different approaches. Advertising in trade journals—especially the DOC's widely read Commercial News USA —is commonly cited as an effective way of publicizing a small business's product line to overseas markets, as are catalog and video/catalog exhibitions. Trade shows and trade missions are other potentially valuable avenues to explore, but the SBA also encourages small business owners to be proactive in their approach to finding buyers for their products. "Rather than wait for potential foreign customers to contact you," suggests the SBA, "another option is to search out foreign companies looking for the particular product you produce" by investigating information held on the DOC's Economic Bulletin Board, the World Trade Centers Network, and other government and business sources.

Indirect Exporting

Export management companies represent the interests of a range of companies; acting as agents for their client companies, EMCs solicit and transact business with prospective foreign buyers. Unlike distributors, however, they do not handle financial matters. The business is responsible for its own debt collection. EMCs typically handle market research, assess the viability of various distribution channels, arrange financing, handle export logistics (prepare invoices, arrange insurance, etc.), and provide legal advice on trade matters. Some EMCs also provide help in negotiating export contracts and after-sales support.

Export trading companies are similar to EMCs in many functional respects, but their standing is more neutral. ETCs act as agents between buyers and sellers, directly paying manufacturers for goods that they subsequently sell to purchasers. Since a small business does not have to rely on the end purchaser to receive compensation under this arrangement, an ETC is seen as a fairly risk-free indirect exporting option. ETC cooperatives, meanwhile, are described by the SBA as U.S. government-sanctioned cooperatives of companies with similar product lines who are interested in securing increased foreign market share. Agricultural interests and trade associations have enjoyed notable success with such cooperatives over the years.

Finally, small companies that choose not to enter into any of the above agreements may still explore foreign markets through agreements with export merchants or via a practice commonly known as "piggyback exporting." Export merchants or agents are businessmen and women who will purchase and repackage products for export. They assume all risks associated with selling the goods, but analysts caution that such arrangements can also compromise a business's control over the pricing and marketing of its product in key markets. Piggyback exporting, meanwhile, is a practice wherein another company armed with an already-established export distribution system sells both its own products and those of other, often smaller enterprises who are not similarly equipped.

WHERE TO GET HELP

A wide range of sources are available to help the small business owner research these issues. Trade associations, exporters' associations, state and federal government agencies, and foreign governments are all potential sources of valuable information.

Relevant trade associations include the Small Business Exporter's Association, the American Association of Exporters and Importers, the National Association of Export Companies (NEXCO), the National Federation of Export Associations (NFEA), and the National Federation of International Trade Associations (NFITA). In addition, the United States houses more than 5,000 trade and professional organizations with a wide range of industry specializations, many of which actively promote exporting among their members. The federal government, meanwhile, maintains a number of agencies that can be tremendously helpful to the small business owner who is pondering expansion into international markets. These include the United States and Foreign Commercial Service (US&FCS), the Small Business Administration (SBA) and its various programs (Service Corps of Retired Executives-SCORE, Small Business Development Centers-SBDCs, Small Business Institute-SBI), and the International Trade Administration (ITA), which is an arm of the U.S. Department of Commerce (DOC). Resources available through the ITA include international trade specialists and District Export Councils (DECs). The latter groups, which are scattered around the country, are comprised of thousands of executives with experience in international trade who have volunteered their time to help small businesses.

Finally, the U.S. government maintains several databases that can provide small business owners with important data on various exporting factors. These are the SBA's Automated Trade Locator Assistance System (SBAtlas), the National Trade Data Bank (NTDB), and Foreign Trade Report FT925. SBAtlas provides current market information to SBA clients on world markets suitable for their products and services. Foreign Trade Report FT925, meanwhile, provides users with a monthly breakdown of imports and exports by Standard Industrial Trade Classification (SITC) number for each country. The National Trade Data Bank, which is maintained by the Department of Commerce, includes thousands of government documents on various aspects of export promotion and international economics.

see also Export-Import Bank; Exporting—Financing and Pricing; Tariffs

BIBLIOGRAPHY

"Get Exports Moving." Entrepreneur. September 2000.

Powers, Marsha. "Going Global? Take Advantage of Ohio's Export Financing Options." Crain's Cleveland Business. 12 September 2005.

"Small Business, Global Reach." KiplingerForecasts. 10 June 2005.

Thomson, Amy. "New Guarantee Program Has More Lenders Going Global." American Banker. 14 July 2005.

U.S. Commercial Service. Export.gov. "Let Us Help You Export." Available from http://www.export.gov/comm_svc/. Retrieved on 27 March 2006.

U.S. Department of State. Entrepreneurship and Small Business. Available from http://usinfo.state.gov/journals/ites/0106/ijee/ijee0106.htm. Retrieved on 28 March 2006.

U.S. Small Business Administration. Breaking into the Trade Game: A Small Business Guide. 2005.

U.S. Small Business Administration. "Network of U.S. Export Assistance Centers." Available from http://www.sba.gov/oit/export/useac.html. Retrieved on 28 March 2006.

Hillstrom, Northern Lights