Thinking About Exporting Overseas?
Since last year the Obama administration has been pushing small businesses to venture into global markets, part of an ambitious goal to double U.S. exports by 2014. For small businesses struggling to find new customers domestically, markets outside the United States may be a better bet now, with a weak dollar making exports a good deal for foreign customers. Yet only about one percent of small businesses export, says Fred Hochberg, chairman and president of the Export-Import Bank of the U.S., the Nation's export credit agency, which provides loan guarantees and insurance for exporters. The percentage is low because exporting can be complicated. Small businesses must navigate international tariffs, regulatory agencies, language barriers and take the risk—especially in less stable countries—of simply not getting paid.
Despite those challenges, small businesses are increasingly seeking to export, and looking for help with financing and insurance from Ex-Im. This month, as part of its Global Access for Small Business initiative, the bank began serving its 1,000th small business customer. Ex-Im hopes to add 5,000 new small business clients to its roster by 2015.
One of those is BendTec in Duluth, Minnesota, which builds, procures and fabricates piping systems. BendTec has about 100 employees and does a lot of work in the electrical energy sector, for coal-fired power plants. The recession, combined with mandated emissions reductions for the industry, have put a lot of those projects on hold. "We made a decision late last year to try and get involved making piping for a coal-fired power plant project in India, working with a Russian procurement company," says vice president, CFO, and co-founder Thomas Conrad.
He says there are several projects globally that can use BendTec's piping and with the dollar weak against other currencies, exporting makes sense. In order to get involved with the India project—which will last several years—BendTec got insurance from Ex-Im in case of non-payment and loan guarantees that allowed its lender, JP Morgan Chase, to raise the company's borrowing limit. Last year Ex-Im provided $5.1 billion in loan insurance and guarantees for small businesses like BendTec.
With its loans in place the company was able to move forward in India, extending the terms of payment for foreign customers from 30 days to 120 or 300, says Conrad. The project also allowed the company to rehire employees it had laid off.
Marc Meyer, a professor of entrepreneurship at Northeastern University, says one of the biggest challenges for small companies wanting to export is communication. Businesses need to think about how their product or service will be perceived by users throughout the world and adjust their branding and marketing communications accordingly, he says. Another challenge? Researching government regulations in target countries. This can be harder than it used to be, because the majority of new growth now is in emerging markets—Brazil, Russia, India, and China and the countries close to them. "These countries are fundamentally different from Western Europe and you need to go there and do your homework, learning the local selling culture, how your product will be sold and merchandised," says Meyer.
Exporting is often easier for companies that sell only over the Internet. Their big concerns are shipping costs and the tariffs countries charge buyers to receive an import.
Todd Morris, owner of Brick House Security in Manhattan, which sells surveillance and security products online, began exporting almost two years ago. He had been reluctant to start because of the potential for credit card fraud and fear of over-the-top shipping costs and tariffs. "We didn't want to get a bill for duty charges and it's impossible for the customer to know what those charges are until they get the product," says Morris.
He decided to "self-insure" against fraud by tacking a $69 fee onto every order and working out a deal with shipping company DHL to deliver a product only after the customer paid the duty fee. Morris also cut a deal with Western Union to allow customers to pay directly to Brick House's corporate account. International sales are now about 15 percent of Brick House's total sales.
Karla Trotman, owner of BellyButtonBoutique.com, an online retailer based in Philadelphia that sells healing and support products for post-partum women, decided to open her business to global markets in 2010. She was concerned about prohibitive shipping costs but decided to work with UPS, where she ships for a flat fee of $30. Because one of her most popular products isn't available in many countries outside the U.S., her customers are willing to pony up the cost of shipping and tarrifs. "The dollar is so weak right now compared to the Euro or the British pound, most of my customers don't mind," she says. Venturing overseas was a smart move for Trotman—now 50 percent of her sales are international.
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