A guide to getting started in the international exportation business.
Easier Done Than Said
Contrary to what you might think, you don't need any special experience or knowledge to get into exporting. All you need to do is start* * *
If you're not aggressively seeking to start or increase your company's business in markets outside the United States, you're, well, nuts. Let's face it: at 1% to 2% real growth rates over the past 10 years and no relief in sight, the United States is simply not a hot market these days. The real growth is happening outside the country. Frankly, there's a gold rush out there. Business is booming in places like Korea, Thailand, China, New Zealand, Saudi Arabia, Mexico, Spain, and Indonesia. Millions of entrepreneurs are transforming ancient traditional cultures into economic dynamos. They need everything, and they need it now.
When you think about your own company's potential, there are probably three basic ways to grow. You can increase your product line, your average order size, or the number of orders. Of those three methods, the easiest is to increase the number of orders by increasing the universe of potential buyers. How better to do that than to go global, to let the world know you exist?
You hear a lot about the barriers to entering foreign markets, especially for small companies with limited resources, but my experience doesn't bear that out. At Electronic Liquid Fillers (ELF), we went from $150,000 worth of international business in 1988 to close to $6 million in 1992, almost half our total sales and all our growth. We started out with no international expertise; we didn't even know what a letter of credit was. And we're located in the industrially depressed Rustbelt of northern Indiana, half a continent away from oceans or export centers. When we started we were relatively small -- less than $8 million in sales. Over the past three years I've traveled on business to more than 42 countries, on every continent, peddling my company's liquid-packaging equipment. Take it from me, exporting is easy -- or at least much easier than you'd think.
The biggest barrier you'll face is internal, not external: you have to decide you really do want to sell to overseas markets. Once you've made that decision, everything else will fall into place. The reason I emphasize that psychological barrier is that it is very real. You have to overcome a fair amount of skepticism within your company and perhaps in your own gut as well. The objections can feel overwhelming:
We've never done exports.
What about all those tariffs, customs laws, and rules and regulations over there? We don't know anything about them.
We haven't even covered the United States yet. Why would we want to go overseas?
We're not making any money here. International orders are more expensive to handle and will lower our margins and profits even more.
It's too risky.
We're not metric.
We don't need any more business. We can't make enough to keep up with what we sell now.
It'll take years to get things going. The payback's too long.
We don't have enough people to cover the whole world.
Baloney. Exporting is just like selling in U.S. markets with a few cultural nuances thrown in. You don't have to know anything to get started. You just have to make that first sale. There are dozens of experts -- bankers, freight forwarders, shipping agents, customs brokers, trade reps, and consultants -- who are dying to get your business and to teach you exactly what you need to know to fill those first orders. That's how I learned. In fact, if you try to figure out in advance all the technical questions -- whether to go metric, for instance, or how electrical standards differ from one country to the next -- three things will happen. You'll probably identify and solve some problems, but they'll be the wrong ones; you'll become discouraged by the complexity and scope of the task; you'll delay getting into international markets. The point is, get the order and fill it the way your customer wants it. And don't worry about language difficulties, either. English is the business language of the world. Anybody worth his or her salt in the international business world either speaks English or has someone on staff who does. I've spoken nothing but English in the countries I've visited.
Before we get into the details of how to begin, let's consider some of the advantages of going international. For a start, export orders are usually larger than a typical U.S. order, and -- get this -- they are usually paid for in advance by a letter of credit or a wire transfer. You get all your money up front. Another benefit: export orders (depending on the industry, of course) usually command higher margins because the products or services are either unavailable or in short supply overseas. It's often a seller's market. Price, relatively speaking, is often less important. Plus, all kinds of overseas government money -- both from foreign governments and indirectly through U.S. aid that requires purchases from U.S. suppliers -- awaits you. Overseas customers know about that money and how to spend it with you.
By exporting you can also hit your international competitors where it hurts: on their home turf. Three of ELF's largest competitors are from Canada, the United Kingdom, and Italy, and most of their sales come from exports. Our U.K. and Italian competitors export 98% and 80% of their total sales, respectively. Until we showed up at the party, they had free rein in their home markets. When we started selling our liquid-packaging machinery in the United Kingdom using the same techniques we use at home, they laughed at first. No more. Now they're devoting more of their resources to their home market to fight us, which leaves them fewer resources to compete with us elsewhere.
Finally, export markets, actively pursued, can generate orders almost immediately. And you don't need to have sophisticated marketing or do expensive research or make great expenditures. Here's how to get started.
Name someone -- probably you, but maybe your top sales or marketing person -- to be the international tiger. That person is the vanguard, the leader, the initiator, the one who will pull your company (or in many cases drag it, kicking and screaming) into the international marketplace. Few companies get into exporting in a serious way without having someone who is reasonably high on the corporate ladder intensely interested in the undertaking. The tiger's job is to point out the potential in overseas markets, to get the ball rolling, and -- this is crucial -- to orchestrate a few profitable orders. Once a few orders have been landed, export sales have a way of taking on a life of their own by attracting more orders, new reps, and repeat business. What you don't need to do is to hire someone to do market research for you on whether your products will sell in a foreign country. Choose a country, and send your tiger there with two weeks' worth of appointments with potential agents and users. The opportunities will be clear soon enough.
Announce to the world that your company's products exist and are available for purchase. At ELF we took two approaches -- one we call the rifle-shot, and the other the shotgun, approach to letting the world know about our products. The rifle-shot approach was to enter a specific target country (the United Kingdom) and treat it in essence as another U.S. state. We were dealing with a relatively wealthy country with a small geographic area -- and ev-eryone there speaks English. So we did what we'd do here: created a 5,000-name mailing list, did a mailing, signed up for three industry trade shows, and placed small ads in the leading trade journals. And we started demonstrating our equipment to potential customers. Seven months later we had booked more than $1 million in sales. The disadvantage of the rifle-shot approach, for ELF at least, is that it allowed us to open only one new English-speaking country a year. But we felt that the rest of the world was also a huge untapped market for U.S. products, and the company that got there first and planted the seed would be the winner.
So in 1990 we moved to the shotgun approach, in which I traveled from country to country, staying a week or two in each, signing up as many reps and agents as possible, and visiting potential customers. In Korea, for example, I met with 10 potential agents in a week and got them started, with the understanding that based on performance one would eventually earn the right to become ELF's exclusive agent in Korea. After my six-nation, 11-week trip in Asia, close to 50 reps were selling ELF products. Within a year they had generated $2 million in orders. The advantage of that approach is that you can get into several countries quickly, limiting your costs to your travel expenses. The disadvantage is lack of control -- agents may not give your line the full attention you'd like it to receive. To this day we're very careful about handing out territorial exclusivity. Only a few of the very best and most aggressive agents have earned it.
Get yourself over there and sell. I can't emphasize that enough. You can do all the research in the world, but nothing can take the place of the old-fashioned sales trip. You'll quickly get a feel for where you'll succeed by the response, reactions, and orders you get. Despite all the reading I had done, there was no way I could have figured out ahead of time that Korea, China, Mexico, Hungary, and Trinidad would end up being hot markets for ELF. Or that back then we weren't ready to tackle the rich, technically sophisticated, and demanding markets of Japan and Germany. You make sales trips to Des Moines, Sacramento, and Pittsburgh, right? Get yourself to Bangkok, Taipei, and Santiago. It's really the only way, especially for a small company.
The power of the personal sales call by an American salesperson in a foreign country is incredible. You'll have a much higher closing rate there than at home. One week of travel in the Far East or Mexico is worth three months in our own flat domestic market. Plan your trips via the fax machine before you go. Get your leads from U.S. consulates and embassies, trade magazines, and the yellow pages for each country. The sources are endless.
Stick to what you know works. Don't change your product, sales pitch, marketing strategy, or corporate strategy just because you're now selling in a foreign country. Instead, just take the approach you've found successful at home and repeat it over there -- with, as I said, cultural nuances. In the United States, for instance, we might do as many as four or five equipment demonstrations a day. It's get in and get out. But in the United Kingdom, each demonstration takes more time. Potential customers there want more detailed demonstrations given to many more levels of company personnel, with long chats over coffee and lunch. Cultural nuances. We adjusted.
Imagine your current selling method as a sort of McDonald's that just needs to be transplanted to a different locale, with minor adjustments along the way. You'll run into naysayers who'll tell you it can't be done, but ignore them. Don't make things harder than they are. Make your standard proposal to your potential overseas customers, see what they say, and change your approach in whatever ways are appropriate. The old-fashioned American way of direct selling, promotion, and marketing works. Just sell and adapt.
The chances are good that you are sitting on a product or business method that looks ho-hum here at home in the face of your domestic competitors and customers but that will be considered miraculous and in tremendous demand by an overseas customer. At ELF, for example, we found that customers from Malaysia to Chile to Hungary were willing to pay big money for our speedy delivery and our customization capabilities -- things we provide every day in the United States as a matter of course. They thought we were NASA or IBM -- and we didn't spend much time persuading them otherwise.
Strongly consider raising your prices. If you do raise them, when you get an order it'll be so profitable you'll feel a charge of excitement running up and down your spine. You'll find that even after routine markups to account for the extra costs of going international, your prices will often be lower than those of your other worldwide competitors from Germany, Japan, and the United Kingdom -- at least for manufactured products. I remember how shocked I was when a Japanese agent I was courting expressed concern that I might scare off some potential purchasers who might doubt our quality because our prices were so low. Availability of product, speed of delivery, need for new technology, and government money often override price considerations in booming overseas markets.
Let the experts lead you through the details of processing the order. First, remember that your customers probably are importing something on a daily basis. They know about letters of credit, customs officials, freight forwarders, the best couriers, and the best places to stay. Your customers know the ropes. Let them teach you.
Take letters of credit, which are how most of your customers will pay you. No need for you to read books, go to classes, or spend your time trying to interpret obtuse legalese. Instead, find a banker who has experience with international letters of credit and let him or her check to be sure all the requirements are met.
In other areas of business follow the same pattern. Companies new to exporting worry unnecessarily about shipping, customs documents, and the like. But there's a whole business segment of international shipping facilitators -- freight forwarders -- whose goal in life is to get your product where you want it to go, on time and with the right paperwork. Customers, bankers, your state's export department, and the U.S. Department of Commerce are all there to help.
Once you get an order, service it. Go overboard. Do things your foreign customers ask for that sound crazy. Do things for them that you really feel they should do themselves. Don't ever cause your customers to lose face. It's not easy to disguise poor service in a small country. People talk. They know one another. The biggest complaints I heard overseas about Americans were that we don't answer our faxes -- the international-business tool, which should be answered within 24 hours; that we expect to sell our products without leaving home; and that we take a one-shot-order approach and say to heck with the future. Mostly, though, I found that international businesspeople prefer to deal with Americans. We are the model. They love our culture, our pragmatism, our movies. They want personal and business ties with us.
Keep your initial market-entry costs low, low, low. What costs you have should be in direct sales: travel and promotional expenses (brochures, faxes, phone calls, mailings). Stay away from renting or buying office space, setting up formal joint ventures, large capital investments, and so on. Those items come after you have a stream of orders.
On ELF's first visit to the United Kingdom, for example, when we wrote orders, we sent all our equipment from the United States by airfreight. That was expensive but allowed us to maintain our 10-day-delivery promise and really impress our customers. Within a year we had a warehouse for storing and staging the large volume of equipment we were now shipping by sea. The rented warehouse was an investment that followed the upward sales line.
Similarly, your export "department" can be minimal and still process millions of dollars' worth of orders. You don't need to hire anybody at first so long as you have your international tiger and a fax machine. The time to hire new people is when the volume of orders becomes overwhelming and you're having trouble keeping up.* * *
The rewards of going international are many. It's exciting to be part of a much wider world, a world shown to you personally by your overseas customers. And it's a great way to grow your business. There are unexpected benefits as well. For one, you'll be able to hire better people. We found that having an international department and overseas offices helped us attract aggressive go-getters -- just what we needed for fast-track management positions. There's something sexy about an international company that appeals to top-notch candidates. We also found that some of our best ideas for U.S. markets came from international sources.
The lean efficiency of our U.K. office, for example, has become a model for how to run our U.S. sales regions as profit centers. Before our U.K. experience, we often got in the way of our best Stateside people. In England we learned the power of assigning a good manager and then getting out of his way. We also changed our manner of selling at home after our experience with international reps and agents. We had relied entirely on our own direct sales force, but now we've added independent sales reps to our marketing endeavors here.
Our international business also drove technical and quality progress at ELF at a much faster rate than would otherwise have happened. By learning how to meet the higher standards in such places as Japan and Germany, we brought improvements to our customers at home in areas such as safety, reliability, speed, and aesthetics.
Finally, being a player in international business gives you a certain worldly confidence, a belief that as a company you can tackle any market and any project head-on as well as anybody else can. You say good-bye to feeling like an embattled U.S. company groping to find the secrets of Japanese management or German efficiency. You see what the Japanese and Germans are doing -- and they have some great ideas -- and you know how you'll have to compete to win. It's downright exciting and invigorating to be a truly global competitor doing your part for your customers, your employees, your town, your country, and your world.* * *
Jeffrey J. Ake is vice-president of sales and marketing at Electronic Liquid Fillers, a $14-million liquid-packaging-equipment manufacturer in LaPorte, Indiana. In 1989 he founded ELF-UK Ltd., and in the past three years he has traveled to 42 countries. ELF, an Inc. 500 company in 1988 and 1989, was named Exporter of the Year by the Northern Indiana Small Business Development Center in 1991 and the Small Business Admin-istration's Exporter of the Year for the State of Indiana in 1992.