Twenty percent of my business is international. Any advice?
Retreat! Run away! Yankee, go home!
Wait, scratch that. "It's time to retrench but not to retreat," says Attila Yaprak, a professor of international business at Wayne State University's School of Business Administration. Despite the apocalyptic pronouncements about many foreign economies--and the understandable urge to pull back to safer shores--he and other experts are counseling small companies to stand their ground intelligently.
Step one, they say, is to mitigate risk. "Insurance suddenly becomes a mighty attractive option," notes Michael R. Czinkota, a professor of marketing and international business at Georgetown University's Robert Emmett McDonough School of Business. Insuring your receivables, for instance, can guarantee that money will be flowing into your coffers--even when your Malaysian customer can't come up with the 64,000 ringgit it owes you. Also, tighten up payment terms and run regular credit checks on even the most trusted international customers.
Step two: exploit opportunities. With asset prices in Asia in a nosedive, small companies looking to establish a physical beachhead there can now do so on the cheap. Nor has there ever been a better time to form a joint venture or strategic alliance abroad, says Farok J. Contractor, a professor of international business at Rutgers University. "Foreign firms want financial help, and they want credit," he says. "This is a great time to ask for tougher terms."
Perhaps the best international opportunity of the moment has nothing to do with exporting at all. "We've had a lot more companies looking to get into importing," says Jeffrey Meyer, who counsels many small companies as director for international trade programs in the College of Business and Administration at Wright State University, in Dayton. Thanks to depreciating currencies, many foreign goods can be had at a bargain, causing some exporters simply to reverse the flow of goods. "When you sell abroad," notes Czinkota, "what you get is not export expertise per se, but international marketing expertise. And you can apply that same experience to importing."
Of course, small companies are still especially vulnerable to the whiplash of foreign-currency fluctuations. When currencies abroad lose value, exporters are faced with the choice of raising their prices overseas to maintain their revenues or letting them drop to maintain market share. Deep-pocketed corporations will often take the market share route, but for resource-strapped businesses, Czinkota says, "the question very quickly becomes, How long can you hold your breath? A year? Three years?"
Then too, adds Yaprak, "larger companies are more likely to read possible political changes with greater sophistication." As foreign governments react to the crisis with policy measures--import and export controls, raised tariffs, new rules on repatriation of earnings--small companies, with fewer on-the-ground contacts, are more hard-pressed to anticipate and respond to those developments. All the more reason, says Meyer, to develop on-the-ground relationships now. "And now more than ever, you have to understand what your local customers' needs are," he adds. "If they're starting to think of your hand soap as a luxury good, you'd better start thinking about retargeting your product."
The last step, Meyer says, is not to panic. "It's a world of crises. It's about how to manage them when they hit," he says. --Jerry Useem
Are there opportunities here I might be missing?
If it comes down to a recession, many of us have been through at least one before (most recently 1990-1991). But if we also begin to experience deflation--that is, falling prices--we'll be in a deflationary recession for the first time since the 1930s. That is unknown territory for most managers. Few people remember which '30s business tactics worked when prices were falling and the economy was contracting.
Before you rush for your history books, though, there are role models around today that are worthy of your attention. Certain high-tech companies, like producers of peripherals, component assemblers, and chip manufacturers, have grown so accustomed to falling prices that they have become part of the corporate culture. Fortunately, those companies generally work in expanding markets, so the rate of growth of unit sales continues to rise quickly even if that of total revenues doesn't. But they use some general tactics that all small companies, even low-tech ones, can adopt in turbulent times.
- They all invest heavily in research and development. R&D spending is not just for new products. It also covers analyzing customers' needs, developing proprietary sales techniques, and enhancing customer satisfaction, all of which lead to lower support costs and greater customer retention.
- They also spend generously on internal information systems infrastructure to support more sales at a lower cost. They reengineer their business processes (such as invoicing, doing performance reviews, and preparing tax returns) as assiduously as they do their products or services. A better process is not a "nice-to-have" but a "must-have."
- They use those investments to reduce prices before markets demand it so that their customers are pleasantly surprised--no sticker shock here. They have evolved a culture that anticipates price reduction, just as companies once counted on inflation to strengthen balance sheets.
- They plan marketing strategies around growing the number of units sold, not top-line revenue growth--a subtle but critical distinction. They assume their products will cost less in the future and therefore will be more attractive to people who are not now customers. Their focus is on how to get those people to become new customers as opposed to how to get their current customers to pay more. That approach tends to fundamentally expand market demand.
If the economy hits an even bumpier road ahead, look to high-tech role models to demonstrate the best way to survive. --Eric Kriss
Jill Andresky Fraser is Inc.'s finance editor. Eric Kriss is CEO of Workmode Inc., which provides Web-integration services to growing companies. He is the former CEO of MediVision Inc. and MediQual Inc., both Inc. 500 companies. Jerry Useem is a senior writer at Inc.
