An Introduction to Exporting: Continuing My Export Education

I recently attended an Introduction to Exporting seminar hosted by the Minnesota Trade Office (MTO). This was the second seminar related to exporting that I have attended, and unlike the first one, this time I was able to show up on-time!

Ed Dieter, Deputy Director of the MTO, provided a lot of helpful information geared towards people who are new to or are considering exporting. Dieter emphasized that 95% of the world’s population and 78% of the world’s purchasing power is outside of the U.S. If you’re not selling products outside of the U.S., you’re ignoring three-fourths of your market.

The Advantages of Exporting

Exporting diversifies your markets and can help make your company more stable and secure. There has been 68% growth in manufactured exports out of the U.S. from 2004 to 2014. 2008 was good until the last quarter, and growth experienced a dip in 2009 due to the global financial crisis. However, export growth came back as soon as 2010, while the domestic economy continued to slump for some time before recovering.

Dieter brought up an example of someone who told him that if they hadn’t been exporting to China they would’ve had to layoff employees due to the financial crisis of 2008-09. Domestic sales dropped at the peak of the crisis but their export sales helped to cushion the blow.

A company will experience natural peaks and valleys in their sales throughout the year as seasonal changes occur. These seasonal changes will be reversed in the Southern Hemisphere. Supplementing domestic sales with export sales to different parts of the world can help to smooth out the peaks and valleys.

Exporting to one part of the world may lead to business in another. Dieter mentioned an example of a company that started exporting to France, which led them to later start exporting to French-speaking parts of West Africa.

Entering the international market doesn’t just benefit companies; it can also be good for workers. Exporting companies on average pay higher, provide better benefits, and are less likely to go bankrupt. Exporting supports a stronger, more stable, and more diverse state economy, and a larger commercial and industrial tax base to support local services.

In Minnesota alone there are more than 65,000 manufacturing jobs that depend on exporting. Nationwide, a bit over 20% of manufacturing jobs are dependent on exporting. According to the Small Business Administration (SBA), 70% of U.S. companies that export have less than 20 employees. The idea that small companies cannot export is a myth.

Minnesota companies export to 203 countries, and top on the list is Canada, Mexico, China and Japan. Exports to these four countries alone make up more than $10 billion each year. Belgium and Singapore are also among the top 10 export markets, which may seem unusual given how small those countries are. However, these two countries have excellent ports that are strategically located, so they receive many exports that are then re-exported to other countries.

Dieter explained the concept of the accidental exporter. The accidental exporter will fill overseas orders only when it is convenient and views exporting as marginal, incremental business. The U.S. Commercial Service estimates that more than 50% of inquiries from foreign parties go ignored. Just responding puts you in the top half. If you have a website, you are marketing globally. Consider translating your site if you are serious about selling products to countries with a different language.

Key Questions for Exporters

Companies that have made a serious commitment to expanding into international markets should ask themselves some key questions such as:

• Is this the right fit?
• Is this the right time?
• What are the advantages?
• How will we be meeting the demands for key resources such as management and personnel, production capacity, and finances and capital?

Think about how you will have to adapt your communication to different cultural styles. Even colors and symbols can have different meanings in different cultures. You don’t want to pollute your foreign markets by starting to export without being well-prepared.

A company should first identify specific products they would like to export. A company will most likely not export all of their products; instead they will focus on a select few.

Some of your products might not work in other countries. For example, a car manufacturer that normally makes cars for the U.S. market but would like to start exporting to Japan will be affected by the fact that the steering wheel is on the left in the U.S. but on the right in Japan. The cars they normally make with steering wheels on the left are not exportable to Japan. This company would have to develop cars that specifically meet the needs of the importing country.

A company should next compare the cost of shipping versus the value of the product. If the shipping cost exceeds the value of the product, it may not be worth it.

Direct and Indirect Exporting

You may engage in indirect exporting as opposed to direct exporting. Indirect exporting would be using an export management company, an export trading company, or a broker to facilitate your exports. At the other end is direct exporting which is when the company is engaged in a joint venture or the export division is a subsidiary.

The advantages of indirect exporting include minimizing administrative and sales costs and the fact that personnel changes are not needed. Disadvantages include loss of control, loss of direct customer feedback, less revenue and profit, and problems with after-sale service.

The advantages of direct exporting include more control and greater transparency, higher revenue and profits, and the ability to make specific foreign business connections. Disadvantages include the fact that it requires significant commitment of personnel, it poses a greater financial risk, and that it could require significant internal restructuring.

Dennis Griffin of the Export-Import (EXIM) Bank of the United States described how the EXIM Bank provides export credit insurance, which insures against the risk of nonpayment. This service is provided by 67 governments around the world by parallel organizations. Together, China, Japan and Korea provide over 50% of export credit insurance worldwide.

Overall, the advantages of exporting include increased revenue and profits, reduced dependence on existing markets, and the ability to sell excess production capacity. Some disadvantages include the fact that it takes a significant investment, that there are challenges related to culture, language, distance and time, and that companies may need to provide additional services to support their export process. For example, you may have a customer in a different time zone. Do you need to provide tech support at 2:00 in the morning? It’s possible.

Dieter said that the most important element that it takes to succeed in exporting is management commitment to consistent oversight and improvement of the export process.

Export Resources

Is your company ready to start or grow your exports? Here are some additional resources to help you make that determination:

• Developing your Export Strategy White Paper
• Evaluating Export Markets White Paper
• Export.gov
• U.S. Export Assistance Centers
• Minnesota Trade Office

This article was first published in October 2016 and has been updated to include current information, links and formatting.