Seven Steps to Export Success – Part 1: Top Considerations Before Reaching Out to International Markets
It was only eight years ago when then-Commerce Secretary Gary Locke told an audience that fewer than 1 percent of all U.S. businesses were exporters, and of those that did, 60 percent sold just to a single country, usually Canada or Mexico.
Flash forward to 2018, and thanks to eCommerce and technological innovation, the number of U.S.exporters is on the increase. According to eBay’s U.S. Small Business Global Growth Report, more than 90 percent of businesses operate via the eBay platform export, with almost 80 percent selling to five or more countries. Further, the report found export-oriented firms grew almost 60 percent faster than companies focused only on sales within the United States.
Stories abound of small- to medium-sized companies that now find themselves thriving in the previously unthinkable world of international commerce:
- The New York Times profiled a Homer, Alaska, artist who used to rely solely on tourists to purchase his products and on local retailers to stock up on supplies. But thanks to Amazon. com, including the international network of consumers accessed via Amazon Marketplace, the artist’s livelihood has changed dramatically. About 70 percent of his signature “art lamps,” made from local beach stones, are now sold through Amazon to U.S. and international customers, the Times reported, a figure that was zero less than two years ago.
- Tennessee-based Heritage Glass reopened its 100-year-old manufacturing plant to take advantage of export opportunities. The company, which manufactures patterned glass used in a range of products including table tops and solar panels, was forced to close two years ago due to declining sales. But according to CNBC, the manufacturer “envisions 60 percent to 70 percent of sales eventually coming from such regions as the Philippines, Europe, and South America.” Consumers are seeking “fresher experiences and applications in emerging categories, such as head-mounted displays, virtual personal assistant speakers, and wearables.”
- Managers at Gelb Music of Redwood City, California, say that global markets “saved” their business, which has been operating since 1939. The retailer began listing its musical instruments and accessories on eBay nine years ago, and today, exports account for 30 percent of sales.
These success stories, however, are not just happenstance. Selling to an international market requires a strong commitment to spend the time and resources required to overcome hurdles, including market research, identifying a local partner, advertising, supply chain reconfiguration, language and cultural issues, and the border clearance process. “The path to exporting is very challenging – especially for small businesses,” Jody Milanese, vice president of government affairs for the Small Business Exporters Association, told CNBC.
Gelb Music’s eCommerce manager Mike Craig would seem to agree: “When you look at traditionally trying to ship overseas – we didn’t understand the laws, and the costs were outrageous,” he told CNBC, noting the cost of shipping a single guitar to Australia could exceed $300, before learning about trade programs that helped manage costs.
Knowing about potential problems associated with exporting ahead of time and proactive planning are integral to any business’s export success. The good news? Potential exporters will find an abundance of resources to help understand and navigate the process, and even help lock in funding. This includes services available through the federal government, including the U.S. Commercial Service, the Small Business Administration, and trade offices maintained by each state.
As a starting point though, it’s important to understand the “top issues” every exporter must address, regardless of size or industry. All exporters, for example, must contend with the customs process and must have a logistics strategy in place to ensure that products will arrive at their international destination on time, as promised to their customers.
The following discussion will highlight core issues a business must be prepared to address. Successful exporting is a difficult process, but a business can help itself by understanding the key challenges and having the proper resources in place to build positive and lasting international relationships.
Do Your Homework: Identify Market Opportunities and Develop an Export Strategy
When Target Corp. announced in 2015 that it was pulling out of the Canadian market – a decision that cost the retailer more than $5.4 billion – Chairman and CEO Brian Cornell summarized the series of missteps that led to the decision: “We missed the mark from the beginning by taking on too much too fast,” he said in the company’s Bullseye View blog. “Our stores struggled with inventory issues and we were not as sharp on pricing as we should have been, which led to pricing perception issues. As a result, we delivered an experience that didn’t meet our guests’ expectations, or our own.”
Target of course is not alone in having failed to ensure a seamless entry to a foreign market. Fashion retailer J. Crew also hit a few roadblocks when it first began its Canadian operations. Among other things, Canadian customers noticed almost immediately that inventory in its Canadian stores was different from what was available in the U.S., and website offerings were different too. Further, prices for identical items were much steeper in Canada, and Canadian online shoppers were assessed customs charges, which the Globe and Mail noted raised final prices to “as much as 50 percent above those at its U.S. stores and on its website.”
The company eventually apologized to its customers and halted the imposition of customs fees, but a very expensive lesson was learned.
A third example demonstrates the need to enter into new markets with “eyes wide open” and confidence in international business partners. Caterpillar Inc. learned this the hard way when, in 2013, the maker of industrial equipment attempted to improve its viability in the lucrative Chinese market by entering into a purchase agreement with a Chinese-owned manufacturing partner. It turns out though, unbeknownst to Caterpillar, that the Chinese company was under investigation for multiple accounting issues. As reported by Forbes India, “just seven months after closing, Caterpillar announced a stunning $580 million write-down of its asset.”
These examples illustrate the critical importance of doing your homework and developing a comprehensive strategy for entering a new market – before launching any initiatives in that market. Failure to do so, in fact, is cited by the U.S. Commercial Service as a top reason U.S. businesses do not succeed in their exporting endeavors.
Fortunately, the Commercial Service, which is a division of the U.S. Department of Commerce, makes available numerous resources to potential exporters, including its A Basic Guide to Exporting handbook. This publication, which was first published more than 70 years ago, offers step-by-step instructions for preparing an export plan. Among other things, the guide suggests an export plan should include “specific objectives, set forth time schedules for implementation, and mark milestones so that the degree of success can be measured and can motivate personnel.”
Further, the guide suggests, businesses must address a series of questions:
- Which products are selected for export development, and what modifications, if any, must be made to adapt them for overseas markets?
- Is an export license needed?
- Which countries are targeted for sales development?
- In each country, what are the basic customer profiles, and what marketing and distribution channels should be used to reach customers?
- What special challenges pertain to each market (for example, competition, cultural differences, and import and export controls), and what strategy will be used to address them?
- How will your product’s export sales price be determined?
- What specific operational steps must be taken and when?
- What will be the time frame for implementing each element of the plan?
- What personnel and company resources will be dedicated to exporting?
- What will be the cost in time and money for each element?
- How will results be evaluated and used to modify the plan?
A similar publication, Export Business Planner for Your Small Business is available through the U.S. Small Business Administration. Users can download the document, which includes a series of worksheets that business owners can use to help plan their export strategy.
Regardless of which resources a business chooses to rely upon, a carefully developed plan is essential to any export strategy. Otherwise, a business runs the risk of wasting valuable time and resources reaching out to markets that are ill-suited for its products – or worse, sullying its good reputation with a poorly executed export strategy. As the Target, J. Crew, and Caterpillar examples make clear, when it comes to a smart export strategy, no business is “too big to fail.”
Take Advantage of Federal and State Assistance
With exports of goods contributing $1.5 trillion to the U.S. economy during 2016, and supporting almost 11 million jobs, federal and state governments have a strong interest in helping businesses succeed in international commerce. Trade professionals are available to offer guidance throughout every step of the planning and execution process, including helping to secure necessary funding, opening doors to potential partners and customers, and helping with international regulatory and customs requirements.
Federal Export Resources
In fact, so much government assistance is available – no fewer than 19 federal agencies offer trade-related expertise and assistance – that it can be difficult for a business to know where to start. Following is a brief overview of federal programs that offer the most comprehensive services (keep in mind that this is not a comprehensive list and that additional information about industry-specific assistance is available through the Export.gov website):
Export.gov is the gateway to the trade promotion and export finance programs of the federal government. Administered by the International Trade Administration, businesses can use Export.gov to determine which of the 19 federal agencies involved with exporting can best help with their particular need. In addition, Export.gov offers a wide range of materials and services, including:
- Export basics
- Access to webinars
- Access to country commercial guides, which include detailed market overviews for more than 125 counties
- Information about export finance programs
- Access to local trade specialists
- Information about trade missions
U.S. Commercial Service
As defined by the government’s website, the U.S. Commercial Service (USCS) is the trade promotion arm of the International Trade Administration within the Department of Commerce.
“The mission of the USCS is to promote the export of goods and services from the United States, particularly by small and medium-sized businesses; to represent U.S. business interests internationally; and to help U.S. businesses find qualified international partners.” Key services include:
- Online and customized market research
- Assistance in finding qualified international partners by participating in agency trade missions or via its International Buyer Program
- Participation in overseas and domestic trade shows
- Individualized counseling and advocacy
- Personalized services, available for a fee, such as the Gold Key Service, through which Commercial Service specialists provide an array of services, including face-to-face meetings between U.S. businesses and potential foreign partners
- Training programs and webinars on subjects including export basics and documentation
The core of the USCS is a network of Export Assistance Centers located across the United States and in more than 80 countries worldwide. Each Export Assistance Center is staffed by professionals from one or more of the following: Small Business Administration, Department of Commerce, Export-Import Bank, and other public and private organizations.
Small Business Administration
The Small Business Administration (SBA) is charged with helping small businesses to grow and succeed, and export promotion is integral to its mission. SBA assistance is available in several ways, including counseling and training, finding international buyers, and exporting finance programs.
In fact, several loan and financing programs are available to qualified businesses, including:
- Export Express Loan Program: Offers streamlined financing up to $500,000. It is the simplest export loan product offered by the SBA, with approval typically granted within 36 hours. Any business in operation at least one year that can demonstrate loan proceeds will support export activity is eligible.
- Export Working Capital Program: Offers financing up to $5 million as a credit enhancement. This program is delivered through SBA Senior International Credit Officers located in U.S. Export Assistance Centers.
- International Trade Loan Program: Offers loan financing for fixed assets and working capital to businesses that plan to start or continue exporting, or that have been adversely affected by competition from imports.
State Export Resources
In addition to extensive assistance available at the federal level, businesses can take advantage of export resources offered through their state government. Most states maintain international trade promotion offices, staffed by experienced trade professionals, that can help businesses navigate the export process.
For example, the state of South Carolina, which exported more than $31 billion worth of goods during 2016, offers extensive assistance to potential exporters, including:
- Trade Missions in which approved companies travel to a specific international market with members of the South Carolina Department of Commerce to meet with prospective distributors, agents, and partners.
- Trade Exhibitions, such as the Paris Air Show, where state businesses involved with a particular industry have an opportunity to promote their company at trade shows.
- South Carolina Export Development Services. A division of the state Department of Commerce, Export Development Services works with companies of all sizes to assist in identifying export opportunities throughout the world.
- South Carolina District Export Council. Assists South Carolina businesses interested in exporting, with particular emphasis on small- and medium-sized exporters. The Council is a private sector organization, although Council members are appointed by the U.S. Secretary of Commerce.
- South Carolina Department of Agriculture. The department’s Marketing and Promotion Division works to help identify customers – both U.S.-based and international – for South Carolina’s important agriculture industry.
- South Carolina Forestry Commission. The department’s Economic Development division offers assistance in promoting trade opportunities for South Carolina’s wood products industry.
- World Trade Center South Carolina. Business-led and business-financed group that works to assist businesses in identifying import and/or export opportunities.
Similar resources are offered by other state governments. Important to note is that the overwhelming majority of businesses that make up any given state’s export base are small- and medium-sized enterprises (SMEs). In South Carolina, for example, 85 percent of exporting businesses are SMEs.
The bottom line is that regardless of where a business is located, what product it manufactures, or how big or small it might be, there is assistance available. Government at both the federal and state level has a stake in growing U.S. export volume and in providing the tools to help make that happen. The assistance is there for the taking, a business only need ask.
It’s Still All About the Customer Experience
U.S. retailers – especially those that sell directly to consumers via eCommerce – are keenly aware of the critical need to deliver a top-notch “customer experience.” This means accommodating consumers’ exacting demands for every aspect of the shopping experience, including website functionality, product selection, price, terms of delivery, premium customer service, and a hassle-free returns policy.
In today’s omnichannel marketplace, customers are firmly in charge and expect a say in virtually all aspects of the retail transaction, and savvy retailers are paying attention.
Well guess what? International consumers share many of those same expectations, even if a shipment needs to cross an international border before arriving at its final destination.
Research conducted by the International Post Corporation (IPC), comprised of national postal services from North America (including the United States and Canada), Europe, and the Asia-Pacific region, found strong demand among consumers for free shipping and returns, order tracking, and the ability to choose a specific delivery date. “In comparison to the previous year, consumer expectations have changed,” IPC Chief Executive Officer Holger Winklbauer wrote in the survey’s executive summary. “They are increasingly demanding greater visibility, increased reliability, more delivery options and all of these for a reduced delivery cost.” Among the key findings of the survey, which included 24,000 consumers across 26 countries:
- Payment Options. PayPal, or an equivalent service, was the preferred payment option of 41 percent of overall consumers, followed by credit cards, preferred by 33 percent of consumers. PayPal was most popular in Germany (68%), Australia (64%), Spain (62%), and Italy (61%), and least popular in Japan (5%).
- Delivery Choices. The survey asked respondents about delivery-related expectations when shopping with an online retailer and also with regard to expectations for the online retailer’s delivery company. Most important expectations of an online retailer include:
- Clear information about delivery charges – 92%
- Simple and reliable returns process – 88%
- Free delivery on purchases over a set value – 86%
- Free returns – 86%
- Rapid response customer service – 83%
- Landed cost calculator at checkout – 79%
- Receiving delivery on time – 82%
- Full visibility into delivery process – 82%
- Electronic notification of delivery – 82%
- Possibility to select delivery location – 79%
- Delivery Speed. Retailers understand consumer expectations for rapid deliveries to consumers located in the same country, but what about expectations for shipments that need to cross an international border, including possibly an ocean? The IPC research found limited patience for the added hurdles an international shipment must clear.
- U.S. and Canada. Almost half of the survey respondents expect to have their cross-border shipment within 4-5 days.
- Intra-European shipments. Almost 60 percent of European consumers expect delivery from another European country within 2-3 days. But for shipments coming from Asia, consumers would wait a maximum of 6-7 days.
- Australia/New Zealand. Half of the consumers in Australia and New Zealand expect shipments traveling between the two countries to arrive within 4-5 days.
- China/Japan. Almost 40 percent of consumers expect shipments traveling between China and Japan to arrive within 4-5 days, with an additional 30 percent willing to wait 6-7 days
- Last-Mile Services. U.S. retailers and businesses commit roughly 28 percent of all transportation spending to last-mile services. Last mile refers to the final leg of a transit journey, when the delivery is actually made. In recent years, last mile has become a critical battleground, as retailers seek to differentiate themselves with better, faster, and more innovative last-mile options. Prioritization of last-mile services is not unique to U.S. consumers. As a result, exporters must take care to understand customer preferences in each country and find ways to meet those expectations. Critical last-mile considerations include:
- Delivery Locations. While the IPC research found an overwhelming preference across all countries for delivery to consumers’ homes, there were some notable exceptions:
- Post office was the preferred delivery location in Norway (50 percent), Iceland (41 percent), and Sweden and Finland (both 35 percent).
- Delivery to the workplace was preferred by 14% of Portuguese consumers.
- Parcel locker deliveries were mentioned most by consumers in Finland and Denmark.
- Retail outlet deliveries were preferred by 11 percent of French consumers and 10 percent of Belgium consumers.
- Cultural Considerations. U.S. exporters must also be aware of cultural factors when shipping to international customers, including:
- Language. Care must be exercised to ensure that labels and packaging are written in the end consumer’s local language. A package arriving in Germany addressed in English will undoubtedly be delayed until a proper translation can be made.
- Labeling Requirements. Similarly, a retailer must ensure its product meets all local labeling and packaging requirements. In Québec, for example, where French is the official language, a retailer must follow the “Charter of the French Language,” which mandates that all product containers and wrappings, and all documents accompanying a product (directions, warranties), must be in French, with accompanying translations in other languages permitted.
- Currency/Weight Standards. Consideration must also be given to currency conversions and standards of measurement. Most of the world uses the metric system, so a U.S. business will need to ensure that all weights and package specifications are listed in metric measurements. Similarly, a website must list all pricing in local currency and accept local currency payment.
- Landed Price. Few things will outrage an international consumer more than being presented with an unexpected invoice at the time of delivery for customs fees and taxes. Consumers assume these charges are included at the time of sale, and in many instances, they will either refuse to accept delivery of the shipment or will pay the extra costs but never return to the offending retailer again. A retailer must take steps to ensure that, for every country in which it operates, a process is in place so the retailer can charge a landed price – inclusive of all duties, taxes, and brokerage fees – at time of payment. In Canada, for example, a U.S. business can register with the Revenue Canada agency as a “non-resident importer (NRI).” Having NRI status allows a U.S. business to act as an importer of record, meaning the U.S. business can clear goods into Canada and collect all taxes at time of purchase.
- Delivery Locations. While the IPC research found an overwhelming preference across all countries for delivery to consumers’ homes, there were some notable exceptions:
- Consumer Returns. Retailers selling to international markets must prepare for the inevitable flow of product returns with a hassle-free and efficient returns policy. This includes a process for allowing consumers to easily send back a product or, if possible, return it to a brick-and-mortar store. In addition, a process must be in place to quickly resolve the reason for the return, including issuance of a replacement or credit, and a way for consumers to track the status of their return throughout the entire process.
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