There has been a lot of talk about the weakening dollar in the media lately.
One of the side benefits of a weak dollar is that U.S. goods and services are more affordable in foreign markets. In fact, the U.S. trade deficit has shrunk during recent years in part because of a weaker dollar.
Does this mean middle market companies should be considering an export strategy of their own?
The answer, not surprisingly, is: it depends. There are many reasons to consider an export strategy. However, if the only reason is to take advantage of a weaker dollar, then the answer is “no.” A strategy based only on the ebb and flow of U.S. currency is not on solid footing and will likely fail.
“The main reason to expand your business internationally is to expand your company’s potential customer base in order to expand sales and ultimately profits,” said Greg Snyder, president and CEO of Incognito Marketing. “It is no different than growing from regional to national. International is simply the next step.”
The major difference in going from a domestic growth strategy to an international growth strategy is the introduction of language and cultural differences and barriers.
“It is important to have someone advising you who knows the end-customer and the culture of the end-customer,” said Barry Capoot, CFO of Diamond Wire Technology. “For example, cultural differences can really impact how a customer chooses to pay.”
Diamond Wire Technology has been exporting for decades, and more than 80 percent of its business comes from international customers. To mitigate the currency risk, the company bills all its customers in U.S. dollars.
Snyder identified eight key steps in creating an export strategy.
1. Start by getting your story straight including facts and benefits that are important to the end user — “What’s in it for them?”
2. Research markets to identify the country which presents the best opportunity. The Federal Department of Commerce in Denver is a valuable resource. It can conduct a global market potential search based on your criteria. The agency also can introduce you to people in a specific country such as local U.S. embassies that have feet on the street and know who is trustworthy and who is not.
3. Be ready to tell your story in the language and culture of a specific country. Simply translating the words is not enough. You need to make sure the style, colors, graphics and approach of your marketing materials are acceptable and desirable to the specific audience.
4. Publish a Web site in the local language.
5. Create and distribute marketing materials appropriate to the country
6. Establish a way to close the deal and make a sale in the country’s native language. This requires 24-7 coverage in another language. Managing the sales process in a different language can be challenging and might be better handled in country, but that requires building a local infrastructure.
“It is critical to decide how you want to penetrate the market — through indirect sales or direct sales,” said Roy Becker, president of Roy Becker Seminars and an international banking consultant.
An indirect route is done by outsourcing an export management company. These companies act as a business’ export department and provide turn-key services.
“No experience is required and you get up and running faster with little financial commitment as most work on commission. The risk is losing control of the process and the export management company may not market your products as aggressively as you would like,” Becker said.
Conversely, a direct strategy means you set up all your own overseas distribution. This requires a greater investment can take longer to establish a market, but the higher risk provides the reward of complete control and rapid direct feedback from the market.
Either strategy can work, but you need to pick one per market. You might choose to go direct in Germany and indirect in India.
7. Take care of all the legal items such as contracts, letters of credit and payment terms. Seek the services of an international banker early in the process to provide advice about the money side of exports and how to mitigate risk. An international banker can help make sure the contracts you sign will ensure you get paid as expected.
8. Work out logistics of shipping and distributing the product down to the smallest detail.
Creating an export strategy and effectively penetrating a new international market is not a small financial undertaking. It can take up to a year or more before things start working. Snyder recommends conducting a test of the market before diving in completely.
“It is wise to do a test on a small scale,” he said. “Why not set up a one or two page Web site and see if anyone bites.”
Basic business laws apply when considering an export strategy. You need to be able to make more money than you are spending. Don’t get caught up in the emotional appeal because it can be very costly.
Ann Snortland, principal of Snortland Communications, is the spokeswoman for the Peak Venture Group Middle-Market Entrepreneurs. She can be reached at email@example.com.