Global diversification is a fundamental tenet for investors and, not surprisingly, it's just as important for American exporters. Going global offers a hedge against risk and an opportunity to for sales growth.
Many small- and medium-size businesses expand internationally to diversify their assets, and utilize international markets to introduce unique products and services—which can help them maintain a positive revenue stream when domestic markets are soft.
Another major benefit of going global is the opportunity to access new
workforce talent. In many cases, tapping into the international workforce gives companies unique advantages in terms of increased productivity, advanced language skills, diverse educational backgrounds and knowledge of local markets.
Recent concerns about the inverted yield curve as a harbinger of a recession is one reason American companies should be thinking about global diversification. “If indeed we do see a recession within the next few years, companies that are exporting will be less affected," says James F. Foley, director of the Turner Center for Entrepreneurship at Bradley University. “We saw this in the great recessions: companies with a reasonably broad portfolio of export markets did better than wholly domestic companies."
While Foley acknowledges that today's global economy is tightly interconnected, he says diversification through exporting can help insulate a company from downturns in the domestic economy.
New Sales Opportunities
Of course, the benefits of going global extend beyond diversification. Foley notes that exporting can enable a business to wring more sales out of its existing infrastructure. “Assuming a company is already profitable through domestic sales, then that means all of its fixed costs are covered," he says. Adding 10 or even 20 percent more sales through exports can be highly profitable because the incremental profit is higher. It essentially increases the economies of scale."
Many American companies, adds Foley, are well-positioned to offer products and services in high demand in global markets, such as medical equipment, consumer goods, entertainment, educational programs and professional services. Global buyers that want quality often turn to American-made products, from baby formula and convenience foods to MRI machines and farm tractors.
“As countries continue to grow and increase the middle and upper classes, they simply want our stuff," says Foley.
With 95 percent of the world's buyers outside of the United States, there is a big incentive for American companies to export, adds Ed Marsh, founder of Consilium Global Business Advisors. "'Made in USA' is valued in many markets," he says. “And the internet now lets you reach global prospects efficiently at scale."
Increasing connectivity is also making it easier than ever before for diverse teams, partners and distributors around the world to work together. “Most business leaders will tell you that recruiting and retaining talent is one of their biggest challenges," says Marsh. “Global sales activities provide opportunities for experiences, challenges and growth that many employees value, and it also helps make companies more resilient."
Foley agrees that tapping into a more diverse workforce can make U.S. companies more competitive. “A company that sells globally, works smarter," he says. “They take the best of what they learn in some markets, and apply it in other markets."
Foley says selling internationally diversifies a company's talent pool, which has a positive impact on your whole company. “Even a small company, with no foreign subsidiaries, will benefit from the feedback it receives from overseas partners and buyers," he notes.
For companies that have offices overseas, access to local talent is critical. “It gets them closer to the market and to the buyer ," says Foley. “Companies learn from their international employees. And access to great local talent is getting easier as countries continue to grow their local education systems, leading to an increasingly skilled and talented workforce."
Going global is sometimes counterintuitive because it means taking on more risk in the interest of reducing risk. “In business, risk is everywhere," says Daniel Stanton, author of Supply Chain Management for Dummies.
In fact, Stanton adds, “having customers and suppliers throughout the world naturally exposes you to a huge number of risks. But, ironically, it can also serve as a hedge."
Stanton says that the more diversified a company's customers and suppliers, the less exposure it will have to any particular disruption—from recession to civil unrest. Moreover, he adds, planning and managing a global supply chain can make it easier to re-align a business when a disruption occurs—turning potential disasters into sales opportunities for capturing market share from less diversified competitors.
From a supply chain perspective, Stanton says, American companies doing business overseas also can benefit from sourcing materials locally, and producing products close to where the buyers are.
“You can benefit from lower transportation costs, you need less inventory, and you can respond to customer needs more quickly," Stanton says. “But there are also good reasons for sourcing products globally—either because the costs are much lower or because the materials you need aren't available locally."
One of the keys to success for American exporters is to understand the big picture. “A trap many companies fall into is making long-term decisions based on short-term data," Stanton says. “That's really dangerous in a volatile trade environment, like the one we're dealing with now."
A company that sells globally, works smarter. [...] They take the best of what they learn in some markets, and apply it in other markets.
—James F. Foley, director, Turner Center for Entrepreneurship at Bradley University
To mitigate risk in today's global marketplace, Stanton recommends testing assumptions before making strategic decisions. That means, for example, understanding how a sourcing or exporting decision will be affected if tariffs increase or foreign exchange rates fluctuate. The key in terms of planning, Stanton says, is to have the flexibility to adapt quickly to changing market conditions.
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