We all know the old saying, “Look before you leap." While it may sound like a cliche, those four words underscore what U.S. companies should do before exporting their products.
International markets can be tricky, and demand overseas may not be the same as it is in the domestic market. An important starting point for U.S. companies thinking about exporting is to conduct an export readiness assessment.
Where to Start
A 10-question survey on the U.S. government's Export.gov website offers a starting point for understanding the export potential for your product or service. The globalEdge assessment tool, which requires free registration, includes a 70-question review of your company's strengths and weaknesses. Both assessments can be taken independently.
An export readiness assessment is crucial in order for companies to test their assumptions about the potential of overseas markets. James F. Foley, director of the Illinois SBDC International Trade Center at Bradley University, says that new-to-export companies often over-estimate sales and worry too much about cultural differences.
—James F. Foley, director, Illinois SBDC International Trade Center
“Developing a strong international sales channel, even in just one country, takes time in terms of research, partner selection, and training," says Foley, author of The Global Entrepreneur. “For a sustained international marketing plan, intermediaries can be critical. International distributors and agents can handle much of the heavy lifting in local markets, from sales and marketing to distribution and customer support."
While cultural differences are important to consider, they can be managed with advanced planning and by working with partners in local markets. "Most inexperienced exporters find the cultural differences exciting and interesting," says Foley. “New exporters don't have to be experts from the start. There are lots of resources to help them navigate trade challenges, from cultural and marketing differences to documentation and financing."
Benefits of Self-Appraisal
Even a relatively simple export-readiness questionnaire can help companies identify key factors related to exporting. Important considerations include management support, financing, sales and distribution and intellectual property protection.
“Asking the right questions can help highlight issues a company needs to research further," says Foley. “These questions should not be seen as barriers. Most concerns can be addressed by getting more information and finding expert assistance."
Identifying Red Flags
Regardless of how a company approaches its initial market research regarding exporting, there are common "red flags" that an export readiness assessment can help identify.
One of the most common problems Foley sees with companies that want to export is that they are not yet successful in the domestic market. While this is not always a barrier, it can be an indicator that there is not enough demand for the product. Even when there is good sales potential for a product or service domestically, diversifying into export markets too soon can hamper a company's ability to grow market share at home.
Another issue that can be uncovered by an assessment is how committed a company's top executives are to exporting. Developing overseas markets takes time, and requires both a financial commitment and lots of patience. “If the push to export is coming from within a company with little to no management support, it can stop any real export effort from happening," says Foley.
Budget resources are essential for developing any new market, adds Foley. If a company cannot afford to invest in marketing and international travel, for example, chances are it does not have sufficient resources to develop new markets overseas.
Another problem Foley often encounters when consulting with would-be exporters are companies that think they can export relatively generic products that are selling well in the domestic market, such as lumber or milk. “Often a product or service is so generic that it is more or less a commodity, with only regional domestic sales opportunities," he says. “Those types of products probably will not be competitive in foreign markets."
A careful assessment of a company's market potential also will help identify regulatory issues, such as products that are subject to either U.S. export controls or restrictions in other markets. For example, products in highly regulated industries, such as nuclear energy or aerospace, often require an export license. Regulated products also may need to be modified to meet foreign market standards, which can be time-consuming and expensive.
Understanding Export Fundamentals
Taking the time to do some soul-searching while developing an export strategy can save you time and money. It also can minimize the risk of having to learn from your mistakes.
Four fundamentals every company should have in place before venturing into global markets include:
- A management commitment.
- A business plan for exporting.
- A product that is properly licensed and packaged for the target market.
- A thorough understanding of export fundamentals—including financing, sales, shipping and distribution.
For new-to-market companies, the federal government offers free export counseling through both the U.S. Small Business Development Center network and the U.S. Commercial Service. In addition, freight forwarders and bankers are often helpful resources for companies conducting an exporting assessment.
Foley underscored the need for doing your homework before trying to sell overseas. “Ensuring that your product or service is ready for a new market," he says, “should be part of your due diligence."