As Emerging Markets Slow, Firms Search for “New” BRICs

by Richard Leggett, HBR.org

By all measures, emerging markets are having a tough year. The Economist bemoans their “great deceleration” and HBR featured a well-researched study on how multinationals are becoming less global. However, multinationals still expect their emerging market portfolios to deliver robust growth and increasing profits based on the memory of their performance in recent, more bullish years.

In this new operating environment, I find more and more multinationals looking to new frontier markets for growth while demanding profitability from their emerging-market operations. Using our 200+ clients as a proxy for global sentiment, I find the pivot towards profitability to be significant: 37% of MNCs are focused more on profitability than growth in emerging markets, up 16% from just last year.

To accommodate these new market dynamics, executives are adopting a dual strategy of “going deep” in the BRICs while simultaneously and aggressively pursuing the next frontiers.  Let’s see how this story is playing out in the different emerging market regions.

Asia Pacific

Asia offers a good example of this push to frontier markets. I remember a conversation I had with an executive in 2000. I asked which markets he was focused on outside of China and India. He responded, “for us, China and India are Asia.” It’s been awhile since I heard a similar response, as companies are now expanding aggressively into ASEAN (Malaysia, the Philippines, Singapore, Thailand, and especially Indonesia). This is the result of a growing and affluent middle class that supports private consumption and is bolstered by favorable demographics; over 50% of the population is under 29 years old and approximately 52% live in urban areas.

However, there are some risks. For example, on the Indonesian archipelago, supply chain and distribution logistics present serious challenges — with logistics costs at 24% of GDP, compared with the regional average range of 9-11%. Difficulty in distribution is not unique to Asia and reflects a global trend. According to our recent benchmarking survey of more than 100 senior executives, 94% of executives sell at least partially through distributors, accounting for about 50% of their revenue in emerging markets. Additionally, managing corrupt business practices often makes it difficult for MNCs to realize growth potential in the short term.

Latin America

As executives become more sophisticated in their understanding of these countries, they balance their focus between looking to expand in new markets as the old standbys–namely Brazil and Mexico–have recently slowed to disappointing growth rates. For example, Peru’s rising middle class offers an increasingly attractive choice for consumer goods and retail MNCs looking to diversify their investments beyond established markets.

Quantifying the impressive rise of the middle class, FSG calculates private consumption in Peru is set to grow 54% between 2010 and 2015. Real increases in personal income and access to credit will support growth across all retail categories, but the automotive, consumer electronics, and food and drink sectors will outperform, as consumer taste becomes more sophisticated.  The consumer sector has already begun its high-growth phase as over 36 new shopping centers have been built in Peru over the last 10 years. The three main grocery retail chains in Peru grew from 57 stores in 2001 to 155 stores in 2010.

Eastern Europe, Middle East & Africa

Eastern Europe, the Middle East, and Africa follow the same pattern of slowing growth in traditional strongholds, with opportunities in previously untapped frontier markets. In Russia, having made significant investments in the two largest cities, we are seeing companies expanding into regional markets by relying on third-party distributors, similar to the storyline in Indonesia. Growing beyond Moscow and St. Petersburg allows companies to build market share, strengthen their competitive position, drive profitability, and contribute to long-term sustainability in Russia – and it’s worth remembering that 64% of Russia’s GDP sits outside of the these two cities.

Sub-Saharan Africa is in many ways the last great frontier. Here multinationals are reacting to South Africa’s stagnant growth by looking to the hottest frontier markets globally: Nigeria and, to a lesser extent, Angola. The region has piqued executives’ interest, as it benefits from improving business conditions, demand for infrastructure projects, and a strong demographic profile.  Nigeria is especially attractive, as it is poised to overtake South Africa as the largest African economy afterits GDP grows 40-50% as a result of the government changing the way it measures GDP at the end of the year. Nigeria’s automotive industry is booming, as international car makers are expanding their dealerships and setting up local assembly plants.  Case in point: Ford is planning to introduce at least five new models after seeing a 33% increase in sales in the first half of 2013 in Nigeria. Mercedes-Benz and Skoda have recently expanded in the country with new showrooms and models.

In emerging markets, what began primarily as a growth strategy has evolved to a dual mandate of growth and profitability. Executives must act fast to capitalize on the final frontiers, while market share is still there for the taking. Although each region exhibits similar potential, success for multinationals will depend on identifying the most attractive opportunities for their unique businesses and adopting management best practices that account for the local nuances of each market.

Advertisements

Broad Street’s Developing & Financing International Opportunities – A Smashing Success!

BSCGLogo

L51A9739 L51A9877 L51A0277 L51A9845 L51A9680

L51A0163

Develop, Finance, Supply & Insure,

are services offered by Broad Street today;

 In crossing the borders  the headaches are cured

     for clients who risk, and hold danger at bay

———— 

The deals are global, the problems are massive,

A shepherd is needed to guide clients along,

We highlight the issues, and structure financing,

We help sellers ship and let buyers grow strong

————- 

We’re Fluent In Foreign and help grow the business

For those who seek to franchise, or invest,

Until they succeed we patrol cross the borders,

Until YOU succeed, our Team shall not rest

————- 

So as you get settled and learn all about

The business of projects, and exports and risk.

Remember to smile, as there is no cure 

From catching the bug called “global deals disease”

————– 

And once you are ready to venture to strange lands,

There is only one thing you can count on for sure,

We are here for you and there is no one better,

when you need to Develop, Finance, Supply & Insure 

                                                                                                         A. Gordin, Nov.  2013

FI3Indices

Fluent in Foreign_Nov 14AGENDA12_Page_1 L51A0008 L51A0017 L51A0032 L51A9620 L51A0116 L51A9615 L51A9680 L51A0074 L51A0039 L51A0245 L51A0190 L51A9702

TO VIEW MORE EXCLUSIVE EVENT PICTURES PLEASE VISIT:

 https://db.tt/HqjdTDUi

U.S. Sen. Shaheen Praises FlexEnergy, Distributed Generating Co., as they Ink $400 Million Export Deal – Slated to create over 120 jobs

“Exporting is one of the greatest opportunities for small businesses to grow their companies, tap into new markets and succeed in the global economy,” said United States Senator [Jeanne] Shaheen of New Hampshire (D). “FlexEnergy is a model for how to capitalize on export initiatives to create New Hampshire jobs.” 

FlexEnergy, Distributed Generating Co. Ink $400 Million Deal

FlexEnergy

William Pentland, Forbes.com

Distributed energy is about to leap from the puddle into the pond.

If – or, when – it does, you may want to thank a little manufacturing company based in Portsmouth, NH for bringing distributed energy from the margins into the mainstream market.

Flex Energy, a microturbine manufacturer spun off from the industrial equipment conglomerate Ingersoll Rand, landed a landmark sales deal today with a venture-backed investment group based in Russia, the Distributed Generating Company (DGC).

Based in the Russia’s industrial Samara region, DGC agreed to pay FlexEnergynearly half a billion for a whopping 200 megawatts of microturbine generating capacity over the next three years.

The first delivery of microturbines is scheduled to take place in January.

Established in 2012 by a Russian venture fund, DGC is focused on filling a growing demand for distributed power solutions for small to medium sized enterprises.

“The basic plan is to use the microturbines as a platform for developing a set of standardized solutions for quick deployment, and offer customers long-term, predictable contracts, for on-site power generation, with no grid connection fees,” said Dennis Shomko, a partner at Avicon-UK who represents DGC, during an international project finance conference held today in New York City by Broad Street Capital.

The cost of connecting to the electric grid in Russia can be astronomical.

“As a rule of a thumb, grid connection fees are about $1 million per megawatt,” said Shomko. “That is steep, by all standards. What is more, the process is extremely bureaucratic, there are waiting lists, brown envelopes, restrictions – and no other options.”

Shomko said that lack of access to affordable, reliable power supplies has hampered the growth of small, entrepreneurial enterprises in Russia.

The solution: natural gas-fired onsite power solutions.

“A large number of enterprises are already connected to the gas mains, and, overall, the situation with new connections to the mains is a no-brainer: it is relatively cheap and quick, and does not require expensive downstream infrastructure,” said Shomko.

RUSSIAN AND UNITED STATES FIRMS PARTNER TO HELP SMALL AND MEDIUM SIZED BUSINESS

November 14, 2013 (NEW YORK) FlexEnergy, Inc. of Portsmouth, New Hampshire announced a contract for sale of 200MW gas turbines to Distributed Generating Company, LLC of Samara, Russia (DGC).   The American made units will be used by DGC to provide lower cost and dependable baseload electricity principally to medium and small sized businesses in Russia. The order will drive the doubling of employment at FlexEnergy and create additional jobs at its suppliers in the Northeastern United States.   The deal has begun with a significant direct purchase, however, the majority of the order is subject to financing approval by the Export Import Bank in the United States.

DGC chose the privately held FlexEnergy as the hardware supplier for its power generation business in Russia after an extensive research process which identified FlexEnergy’s GT Series Turbine Generators as offering the best solution for the particular demands of DGC’s business in Russia.  The design technology of FlexEnergy’s Turbine Generators have proven their dependability logging over 4,000,000 operating hours across its fleet.  DGC will be buying the recuperated, high efficiency GT 250kW and 333kW turbines, which are the only turbines in their size class to offer highly robust synchronous generator technology, allowing the units to easily pick up and shed greater loads. Additionally, FlexEnergy turbines are the only turbines in their class to offer the potential for seamless transition from grid-parallel to grid-isolated operation, which can be invaluable in situations where grid sourced electricity is at times intermittent.  The GT Series Turbines also offer class leading emissions performance, allowing DGC and its clients to demonstrate exceptional environmental performance.

To meet increasing demand, FlexEnergy has recently expanded production facilities in New Hampshire to over 89,000 square feet.  This expansion reinvigorated a nearby factory, previously vacated by an electronics manufacturer that had moved manufacturing offshore.  Mark Schnepel, President of FlexEnergy said: “Being selected by DGC validates our decision to further invest in our business and should create more than 60 new high quality manufacturing jobs in New Hampshire at FlexEnergy and many more at FlexEnergy’s component suppliers primarily located in the Northeast.”  Existing on the grounds of a former Air Force base in New Hampshire, FlexEnergy plans to continue its preference for hiring veterans in its business.

“DGC’s business model needs align closely with our products biggest strengths,” said Schnepel.  “We make rugged industrial equipment well suited for the demands placed upon small and medium sized businesses growing in a market with inexpensive natural gas and operational challenges created by the stressed electrical grid. Our product’s capabilities make it very competitive in these international markets, like Russia.”

“Exporting is one of the greatest opportunities for small businesses to grow their companies, tap into new markets and succeed in the global economy,” said United States Senator Shaheen for New Hampshire. “FlexEnergy is a model for how to capitalize on export initiatives to create New Hampshire jobs.”

“This deal is a another step forward in bilateral cooperation”, said Dr Dennis Shomko (Avicon, UK), who led the team of negotiators on behalf of DGC.” Western countries and companies can see their Russian counterparts as reliable business partners, engaged in commerce outside of the commodity space in oil and gas.  There is substantial business in hi- and medium- tech products across many sectors. Through projects like this, we want to stimulate rapid growth of small and medium sized businesses (SMEs) in Russia, which play a fundamental role in economic growth of developed and a large number of developing countries.”

“At the same time,” he added,  “the relationship with FlexEnergy will give a boost to a number of American SMEs, not just FlexEnergy. But what is more important, is the precedent we are trying to create, where cross-border SMEs can enter into a long-term, multi-million-dollar cooperation, with the support of well-established institutes, such as ExIm bank. For many, it remains uncharted waters: we want to show, that it is accessible to those who want to create competitive, innovative products and export them to similar-minded partners across the globe.”

__________________________________

DGC is a privately owned independent power producer in Russia.  It contracts with small and medium sized Russian commercial and governmental entities to provide safe, reliable and environmentally friendly power from Russia’s abundant natural gas resources at a discount to local grid power.

Broad Street Capital Group, an international private company, based in New York City, acts as the exclusive financial advisor to DGC in the transaction.

Avicon Partnership (London) acts as a business and management consultant in DGC’s development of Russia’s largest independent power producer project to date.

FlexEnergy is a privately owned original equipment manufacturer of gas turbines in Portsmouth, New Hampshire, formerly a division of Ingersoll Rand.  FlexEnergy provides a line of rugged and low maintenance gas turbines to commercial and oil & gas industry users in the United States and around the world.

The Russians are coming! Russia’s Internet giant Mail.Ru sets up shop in America

What Can Fluent In Foreign Business Do for You?

As the November 14th Conference on Development and Financing of International Business Opportunities approaches, we would like to offer you a closer look at the organizations behind this event and to highlight ways in which they enable owners and managers of companies seeking to do business internationally, to successfully grow their operations abroad. In this post we highlight  Fluent In Foreign Business™.

GlobalFelix
Fluent In Foreign Business™ is a unique business development and risk management platform, designed to help exporters, manufacturers, franchisors and investors successfully enter foreign markets, or expand their existing international operations.

With the help of the proprietary Road Abroad Toolbox™, developed as a result of decades of business experience in over fifty countries, professionals at Fluent In Foreign™ help to simplify the process of dealing with a variety of issues ranging from researching and entering foreign markets, selecting the right partners, dealing with corruption and language and culture gaps, to dealing with U.S. government trade and development agencies, financing exports and projects, insuring investments and protecting future income.

Government agencies such as foreign ministries, the U.S. Department of State, diplomatic corps and foreign services have so-called “charm schools” to train employees to handle themselves in foreign markets. A number of leading universities offer programs in international business, geopolitics, and global affairs. However, most of the businesspeople that end up doing business in foreign markets or with foreign companies, have never attended, or will not attend, such programs. Fluent in Foreign™ is for them.

No other organization approaches international expansion in such a fundamental way, as does Fluent In Foreign™. It is an unparalleled resource in helping you and your company prepare to enter foreign markets, or expand its existing international operations in the most efficient and risk-controlled way possible.

READ MORE 

THE DEVELOPING AND FINANCING INTERNATIONAL OPPORTUNITIES CONFERENCE IS ALMOST SOLD OUT! REGISTER TODAY!

Test Your Emerging-Markets IQ

Before taking the leap, investors should know the territory

 

By Chana R. Schoenberger, WSJ.com

How much do you know about emerging markets? Find out by taking this emerging-markets quiz.

Investing in these countries can carry significant risks. Political turmoil, uncertain legal systems that may not favor foreign investors, and currency risk are all possible pitfalls.

The payoff is a potential for higher returns as these economies expand. Many of these countries have a growing middle class that is clamoring increasingly for consumer goods. Some are also benefiting from high rates of infrastructure spending and from natural resources.

Test your understanding of emerging markets in the interactive quiz on the left—or read below for the text version with additional background material.

1. Which countries are considered emerging markets?

A. Spain and Peru

B. Peru and Russia

C. Russia and Belgium

D. Belgium and Hungary

Answer: B. While there is no agreed-upon definition for the term, most publications, nongovernmental organizations and bank researchers include the same dozen countries, with a handful of additions and subtractions. The largest economies in this group are the so-called BRICs, a Goldman Sachs-coined acronym for Brazil, Russia, India and China.

James Yang

MSCI Inc., MSCI -0.10% which compiles several benchmark indexes, lists the following countries as emerging markets: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, South Korea, Taiwan, Thailand and Turkey.

After Greece’s sovereign-debt woes, MSCI is moving the country down from the developed to the emerging-markets index this month. Qatar and the United Arab Emirates are set to join MSCI’s emerging-markets index in May 2014, an upgrade from the frontier-markets list.

2. How do stock-dividend yields in emerging markets compare with those in the developed world?

A. Dividend yields are highest in emerging markets

B. Dividend yields are highest in Europe

C. Dividend yields are highest in the U.S.

D. They’re all yielding about the same

Answer: B. As of Oct. 31, a comparison of average dividend yields from several MSCI market indexes shows the Europe index had a yield of 3.26%, versus 2.63% for the Emerging Markets index and 1.92% for the U.S. Broad Market index. Dividend yields are a function of the amount of the dividend a company pays and the market value of the company’s shares. Differences in average yields among different markets fluctuate over time.

While stocks in some emerging countries, like Taiwan and Malaysia, have higher yields than in others, such as South Korea and India, companies in emerging markets are paying more attention to dividends as their investor base widens internationally.

“Generally, emerging-market companies increasingly understand investors want cash dividends,” says David Ruff, a portfolio manager at Forward Management LLC in San Francisco. “This gives the companies credibility with institutional investors and provides objective support for their financial statements,” Mr. Ruff says.

3. How do government-bond yields available in emerging markets compare with the yields found on U.S. Treasurys?

A. Emerging-markets government bond yields are higher

B. U.S. Treasury yields are higher

C. The yields are similar

Answer: A. Despite the recent U.S. government shutdown and threat of default by the Treasury, the perceived risk of missing or delaying interest payments is greater on the debts of emerging-markets governments, which consequently carry higher yields.

The reasons emerging-markets government paper is considered more risky can vary, but they include: less-dynamic economies and legal systems, more fragile government structures, less-developed central banks, and less-wealthy citizens, which means such countries tend to have lower tax revenues and a higher reliance on commodities and exports, says David Hinman, chief investment officer at SW Asset Management LLC.

Some of the difference is also because investors are taking more currency risk when they buy foreign-denominated bonds. For example, Brazilian 10-year bonds denominated in the Brazilian real yield 10.3%, Mr. Hinman says, compared with 10-year Treasurys at 2.5%. Brazilian 10-year bonds denominated in dollars yield 3.9%.

Corporate bonds also tend to yield more in emerging markets, Mr. Hinman says.

4. Which market outside the developed world has the public companies with the greatest value?

A. Russia B. Egypt

C. Morocco D. Hong Kong

Answer: D. Hong Kong, China, India and Brazil are among the world’s top 10 markets as measured by total market capitalization of their publicly traded stocks, according to the Central Intelligence Agency’s World Factbook. (Hong Kong, a semiautonomous region of China, is often considered an emerging market in its own right because it serves as a regional financial center.)

5. Which nation outside the developed world has the greatest economic output per capita, as measured by gross domestic product?

A. Brazil

B. Qatar

C. South Africa

D. China

Answer: B. Qatar, a tiny Persian Gulf state rich in natural-gas and oil resources, has the world’s highest GDP per capita, at $103,900. (This is measuring GDP on a purchasing-power-parity basis, which uses a currency exchange rate that equalizes the amount of money that buys the same item in several countries. The cost of a Big Mac, for instance, would be considered equal.) The CIA’s World Factbook lists the U.S. at No. 14 on this list, with $50,700 per capita.

6. How have investors felt about emerging-markets equity and bond funds over the past year?

A. They are running toward emerging markets

B. They are fleeing emerging markets

C. They are holding firm

Answer: A. Diversified emerging-markets stock mutual funds attracted $36 billion in net new money in the year through September, according to Morningstar Inc., while emerging-markets bond funds pulled in a net $6.5 billion.

Exchange-traded funds based on emerging markets also saw inflows. In the year through September, emerging-markets stock ETFs took in $8 billion, and emerging-markets bond ETFs attracted $537 million, according to Morningstar.

7. Which of these emerging economies makes it easiest for companies to do business?

A. Hungary

B. Russia

C. South Korea

D. Turkey

Answer: C. Among the top 10 economies in the World Bank’s latest annual Doing Business survey, the only ones outside of the developed world are Hong Kong at No. 2, Malaysia at No. 6, South Korea at No. 7 and Georgia at No. 8. Singapore led the list, followed by Hong Kong, New Zealand, the U.S. and Denmark.

8. How do the debt-to-GDP ratios in emerging nations compare with those in developed nations?

A. Worse

B. Better

C. The same

Answer: B. In the developed world, the average debt-to-GDP ratio tops 107%, Forward Management’s Mr. Ruff says. For emerging economies, that figure is 36%.

“There is some concern that [emerging-markets countries] have current-account deficits, but their fiscal situation is better than the developed world,” Mr. Ruff says.

Ms. Schoenberger is a writer in New York. Email her at reports@wsj.com.

THE RECIPE FOR GLOBAL SUCCESS

HOW FAILURE LIFTED LOVE AND ® FROM THE FAMILY KITCHEN TO THE WORLD STAGE

 by Steve Lowery, GlobalTradeMag.com

 

EXPORTING TAKES THE CAKE When its main clientele, the airline industry, suffered after 9/11, Andy Axelrod looked abroad to sell Love and Quiches’ cheesecakes and desserts.

From the Publisher: Love and Quiches® is a great representation of how a small business can expand internationally. It is the kind of business that benefits greatly from the international expansion program developed by Fluent In Foreign Business to assure that every international expansion undertaken by its clients is successful.  If your business is seeking to expand internationally, or would like to bolster its current global expansion efforts, please contact us and tell your “Road Abroad” story

Andy Axelrod spends a lot of time on airplanes. His company, started “by accident” 40 years ago, has seen its overseas sales increase for the better part of a decade. As Axelrod’s business has grown so have his frequent flyer miles, making it fortunate that he is not a nervous flyer … well, except for that one thing.

Takeoff? No problem. Landing? Easy. In-flight movie? As long as it doesn’t feature anything in the Teen-Vampire-Without-a-Date-For-the-Prom genre, he’s just fine. No, there’s only one thing that raises Andy Axelrod’s airborne anxiety: dessert.

Chances are that if he’s flying the kind of airline that serves dessert—dessert, not a sad excuse of a cookie packed in a pouch equal parts kryptonite and frustration—they’ll be serving one of Andy’s. Love and Quiches, the Long Island, N.Y.-based company of which he is president, is a leading producer of fine desserts, and quiche, served in eateries and on airlines around the world. Chances are just as good that if you’ve had a great salted caramel brownie, slice of cheesecake or bacon-tomato quiche in a restaurant—fine dining or chain—at a food court or on a flight, you’ve tasted one of Andy’s products. If Andy happened to be in that restaurant or on that particular flight with you, be assured he watched intently as you took that first forkful, waiting for your initial reaction in what, for him, is a moment of delicious torment.

“I’m always watching what happens right after that first bite,” he says. “That moment always feels like forever. Fortunately, it’s always worked out.”

The same can be said for Love and Quiches’ overseas operation. Business is good; very good; an increase in sales of 20 to 30 percent each of the last five years, good. Still, global success is a relatively new thing for the company; it was only 2003 that Love and Quiches, founded by Andy’s mother Susan Axelrod, finally ventured overseas and then only when forced by lean times. Success itself has been transitory; stretches of triumph tempered by tragedy, days when any of a number of issues, including world events, threatened its very survival.

Love and Quiches desserts hitch a ride with a large food distributor that works with a specialized freight consolidator for the long ride overseas.

There’s a name for all of that: Business. More specifically, Small Business, where margins can be as narrow as the window of time one has to learn what they’ve done wrong and make it right. Exporting was like that for the Axelrods. Like so many small business owners—their company employs about 250 people—they had the typical reservations about taking their business overseas: they were too small, too specialized, their product was too fragile; they didn’t speak the language, know the customs or local regulations and had absolutely no idea how to go about getting a New York cheesecake from their bakery in Freeport, New York—44 miles east of Manhattan—to a chicken restaurant in Saudi Arabia. You know, the usual.

“The most common themes I hear from small business owners is not knowing where to start,” says Dario Gomez, associate administrator for International Trade at the Small Business Administration (SBA). “[They’re concerned] about not knowing what to do if something goes wrong and not knowing how to find clients.”

Clients have not been a problem as, today, about 25 percent of Love and Quiches revenue comes from exports. Those numbers would have seemed unfathomable to the Axelrods 10 years ago. They figured large-scale exporting was not in the cards for them because their product was so dependent on not only tasting fresh but being true to its name.

“A New York cheesecake has to be made in New York,” Andy says. “We had people saying, ‘Why don’t you just ship the ingredients overseas and have someone make them over there?’ But we would never skimp. People want to eat a real New York cheesecake. That’s what they’re paying for.”

That problem found a solution when Andy discovered that flash-freezing his products immediately after they were created ensured that they would remain fresh on the shelf for up to a year. Still, the flash-frozen solution raised another issue: How could Andy be sure that his product would remain frozen through the shipping process? Any fluctuation in temperature could ruin an entire shipment. He was introduced to recording devices that not only monitored each shipment’s temperature but alerted officials any time there was a break in the container seal or atmosphere fluctuation of the food-delivery system.

“I’ve eaten cheesecake that’s been on the shelf for more than a year and it tasted very fresh,” he says. “I’ll tell you it tasted much fresher than an item that was sitting in a bakery’s glass case all morning.

“These devices are amazing. That’s what comes when you deal with reputable people, reputable carriers. You get a high level of professionalism that leads to solutions. You have to do your homework to find them, like anything else. You interview, get background through things like trade publications and directories. But, I must say, the system has worked out really well for us.”

It’s possible for a small business owner like Andy to be overwhelmed by logistical issues and unaware that a revolution of sorts has been going on the past couple of decades as third-party logistic providers have made it a point to help small businesses with limited resources tap into vast assets, new technology and new thinking that allows them to reach far-flung markets previously thought unflungable.

These logistical providers—call them 3PLs, logistical experts, freight forwarders, consolidators, supply-chain managers, whatever—offer a full and wide-ranging suite of services specifically geared to get small companies products to their overseas destinations in an efficient, cost-effective manner. It’s in part due to this that, in the past three years, the amount of U.S. small businesses exporting goods or services has increased from 52 to 64 percent, with those exports valued at nearly $2.3 trillion.

In Love and Quiches’ case, it’s made it possible for the company not only to find customers far from where they ever thought possible, but to assure Andy he’ll see the proper, first forkful response, whether sitting in an airliner or in a South American café, something that would have been unthinkable little more than a decade before.

 

“To be honest,” said Susan Axelrod, who’s incapable of being anything but, “we really didn’t know that much about exporting. Then again, we really didn’t know much about anything.”

Founder Susan Axelrod. Using flash-freezing techniques, Andy Axelrod says even after a full year, his Love and Quiches cheesecakes taste fresher than mid-day bread from the local bakery.

When she’s not traveling to one of her bucket-list destinations with her husband—they recently returned from Egypt; Morocco is next—Susan is picking up awards, giving talks and readying for the publication of her book, tentatively titled An Accidental Business, chronicling her success as a business leader and entrepreneur. As undeniable as her success is, she is the first to say it was unplanned and unlikely; nothing in her background or upbringing seemed to foreshadow it. Yes, she attended college, but it was during the ‘50s, a time when most women were thought to be on campus for reasons other than commerce.

“Someone like me was expected to get married,” Mrs. Axelrod explained.

She did and began raising a family, a vocation that included cooking, something for which Susan began to demonstrate real talent. She was particularly good at baking and creating a dish new to America called quiche. She likes to say that she was fortunate to learn how to cook before anyone knew there was something called cholesterol, her creations including crepes stuffed with Brie, dipped in beer batter and deep fried in a cauldron of clarified butter. Friends swooned and Susan saw possibilities.

She created her home-based business in 1973, initially offering the then-exotic sounding quiche. Desserts would soon follow. If it sounds as if there was a plan, there wasn’t, business or otherwise. To Susan that was another world with a language all its own. She called receivables, “oweables” because “that’s what people owed us.” There were no “payables,” since the business had no credit and paid for everything upfront. She made nearly $25,000 that first year with a labor cost of $222, which is very efficient and a complete mystery to Susan.

“We must have paid somebody for something,” she says, “but for what, I can’t recall.”

Soon enough, production outstripped her kitchen and distribution outgrew the family car. The company moved into a local storefront, bought a second-hand truck and added eight employees. Everyone pitched in—Andy and his sister, Joan, would come home from school, drop their books and start breaking eggs. It was a grind but, perhaps a bit to her surprise, Susan found that she liked the grind. A lot. Rather than drain her, it seemed to feed a drive she’d been unaware she had.

“You have to have a tremendous capacity for work and I found I did,” she says. “Ambition is important, of course. But you have to have a very good idea, one that you are not going to be dissuaded from, because you will be challenged. Business is made up of challenges and if you can’t take the pain, you can’t be an entrepreneur.”

After going away to become a lawyer, then coming back to work in the company in the early ’90s, Joan—now Joan Axelrod-Siegelwax—returned to become vice president of Sales and Marketing. Business continued to grow as did the lessons; they learned that bankers were lovely folks, when times were good. They learned about being diligent about price points and the value of considered risk. After an unannounced change in packaging was met by customers with something bordering on outrage, the Axelrods became even more mindful that the people you sell to are not your clients but your partners—and that partnership doesn’t end when the product is delivered. The company fosters long-term relationships by keeping customers up with flavor trends—they’re very excited about a new Greek yogurt cheesecake—portion sizes, plating designs and serving suggestions.

There was another lesson to be learned, one that almost destroyed the business.

No segment of the economy was more affected by the terrorist attacks of September 11, 2001, than the airline industry. At the time, Love and Quiches had concentrated a large amount of its business with it and, virtually overnight, it disappeared.

“Things just came to a grinding halt for us,” Susan says. “Hundreds of thousands of dollars of cancelled orders.”

The lesson was simple but devastating, bringing Love and Quiches to the brink of ruin. They had focused too much of their business in one area.

“One of our philosophies since then is to not have concentration in any one customer or channel,” Andy says. “It can be a strength, but it can also make you very vulnerable. We certainly were vulnerable [after 9/11].”

Like all Americans, the Axelrods found themselves in utter shock and needing to grieve, and yet, they also knew they needed to act quickly or they would lose their business as well. They made changes immediately, converting to a lean manufacturing model, applying for a disaster loan from the SBA and searching out grants wherever they could find them. They hunkered down and, for the next couple of years, focused on growing sales, domestic sales, making the common mistake that many small businesses do: that it needs to be profitable domestically before it can even think about going outside the country.

“We tell [small businesses] that 95 percent of your potential customers live outside of the United States,” says the SBA’s Gomez. “Most foreign markets are growing from four to 10 percent each year. Companies that export are by and large more successful than those that don’t.”

Their foray into exporting had started small, with a single chicken restaurant chain in Saudi Arabia. It was easy to manage and they knew the owner. When, a few years later, the Axelrods believed it time to go larger, they were concerned that they didn’t have enough business to ship efficiently, that they would be paying for a lot of empty container space. It was then that they were approached by a consolidator who told them that he specialized in containers for clients that required multiple items. They had been approached by a large food company that specialized in food-court dining, they required a number of items to be shipped from the States, and Axelrod’s desserts would join the crew.

From that time on, things clicked. Love and Quiches expanded quickly in the Middle East and then in South America. The company has entered some European markets but finds it a bit glutted. Where they’re really interested is the whole of Latin America. And everywhere else.

“It’s a big world,” Andy says. “We have a lot of targets we’d like to pursue.”

Ironically for this accidental business, their biggest growth came through the lessons they learned from their own missteps and hard times. Things they didn’t foresee but things that, in the long run, made them, and their business, better. Here and overseas.

“You know, it’s funny, whenever I’m invited to go talk or be a panelist, they want to hear about all the great things you’ve done,” Susan says. “But I find I always end up talking about what we did wrong and the lessons we learned from that. It’s okay to make mistakes, it’s not the end of the world, as long as you learn from them. It’s not enough to believe in luck, you have to go out and make it. I mean, look at me, it took me a long time to become smart.”

The Ship Modeler

Ship Modeling News from Clare Hess

Site Title

“Love recognizes no barriers. It jumps hurdles, leaps fences, penetrates walls to arrive at its destination full of hope.” — Maya Angelou

Fluent In Foreign Business

Helping To Grow and Protect Your Business Abroad

Emerging Market Insights

How to make a killing in Emerging Markets without losing your shirt?

Ideas That Work @ GIDASPOV.COM

Strategy | Creativity | Innovation | Fundraising | Marketing

Nu Leadership Revolution Blog

“Helping Emerging Leaders Gain the Competitive Advantage in the Future"

Mike Z's Blog

Exploring the causes of cancer throughout the world

Bucket List Publications

Indulge- Travel, Adventure, & New Experiences

FranchisEssentials by Franchise Foundry

Sharing Information, Insight and Perspective about Franchising, Small Business and Entrepreneurship

bizrisk.wordpress.com/

We Help Insurance Agencies Stand Out

The WordPress.com Blog

The latest news on WordPress.com and the WordPress community.

%d bloggers like this: