When Expanding Overseas, it is ALL About Commitment and Risk Mitigation

As I read the article below, I could not help, but shake my head. Presumption by the authors that international sales should somehow be less challenging, just because more businesses are now exporting, simply does not make sense.
International business has and will always be challenging and fraught with peril. Not only the risk of not getting paid is there, but there are also numerous other risks to worry about – from political upheavals, customs, shipping and currency devaluation, to fraud, corruption and intellectual property infringement. The list is by no means exhaustive. Yet anyone doing business domestically also faces a myriad of risks. The trick is to understand the risks and be able to mitigate them. A risk of non-payment for instance is just as real in domestic business, as it is in exporting. The reason businesspeople here do not consider it to be such major challenge is that they learned to use the tools available in the U.S. such as credit reports, references and legal system to mitigate this particular risk.
When it comes to exporting, a different set of tools is needed and such a set is fully available to any exporter. Thus in order to successfully export,  businesses either need to become fluent in foreign risk or hire someone who can manage their exports for them.  For those wishing to do it themselves a number of tools, such as credit insurance that is available through the Export-Import Bank of the United States (US EX-Im), or  from private carriers. International Company Profiles (ICPs) on potential business partners are available from the U.S. Commercial Service. Of Course, letters of credit and prepayments remain as perennial options.
But it is not only about getting paid, it is about exporters’s commitment to international business. Over the last 25 years of international business in over 35 countries, we have seen multiple situations where US companies failed or succeeded based on their ability to understand and mitigate risks.
For those who don’t want to commit, but still want international sales, we offer complete Export Management Services. For those who want to understand foreign risks and ways to mitigate them we developed entire Fluent In Foreign Business program complete with the eponymous Book, Fi180 Global Business Atlas and Fi3 Export Appeal Index™ rating ease of exporting to 180 countries. Like any other serious activity preparation is key. For those who prepare, exporting can become one of the most profitable and enjoyable activities in their business.
In addition to the article, this post also includes an excerpt from the Fluent In Foreign Business

The Cost of Expanding Overseas

As More Small Businesses Sell Goods Abroad, They Encounter Challenges—Like Getting Paid
Selling goods and services abroad is getting easier for small U.S. businesses, but they still face challenges.

Just last week President Barack Obama signed an executive order accelerating the process of getting government approval to export U.S.-made cargo. The goal is to create a new International Trade Data System eliminating some of the paperwork required in sending cargo abroad. In theory, such a system could speed the shipment of products overseas, cutting approval wait times to transport goods to minutes from days.

Small companies comprise the majority of U.S. exporters. Businesses with fewer than 500 employees accounted for 294,589 of 301,238 U.S. exporters in 2012, or about 97%, according to preliminary data released by the U.S. Census Bureau in December. Just over half were small manufacturers and wholesalers, and together they generated $460 billion in foreign trade, a $10 billion increase from the previous year, or about 34% of total U.S. exports, according to the data.

While paperwork is a headache for some small companies, it’s not their biggest concern, according to a survey of small businesses fielded in 2013 by the National Small Business Association and the Small Business Exporters Association. Asked to identify what they consider to be the largest challenges to selling goods and services to foreign customers, 41% of respondents selected “I worry about getting paid.” That’s up from only 26% of respondents in 2010 who said payment was an issue for them.

“I think the biggest issue is getting a staff up” overseas, as well as the cost of business travel, and of communication with far-flung clients, said Chris Coccio, chief executive ofSono-Tek Corp. SOTK 0.00% , a Milton, N.Y., developer of ultrasonic spray coating technology. His primary overseas clients include contract manufacturers for electronic companies and medical firms. He said about 60% of his roughly $10 million in annual revenue comes from sales to non-U.S. markets.

Chris Coccio, CEO of Sono-Tek, remains an advocate of exporting. Meredith Heuer for The Wall Street Journal

Mr. Coccio said Sono-Tek exports widely in Europe as well as many parts of Asia including China, Japan and the Philippines. His products can also be found in Mexico and Brazil. About 80% of the company’s sales and marketing budget is spent on international sales, “so there clearly is extra cost per sales dollar,” he said.

When considering potential international markets, such as Russia or expanding his business with electronics in Japan, Mr. Coccio said “we re-evaluate our success rate” after one or two quarters and “decide if we want to stay the course.” On the whole, he remains an advocate for exporting. Without it, “we would be one-third of our size,” he said. Receiving payment is a regular concern when exporting goods, he said, but “to deal with this our payment terms are front-end loaded with most of the payment prior to shipment.”

Laurel Delaney, a marketing consultant based in Chicago and author of the upcoming book “Exporting: The Definitive Guide to Selling Abroad Profitably,” said if a company is already exporting, it should “continue down that path.” She also said business owners should routinely evaluate if they have enough capital to continue exporting, as small-business owners often have much less to fall back on than larger firms.

Larry Lieberman, the owner of Vision Quest Lighting, a 30-employee decorative lighting company in Long Island, N.Y., said during the recession, sales to foreign markets including much of Europe, China, and Japan were a lifeline. “If we only had domestic sales we would have been in big trouble in 2012,” he said.

Vision Quest Lighting reaped the benefits of exporting during that time because a fair amount of revenue came as the company provided lighting for several national brands, such as Limited BrandsLB -0.88% Ann Taylor and Abercrombie and Fitch,ANF -2.96% as they expanded their international presence.

Mr. Lieberman is currently working on exporting solar-powered trailers to Haiti and South Africa and estimates that project will bring in $10 million to $20 million of revenue within the next two to three years.

However, he said his main concern for the year ahead is managing business in some foreign markets, specifically China. Fred Hochberg, chairman and president of Export-Import Bank of the U.S., an export credit agency, said: “The financial reporting is not the same as Western companies or the United States so it’s hard to evaluate the creditworthiness of companies [in China].”

Leah Martin, the co-owner of Corona, Calif.-based FireBlast Global, just started exporting her products last year. The 40-employee company, which makes equipment used in fire-training demonstrations, markets its goods to local governments and commercial airports in China, Japan and South Korea. Ms. Martin’s main concern this year is “making sure that the product can get delivered appropriately through the different exporting channels.”

Like others, Ms. Martin said she has had concerns about getting paid but worked with her bank to secure letters of credits that would act as surety bonds for payment of her company’s goods.

FireBlast is now planning to expand into Middle Eastern markets. Ms. Martin said it is too early for her to assess what impact exporting has had on her company’s growth, but she looks forward to growing the business. “I think it will be a completely significant increase in revenue based on what we’ve seen from our competition,” she said.

—Angus Loten contributed to this article.

Write to Rhonda Colvin at rhonda.colvin@dowjones.com

EXCERPT FROM FLUENT IN FOREIGN BUSINESS

Chapter 1
Why Go Global?

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For any business in today’s world (and I am not talking about mom and pop shops here), not to expand internationally is practically a sin. Not only does global expansion provide diversification and additional revenue, it exposes one to different methods of doing business. In addition, the U.S. business back home can benefit from increased cultural sensitivity, competitive intelligence, new opportunities and better management.

International markets vary politically, economically, and socially. Depending on the market context, non-state market actors like multinational corporations and NGOs (non-governmental organizations) offer financial, networking, information exchange, advocacy and protection resources that can help a business of almost any size create a solid framework for entering a foreign market. What’s more, many of these resources are either free or nominal in cost.

One of the obvious reasons to expand overseas is diversification. Although we live in a global economic society and cross-border slowdowns affect us all, different countries are at different stages of their economic development. Markets that are ultra-competitive and mature in the U.S. are either still emerging, or don’t even exist yet, in many countries. This disparity allows businesses to become less dependent on their country’s economic situation and affirmatively exploit their own competencies in emerging overseas markets.

Another reason, of course, is a company’s financial growth. Foreign markets offer one of the best sources for revenue and profit margin expansion. It is no secret that the emerging markets of Brazil, China, Russia, India and Africa offer enormous business potential for all kinds of businesses and industries.

A lot has been written about the BRIC economies and their enormous populations and growing purchasing power. Today, expanding into these markets requires significant resources and a very strong competitive advantage.

The same can be said for the Western European countries and the markets of Australia and South Africa. Although numerous opportunities still exist in many existing or emerging market segments, businesses that are only now thinking of international expansion, especially those companies that are small to medium in size, would be well advised to consider beginning their international foray with smaller markets in countries such as Vietnam, Ukraine, Romania, Bulgaria, Poland, Hungary, Turkey, Kazakhstan, Georgia, Turkmenistan, Costa Rica, Panama, Chile, the Caribbean Basin and the region of Sub-Saharan Africa.  The list is long and each country can provide additional revenue and profits to any U.S. company that takes the time and effort to study the markets and carefully enter them.

At this point you may be asking, “How do I choose the right markets?” “How many countries can my company enter at once?” “What financial, human and administrative resources will we need?” “What would be our return on investment if we do this?” These and similar questions are absolutely normal.

I have seen businesses enter foreign markets completely opportunistically, for example after meeting someone from a country at a trade show or being contacted by a foreign customer. I have also seen companies do it thorough systematic analysis and marketing research prior to their market entry. Somewhere in the middle is the right way to go. Developing an effective market entry strategy requires information and a thorough analysis of local, regional and global market forces. But the perfect opportunity for your organization can be missed if you don’t exploit the real life chance opportunities.

Perhaps most importantly, you must have a high level of commitment to break into a foreign market. It will take time, persistence and serious resources. Once you decide to expand internationally, commit to and the expansion process and introduce it into your organization’s culture. That’s when things will start to happen and overseas business opportunities will open up. The challenge will be to separate the wheat from the chaff and to eliminate unscrupulous buyers and tire kickers. Once you identify an opportunity, make sure you thoroughly understand the proposed transaction while you manage the expectations of all the parties involved.

Look in the mirror. Ask yourself whether you really want it and whether your company is ready. International expansion can be exciting, cool, and profitable. But if you or your organization lacks patience, commitment, a desire to learn, and a strong value proposition, international expansion can be a most painful and costly undertaking.

As with any significant operation, you must set realistic goals. Ask yourself why you want it and what are you hoping to accomplish for yourself and for your organization. Quantify your objectives in terms of additional revenue and market positions, both short- and long-term. Will expansion affect your present operations? If yes, how? And how will you finance the undertaking? Understand your expectations. Are they realistic? A good rule of thumb is to triple any “realistic” timeframe you come up with. Things always take longer overseas, and in some countries they take much, much longer.

Are you ready for multiple, grueling flights, jet lag, bad hotels, unfamiliar food (sometimes amazing and sometimes inedible), and unpaved, hazardous roads? Is your company prepared to commit the human and financial resources to developing and implementing its international strategy? If you responded with a convincing “Yes” to the above questions, then pack light and enjoy the trip.

Want to know more write info@fluentinforeign.com

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About Alexander Gordin
An international merchant banking professional with over twenty years of business operating and advisory experience in the areas of export finance, international project finance, risk mitigation and cross-border business development. Clients include foreign governments, municipalities and state enterprises as well as Fortune 500 and small/medium enterprises. Strong entrepreneurial instincts, combined with leadership and strategic skills. Transactional and negotiations experience in over thirty five countries. Author of the highly acclaimed "Fluent in Foreign Business" book and creator of the "Fluent in OPIC", "Fluent in EXIM","Fluent In Foreign Franchising", "Fluent in FCPA",and "Fluent in USTDA" seminar/webinar series. Currently developing "Fluent In ......" seminars and publications. Co-author of the Fi3 Country Business Appeal Indices. Extensive international business development and project finance transaction experience in healthcare, aerospace, ICT, conventional and alternative energy infrastructure, distribution and hospitality industries. Experience managing international public and private corporations. Co-Founded three companies abroad. Strong Emerging and Frontier Market expertise. Published and featured in numerous publications including: The Wall Street Journal, Knowledge@Wharton, NBC.com, The Chicago Tribune, Industry Week, Industry Today, Business Finance, Wharton Magazine Blog, NY Enterprise Report, Success magazine, Kyiv Post and on a number of radio and television programs including: Voice of America, CNBC, CNNfn, and Bloomberg. Frequent speaker on strategy, cross-border finance and international business development. Executive MBA from the Wharton School at the University of Pennsylvania. B.S. in Management of Information Systems from the Polytechnic Institute of NYU. Specialties Strategic Management Advisory, Export Finance, International Project Finance & Risk Management, Cross-border Negotiations, Structured Finance transactions, Senior Government and Corporate officials liason

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