Maintaining Export Advantage in the Face of a Rising Dollar – Part 1

It has been a great run for U.S. exporters. The Department of Commerce just announced that our nation’s exports of goods and services were $2.35 trillion in 2014—a record for the fifth year running. Yet clouds are gathering on the horizon, as the economic growth in many foreign markets, specifically those in the emerging and frontier category, has been slowing. Some markets like Russia and Ukraine are set to experience outright GDP contractions brought on by political upheaval.

The single biggest threat facing U.S. exporters is ironically the rising U.S. dollar, which continues to strengthen significantly as the result of the improvement of U.S. economy in the face of the international weakness.

How can U.S. exporters maintain their competitive position and continue to play a leading role in the international export space?strategies for US exporters

While there is no magic bullet and the process is a comprehensive long-term endeavor, below, most U.S. exporters can use the following five-step approach to maintain and expand their exports, while swimming upstream against the rising dollar:

  • Recommit to exports
  • Expand the markets served
  • Offer open account terms and buyer financing
  • Reduce focus on price
  • Use available resources more effectively

Recommit to exports.

Despite its undisputed success in the export arena, the U.S. as a nation has been a very anemic exporter. Unlike in countries such as Germany, the Netherlands or Chile, where exports have for years been part of the business’ DNA due to the small size of the home markets, a great number of companies in the U.S. have been treating exports as an afterthought to their domestic sales strategies. Other than the Fortune 500 companies, the majority of U.S. companies export to fewer than three markets. The primary export drivers are either organic demand from overseas, natural affinity of the owners to a particular country, commonality of language or geographic proximity.
In good times, as we know, the tide raises all boats, yet in the face of the upcoming slowdown, it is vital that U.S. companies recommit to exports in a strategic fashion.

To succeed in this endeavor, U.S. firms must make exports an integral part of their sales mix. Whether through building internal export departments or outsourcing to export management firms, the focus on international sales must be relentless and deep. Companies developing or expanding their in-house export departments should invest in training, product adaptation, international network and market analytics. Managers responsible for exports in organizations, along with top management, must make ongoing efforts to follow events in target markets and understand the culture and business customs and attempt to learn as much of the foreign language as possible.  Departments not directly involved in exports should undergo inclusionary training to ensure that exports do not become orphans within the organization when it comes to issues such as service, exchanges, spare parts supply, collections, payments and financing.  READ MORE

ZIPPO’s Global Dilemma

Zippo-Lead-photo

Zippo CEO Greg Booth is solving a problem most executives would eagerly share. The company’s flagship product, the iconic windproof lighter, is too well known. Don’t laugh. How can Booth successfully launch new products when Americans aren’t used to accepting Zippo the lighter as Zippo the brand?

Yet the company identified a need for diversifying its product line. Lighters are generally used in connection with tobacco products, and Zippo executives haven’t missed what Booth calls the “significant decrease in smoking” that began in the 1980s and ’90s.

“Of course, we immediately realized it was a trend that we needed to face, and face immediately to ensure the company would remain strong,” he says. Zippo reacted by committing significant resources to “determining how we could evolve beyond just being known for our windproof pocket lighters, and laying out a strategy for product line expansion that would be accepted by our consumers as ‘Zippo.’”

That strategy of recreating Zippo’s domestic image starts overseas, test marketing new products before bringing successful trials back home.

A full 60 percent of Zippo sales are overseas in more than 160 countries. These markets often resemble the end goal for the American Zippo experience: Up to 90 percent brand recognition bolstered by an openness to products that, believe it or not, don’t generate a flame.

Zippo CEO Greg Booth

Zippo CEO Greg Booth

“We’ve found that consumers in markets such as China, which is actually our number one market outside the U.S. representing 10 percent of our business, are very receptive when it comes to other products we’ve introduced,” Booth says. “Here in the U.S., the domestic consumer is very much focused on Zippo the lighter company—so we have a lot of work to do.”

Zippo has flirted with other product lines for a while. “The company has always taken strides to expand beyond [being solely known as a lighter company], introducing such products as tape measures, a pocket flashlight called the ZipLite, pill boxes and even golf balls, but these tangents never took off,” says Booth. “They weren’t true to the core values of our brand or what Zippo stood for.”

Those core values—quality, durability, ruggedness—are what Zippo has zeroed in on with its latest product expansions. And while the renewed and concerted effort to diversify may have been sparked by fears over trends showing decreased smoking, that trend never really amounted to falling sales. In fact, sales never faltered much at all, excepting the time surrounding 2007, when sales of everything were down, outside of perhaps alcohol and rope.

“The motivation is not to offset a decline in the lighter business,” says David Warfel, Zippo’s global marketing director. “The diversification strategy began 10 or 12 years ago with just some concepting about, hey, in addition to great brand recognition, we have a sales channel that’s in place. We certainly have manufacturing capabilities.”

Zippo's Global marketing director, David Warfel

Zippo’s Global marketing director, David Warfel

Warfel points to a strong collectors market, foreign sales, custom design and positioning the product as an accessory—rather than just a cigarette lighter—as top contributors to not only sustained, but rising bottom lines. “Our lighter sales for the past three years have grown approximately 20 percent each year,” he says. “Our lighter business has never been bigger, better or stronger—and I know that sounds crazy but it’s the truth.”

That’s saying a lot for a company that famously manufactured its 500 millionth lighter in July of this year, after more than 80 years in business. That bears repeating: 500 million lighters. Is it any wonder that the little metal rectangles are the first thing called to mind whenever the word “Zippo” is uttered? Or is it a surprise that such an iconic company would want to trade on its flagship product’s key traits—quality, durability, ruggedness—to start entering new verticals? Certainly not.

The surprising part is the products—and places—Zippo decided to venture.

Buon Giorno, Italia!

The lessons of how to leverage the international marketplace as a launching pad for new products begins with an important understanding: “Middle-aged white men in Bradford, Pennsylvania, cannot be making consumer opinions for Delhi or Beijing,” says Warfel, a middle-aged white man in Bradford, Pennsylvania. “It’s very easy to have opinions. You have to put those aside.”

Warfel’s approach is much smarter and solves two problems at once. To collect market data, advice, trends and the like from countries around the world on the local level, he relies on a PR firm, namely, SLAM. His reasoning is important: Yes, you need localized information worldwide, but you also can’t spend all your time communicating with dozens of PR firms—you need a single firm with tremendous reach, one that can consolidate information and transmit it in a fraction of the time, freeing Warfel up to strategize on that question we keep coming back to: How can Zippo diversify its product line?

In Italy, he was told, Zippo’s answer is fragrance. Zippo fragrance? Yes. Zippo fragrance—and no, it doesn’t smell like butane.

“The fragrance is an excellent example. The brand perception of Zippo in Italy is somewhat— ” Warfel stops short, tussles with some descriptions and final settles on this: “There’s a cool factor to it.

Zippo's newest smash hit, fragrance, launched in Italy, with the help of a leading local perfumery.

Zippo’s newest smash hit, fragrance, launched in Italy, with the help of a leading local perfumery.

“[Italy] was the ideal place to begin extending out into this ambiguous ‘lifestyle’ category,” he continues. “And there’s nothing that speaks of lifestyle more dramatically or as quickly as fragrance. That’s what lifestyle is.” Warfel says fragrance sales began in Italy because, when an Italian fragrance company came knocking with enticing news about a new opportunity, Zippo knew there would be a predisposition to accept its brand beyond just windproof lighters—thanks, of course, to its friends at SLAM.

“We partnered with a leading Italian perfumery to design the scents and packaging and it’s absolutely resonating with our consumers in Europe,” Booth says. “With success such as this, the fragrance line is without question ready for prime time here in the U.S.”

Zippo can now turn to its domestic distributors with the idea of adding a fragrance line not sounding so far-fetched. “We will be using data and consumer acceptance overseas to demonstrate viability to key U.S. accounts,” Booth says. The company has already gone this route with Zippo-branded watches, also launched in Italy and currently on sale at select men’s stores that carry the company’s wares.

Watches were a logical extension of the Zippo brand in its existing distribution channel. For one, they didn’t take up very much room in the transportation process, and resellers already carrying windproof lighters wouldn’t mind picking up a dozen Zippo-branded watches. “If someone was predisposed to buy a Zippo lighter, they’re in the store, they look over and they can also get a Zippo watch,” Warfel says. “Maybe that’s a nice add-on purchase.”

Ni Hao, China!

China has been kind to Zippo, accounting for 10 percent of total company sales. The company couldn’t be blamed for rushing to offer more of its products to such a successful market, though it suffered a tough lesson in the perils of hastiness.

“We are just like lots of people venturing into new markets for the first time,” Warfel says. “We’re beginners, too, in certain categories.” One such category was sunglasses, which had become quite a successful accessory back in Italy, where Zippo seems to launch many of its introductory products. When a Chinese distributor asked for rights to sell the eyewear in its market, Zippo saw a great opportunity and had “a bunch of glasses” shipped right over from Italy. The only problem? They didn’t fit. It turns out that the head size of the average Chinese consumer is roughly 20 percent smaller than an Italian’s. “Talk about missing the obvious,” Warfel laughs. “But something as simple as that, making sure the sizing is correct….” The company abandoned the idea of marketing sunglasses in China, deeming the small scope of projected sales less enticing when accounting for doubled manufacturing costs.

Items from Zippo’s luxury clothing line, launched in China.

Items from Zippo’s luxury clothing line, launched in China.

It was an error Zippo would not repeat while using China as the testing ground for the launch of its luxury clothing line. The addition, which the company has been working on for more than two years, culminated with the recent launch of a Zippo-branded store in Qingdao. The idea had surfaced nearly four years ago when Warfel conducted a survey and found that Zippo already carried 50 percent aided and unaided brand recognition—what he calls “a good head start.”

“Before we began we already had resellers lined up to carry the brand line,” he says. The company was meticulous in its research. “We said, ‘Where’s the space that Zippo should play outside of the lighter market?’ Clothing came up. And as we examined the market, we found that it was the white space. We’re not competing with everyone else, we like to think that we found the white space where Zippo can fit where nobody else is playing.”

He likens Zippo’s clothing brand quality to that of a Nautica or Timberland—“maybe not a Ralph Lauren,” but rugged and aimed at outdoor types. As part of that aiming, Warfel has helped to develop a marketing strategy that strikes at the heart of his desired current and future audience, with the main goal of edging Zippo back to relevancy. Partnering with entertainment company Live Nation to sponsor a series of concerts, Zippo drew on local talent to create a run of battle of the bands-type shows, as many as six per year until it grew into a larger event. “It was sort of the monkey move-up. Based on online endorsement, [bands] would advance to the next round,” says Warfel.

“We had product, signage, lots of promotion surrounding it,” he explains. “It’s been very successful.” Part of his surprise stems from an observation that, in China, big crowds are typically not well-received, so a stadium full of rock music enthusiasts could have been a tough sell. “We would have anywhere from 700 to 2,000. But because it was unique for the market, it gained an awful lot of attention. In fact, we did that type of promotion for two years and we became a feature on MTV [in China].”

The success of the Zippo Encore Program, as the company calls it, depends on “ground activation” and co-promotion with local media, such as, “Call in the next hour and get two tickets plus a Zippo something for the upcoming concert.”

“Any event has a beginning, the event, and a follow up,” Warfel explains. “We look at an event not as a singular activity, but as a campaign, and that’s sort of the crown jewel.” Zippo’s participation in these events gives it more to talk about than just product. The company becomes an interesting story, engaging and—here’s that word again—relevant. “But we’re not talking about product,” he reiterates. “We’re not saying ‘go out and buy a lighter. Go out and buy a pair of jeans.’ People talk about it because it’s cool, it’s fun.”

Fun. It’s a word that hasn’t been bandied about much here in the States when Zippo is the topic of conversation. Or is it even the topic of conversation? Perhaps, and perhaps not. But there’s little question of whether their cornerstone product is cool. As Warfel points out, have you ever seen a Bruce Willis flick in which he didn’t light up with a Zippo? And aren’t they used in every episode of Mad Men ever made?

Zippo’s manufacturing plant in Bradford, Pennsylvania.

Zippo’s manufacturing plant in Bradford, Pennsylvania.

“We have a very rich history and it’s romantic and it’s World War II and it’s Vietnam and it’s movies,” says Warfel. “I finally said, ‘No more.’ I don’t want to talk about the past. I only want to talk about the future.” Can you blame a guy for such sentiments when he’s tasked with breathing new life into an iconic brand via new—and often unlikely—products?

“We had the potential of becoming Pepsodent, Texaco. One of those famous names from out of the past. I’m not going to let that happen. And the first thing we had to do is, we had to become relevant.” Again: Relevant. And it’s as simple as reconnecting the youth of today with the classic cool Zippo came to signify yesteryear. Which is why the Mad Men placement is so brilliant—it’s retro, but retro is young now. “So often people talk a lot about Zippo in World War II. The fact of the matter is, when soldiers embraced Zippo in WWII, they weren’t 60-years-old. They weren’t your fathers and grandfathers. They were 18-, 19-year-old kids. Those are the people we have to engage now.”

They’re already being engaged in China and Italy—just two of Zippo’s 160-plus foreign residencies. The final phase of the company’s master plan is only just now beginning to play out. “Market conditions will always change and force you to adapt,” says Booth, “but remaining true to the principles that your company was founded on and the core values of your brand will always inform the best direction.”

With fragrance, watches, clothing and more inching into local chains as the culmination of a successful expansion strategy that began overseas, the Zippo brand is truly headed in the best direction: Up.

The post is reprinted from the Global Trade Magazine

 

 

The New Tao of Trade: Don’t Just Import from China. Sell There.

Vision Quest Lighting's chief executive, Larry Lieberman, started to break into the Chinese market by selling through an established local company.
Chester Higgins Jr./The New York Times
Vision Quest Lighting’s chief executive, Larry Lieberman, started to break into the Chinese market by selling through an established local company.
By JOHN GROSSMANN, THE NEW YORK TIMES
Published: January 24, 2013

Like many American businesses fighting to keep their prices competitive, Vision Quest Lighting turned to China about six years ago. It now imports about a sixth of the two dozen to three dozen parts required to make its lighting fixtures from there. Recently, however, the Long Island company began to see China in a different light: as a sales target. The growing economy of the world’s most populous nation made it ripe for Vision Quest’s architectural lighting fixtures, many custom-made for hotel and restaurant chains like Hilton and KFC.

When one such client, a clothing retailer, ordered 1,500 lights for five stores, Vision Quest’s chief executive, Larry Lieberman, decided it made sense to start manufacturing lights in China. Other American clients, he reasoned, would no doubt begin placing similar orders as their chains sought to capitalize on the world’s fastest-growing consumer market. And with high-quality products from the West coveted in China, Mr. Lieberman also imagined his products on display in Chinese showrooms.

And yet, selling goods in China is not easy. Mr. Lieberman made the 1,500 lights only to see them gather dust in a warehouse in Guangzhou for more than four weeks because he had not yet established a local enterprise approved to process sales.

“The customer couldn’t pick up the goods because we were still trying to set up something so they could buy them correctly and pay the right tax,” he said.

With help from an experienced consultant, Mr. Lieberman finessed the impasse by selling through an established local company, and he remains bullish on cracking the Chinese market – as do many other small-business owners. After all, China, according to a 2012 McKinsey & Company report, From Mass to Mainstream, will be the world’s largest growth market for many years.

This small-business guide offers tips for getting started based on the experiences of entrepreneurs and small businesses that have already tried.

BILINGUAL IS NOT BICULTURAL Lou Hoffman is founder and chief executive of the Hoffman Agency in San Jose, Calif., a communications consulting company that generates more than 50 percent of its revenue in Asia. Mr. Hoffman planted his flag in China in 1999. “I thought I was in not just another country but another universe,” he said. “It starts with the language, but goes much deeper. We couldn’t do business on the phone or by fax. Placing our first classified ad took 14 hours. We had to do everything in person, and considering the traffic in Beijing, you could kill three hours so someone could see your face.”

Instead of dispatching a trusted lieutenant from his California headquarters to open a satellite office in Beijing, Mr. Hoffman delayed that expansion for nearly a year. Instead, he hired a Chinese national and embedded her in his San Jose office for 10 months so she could learn his agency’s culture, then carry it home with her. “We wanted someone able to interview people in their native tongue and able to bridge the cultures, which she was able to do,” Mr. Hoffman said.

SET UP SHOP AS A WFOE Although it is possible to scout opportunities with a so-called rep office and to do business in China by selling through distributors or by licensing products to a Chinese company, most American businesses that are serious about selling in China invest the time and money to establish themselves as a wholly foreign-owned enterprise, or what is known as a WFOE (pronounced WOOF-ee). “We do probably 100 WFOEs for every rep office,” said Dan Harris,  a lawyer with the Seattle firm Harris & Moure who writes a blog about Chinese law and business. “Legal fees for company formation, trademark and employee contracts and manuals typically run around $30,000 to $45,000.” But the upfront investment does not stop there. Depending on the location and the type of business, the Chinese government has minimum capital requirements – money deposited in a Chinese bank account – that can range “from $15,000 to millions of dollars,” he said

And think months, not weeks, to get all of the paperwork approved. “In China, you can’t do anything last minute,” said Savio S. Chan, president and chief executive of U.S. China Partners, which is based in Great Neck, N.Y, and which helped Vision Quest move its light fixtures out of regulatory limbo. “It can easily take up to six months to set up a WFOE.”

LET OTHERS NUDGE THE DOOR OPEN Cabot Hosiery Mills, which makes high-end recreational socks in Northfield, Vt., has edged into the Chinese market. Sought out by a Chinese distributor at an American trade show, the company has traded a bit of profit potential to test the demand for its made-in-America goods without wrangling a WFOE or staffing a sales operation. “Right now, it’s very straightforward and still small, less than 1 percent of our volume,” said Ric Cabot, chief executive of the company, which owns the Darn Tough Vermont brand. “But if it gets to the point where we see we’re leaving too much money on the table, we might consider doing something different.”

DON’T GET KNOCKED OFF Product infringement and knockoffs are risks in China. As a result, Earl Kluft, owner of E.S. Kluft & Company in Rancho Cucamonga, Calif., a maker of luxury mattresses priced from $3,500 to $70,000, watched his first attempt to tap into the Chinese hunger for premium Western brands fall apart. “A huge manufacturer of recliners and small mattresses came to us, and we started a program under their name,” Mr. Kluft said, explaining that the arrangement started with six mattress products named for American cities. But on successive trips to China, he started to see fewer of his products on display – and more of other brands that looked very much like his. “Even after we stopped selling to them, they still had my picture up,” he said. Networking through a friend, Mr. Kluft has since signed a deal with a Chinese division of an Indonesian company that cautiously re-established a sales channel with minimal upfront investment. “The idea is to get this up and running,” he said. “We charge them a royalty, so much a year for use of our name in their stores, and they buy the product at a special discount.”

Mr. Harris, the lawyer, advises getting started by finding reliable partners on the ground. “Find them through people you know, and then pay for whatever due diligence is necessary to make sure that you have made the right choice,” he said. “And do all of this before you start doing business with them.” LOOK LOCALLY BEFORE YOU LEAP For some entrepreneurs, help may be surprisingly close at hand. Many states – including Georgia, Pennsylvania, Mississippi and Tennessee – have international trade programs that offer counsel.

“We think it’s hard for a small company who’s never been to China to figure this out all by themselves,” said Samir Ali, assistant commissioner of international affairs in Tennessee. “We’ll help them see if there’s a need for their product in China and to think it through: Do they need to set up a WFOE? Do they need to have a presence or not? Should they go the e-commerce route? And tell them how much they should budget going forward.” The assistance includes the use of Tennessee’s China offices for meetings with potential partners and help with business-to-business matchmaking through companies the international trade program has vetted in the 10 largest Chinese cities.

Though bullish on the opportunities, Ms. Ali finds herself repeating mantras like: “Don’t go in too fast. Don’t go in blind. And don’t leave your common sense at home.”

For more information on how to successfully expand your business abroad, visit  http://tiny.cc/oimha

 

Sell Outside the Box – over 50 years, 160 countries – proven philosophy

Advice from the most traveled packaging salesman

Global Trade Magazine Oct/Nov

“I never did any business in Morocco,” says Bob Harris, the world’s most well-traveled box and paper salesman, still making calls at 80-years-old for packaging companies such as RockTenn, Inland Container and KapStone, to name a few. “No,” he recalls, “it was too well covered by the French.”

If not doing business in Morocco doesn’t immediately register as noteworthy, that’s understandable. You just haven’t met Bob Harris. Over the past 50 years of working the paper and box industry, he’s visited more than 160 countries and still maintains clients in many of them (except Morocco, of course). Julie C. Morse’s new biography, Out of the Box: The Mostly True Story of a Mysterious Man, chronicles Harris’ adventures as part travelogue, part business how-to.

Asked to distill tips for a young salesman, Harris offers something more akin to philosophy: Go anywhere in the world on your own nickel, build relationships with the No. 1 company distributing your product, and you’ll get your commission. For Harris, this works as well in 2012 as it did in the 1960s.

“It’s amazing, the little countries that have a box factory,” he says. “There’s no industry in these countries, but they have a crop they have to export. Like the Canary Islands, for instance. There isn’t a single thing in the Canary Islands except three corrugated box factories. They are justified because they have a crop of citrus, a crop of bananas and a crop of tomatoes.”

The universal demand for packaging has allowed Harris to operate with a certain amount of freedom. In places like the Somali Republic where there isn’t already an established market, Harris says he creates one. “I went there and did a feasibility study. They had a huge crop of bananas. That’s the only thing in the country that they could export. The study was developed and sent. A company in Italy built the factory, and I helped supply that later on.”

Emerging markets continue to offer great potential for Harris, who will head to Myanmar for his next sales adventure. In the past he’s supplied fish packaging materials for Iceland exports, and carved niches for himself in countries from Macedonia down to Australia. “Emerging countries are really where it’s happening,” he explains about the current market. “Some of the best economies are the emerging countries, like Indonesia, Brazil, Turkey and Vietnam. They’re not big but they’re not tiny, and there’s a lot to be developed there.”

Harris says his way of doing it is still applicable and that it can be that simple, adding only one caveat for the young salesman: “I wouldn’t recommend this approach for someone who doesn’t love to travel.”

BANKING ON GOVERNMENT

 

Political Opinions Differ, But the Ex-Im Bank Has Opened Doors and Markets for America’s Exporters

By Warren Strugatch, GlobalTrade Magazine (www.globaltrademag.com) October 9, 2012

Making Cents Ex-Im chairman Fred Hochberg says the agency turns a profit in its role as lender of last resort for small- to mid-sized exporters.

One day last June, Ray Zuckerman, chief executive of Serverlift, a Phoenix-based manufacturer of transportation systems for data center servers, received confirmation he’d obtained a $250,000 insurance policy requested from the Export-Import Bank of the United States. The terms included both a policy quotation and credit approvals for two buyers—one in Turkey, the other in Ireland. It covered up to $300,000 within five business days.

Zuckerman praised Ex-Im, as the agency is almost universally known, for making his company’s foreign receivables more appealing to bankers. “The bank’s support gives us the credibility that we need to pursue foreign buyers,” he says. “Extending credit makes us more attractive to our customers and allows us to sell to larger companies.”

The Arizona manufacturer turned out to be the thousandth new small-business user of the agency’s products, joining the ranks through a new program called Express Insurance. Being able to tout the satisfaction of a small company—Serverlift’s estimated sales were under $3 million last year—was a plus for the agency, whose reputation for servicing big corporations had become an albatross that nearly led to its demise in political infighting earlier this year.

Among exporters, Ex-Im is widely admired for providing financial services that serve to fill in the gaps between what exporters need and what private lenders and insurers, wary of foreign customers in unfamiliar countries, prefer to avoid. Ex-Im also has raised the ire of some conservative commentators and politicians for helping companies in certain foreign countries finance deals for certain American products—planes, for example, from Boeing. (Ire tends to be raised by those suggesting American taxpayers are footing the bill for these loans; Ex-Im insists they are not, that the agency pays for itself by making consistently profitable transactions.)

Last spring, as the deadline for re-chartering the bank approached, normally business-friendly conservatives focused on the bank’s deal-making—and the fact that large corporations, in particular Boeing—seemed to benefit disproportionately. As the vote to re-charter Ex-Im ticked down to the last minute, ironically it was the Democrats who mustered support to keep it going. In the 11th hour the agency was re-chartered for another two years.

Having come within a hair of obliteration, the bank’s new lease on life brought about some significant changes. Reflecting the level of support it holds in the White House, the agency survived its legislative battle not only intact but expanded; the amount of capital it was permitted to deploy was increased 40 percent. The remarkable increase in the finance cap provided the agency with another $40 billion to play with, extending its footprint to $140 billion.

Its battle for survival over—at least for the next two years—the agency returned to the daily business of encouraging companies to export and providing the services it contends fill in the crucial gap between what exporters need and what commercial lenders are willing to offer.

“America needs to export more,” Fred Hochberg, chairman of the Ex-Im bank said in May at a forum on Long Island, making his first public appearance just days after the re-chartering. His goal, he said, was to increase the ranks of small-company exporters by 5,000. “Most of the world’s consumers—95 percent of them—don’t live in the United States. Why don’t more small companies export? The main obstacle,” he continued, “is dealing with risk. And that’s where we can help.”

Ex-Im offers three basic financial products to exporters: loans to overseas buyers of U.S. goods , loan guarantees for overseas sales offered to private U.S. lenders and loan insurance offered directly to exporters.

Hochberg, who inherited the Lillian Vernon mail order company from his mother and ran it for some years before taking it public, suggests that the fear of not getting paid by overseas customers can be mitigated by instituting sound risk-management steps. He recommends new exporters start by asking their customers to fill out the agency’s standard forms, a process that helps demystify credit extension. Having this information available is simply good business, he says.

Martha Montoya, a California serial entrepreneur with no special desire to add paperwork to her life, makes an exception for Export-Import Bank forms. “We used to fill out the paperwork for banks before,” she says. “Now, we use Ex-Im forms and ask our customers to fill them out. These forms go further, get more details, like actual sales, and list references, names and contact information for their other suppliers. I tell the customer, ‘This is from Ex-Im, you have to fill them out. It’s their policy and I have to use them.’”

She laughs, “It’s a kind of shield to ask all these questions and get all this information. We’re protecting ourselves with these tools. My banker told me, ‘Wow, you really know what you’re doing.’ It takes away the pressure of wondering if you are going to be paid or not.”

Love & Quiches started in entrepreneur Susan Axelrod’s kitchen in 1973, and now manufactures packaged cakes and pies from a factory in Freeport, New York. The company sells to customers around the world, recently expanding sales in places such as Russia, Kuwait and the United Arab Emirates. “We like to sell in those parts of the world,” Ms. Axelrod says. “But it’s tough to get lines of credit and working capital.”

Ms. Axelrod applied for Ex-Im Bank’s small business export credit insurance, filled out her paperwork and got it. When she approached Wells Fargo Bank, the lender was willing to advance funds against the foreign receivables, providing a major boost to her cash flow. Now, “I borrow money based on my receivables,” she says.

Andrew Axelrod, the company’s president, adds, “My foreign sales may not be acceptable to my U.S. lenders, but because they’re insured by the Export-Import Bank, they’re treated like domestic receivables.”

Ex-Im positions itself to small businesses as the lender of last resort, an argument that rests on the assertion—made by certain economists and Beltway think tanks—that private lenders do not always judge risk effectively. This is the argument cited by the bank’s opponents who say, in effect, “If this is a good deal, why doesn’t the private sector do it and not the government?”

“There are cases where risk is judged higher by private bankers than experience shows to be the case. Private lenders frequently overrate the difficulties of financing exports,” says Gary Hufbauer, a fellow at the Peterson Institute for International Economics in Washington and a frequent backer of Ex-Im policies. “Another failure is that private banks are not enthusiastic about doing business with medium and smaller companies. It just may not be worth their while.”

Since June, Ex-Im has opened three new regional export finance centers—in Minneapolis, Atlanta and Seattle. An office in Detroit is scheduled to open this fall. Hufbauer was in Seattle just before Labor Day to preside over the new center’s grand opening, taking the opportunity to declare that Ex-Im authorizes more financing to Washington than to any other state in the nation.

What he said was correct, but what he left out was telling. The reason the Northwest state dominates the field is that the Boeing Corporation absorbs nearly all the state’s capital. Boeing, in fact, is far and away the largest recipient of Ex-Im financing in the country. Last year the aerospace giant received about 38 percent of the bank’s financial assistance, totaling $12.4 billion, including $700 million for Boeing Satellite Systems.

The second-biggest recipient was General Electric, which received $1.2 billion.

Most of this financing is in the form of direct loans or loan guarantees to overseas customers, such as Ethiopia, whose state airline took delivery of a Boeing 787 in August. Boeing received more than a third of the 115 loans and long-term guarantees the bank issued last year, according to an analysis by CNS news service. This positioning has angered a number of small-business advocates, who feel the company needs no public support to close its deals.

Steven Dreyfus, who owns a small export management company in New York City, considers himself a fan of Ex-Im, and cares little about the political storm. Last year, after 20 years, his insurance company announced a rate hike his business could not absorb. With little to lose he reached out to Ex-Im; the agency stepped in and offered rates comparable to what he had earlier been paying.

“I don’t understand why my rates were jacked up so high, because the insurer wasn’t losing money on me,” says Dreyfus. “I don’t know how you could not use Ex-Im Bank credit insurance. With Ex-Im, I know I am able to mitigate my international credit risk, both by individual customers and by country. As an entrepreneur, where I invested my own money in the business, I can sleep at night knowing I am safeguarded.”

He adds, with a verbal shrug of the shoulders, “Why the politicians are arguing over this, I don’t know.”

Boutique companies team up, go global

Partnerships enable even tiny bagel stores to sell their products abroad.

July 15, 2012 Crain’s New York
By Eilene Zimmerman
Samantha DiGennaro

Buck Ennis
EFFICIENCY: Samantha DiGennaro’s public relations firm partnered with London-based Eulogy to offer multinational services.

Like many growth-minded -entrepreneurs, Samantha DiGennaro, chief executive of DiGennaro Communications, sees plentiful opportunity overseas, despite turmoil in Europe. “There’s a lot of potential for global business, especially in this age of digital advertising, because that transcends borders,” said Ms. DiGennaro, whose boutique public relations firm, based in Manhattan, has 35 employees and more than $4.5 million in annual revenue.

Enter Adrian Brady, head of Eulogy, a similar-size boutique firm in London. A mutual client of both firms suggested that they join forces, and in January, DiGennaro and Eulogy formalized a partnership. Last month, Ms. DiGennaro and Mr. Brady met to devise a strategy for moving forward. That may involve going after global business together or looking for another small business partner in Asia or Latin America.

Meanwhile, they have been able to partner on multinational service and introduce each other to clients who need the other’s help. For instance, Eulogy recently paved the way for DiGennaro to work with its existing client, G2, an operating unit of international advertising and marketing services company WPP. Their arrangements have reduced the need for each company to travel to serve overseas clients.

“Working this way is so much more efficient,” said Ms. DiGennaro. And Mr. Brady appreciates the new ease of doing business in the U.S. “For years, we couldn’t offer clients a seamless support in a key market,” he said in an email.

DiGennaro Communications isn’t alone among local businesses in venturing overseas. The New York area ranks as the largest export market in the U.S., according to the International Trade Administration. Merchandise shipments totaled $85.1 billion in 2010, based on the most recent data from the ITA, and 58% of the state’s total merchandise exports came from small and -medium-size businesses in 2009.

Already contending with the high cost of doing business in New York, a small but significant number are turning to overseas partnerships to save on the expense of opening their own foreign outposts, say experts. “It’s a fantastic idea for small companies, which don’t have the resources of a midsize or larger company,” said Alexander Gordin, managing director at merchant bank Broad Street Capital Group and author of Fluent in Foreign Business.

Small businesses often see a substantial payoff from venturing abroad, according to Elizabeth L. Littlefield, president and chief executive of the Overseas Private Investment Corp., a U.S. government agency that, among other things, provides financial products like direct loans to help American businesses expand into emerging markets. “Research has shown that small businesses that invest abroad have much higher survival rates and much higher productivity and pay than those that don’t,” she said.

Of course, overseas partnerships require trust and careful planning. Ms. DiGennaro said that she and Mr. Brady decided to determine how fees are split on a case-by-case basis. Sometimes, the two firms will bill separately for their combined services. “In other cases, we will have one central billing structure,” she said. Both companies agreed to forgo formal fees for referrals, which they see as a way to foster good will between their firms.

Demand for New York specialties

Mr. Gordin said small businesses often partner on an informal basis with potential foreign counterparts, though many eventually formalize these relationships. Demand for products considered New York specialties has created opportunities for neighborhood businesses to sell their wares through foreign shops, he noted. “Even bagel places on the corner are exporting all over the world,” he said.

The hankering for New York-branded products is what helped propel Danielle Malka’s company into the Russian market. Ms. Malka is the founder and president of eShave New York, a brand of luxury shaving products with two retail outlets in the city, 16 employees and about $2 million in sales last year.

In May, Ms. Malka awarded exclusive distribution rights for eShave’s products to Regency Ventures in Russia. “We also gave them the right to open and operate eShave New York stores in Russia,” she said.

The first kiosk is slated to open in Moscow in the middle of this month, with three more due to open by the end of September.

Although eShave’s products are distributed in 17 countries, they aren’t sold through stores with the eShave brand name, as they will be in Moscow. “It will be our name and our voice out there, and this is part of our thinking about expansion,” said Ms. Malka. “We want to have a bigger impact in the international market.”

A version of this article appeared in the Jul. 16, 2012, print issue of Crain’s New York Business.

Read more: http://www.crainsnewyork.com/article/20120715/SMALLBIZ/307159989#ixzz20hCcvBWR

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6 Essentials of Foreign Market Research

How to perform a truly valuable ground rise assessment when entering foreign markets

By: Alexander Gordin

as seen in the July, 2012 issue of The New York Enterprise Report http://www.nyreport.com

The problem of risk opportunity assessment in international expansion is that every country has its share of inherent risks, which both local and foreign businesspeople need to identify and overcome in their quest for good returns.

Suppose your company decides to explore entering the Ukrainian market, and initially begins exporting your product or service, with an eye for setting up local operations in the next two to three years. Scanning recent press, you could see that a company controlled by US shareholders was recently raided and its ownership allegedly snatched away from them by a state-sanctioned criminal enterprise. In another article, you would read a prediction of economic collapse for the country immediately following the end of the soccer tournament finals in July. On the flip side, you would also see a 100-plus page comprehensive report by the American Chamber of Commerce in Ukraine saying that the greatest investment opportunity sectors are agriculture, alternative energy, retail, and pharmaceuticals. Much of the information you’d read, both positive and negative, is true, yet it should represent no more than five to 10 percent of your decision-making equation.

To do business in emerging markets, you need to become a bit of a detective, building your own local network and getting to know the lay of the land for yourself.

If you are unwilling to invest the time, stay home and continue to read the news on the internet.

1. During your preliminary research, identify potential issues, dangers, and opportunities. Good places to start are Fi180 country profiles, online English language local media, and Western media mentioning the target country and its leadership. Perform internet searches on the target country’s criminal enterprises, corruption, corporate raids, terrorism, and economic development. These will form your initial thesis, which you will either confirm or not during your initial visits into the country. Notice I said visits, as one visit is not nearly enough.

2. Talk to as many people as you can about the issues. Start with representatives of the U.S. Commercial Service, local AMCHAM (American Chamber of Commerce), and the appropriate U.S. Business Council for the target country. Interview law firms operating in the country, and talk to local government officials and get their group of business or legal professionals, the best way to approach the conversation is to frame it in the form of a Q&A. Tell them that you are new to the market and offer one or two of the issues you have identified. Then seek their opinion and comments. When you are between meetings, talk to taxi drivers, waiters, hotel clerks, and local businesspeople. Some will be wary to talk to strangers, but some will be more than happy to provide their honest opinions. The more people you speak with, the more accurate a picture you will get. Good conversation starters with this group are fairly basic—a local sporting event, complimenting the local architecture, weather, or food. Once the ice is broken, you may first have to answer some questions about the US, as many people are very interested. After an initial bond is established, it is safe to move onto more serious subjects.

3. Go out on the streets and observe people’s activities in restaurants, markets, shopping malls, and entertainment venues. Observe people’s facial expressions, their mood, interactions, level of dress, and grooming. See if kids are playing at playgrounds; how full shopping malls, markets, hotels, restaurants, and cafes are; look for signs of civil unrest; and read the content of the graffiti. Often, behavior you observe will clash with published economic statistics. Depending on the business you are in, the consumer behavior may be a direct foreteller of how attractive the market is, or may just simply provide another indication of the country’s state of affairs.  Trust your gut. During your trips, you need to be methodically focused on understanding the true situation and fleshing out opportunities for your company’s business.

4. You need to understand your potential competitors, their allegiance, and power base. While this is not an easy task, you can accomplish this by talking to representatives of local leading accounting and law firms over drinks or dinner (you host) and asking them direct questions.

5. It is very important to understand the forces affecting the particular sector your company plans to enter. For instance, if you carry out your due diligence correctly, you may find out that, although a country’s pharmaceuticals and alternative energy are listed as very attractive sectors, they are controlled by powerful interests, such as an influential local family, that would greatly hamper any attempt to bring new medicines into the country or develop large-scale solar or wind projects. Fantastic opportunities, however, may exist in smaller scale solar development, conversion of gas boilers to woodchips, and export of woodchips production to nations of the European Union.

6. Choose your partners very carefully and perform thorough background checks through the U.S. Commercial Service and, if necessary, through private investigation agencies. Consider buying political risk insurance, which protects US business interests from a number of perils, including expropriation, creeping expropriation, and nationalization.

Once you have done comprehensive due diligence explorations, amend your thesis, share it with some of your local advisors, and begin to plot an all-inclusive business plan that takes into account the information learned and risks identified during your research phase.

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SHADES OF SUCCESS

FOR IWOOD ECO-FRIENDLY SUNGLASSES, ACCIDENTS ARE A GREAT BUSINESS TOOL. 

By Patrick Dooley, Global Trade Magazine

Steve McMenamin says his success was “a complete accident.” He neededlaminated wood for comfortable, eco-friendly sunglasses, but when he arrived in the foyer of a nearby distributor asking about wood for eyewear, the receptionist nearly laughed him out of business.

Sixteen years later, Iwood is thriving—thanks in part to that awkward introduction. The wood laminator he was checking out had a lucrative niche: distributing to designers of interiors for private jets used by Hollywood’s rich and famous. The cackling receptionist accidentally caught the ear of a company executive who saw Steve’s odd request as a fantastic opportunity. It turns out the unused bits of wood were too small to be useful for the jets. Steve had stumbled upon a steady supply of the world’s finest woods—like Makassar ebony, zebrawood, bubinga. Steve used the cast-offs in the production of glasses he retailed through Barney’s in New York and Beverly Hills.

But Steve always had his eye on Europe. Fashion, he says, is “like the minors in baseball: You have to work your way up.” And Europe is the majors. After years on the domestic trade show circuit, Paris’ Premier Class would be like the World Series.

Just one problem: The odds of being accepted to the Premier Class show in your first decade are roughly equal to getting drafted to the majors out of junior high—unless, like Steve, you serendipitously bump into the show’s main organizers at a New York expo and they fall in love with your rare-wood sunglasses.

With their endorsements in his back pocket, Steve reached out to the federal government’s Commercial Services office in Indiana, home to Iwood’s manufacturing site. It was a smart move. CS staffers wrote the letter of recommendation that secured Iwood’s admission to Premier Class, and then gave Iwood a grant to cover booth space costs.

Iwood stormed Premier Class 10 years ahead of schedule. European Fashion magazines took note, and the glowing reviews that followed helped establish Iwood as a top-shelf brand in boutiques across many of Europe’s most fashion-friendly markets.

You’d think breaking into Milan’s Petti, the next great show, would be a lock. But officials from the U.S. Embassy in Milan, attending Premier Class, told Steve not to hold his breath: Petti, they told him, is for established brands only.

You can probably guess the ending: when he arrived back at Iwood headquarters five days later, an invitation to Petti was waiting on his desk.

So how did it get there? Call it an accident.

3 Steps to Finding Clients Abroad

As seen in this month’s issue of The New York Enterprise Report.

Create a comprehensive strategy for targeting business internationally

By Alexander Gordin, February 1, 2012              www.FluentInForeign.com

During one of my first trips abroad, my partner and I were sitting in the lobby of a Moscow hotel, people-watching and wondering how to go about finding customers for our newly established, fledgling communications distribution business. Hearing the familiar English dialogue, one of the patrons approached us and we struck up a conversation. He turned out to be a mid-level executive working for one of the major Canadian oil companies drilling for oil in Northern Russia, just inside the Polar circle. After finding out about our business, he gasped. As it turned out, his company was having a very difficult time both sourcing the needed equipment locally and getting licenses to import the required equipment from abroad. Shortly after, this gentleman’s company became one of our first clients and we continued to serve them for years. Since the expat community was tightly knit, the word soon spread, and within six months we were supplying every major Canadian and US oil company with radio communications.  Opportunities to find clients abroad could come from anywhere and you should always be ready to convert a chance encounter into a sale.

Prepare to Serve the Target Clients

Of course, you can’t rely on hanging out in hotel lobbies waiting for orders. Finding customers abroad is a multistep process, which should start with advance preparation at home. Establish email or telephone contact with the U.S. Commercial Service, the local embassy of the foreign country, and the American Chamber of Commerce (AmCham) in your target country abroad, and introduce your organization, as well as its products or services. Use this process to seek guidance on overall demand, competition, ease of importation, and any specific taxes or other burdens that may or may not be in place to hamper or facilitate importation into your chosen country. For example, in some countries, the duties on used car importation are set artificially high, purposely crippling natural demand. In other cases, duties on alternative energy equipment imports are completely removed to stimulate the segment’s growth.

Once you determine the landscape for demand and pricing of your product or service, the next step is to inquire about necessary government registrations and localization requirements (translating manuals, adopting electrical voltage, etc.). Find out about local industry associations and trade shows where you can showcase your product or service. You also will want to make preliminary arrangements for service, warranty repair, and installation of your product by identifying potential partners with whom you may wish to enter into temporary arrangements, even prior to selling your first unit.

Why am I spending so much time on preparatory activities, without mentioning marketing and sales? Because unless you have fully assessed your market, determined your importation routes, and planned for service and installation, you will have a very tough time even getting out of the gate. You also will cede a great degree of control and pricing leverage if you do not develop internal expertise on each target country you plan to sell your products and services in. Yes, you may have an occasional buyer or two who will order from you in the US, prepay for the product, and take care of all the arrangements. However, this kind of passive approach leads to an outcome similar to winning the lottery; it will not allow you to build a sustainable overseas sales operation—whether it is export, independent distribution, or setting up your company’s own points of presence abroad.

Partner with Local Distributors

Once you’ve laid the groundwork, it’s time to find customers. Working through distributors or agents is the most common approach. Good sources for distributor candidates are local associations, chambers of commerce, and US trade shows, which oftentimes have potential customers from foreign countries who come as part of U.S. Commercial Service trade missions.

Developing a strong distributor support program will allow your company to attract strong distributor candidates, including companies selling competitive or related products, and it may also attract new players. The program should include extensive training for the distributor’s personnel on your company’s products and corporate culture, and financial incentives for the distributor to advertise and market your company’s products or services. You also should put in place a multi-buyer credit insurance policy for your target country to help the distributor extend open terms to local buyers and financial assistance in helping the distributor defray initial product certification costs. This could be either in the form of a cash rebate or a predetermined amount of goods or services at a reduced cost.

Market Locally

Once you have selected your company’s local representative distributor or agent, it is time to kick the search for clients into high gear—it’s time to start local marketing and PR efforts. These efforts should include a joint sales trip where your senior sales executive should accompany the local rep on a one- to two-week-long sales junket to call on key customers, pertinent government ministry and municipal departments, local law and accounting firms, as well as members of the expat community who have longstanding experience in the country and should be cultivated as referral sources.

Upon return, follow up. Don’t be discouraged if you receive no reply to your thank you letters, some cultures have a different communications framework. Be patient. Your potential clients need to perceive your company as committed to their market. Participate in local trade shows, stage interim training and update sessions, invite potential customers for picnics and networking events. Listen to them and listen to them some more. If your company’s product or service is competitive, once they perceive you and your representatives as committed for the long haul, your business in your chosen country will blossom.

www.FluentInForeign.com

 

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