Keys to a Successful Small Business Exporter
As a strategy, trade can seem risky for a small business. Even if working in a familiar language, the consumer base is foreign, the procedures and red tape can be overwhelming, and the logistics are complicated if encountered for the first time. On top of it all, peers and politics assume trade is meant for the titans of industry and not smaller companies.
In reality, many small businesses are able to access the benefits of trade and have utilized it as a smart growth strategy. In fact, 98% of the 300,000 US companies exporting are small and medium sized businesses and are proven to sell more, support more jobs, and pay higher wages than small businesses that do not. Furthermore, 58% of small businesses in the 2016 National Small Business Association survey reported that they have exported, a third of which said 10% to 50% of their sales were due to exporting. In the global landscape, 34% of US goods exported originate from small and medium businesses.
The numbers show that small businesses have immense potential to benefit from cross-border trade and many are succeeding despite the complexities of navigating new rules, regulations, and logistics. Reasons for their achievements in the global market differ, but here are some keys to success we have seen in the variety of small and medium sized exporters we have worked with.
1. They plan how much time, effort, and money they are willing and able to devote to international sales.
Going in blindly into international trade without managing expectations can result in a costly endeavor that leaves the business not only without international sales but upfront sunk costs in meeting regulations, setting up logistics, and finding buyers. According to the National Federation of Independent Business, government regulation is the second biggest barrier for small businesses. The National Small Business Association survey reports that start-ups in spend $83,019 on regulations in their first year and $12,000 each subsequent year. And this is just domestically in the United States!
As such, realistic planning goes a long way in expanding internationally. The smart SME has to look inward and ask several questions about how they want to enter the trade world, such as:
2. They understand where their product is needed, domestically and globally.
As a research and consultancy firm, we can safely say, market research is crucial to success of exporting, particularly understanding both the consumer demand and competitors abroad. While an SME may understand the consumer in the United States, preferences abroad can be very different due to tastes, available disposable incomes, or lack of information. Some differences we have encountered in the food sector: certain North American fruits are unknown in much of Latin America; Ecuador and Peru highly discourage consumption of genetically modified organisms (GMOs); and European Union customers do not like US chicken.
More so than their larger counterparts, successful SME exporters have the challenge of constrained resources; they cannot always devote large amounts of resources to business development in markets which they are not familiar. Luckily, several resources are available to the SME exporter to help learn more about the consumer needs of a foreign market. For example, the US Commercial Service’s Country Commercial Guides provide a great starting point for understanding the market context in another country, including political and economic environment, selling US products and services, and leading sectors for US exports. The Foreign Agricultural Service’s GAIN Reports also provide illuminating market context for agricultural products in 171 countries.
3. They have or develop an efficient management structure that can be expanded to apply to global outreach.
Small businesses, whether exporting or not, are likely to fail if they have a solid organizational structure that is reactive instead of proactive. The Small Business Administration quotes Dr. W. Edwards Deming, “85 percent of the reasons for failure to meet customer expectations are related to deficiencies in systems and processes…rather than the employee.” In contrast, the most successful small businesses are able to survive tougher times because they have viable business plans, systems of accountability, and operating guidelines.
Going “global” requires an internal structure that is even more established where roles and responsibilities are clearly defined, and standard operating procedures are in place. Being able to adapt existing structures to take on tasks such as customs compliance, regulatory affairs, logistics, and international market research. Adopting an international practice requires investment in training, therefore, having a strong organizational foundation is key.
4. They identify markets where it is easier to do business (particularly US FTA partners).
While a large potential consumer base is crucial, it is also important to note that exporting to a country with different regulations and standards (perhaps in a different language) can add more time and cost to a small business. SMEs that are aware and patient in dissecting these barriers to entering the market are more likely to save on costs, be compliant, and ultimately succeed in selling abroad. In addition, they take advantage of current trade and investment agreements which help illuminate and simplify business and regulatory procedures in the foreign market.
Trade and investment agreements are not only a commercial incentive, but they are also an indication of a solid business relationship between the United States and a foreign market. The agreements aim to make regulations and ways of working transparent and similar between countries while also reducing tariffs and monetary costs. Ultimately, a trade agreement works towards making the transactions between importer and exporter as easy and as cost-effective as possible. Small businesses realize the benefits of trade by targeting consumer markets where the United States has trade and investment agreements; in this way, they have a foot in the door through an established pathway to trade.
More than 85% of small business exporters said that they have utilized and benefited from trade agreements in the past. They credit the free trade agreements with providing access to new markets and increasing profit margins through lowered trade barriers.
5. They join a trade association within their industry.
There is strength in numbers, and international trade is no different. Trade associations focused on US exports are a great way to network the industry and leverage information from other businesses that have gone through similar barriers to exporting. Trade associations also advocate on behalf of their industry internationally, which ultimately helps the small business exporter in the long run.
In addition, trade associations are an invaluable resource to understanding industry trends abroad. TradeMoves’ trade association clients offer resources such as export guides, information on rules and regulations, consumer preferences, and other barriers to entry. They also have consultants like TradeMoves available to members with specific inquiries.
The resources available through the trade associations save significant cost and time for individual members; if utilized frequently, the opportunities offered by the trade association can outweigh membership dues for the SME.
6. They work with existing government resources to learn the trade game and find leads.
Despite the perception of US government as a barrier in itself, they do offer several resources to facilitate SME trade for free, ranging from trade financing, to trade shows, to market research. Examples include learning how to get started with the Small Business Administration exporting unit, working with the US Commercial Service of the International Trade Administration to access markets (great success stories available here), and participating in Export-Import Bank Small Business Exporter Forums. The government also offers a variety of trade databases and market context. For more information on government resources available, please see our blog on SME resources.
If you are an SME interested in exporting, please contact TradeMoves to learn more about our variety of services specific to SME exporters. Follow us on Twitter and LinkedIn for news and resources for #SMEExportersInTheKnow.