10 Lessons for U.S. Companies Seeking Export Growth
To achieve this, the NEI created a committee of Cabinet-level members to coordinate efforts to break down trade barriers, conduct trade missions to countries around the world, help with financing and improve the economic conditions abroad for American small to midsize enterprises (SMEs).
Some progress toward that end has already been achieved. According to a July 2010 report on the NEI, (the most recent one available) exports rose 17% during the first four months of 2010.
There's no doubt that U.S. businesses have been exporting, because sales by companies in the S&P 500 grew at about 13% according to Value Expectations, while S&P's Howard Silverblatt estimates that their operating earnings grew 47% -- far higher than America's 2.8% GDP growth rate. And an analysis from ThomsonReuters suggests that S&P 500 companies getting more than half of their revenues from outside the U.S. grew significantly faster than U.S.-focused ones in 2010.
But the government can't run your business for you, so if you want to get in on that export action, what should you do?
To find out, I interviewed executives at five global export leaders around the world -- companies that have achieved great success outside their home markets:
- WATG, a Hawaii-based architectural services firm that gets 93% of its revenues outside the U.S.
- GP Graders, an Australian maker of agricultural equipment that gets 75% of its revenues outside Australia
- Celeno, an Israeli semiconductor maker that gets 80% of its revenues outside Israel
- AHAVA, an Israeli cosmetics company that gets 66% of its revenues outside Israel
- BrewDog, a Scotland-based beer maker that gets 70% of its revenues outside the U.K.
Howard Wolff, senior vice president of WATG, provides the first six quick pieces of advice for beginning exporters:
1. Offer Something Distinctive. Otherwise, you'll waste a lot of money and find yourself competing solely on the basis of price. That's a losing strategy, because in the global marketplace, there's no way a U.S. firm can win by trying to be the low-cost provider.
2. Focus Your Energy and Your Resources. No matter how big your company, you can't be everywhere. Do your homework, and invest strategically.
3. Develop Strong Relationships with Trusted Advisors. Follow existing clients into new geographic areas. Let them pave the way for you.
4. Get on Airplanes ... Often. You can't expect to develop relationships or build a business by making one trip to your new markets -- or even a handful. WATG has several people who spend 50% of their time away from home.
5. Build a Diverse Team. A multicultural, multilingual staff can help you enter new geographic territories while minimizing your risk.
6. Do Your Homework Before Deciding Whether to Open an Office. Once you decide you need to maintain a local presence in your new target market, look at all of the options for how best to achieve that. Successful models include moving someone with seniority to the area; moving a staffer with local knowledge; hiring someone locally to run your outpost; associating with an established firm there; or acquiring an established firm. Don't get locked into one model, either: WATG has employed of all five of these strategies in foreign markets.
Of course, non-U.S. exporters, particularly innovative SMEs based in smaller markets, have much to teach their American counterparts. Here are four such lessons.
7. Market by Turning Your Weakness Into a Competitive Advantage
Most SMEs lack the capital or scale to conduct big advertising campaigns in export markets. But if the potential exporters use their small size to suggest a kind of David and Goliath battle between themselves and incumbents, they can achieve remarkable success at attracting customers without spending too much money.
BrewDog's first attempt at exporting -- to Sweden -- occurred because the company had so much trouble penetrating its local market in Scotland, which is dominated by the large brewers. Before approaching potential overseas partners, BrewDog identified the most influential beer writers in each market and sent them samples. "We got fantastic reviews and coverage," said CEO James Watt -- whose official title is "head of stuff." "When we went to the distributors, we said, 'We've done the marketing for you, all you've got to do is sell it."
When BrewDog got started, it couldn't afford the TV advertising, billboards, and print advertisements that typical large brewers use to market their products. But Watt and BrewDog found that social media -- social networks, bloggers, and videos -- were both affordable and effective ways to reach their audience.
Watt noted that a one-page magazine advertisement in the U.K. might reach a few potential customers for $7,871. BrewDog was able to reach 250,000 people around the world with a humorous YouTube-style video that it created for $2,361.
8. Tap Your Investors to Gain Export Market Access
Gilad Rozen, CEO of Celeno, wanted access to the Chinese market for Internet Protocol Television (IPTV) because it was big and growing fast. To do that, he needed an agent there who knew how the sales process worked there and had credibility.
Fortunately, Celeno had a Chinese investor, Victor Tsao, who provided valuable introductions in China and helped jump-start the company's China export strategy. Tsao gave Celeno instant credibility in China and helped identify the most relevant partners there. His help was essential in building Celeno's relationship with Chinese telecommunications firms.
Thanks to Celeno's ability to meet the stringent technical standards of the Chinese firms, it won a $50 million contract there. Rozen has great hopes for growth in China in the wake of a slackening of demand from U.S. and European markets, which accounted for 80% of Celeno's revenues in 2010. "China will become our largest market in 2011, accounting for 40% of our revenues. That compares with less than 10% [in 2010]," said Rozen.
9. Work With the Right Distributors
The key is finding a distributor that's well-connected in your export market, but not too big to care about your success. As Stewart Payne, CEO of GP Graders, told me: "Try to use agency relationships before any direct investments in markets are made, as it minimizes potential losses if the market doesn't work out the way you would like. There are no set up costs beyond training and marketing. Make sure you "own" the customer, not the agent, as the customer relationship should always continue where the agency relationship may not."
GP Graders has learned from experience that it's important to do your homework when picking distributors, and to motivate them properly. As Payne pointed out, "We have changed our agency agreements to place more responsibility on our agency network through the sales process, design stages, closing of sales and warranty issues that may arise." GP Graders has become highly selective about its agents, Payne explains. "Bad agents can do great damage to your brand in new markets from which it can be very difficult to recover."
10. Keep Up With Change by Innovating Frugally
No industry is immune from change. The needs of customers evolve, new technologies emerge, and upstart competitors threaten the structure of markets. When an SME exports, its ability to gain market share depends on successful disruption of its new market. But even after an SME establishes a foothold, it musts keep innovating to make further progress.
As CEO Yacov Ellis explained, AHAVA tests out its new product ideas in Israel. It is a small market, but if an idea works there, the company is confident that it will sell overseas, and it doesn't, the cost of the failure will be relatively modest. The general lesson is that it makes sense to test ideas on your home turf before exporting them.
Coming up with new ideas, though, is expensive, and the small company couldn't afford a full-scale R&D plant. What AVAHA did have, Ellis said, was a clear picture of was what its customers wanted: safe products made from natural ingredients, with proven benefits for their skin. To obtain the R&D capacity it required to develop such products, AHAVA partnered with universities in the European Union.
And there you have it: Five global export leaders, 10 key lessons. If America's small and midsize businesses apply them successfully, the administration's export goals may just be within our reach.