What to Know Before You Export
Selling to the Japanese consumer market was not part of Chris and Tim Guill's strategic plan for their Boise, Idaho beauty supply manufacturing company, Meliorra. But when a Japanese company approached Meliorra in mid-2004 about introducing its anti-wrinkle skin-care product, Avotone, in the Asian market, Guill, 29, seized the opportunity. In exchange for an exclusive deal on the product line, the Japanese company did all the work of launching and spreading the word about the product in Asia. Though the deal has delayed launches in the United States, "all the things we're doing for them help us take our product to the next level here," Guill says. Assuming projections hold up, Meliorra expects 30 percent of its 2005 sales--projected to be more than $4.5 million--to come from Asia.
Guill admits that he wouldn't have known there was a market for the product in Japan had he not been approached. That reactive position isn't unusual for small-business owners, who tend to initiate exporting only in response to customer demand. A November 2004 study commissioned by the SBA's Office of Advocacy to look at the costs of and barriers to developing foreign markets for small businesses found that business owners see the pursuit of those markets as a drain on stateside operations and on their own time and energy. Add to that the risk of nonpayment from an overseas buyer and the fact that export financing can be difficult to come by, and it's no wonder most small companies tend to avoid it.
That should be a concern for the U.S. government, small-business advocates say, given that the trade deficit ballooned to a record $55.5 billion as of October 2004. With small- and midsize-company exports accounting for about 29 percent of all U.S. goods exported in 2001, according to the most recent study by the International Trade Administration--and only 1 percent of all American small businesses currently exporting, according to the most recent government figures--the smaller end of the market represents an untapped resource. "It could have a dramatic impact on the trade deficit," says James Morrison, president of the Small Business Exporters Association.
Part of the problem is a lack of awareness of the options, says John A. Emens, vice president and deputy head of the Export Finance Group at the Export-Import Bank of the U.S.based in Washington, DC. Too few entrepreneurs, Emens says, know they can go to Ex-Im, which supported $2.7 billion worth of small-business exports in 2003, for a guarantee of 90 percent of foreign receivables and 75 percent of inventory. Focusing on those high-risk regions that private-sector banks won't cover, Ex-Im also offers short- and medium-term credit insurance so entrepreneurs can have their contracts covered up to 95 percent.
Morrison suggests that government agencies need to be more proactive about getting information on exporting to small-business owners as well as banks, which tend to pass on deals under $200,000 or avoid export financing because they lack expertise. Congress may have to consider additional measures to induce banks to help smaller firms, Morrison suggests, such as lowering reserve requirements for these deals or building in additional tax incentives. One simple move, he says, would be to increase the number of SBA export finance representatives at U.S. Export Assistance Centers; currently, only 16 of the 100 centers nationwide have them, down from 20 in previous years.
For entrepreneurs who don't have time to educate themselves or hunt for banks that will help them get started, export management companies offer turnkey handling of all the logistics and finance acquisitions. Meliorra will give away 10 to 15 percent of Avotone's wholesale price to the export management firm it hired, iEnter Japan, but Guill says the cost is not significantly more than hiring a sales force for the region. And the market expertise Meliorra gained was invaluable. "We have a lot more confidence to go to a Dillard's or a Nordstrom, because we've got a much more refined product," he says. "It's been absolutely insane--but a wonderful experience."
C.J. Prince is executive editor of CEO Magazine.