Five Action Steps to Take Advantage of Global Trade
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The statistics are compelling. One in three acres of U.S. agricultural planting is for exporting.(1) U.S. exports grew 17 percent and 15 percent per year in 2010 and 2011.(2) Only one percent of U.S. businesses currently export.(3) And, during 2009, the U.S. Export-Import Bank authorized $1.2 billion in working capital guarantees to support small businesses in global markets.(4)
Most business owners agree that today’s marketplace is a fast-growing global stage. Advances in communication, development and trade have opened markets that simply haven’t been accessible to small businesses in the past. To evaluate and prepare for global opportunities, owners can take the following action steps.
Action Step 1: What to Sell and What to Source?
Global trade can help your organization generate new profits. U.S. companies that sell their products globally create twice as many new jobs as those that don’t, according to the U.S. Census Bureau.(2) The first step to understanding how you can grow profits through trade is to decide what your organization should source — and what it should sell — in the global marketplace. Identifying your core competencies is important to the global “sell” vs. “source” decision. Geoffrey Moore’s book, Living on the Fault Line, explains how to find your “core” by looking at where your business has an edge — in intellectual property, productivity, process, cost or margin. The book underscores the growing importance of sourcing as many of your non-core activities as possible to maximizing your global competitiveness and the value of your enterprise.
Action Step 2: Calculate the Opportunity
Time-starved owners who lack knowledge of offshore markets or logistics need an efficient way to calculate the benefits of international markets and opportunities. To avoid analysis paralysis, focus your efforts quickly on the two most important questions:
Who will buy your products and services? The U.S. Commercial Service has over 80 international offices and the U.S. Export Assistance Center (www.export.gov) provides a host of market research and international partner search services to help target and select the best markets, customers and partners for your move into international markets.
How much can you reduce your costs and overhead? You need to calculate your total cost of sourcing or “total landed cost” of goods. Total cost is important, because buying globally introduces a number of variables – such as compliance, logistics, and product modifications – that can double or triple the price of goods out of the factory. Talk to a strategic sourcing agent or customs broker to help calculate the total landed cost of goods.
Action Step 3: Mitigate added Risks of International Business
Conducting business overseas holds new risks for business success. It is important to understand the following risks of doing business internationally, and to achieve the right balance to compete successfully without compromising profits or wasting precious capital resources:
Cash Flow Risks. Global suppliers and customers can increase the need for inventory and working capital. Importing a product from China usually requires one party or the other to fund over 30 days of “floating inventory” — which can stretch the funder’s cash-to-cash cycle.
Currency Risk. Currency prices can change significantly over the life of a contract.
Payment Risks. Track records for overseas trading partners are often elusive. Complex rules can be just as important as product delivery. Language and distance can be challenging.
The Potential for Loss. Doing business internationally introduces a range of new loss possibilities — from pirates to lost merchandise to natural disasters and political instability.
Talk to your banker about international services such as export credit insurance, currency risk solutions, letters of credit, wire services and treasury management solutions.
Action Step 4: Secure Partners with Proven Trade Experience and Global Relationships.
Trade is complicated. Doing business globally is more complex than working solely in the United States. Every country has its own market conditions, cultural traits, government regulations and business conventions. The key to success is to find and work with partners who can simplify this complexity and accelerate your progress by bringing years of trade experience and local market knowledge to your management team. Here are the five key partners you want at your side.
U.S. Department of Commerce and Export Assistance Center
Financial banking partners with proven international expertise and services
Distribution agents or freight forwarders
International lawyer to consult on contracts, intellectual property and foreign laws
International tax accountant with expertise in overseas taxes and profits
Action Step 5: Ensure a Business Commitment to Global Trade
Doing business internationally requires a strategic commitment and an acknowledgement that your resources will be stretched. Assign an executive to lead the globalization efforts of your management team. Determine how much trade your existing cash and credit resources can support and for how long. Buckle in for the 12 to 18 months of “start-up time.”
1 USDA Foreign Agricultural Service website www.fas.usda.gov, updated 2/16/2012.
2 U.S. Census Bureau data, 2010 and 2011.
3 U.S. Department of Commerce, www.commerce.gov.
4 Export-Import Bank of the United States, Annual Report 2009, Washington, D.C.
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
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