Exporting your products or services to another country can be a valuable source of growth and additional margins for your company. Whether you are already exporting or are contemplating if you should there are several aspects of your company to consider. I like to call them the 4 cornerstones of international business. Each are relevant individually, but taking all into account will help to prepare your business for entry into new foreign markets or your first export endeavor. The cornerstones are Management Commitment, Product Knowledge, Operational Capacity and Financial Capability. Let’s look at each aspect individually and then discuss how each is dependent on the others for a full viewpoint.
“Unless commitment is made, there are only promises and hopes… but no plans.”
–Peter F. Drucker.
Management Commitment: We must start with commitment. Any process of looking at the four cornerstones begins with this commitment, without it; there is no sense in going forward. When we look at commitment, the initial perception is that you are either all in or not at all. This is not my intention and why I like the above quote. Commitment is making certain that decided amounts of resources are put behind the objective. When I speak of resources this mean time, money, personnel, operations and planning. Whether the commitment is all in devoting important resources behind the objective or even a commitment of minimal resources, it is still a commitment. I have worked with several companies that were experiencing good growth domestically, but understood the need to expand into new markets. Although the majority of the resources were focused on their domestic growth, these companies still committed some resources into exporting. A good strategy can be developed and executed regardless of the value of the resources, but unless management commits those resources, – at whatever rate – there are only promises and hopes, but no plans. Once there is a commitment by management, then we can think of putting the other cornerstones into place.
Product Knowledge: Of course, you know your product or service and any success you have obtained domestically. Nevertheless, do you know how it will react in other countries, with different cultures, values and language, different channels to market, different laws and restrictions, different perception of the value of your product/service, even different weights and measures?
Operational Capacity: As we learned above, the needs of the product may be different in the export market as related to the domestic market. Therefore, do your operations have the capacity to build the product to the required specifications? Do the required changes put too much stress on your manufacturing capabilities or your delivery of your service? Can smaller lot sizes create more costs than you can competitively sell your product and will the commitment of operational capacity strain your capability to produce for the domestic market putting your business in jeopardy? Although we will cover the financial aspect next, does the business have the capital to invest in overcoming any shortfall your operations have in producing and delivering the product or service?
Financial Capability: There are a number of ways that exporting could put some strain on your finances and cash flow. You may need to offer terms in order to be competitive, you may negotiate special pricing, logistical costs are higher; perhaps the need to respond or get to market quickly will add costs. Visiting markets to meet with customers or partners takes time and money to travel. In most cases, it’s not as if you can just walk across the street. Your business needs to have the financial capacity to overcome these challenges. Will the business need export working capital and how does that differ from the needs of the domestic market to survive the foray into foreign markets.
Now that we have looked at each cornerstone, we also need to look at it “whole-istically”, in other words, they do not individually operate in a vacuum. Each affect the other and a strong plan should be in place to make certain they all work together. The International Business Development (IBD) team at the SBTDC can assist in this planning and putting all the pieces of the puzzle together to offer greater clarity as you venture forward in international trade.
Alex Viva, CGBP, an International Business Development Counselor at the SBTDC at NC State University, has been actively engaged in global strategy for 30 years. His corporate experience directing businesses in the most strategic growth positions in the high technology, consumer, and durable goods industries includes worldwide marketing, sales and business development, international operations, and general management. More about Alex >>