In this series, we challenge the common theme that every company who can has a patriotic duty to be exporting.
There are plenty of free and low-cost resources to help beginning exporters with some of the tactical issues. But we think more attention should be paid to the threshold question: should you be exporting? Based on our experience, there are many companies that really should NOT be exporting. They are simply not ready, and their approach to international expansion is likely to be a money-loser.
We look at six company mindsets that hold companies back. In our first episode, we looked at the “Any Port in a Storm Will Do” mindset. This time we focus on another:
Type #2: “I Only Have $10 to Spend on This”
Many small companies, especially manufacturing companies, have grown because of very tight fiscal and operational controls. Instead of buying expensive tooling machines, these companies use their ingenuity to design and build their own.
They negotiate with suppliers over every penny. They are extremely proud of their creativity and their ability to “make do.”
Some of these companies have also made liberal use of free government resources and the internet. They understand they need to pay something, but it shouldn’t cost much more than they’ve already gotten for free.
One company we met with wanted a proposal to find and “vet” partners in Saudi Arabia with the help of in-country resources. They only did a little exporting, mostly to one small Middle East country, and were convinced that because they had success in one regional market, they should head next for the biggest Middle East market: Saudi Arabia.
We gave them a very modest proposal, as their factory appeared in sever need of refurbishing. We suggested quick high-level review of all 6 Gulf states to make sure Saudi was the best one for them (it is quite a challenging market, especially for beginning U.S. exporters), and then an in-depth search for and review of distributors in that market.
They immediately asked us to take out the high-level review and just focus on Saudi. It turned out after much discussion that they sincerely felt a reasonable fee for finding a couple of good distributors in Saudi should be about $3K.
Never mind that the project involved working with them to develop criteria for good partners. It meant locating several potential distributors, investigating them using multiple on-the-ground resources in different parts of the country, interviewing them with translators. It involved working with the company and local resources as needed to agree on the best 1 or 2 (all of which activities the company agreed they wanted).
They simply could not accept that $3K would not even cover the costs for the local resources. They felt third-world countries have much cheaper labor rates. Unfortunately, this is really not true in much of the Middle East.
They ended up deciding they could just find the distributors they needed from the internet and doing phone interviews. We certainly hope it worked out well for them. It didn’t sound promising.
It’s hard to know whether they truly didn’t have the money, or if they just didn’t value the service. Probably the latter.
A colleague tells about another company that wanted to start exporting beauty products where there were no regulatory restrictions. Because the company was strapped for cash my colleague proposed a low-ball fee. They hoped to grow with the company.
The potential client was aghast at the price tag. They were thinking $1,000 was a reasonable fee for checking various country regulatory requirements, pulling together some market information to identify the best 2-3 prospect countries, locating potential distributors in these markets, and “vetting” these potential partners to select the best one in each country.
They were sent to the U.S. Department of Commerce. More than 12 months later, they are still not exporting. In this case, the client certainly valued the services, but simply did not have the resources to expand internationally, even when the research being done was free.
If this sounds like your company, contact us for advice on whether you really should be exporting at this point. We promise to give you advice that’s not sugar-coated, and not tied to any arbitrary goals about how many companies we help export.
What should you do instead? Put together a realistic budget for your international expansion efforts. Recognize that exporting can be expensive, at least until you get all your resources and processes in place.
Treat it as an investment that will take some time to pay off, not just incremental sales. Give your export business a fighting chance to be successful.
In our next blog in this series, we’ll discuss the next kind of company that probably should stay focused on domestic sales.
This one is called the “Alfred Neuman Fan Club Member.” Stay tuned to find out what we mean!
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