Exporting can completely transform a business. And frequently has done. For some companies, exporting isn’t an option but a requirement.
Most major films and computer games, for example, cost so much money to create that they need to sell globally in order to recoup their development costs. Strangely, that makes exporting easier for those markets – there are very established routes and practices available to them.
For many of you, though, exporting may be something you haven’t considered, or something you have dabbled with but not pushed. Possibly, you don’t think it could sensibly apply to your business. But while trying to push exports can feel like a distraction, it could transform your profitability.
Remember that once your fixed overheads have been covered, all gross profit drops to the bottom line. If you could add gross profit with negligible additional overheads, you could boost your overall profitability significantly. And very often it will be substantially easier than you might imagine.
Overseas trade conjures up images of dispatching cargo to far-flung continents. Traditionally, manufacturing companies have used “agents” abroad to make sales, or have appointed foreign distributors; the manufacturer then just transports goods ordered from overseas, much as it would to a UK company.
In reality, there are other ways to export. One route is to license a firm to produce your product overseas. Service businesses, too, can sometimes license or franchise your ideas abroad – while arguably not strictly exporting, many UK retail businesses have successfully expanded abroad in this way, for example.
And increasingly, companies are exporting using the internet. This is especially true for specialist companies, but is very easy to do for remarkably little investment. Many UK businesses have literally been taken by surprise when foreign customers find them. With a little effort, it is possible to target these customers and develop a very strong new revenue stream as Peter Austin, founder of Clearwater Hampers, has done. The company exports a lot of perishable goods such as fish, and introduced an online tracking system so that customers could work out where their orders were. And it’s worked well enough for them to have won the Queen’s Award for International Trade last year.
The key issue for your business is whether or not there is sufficient demand for your products or services in other countries, and if there is, can you sensibly and profitably satisfy that demand?
KNOWING WHEN YOU ARE READY TO EXPORT
This is the next decision that you have to make; the opportunity might be enticing, but your company needs to be ready to exploit it properly, without distracting you from your core business. With the rise of corporations that buy and sell globally, smaller businesses are tending to internationalise earlier than in the past; in some instances, right from the word go. Says Simon Harris, of Stirling University, who advises companies on international development: “It’s a matter of where your customers are. If they operate on a world-stage it makes sense to look abroad sooner rather than later.”
For most businesses, however, advisers recommend building a profitable base before looking further afield, and for good reason. As any seasoned exporter will confirm, exporting is hard work. Sending samples, preparing quotations and familiarising yourself with local regulations eats up time and money that might have been used to win customers back home more cheaply, or consolidating existing accounts. If you have covered your fixed costs, it’s a good time to look around, says Marcus Carter, a director in the family-owned Patchwork Traditional Food Company. “But, don’t rely on exporting to generate short-term cash. It’s an investment for the future, not an income-generator.” This is especially true of some countries where payment terms are often stretched substantially. Next month, Growing Business will address this problem, and how to overcome it, in detail.
SELECTING A MARKET
Some companies get into exporting by chance. An unsolicited request arrives and you follow it up. In such circumstances, it is wise to take precautions. Firstly, check out the customer’s creditworthiness, advises Paul Grant, managing director of Mackays, another speciality food producer and exporter. “Ask for a list of the prospect’s suppliers and ring them up. Most companies will be happy to give their view.” Another approach is to request a company status report from the international team in your nearest Business Link. But remember this will contain only such information as your customer has chosen to disclose. The internet has awakened many smaller businesses to the fact that they might be able to export, as foreign enquiries trickle through via their website.
In the longer term it is important to choose your territories strategically. The obvious considerations are: whether there is a market for your product, with scope for growth; whether the structure of the industry is similar to the UK’s and, assuming that you lack language expertise, whether English is spoken widely.
“What you are trying to do is match your strengths to another market,” says Colin Melhuish, senior international trade adviser at Sussex Enterprise. So, if your forte is supplying speciality goods to independent retailers, as opposed to the multiples, choose a country where the supermarkets are less dominant.
RESEARCHING THE MARKET
The best place to start is undoubtedly your own industry – trade shows and trade journals, and talking to people you already know. If there are international trade shows in specific export markets, attend them and try to get a sense of what the market is like there. Of course, you can also do quite a bit of research on the web these days, though many foreign sites obviously use local language.
Once you have decided on some export markets you think are ripe for your product, the next step is to determine whether it is financially worth your while to get involved. As well as researching demand, you need to think about the wider context. Ask yourself the following questions:
• Is the country politically stable?
• Is the currency volatile?
• Is the economy headed in the right direction?
It is also worth establishing what quotas, duties, taxes and other import and export restrictions apply to your product.
The website of UK Trade & Investment (www.uktradeinvest. gov.uk) helpfully holds market reports and the contact details of UK embassies around the world. Most embassies have advisors dedicated to helping British companies establish trade there, so give them a call. Also worth consulting is the British Chambers of Commerce Export Zone (www.chamberonline. co.uk). Alternatively, you could commission tailored market information from the embassies via your local Business Link. Costing on average around £600, the reports provide demographics, market size and local contacts to help you identify potential customers and competitors. But, whatever else you do, says Steve Jolliffe, managing director of World Golf Systems, talk to your suppliers. “Tap into the knowledge of the multinationals. They know the markets and the major customers.”
Visiting the market is indispensable. There are ways to do this cost-effectively. If you have fewer than 250 employees you may qualify for a grant from the ‘Export Marketing Research Scheme’, run by the British Chambers of Commerce. Alternatively, you could take advantage of subsidised travel and accommodation, available to businesses participating in Chamber-led trade missions. Once out there, you have the option of the official channels, or doing your own thing.
“Don’t get hung up on the embassies. Learn from other businesses. Get 20 minutes with a local purchasing director Find out what’s selling, at what price, and how your product compares on quality. Ask for the names of your competitors and other firms that you can talk to” advises Lara Morgan, managing director of Pacific Direct, a major exporter of toiletries to luxury hotels.
CHOOSING YOUR CHANNELS
This is one of the most crucial decisions you will make. One option is to start small, by establishing an export-oriented website. Graeme Lang, managing director of Breakfastbarstools.com, took this approach and created a customised US site, with help from Scottish Enterprise. Says Lang: “It’s allowed us to reach new customers. If we decide to enter the USA in a bigger way, we will know what sells.”
For many businesses, establishing a physical presence is worthwhile. The choices are between:
• appointing an agent to secure business on commission
• a distributor, who will buy and resell your products
• or creating your own sales force.
Whichever route you take, you must find people whom you trust and can get along with, says Harris. So ask your suppliers and investors for recommendations. “Consider partnering with a like-minded business overseas, who might sell your products abroad, while you sell theirs in the UK.”
In return, you receive a “royalty” (a fee usually calculated as a percentage of revenue or profit), without the hassle or risk of having to sell, service and ship your goods to potentially a wide variety of foreign customers. This has the advantage that you will often be paid an advance of royalties, so you have certainty of getting at least something from the deal, with almost none of the hassle and risk.
SUCCEEDING ABROAD
So far, we’ve talked about how to get things started. To really succeed, though, you need your products to be well received in your chosen export markets. That is about finding out in detail what overseas customers want, and then delivering it.
“There is all the difference in the world between selling overseas and succeeding overseas,” comments David Lester, managing director of Crimson Publishing, publishers of Growing Business, and who used to run a computer software business with substantial exports. “When we first launched in the US, we thought we’d made it; early sales were great. But then we started to get some negative customer comment on certain products, followed by substantial returns. We ended up doing very detailed research with American consumers, and found that what they wanted from our products was quite different from what our European customers wanted. We delivered, and sales and profits really took off. Many of our European competitors attempted it too, but didn’t bother learning about the market, and lost serious money as a result.”
This also highlights the need to establish what trade norms there are in your selected markets. In North America, for example, it is normal for consumers to be able to return goods to a store for any reason. This risk will almost always lie with the product manufacturer, not the retailer. Or take France as another example. They have very strict laws about the French language content of products on sale there – unless you keep to the law, your products may not be allowed onto shelves. Your agent or distributor in each territory should be able to supply most of the information you need, as well as contacts with a local lawyer.
Like most aspects of your business, if you take exporting seriously and focus on it, you’re far more likely to succeed than if you dabble.
Case study
VOXAR
In the early nineties, Andrew Bissell, fresh out of university, created a business in his home town, Edinburgh. The plan was straightforward; to develop software for visualising medical data in 3D, and become the world leader in his field. A decade later, he is on the way towards fulfilling those ambitions. Ranked fourteenth among Europe’s fastest growing technology businesses, Voxar exports 90% of its products and has a turnover approaching £6m.
But this is no text-book study of how to export, far from it. At the start, Bissell spent many hours banging on doors that remained resolutely shut. “We targeted the US multinationals”, he says. “But they weren’t convinced that there was a demand for our product, so we changed tack.”
To kick-start the market, Bissell created a US sales force to sell direct to hospitals. When the hospitals began to request Voxar’s technology, the multinationals became interested, opening the way to partnerships with leading suppliers.
