Building profits through export

Illustration © istock.com/cienpies

For a number of American companies, the key to growth lies in expanding through export.

It’s a fairly simple concept – to make more money, you need to sell more stuff. And to do that, you need to either sell more stuff to your existing customers or find more customers than you have right now. A growing number of American companies in the recreational boating industry are adopting the latter approach and looking to grow revenues and profits by building their customer base overseas.

“Having a healthy balance between domestic and international sales is important for any company with an exportable product, as this allows them to better navigate the seasonal and economic downturns that often occur in our industry,” said Julie Balzano, export development director for the National Marine Manufacturers Association. “Just think back to 2008 when our economic crisis hit. Companies who had a varied portfolio of international clients were simply able to shift their focus away from their shrinking domestic activities to pursue growing opportunities overseas instead.”

The case for export

NMMA’s export program can help U.S. companies get started.

NMMA’s export program can help U.S. companies get started.

The case for exporting has never been stronger. According to the U.S. Department of Commerce’s International Trade Administration, today 95 percent of the world’s consumers live outside of the United States. Non-U.S. residents further represent 92 percent of the world’s economic growth and they hold 80 percent of the world’s purchasing power. The message is clear – if a business elects to sell strictly to the domestic U.S. market, it is choosing to miss out on a large number of well-heeled potential customers.

In 2013 the total value of all exports shipped from the United States amounted to $1.579 trillion, up 49.4 percent since 2009. But what is particularly interesting in that statistic is that it represents the collective exports of large multi-national companies and small mom-and-pops alike. While we expect large manufacturers like Brunswick or Raymarine to sell their products around the globe, ITA data reveals that small and medium-sized companies represent a full 98 percent of all U.S. exporters. Most exporters, according to the ITA, are much smaller companies than most would ever believe.

Regulator Marine at the Barcelona Intl Boat ShowIllinois-based Gator Guards is a classic example. The family-run company, which  manufactures a full line of keel protectors and associated boat protection equipment, finds itself in the interesting position of having more international distributors than it has full-time staff. President and CEO Sue Smith said, “We’re celebrating our 20th anniversary this year. We began expanding overseas two years ago. After 18 years we decided it was just time to expand our horizons and it’s the best thing we ever did. I expect we will grow internationally by 30 to 35 percent next year.”

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Exhibiting at overseas shows like METS has helped many U.S. companies grow their customer base.

Exhibiting at overseas shows like METS has helped many U.S. companies grow their customer base.

Gator Guards now sells its product line in the United Kingdom, Norway, Sweden, Finland, Russia, Poland, France, Italy, Romania, Slovenia, Turkey and Greece.

Power equipment manufacturer Xantrex has also grown its sales through international distribution.

“Xantrex had a very good year in our core markets,” said John McMillan, director of sales for the Xantrex brand at Schneider Electric. “But we also realize the global market is growing, and we see evidence of that in our operations in South America, Australia, Japan, China and Europe. We feel there is a strong opportunity to grow our business worldwide, so we have developed an aggressive growth strategy to meet that goal.”

Advantages of exporting

There are an enormous number of incentives for a company to export at least some of its production run. For some companies, the primary driver is the opportunity to grow their overall market share. If you already own a sizeable chunk of the domestic market, it can be cheaper and more rewarding to take your products abroad, rather than fight tooth-and-nail for an extra one-half percent of share at home.

networking dinner at Cartagena, Colombia Boat Show“We made a concerted effort over the last five or six years to look into markets abroad,” said Mick Webber, president and CEO at HydroHoist Boat Lifts. “We felt there was a level of market saturation and we knew there is a strong demand for U.S. marine-related products outside of the U.S. We’re selling in 22 countries now, including Europe, the Middle East and we now have a joint venture in Australia that also serves New Zealand. We are optimistic about what we see happening overseas, and we’ve begun manufacturing product specifically for our export business.”

What particularly interests Webber is the growth potential of overseas markets. “Right now our export business represents about 20 percent of our overall business,” he said. “Our goal is to have that grow to closer to 50 percent and we have an aggressive goal of achieving that by 2020.”

NMMA has hosted numerous trade missions focused on growing the market for U.S. goods.

NMMA has hosted numerous trade missions focused on growing the market for U.S. goods.

For other companies, exporting represents a way to maximize economies of scale, enabling them to increase production runs and achieve manufacturing efficiencies that were previously unattainable. Their overall revenues increase but profits can grow even more.

Exporting represents a means of balancing risk, which is another key benefit. If your company is active in multiple countries around the globe, you lessen your dependence on the domestic market and, in effect, avoid having all your eggs in one basket.

“When our U.S. builders were still ramping up domestic production after the recession, many of our equipment and accessory members were focusing efforts on their overseas customers,” said Balzano. “Now that U.S. production is on the rise again, a number of companies are hiring so that they can effectively manage both their domestic growth while still managing their international clients. They realize that exporting shouldn’t be a reactive strategy but one that is needed to ensure continuity, long term growth and profitability.”

Exporting also provides a simple and novel way to offset the seasonality that challenges so many manufacturers in the boating industry. By selling in markets that have offsetting peak seasons, exporters can run at full volume year-round. There’s no better way of enhancing production efficiency and utilizing that excess manufacturing capacity, which brings a far greater ROI on the cost of equipment, facilities and skilled personnel.

There’s one more benefit to innovation that not many exporters like to talk about. It’s the fact that you’re forced to innovate and continually improve. When you compete in a global market, you’ll be continually challenged to stay ahead of not just one, but multiple market curves. Different ideas and competitive pressures force you to constantly innovate and the resulting product enhancements secure your position everywhere you sell.

Risks of exporting

Exporting allows companies to balance risk during a downturn.

Exporting allows companies to balance risk during a downturn.

Exporting may bring many benefits but it is not without risk. These include potential collection problems with foreign distributors, the expense in developing new promotional materials, additional shipping and warehousing costs, and potential costs to modify products or packaging for export, including regulatory compliance expenses. You’re also at risk of cultural backlashes. Happily, the risks can be significantly minimized by taking advantage of free help through federal and state-level agencies like the U.S. Department of Commerce, U.S. Commercial Service and the Export-Import Bank of the United States. Each agency offers programs to help companies mitigate the financial risks associated with international sales.

“I always tell exporters to identify a suitable banker and a freight forwarder who they feel comfortable with,” advises Balzano. “Each will become their partners in international trade and ensure that they mitigate and navigate the inherent risks accordingly.”

Mission possible

So exporting sounds like it might indeed be worth a look. But how and where do you start?

The simplest way to get your feet wet is to take advantage of turnkey trade missions organized by NMMA. The organization officially launched its export development program in August 2012 and has since helped numerous members begin exporting or to grow their existing export efforts. In most cases, trade missions revolve around visits to key boat shows in overseas markets.

“Shows are very important in terms of finding suppliers, finding new dealers and showing the new product to our overseas distributors,” said Mark Pelini, mechanical engineer and project manager with Bob’s Machine Shop, who attended the 2014 METS in Amsterdam. “We sell outboard-related product and there are outboards all around the world, so we want to ensure we have representation in global markets. Exports now represent 23 to 24 percent of our business.”

By identifying markets that represent high trade potential and looking after the administrative details, these trade missions represent the easiest entry to exporting, said Balzano.

Shows are important for finding new suppliers, dealers and distributors.

Shows are important for finding new suppliers, dealers and distributors.

“New this year, we are introducing a business development mission to Mexico, as no leading boat show currently exists in that market,” she said. “Planned for May 4 to 9, 2015, we’ll visit three markets in Mexico with the goal of educating ourselves on market opportunities, key industry players and cultural nuances for doing business in Mexico.”

Savvy manufacturers ensure they tap every potential source of assistance for growing exports, starting with the U.S. Department of Commerce. The agency exists to help U.S. companies sell their goods abroad through its Gold Key service and offers a vast range of services to make it easy. From providing help identifying agents and distributors, to providing detailed market analysis in the potential market of your choice, the agency makes exporting about as turnkey as it gets. In some cases, funding, guidance and administrative assistance is also available at the state level.

“We’ve used the Gold Key program extensively,” said HydroHoist’s Webber. “They do a lot of legwork and pre-qualifying for us, and it’s made it a lot easier.”

“I think the reason more people don’t utilize the help that’s available to them is because they just don’t know what’s out there,” observed Gator Guards’ Smith. “The Gold Key program is great. Ours is a small company, but they don’t care, they treat everyone the same, whether you have five employees or 500. All they care about is seeing companies succeed.”

 

Header image – Illustration © istock.com/cienpies

 

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