The economic recovery in the U.S. has been anything but smooth, prompting many small and mid-sized business owners to look for new ways to grow their companies. Some are eyeing international expansion and exporting as a source of new customers, sales and profits.
Not all products and services lend themselves to exporting, of course. But, for those that do, international expansion and exporting can open up a whole new world of opportunity for these business enterprises.
Not Just for Big Businesses
It’s a common misperception that only large corporations can successfully export their products overseas. But according to the International Trade Administration, small and medium-sized enterprises (or SMEs, which are defined as businesses with fewer than 500 employees) account for about 98 percent of all U.S. exporters. And California boasts more SME exporters than any other state: a little over 72,000 in 2011, the last year for which statistics are available.
However, only about one percent of all SMEs in the U.S. are actively involved in exporting, according to the U.S. Commerce Department. Or in other words, 99 percent of U.S. SMEs are not exporting their products to overseas markets. This would seem to indicate that there is a tremendous amount of untapped exporting potential among small and mid-sized businesses in the U.S.
A number of different factors can make exporting an attractive growth option for many U.S. businesses today. These include:
- Improved communication technologies that have essentially shrunk the globe.
- Greater openness by many foreign countries to U.S. companies doing business within their borders.
- Enhanced free trade agreements with some foreign countries.
- Fewer barriers to entry to many foreign markets.
And don’t forget the sheer size of consumer markets outside of the U.S. Ninety-five percent of the world's consumers live outside of the United States, so if a U.S. business is only selling domestically, it is reaching just a small share of potential customers.
Exporting Pros and Cons
As with any new business venture as potentially large and complex as exporting, you should carefully consider both the pros and cons of doing business abroad. First, the pros:
- You will help insulate your business from the ups and downs experienced in the U.S. economy alone and possibly benefit from overseas markets that are strong while the domestic market is weak.
- Exporting will grow and expand your potential customer base and increase your economies of scale.
- You can spread out your risk by diversifying your customer base beyond just customers who are located here in the U.S.
- You will learn about business processes, procedures, customs and practices in other parts of the world that are very different from those in the U.S.
Also consider a few potential downsides that need to be managed when exporting, including the following:
- You could experience delays in receiving payment from overseas customers that will impact your cash flow.
- Political instability in some foreign countries could disrupt your sales and operations within these borders.
- Currency fluctuations may present foreign exchange risk, or the risk that the amount of money you are paid for your goods is less than you expect due to the falling value of the U.S. dollar against a foreign currency.
- Your goods could be lost or damaged while in transit overseas.
- You may not enjoy the same patent and intellectual property protections in foreign countries that you do here in the U.S.
In addition to weighing these exporting pros and cons, also consider whether or not you can afford to devote the resources — both financial and human — that will be required to make your exporting initiative a success. Determine the upfront costs that will be required to launch your exporting program, as well as whether or not your key managers are capable of spearheading the initiative, or at least following your lead.
Talk to Your Bank
If you decide to move forward with an exporting initiative, one of the first things you should do is talk to your bank about how they can help you access liquidity, streamline payments and mitigate some of the risks of doing business abroad. Some banks provide a wide range of international banking products and services, including currency management, export finance, trade services, foreign currency deposit accounts, and risk management strategies.
It’s important to work with a bank that possesses a high degree of experience and expertise when it comes to exporting and doing business internationally. Such a bank will become a hands-on partner in your exporting initiative, helping you meet the challenges — and reap the rewards — of a successful exporting initiative.
City National can simplify your trade and compliance issues by serving as your strategic advisor on import/export regulations and the complexities of doing business abroad.
Through our Strategic Partnership with the U.S. Commercial Service and our international network of correspondent banks, we have the ability to provide customized deal structuring and global advisory guidance to support your international trade objectives. We can help you assess your risk in foreign countries, and monitor banks used by your trading partners abroad.
To discuss your options for expanding operations abroad and learn about our international banking products and services, give us a call at (800) 773-7100 or request that a Relationship Manager contact you.