Is Your Business Ready to Go Global? Ask These 5 Questions
Author: Matt Burke, Sr. Advisor, Global Banking
Publish Date: September, 2018
Trading in the global marketplace may be more accessible than ever. Consumers from all over the world can find your company online and learn more about your products by doing a simple internet search. Entrepreneurs are always looking for new ways to grow and expand, and numbers show exporting is one strategic way to do that. American companies that trade globally are often more likely to succeed. U.S. firms that export not only grow faster, but they are nearly 8.5 percent less likely to go out of business than non-exporting companies, according to a study by the Institute for International Economics.
If you feel like your organization has reached its domestic growth potential, but management and ownership are pushing for additional growth, finding new markets internationally is an excellent avenue to pursue. Selling your product or service internationally may provide you access to new markets, extend the sales life of existing products and reduce the risk of being impacted by domestic market fluctuations. However, expanding your business internationally isn’t a simple endeavor and to be successful you should have a well-thought out strategy. When considering if expanding globally is right for you, it’s important to ask yourself some of these basic questions.
1. Do you have the support of management and ownership?
Exporting comes with rewards but it also comes with additional risks and expenses. For example, working capital could become tight as payment terms to foreign buyers can increase receivable days. Exporting also comes with additional transportation costs, tariffs, compliance rules and regulations and exchange rate fluctuations. It’s essential that both the management team and ownership are aware of the risks and expenses and are on board with your global strategy.
2. Do you have a comprehensive export strategy, including market entry plan?
An export plan is a company’s single most important document when doing business internationally, as it puts management, sales, finance and credit teams all on the same page. This document gives the sales team parameters for which it can sell products, including approved countries to sell into, preferred distribution channels, acceptable sales terms to customers and approved payment methods. While all of these roles may be one individual in a small business, this document will allow you to gauge the effectiveness of your international sales strategy after it has been implemented.
3. Is your product ready to be sold internationally?
Some products and services are easily exported, as there is a defined market both domestically and internationally. When evaluating the market, it’s important to also consider who makes competing products in these new markets and how that will affect your export strategy. In addition to evaluating overseas markets, you should consider any modifications that may need to be made to your product. Additional certification and testing of some products will be necessary, like a CE stamp. An example of a product modification would be a company that manufactures products to run off of an electrical outlet here in the U.S., but when that product is exported it will need to be converted to run off a different outlet and voltage in Europe and the Middle East.
4. What existing business relationships can your organization rely on to help you sell internationally?
The backbone of business is relationship building, and that rings true domestic and abroad. Ask yourself if you have relationships with any suppliers or potential clients in your new market. I advise seeing if you can leverage these relationships to learn more about your market, reduce risk or increase sales. Additionally, a key relationship to have is a competent logistics firm to help decrease shipping costs, increase efficiencies and keep control of your goods from your loading dock to the foreign port. Another valuable relationship is your insurance professional. Having an insurance professional look at your international business is the first step in recognizing potential risks. For those companies that need to sell on open account, a foreign trade credit insurance product reduces the risk of non-payment from foreign buyers. Both Federal and State governments also have programs and offices that help to drive export sales. These offices and programs will help you through each step of the process, including helping to find a foreign buyer or grants that help fund trips to visit customers or international trade shows. Finally, a business association that focuses on international trade is a great resource for all organizations looking to sell internationally. These groups are usually a conglomeration of global service providers, other companies who sell globally and industry experts that can direct you in the quest to export.
5. Do you have a capable financial institution?
Expanding your business typically requires financing and it’s important to work with a bank that understands the international marketplace and the risks that come with it. Knowing the loan structures available can help with cash flow needs when exporting. This cash flow crunch is minimized by utilizing a revolving line of credit that can be backed by the Export Import Bank of the United States (EXIM) or the Small Business Administration (SBA). With a guarantee from EXIM or the SBA, your bank can utilize assets to lend against, including foreign accounts receivable and inventory that are not normally available under a “typical” revolving credit line.
Your bank is also a key player in your international business plan. A savvy business will lean on its financial institution when it comes to international banking, international payment methods and risk mitigation. If this is not a specialty of your financial institution, find a banker who is willing to listen to your needs and then provide a custom fit solution for your international sales program.
Your business may be well positioned to go global if it has had success domestically. Before taking that major step, it’s important to do your research and consider if it’s the right move for your business. As mentioned previously, doing business internationally is complex and comes with many considerations. However, if it’s the right fit for your business, expanding internationally can give you access to new markets and a new source of revenue.
First National Bank of Omaha’s Global Banking team helps businesses go international, whether it’s importing products or exporting to new markets. Our advisors have expertise on issues such as moving funds in and out of the country, managing foreign currency risk and tools such as letters of credit to reduce your payment risks. We use a consultative approach to understand your needs and add value where you may not have expertise. Learn more about our international banking solutions.
About the Author
Matt has been in commercial banking since 2006. His experience in the Global Banking Group and Commercial Credit Analysis has given him a wide depth of knowledge in assisting clients reach their financial goals. As a member of the Global Banking team, Matt has an extensive knowledge of the foreign exchange markets, international payment options, international trade products and letters of credit.