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In this economy, global expansion has become a means of survival, and many small business owners are taking the plunge into exporting because they see it as the best way to expand their foreign market share.
However, expansion into international trade comes with added risks, so small companies need to craft their export strategy carefully. They shouldn't assume that a product will sell to foreign customers overseas simply because it's been successful in their domestic markets, says Bob Newman, senior area manager for the U.S. Small Business Administration (SBA) in mid-Missouri, and District International Trade Officer (DITO) for SBA across Eastern Missouri. Here are five steps that can help with starting an export business.
A business owner should identify the foreign markets they'd like to enter, then determine whether there is a demand for the business's goods there. This research should include current international shipping rules, business practices, trade agreements, currency values and laws governing export businesses, Newman says. "The biggest mistake is to enter a country without understanding the business environment."
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Even if there is demand for a product in a country, future exporters need to ensure that it's a place where they want to do business, says Rick Serola, founder of Serola Biomechanics, an orthopedic products company based in Loves Park, Ill. Serola exports his products across Europe, but won't sell them in one particular country. He believes the risk of intellectual property loss, theft and a murky legal environment make the country too risky for his business.
Before committing, a business owner should calculate the international shipping costs, duties, exchange rates and market prices to ensure there would be a sustainable profit margin, Serola says. When his company decided to expand its sales through a warehouse in the EU, for example, he estimated how many orthopedic belts he thought he could sell in a year. Then he split that into quarterly shipments to figure out the price per belt, factoring in all of these related costs. Serola determined he could make more money in the EU because the euro was worth more than the dollar.
A trusted online foreign exchange service can help exporters stay on top of the latest currency values with helpful tools such as a real-time currency converter and email market-rate alerts so they can monitor their preferred exchange rates to help strengthen their cash flow.
"Every country has its own rules governing different export categories," says Tony Clayton, president of Clayton Agrimarketing, a livestock exporter based in Jefferson City, Mo. "Some of those rules can directly impact the profitability of your business based on the costs of conducting business there."
For example, until recently, shipping rules prohibited U.S. exporters from moving livestock via trucks between EU countries. That meant that when Clayton sold stock in Russia he had to fly them there, which was very expensive, and available flights weren't frequent.
Starting an export business takes time and it takes investment, Clayton says. "People think they can take one trip to China and come home with a full order book." In reality, it can take years to build up a strong export business, and business owners need to be ready to invest that time into the process. "Think of your early export sales as supplemental income," he advises. "You need to get experience and establish your name, before your business can grow."
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