A Market Big as All the World
By Rebecca Herwick
There was a time that I believed that global expansion -- a natural for my business, which is licensed to sell Harley-Davidson, Ford, and Carey Chen novelties as well as giftware and other specialty products -- would be a natural evolution. Back in the early 1990s, when I was in a predecessor partnership in the same line of business, I was visiting customers in Europe and noticed that counterfeit merchandise was flooding the market. That surely meant robust demand for our decals, emblems, ball caps, bandanas, and the like -- and a substantial opportunity.
In 1995, my former partner and I explored the opportunity, but nothing came of it. Then, in 1999, when the partnership was dissolved, and RKS Novelties was reorganized and renamed Global Products, I put global expansion on the top of my agenda.
Expansion of any sort -- indeed, diversification -- is critical if entrepreneurial companies are to dodge inevitable business downturns and thrive. Just last year, for example, Harley-Davidson did not renew our license to sell Harley-Davidson apparel through no fault of our own. A larger company had acquired our major competitor, essentially putting us out of the market. The difficulty was that the apparel division constituted 30% of our gross sales.
We were devastated, but not defeated. In the past five years, we had diversified, with global diversification taking center stage. In 2000, Global Products opened a distribution center in Germany for European expansion. A year later, we opened another in Canada. On the drawing board are plans for distribution outlets in Asia and, possibly, Latin America. Within five years, global revenue has come to account for 6% of our annual revenue of $12 million -- with 3.25% from Europe, 1% from Asia, and 1.46% from Canada.
All of that said, however, I also have learned that global expansion is far from the "natural evolution" I had envisioned. Counterfeiting notwithstanding, breaking into and maintaining a presence in our foreign markets has been a formidable challenge. My message to entrepreneurs aiming to do the same, therefore, is simply that global expansion must be managed -- carefully, intelligently, and against the backdrop of Murphy's Law.
In our case, we launched our efforts from strength, and that proved to be a buttress against the many obstacles we would face, among them language barriers, a vast amount of paperwork related to the value-added tax (VAT -- or GST in Canada), and customs, and a lack of historical data against which to set inventory goals.
Our strength, on the other hand, was our distribution system. In fact, when thinking about how I could serve the demand that was being met by the counterfeiters back in the 1990s, I knew that I would first need a distribution center on site. Here are the economics: our specialty items wholesale for, say, $3, and retail for $6. However, if I had to ship them from a U.S. center, the shipping charges, duties and customs brokerage could add $2.50, virtually negating profit.
On site, by contrast, the economics work. What also had been working for Global Products was our own domestic distribution center, which is currently headquartered where the company is based, in St. Peters, Mo. Since 1995, we had refined the process of getting product from the receiving gates in the West and to the shipping outlet here. It involved a lot of hard work and attention to detail, but the flow has been our company's forte.By Rebecca Herwick
If anything, we needed as much strength as we could muster when tackling foreign markets. Without the historic backdrop that we have in the U.S. about likely buying patterns, and with those patterns being so different in each of the countries we serve, we have been at our wits' ends trying to manage inventory.
Language barriers add to the complications, as does the flood of paperwork required by the foreign sales taxes. When an item is received, I must file a monthly report and pay a tax, only to have to file again and receive a credit when the item is sold.
Solutions? At Global Products, we have adapted a fundamental strategy that might work well for other entrepreneurs. It is this: When growing globally, manage that growth by limiting it to the extent that you can deliver. It never pays to over-promise and under-deliver -- and lose customers.
In the matter of dealing with buyers overseas, the same principle applies, although there are complications. While it is necessary to put all buyers on credit card payments rather than extending credit to them -- for fear that we won't be able to track them down if they don't pay -- our credit-card terms do limit our growth. Balancing our need for growth with our need to collect has become a persistent challenge.
Our experience in foreign markets -- Europe, Canada, and Asia (with Asia being somewhat different because we are selling in larger volume to distributors who are more likely to pay) -- has given us a platform from which we can advise other entrepreneurs. What follows are tactics for managing what is a difficult process.
• Do your homework. Once you've targeted your foreign market, don't jump in until you analyzed the customer base and projected sales and potential growth. You must understand strategically how that market will serve your company's goal for growth.
• Allocate your time. And I stress, your own time, as CEO. Getting into a global market isn't a job to be delegated. In my case, I spend a quarter of my time on this effort and have even created a top-level position for an executive to handle some of the domestic duties I had been overseeing.
• Go Slowly. Although the potential for substantial growth exists abroad, it would be a mistake to rush it. You must be premeditated about determining the number of customers you can reasonably serve and the amount of product you can sell. If you outsell, or oversell -- and can't fill orders -- you will disappoint.
• Don't expect an immediate return on your investment. Going global is a process that takes time. Each market is different; each year customers will react differently. While the returns will come, they won't come as quickly as you might have hoped -- and there will be land mines along the way.
For Global Products, diversifying globally has been an effective strategy for growth. It has both opened new markets and allowed us to dovetail into new products. (A new line of pet accessories, for example, has been a hit in pet-loving European countries.)
However, it hasn't come without a price, one that every entrepreneur eyeing foreign expansion must be prepared to pay. That price is the need for constant vigilance and astute management when navigating what are choppy waters.
Rebecca Herwick, 45, took over the leadership of Global Products in 1999, a licensee and distributor of Harley-Davidson paraphernalia and other specialty novelty items based in St. Peters, Missouri. The company has annual revenue of more than $12 million, 90 employees, and is currently expanding overseas, with distribution centers in Canada and Europe and another planned for China. Herwick serves as president and CEO, directing strategic planning and development.
Entrepreneur's Byline comes to BusinessWeek Online readers courtesy of EntreWorld.org, a resource for entrepreneurs that is sponsored by the nonprofit Ewing Marion Kauffman Foundation.