Shipping Out

Mining overseas markets can be treacherous, but entrepreneurs who do a little legwork can strike gold

Mark Finewood had driven past the abandoned textile factories near the Blythewood (S.C.) headquarters of Patterson Fan countless times. But early in 2001, soon after Finewood became Patterson's vice-president for sales and marketing, the shuttered buildings seemed a warning.

True, the 80-employee supplier of high-velocity industrial fans and cooling systems was doing well, with Ford, General Motors, and Target among its customers. Revenues neared $14 million. But a database search showed that potential sales leads had shrunk by a third in the previous five years. If he couldn't keep revenues growing, Finewood feared Patterson Fan might one day share the fate of those empty mills.

Finewood approached company founder and President Vance M. Patterson. With sales opportunities in the U.S. decreasing, they decided it was time to seek customers beyond the borders.

In so doing, Patterson Fan joined about 213,000 small businesses that were exporting in 2001, the most recent year for which figures are available. In fact, about 90% of U.S. companies that export are small businesses, and the bulk of those have fewer than 20 employees, according to a 2001 Commerce Dept. study. Those numbers are expected to stay constant when updated stats appear this summer.

Veterans of foreign shores will tell you that selling abroad comes with plenty of challenges. Exporting can strain a company's resources and staff. Language barriers and local customs can pose problems. And there's the hard-to-anticipate exchange-rate volatility. New exporters often stumble before they hit their stride, and unlike the giants of Corporate America, they don't have the deep pockets necessary to cover too many missteps.

That's not to say there isn't money to be made -- or that small companies can't grow by selling overseas. Despite heightened tensions since the September 11 terrorist attacks and the war in Iraq, the current trade climate offers plenty of opportunity. In the decade since NAFTA was signed, the U.S. has continued to negotiate trade pacts, and more are on the way. Trade officials are available in 150 international cities to offer would-be exporters administrative and logistical support. For the past two years, the dollar has been weak against the euro, enhancing the allure of the European market. And the Internet has made it possible for small businesses to provide support to far-flung customers without busting travel budgets.

Succeeding abroad comes down to a single rule: Be prepared. Before you hop on a plane, determine the right market for your company and think about how you'll service overseas customers. Then you'll want to consider potential partners and work out the nuts and bolts of distribution. Above all, keep an open mind: You may have to adjust your selling strategy, or even your product, to lure new customers.

THE VISION THING. In September, 2001, Patterson Fan's Finewood flew to Mexico. The country's proximity, warm climate, and NAFTA status were appealing, of course, but Mexico had something else going for it: Several of Patterson's customers had moved some of their operations south of the border. Finewood had a couple of referrals that he hoped would lead to fast deals. But potential clients in Mexico didn't see a compelling need for fans in a country where hot weather is considered a fact of life. Finewood, who doesn't speak Spanish, had more trouble communicating than he expected. As he puts it: "We bombed."

James Morrison, president of the Small Business Exporters Assn. in Washington, D.C., says small business owners are often discouraged when their first forays abroad flop. Too many are following hunches instead of the kind of sound business strategy that got their companies going in the first place. Would-be exporters first must assess the need for their product or service in a potential market -- something that Morrison says many entrepreneurs overestimate. Likewise, don't try to conquer customers from Rome to Edinburgh in a day. "Look at a few markets where you'll have success rather than trying to sell throughout Europe," says Benson Smith, a consultant with the Gallup Organization in Atlanta and the co-author of the book Discover Your Sales Strengths (Warner Business Books, 2003).

One low-cost way to gauge interest is simply to check the traffic on your company's Web site and tally the inquiries from other countries. Smith suggests examining the annual reports of companies in your industry that are already exporting. You'll see where they have found success, and you may turn up hints about which markets to avoid. Of course, you'll also get good information on your competition and maybe some guidance on pricing. If you're located near a business school, contact the head of its entrepreneurship program and ask whether students will do some more detailed research for you, suggests Peter K. Schott, assistant professor of economics at the Yale School of Management.

Uncle Sam can help, too. First, bone up on any trade agreements the U.S. may have with the country you're considering. The U.S. Chamber of Commerce and the Commerce Dept. will often provide free export counseling, leads, and market research, including demographics and economic trends. Be sure to ask trade officials about regulatory issues that might affect your sales. There are restrictions on some wines imported into Europe from the U.S., for example, and telecom companies face barriers in Japan. A review of trade barriers can be found at

GOING THE DISTANCE. Carolyne Turner made sure her 14-employee company in Chicago, Information Development Consultants (iDC), was well-prepared before it went after foreign business. In 2002, Turner heard from her banking contacts that some Pacific Island governments were embarking on new economic development programs. She thought this might be a new market for IDC, which brings in about $2.5 million annually selling financial software to governments and nonprofits. But before that could happen, "we needed to think creatively about how we would support customers 8,000 miles and several time zones away," says Turner.

Building on trade-show contacts, iDC won business in Palau, Micronesia, and the Marshall Islands, where it recently beat back Microsoft to win a $1.1 million contract. When iDC scores a Pacific Island contract, four employees work on-site with the new customer for as long as 10 months, installing software and training staff. After that, support is handled from Chicago via the Internet. Turner sets up chat rooms on Yahoo! so her staff can answer client questions that don't crop up during formal training, such as how to request a cash advance for a government official or what forms are needed to buy new computers. "Anyone who wants to go international has to put their customer support on Web steroids," says Turner.

Unlike Turner, Steve Graham, president of Toner Plastics in Agawam, Mass., was in for several surprises when he started selling in Europe. In the U.S., Toner sells children's crafts products directly to megaretailers such as Wal-Mart Stores and arts-and-crafts chain Michaels Stores, bringing in about $5 million a year. But he found large European retailers resistant to buying directly from manufacturers. Graham eventually signed on with a German-based distributor he had met at the 1999 Nuremberg Toy Fair, who cut deals in Germany and France.

Then Graham hit another snag. Toner sells some small products in the U.S. with a warning that they may not be appropriate for children under six. European countries require a specific warning symbol in addition to the notice. Graham spent $6,000 printing 30,000 new packages, a considerable cost when he had already set the price. "A newcomer just doesn't know about these things," Graham says. He advises business owners to make sure they ask federal and regional trade officials plenty of questions before exporting -- something he admits he could have done better.

THE INSIDE TRACK. No one knows a place better than the people who live there, and as Glenn Walser found, insiders can provide invaluable market research. For a dozen years, Walser's 11-employee company, Automated Food Systems, shipped corn-dog makers from its Duncanville (Tex.) headquarters to Europe. The German distributor that Walser had worked with since 1994 sold a handful of the machines to distributors who supplied caterers, restaurants, and food stores in Germany, Hungary, and Russia. "But for the most part, the European Community has not really taken to corn dogs," Walser admits.

Then, in 1999, the distributor mentioned that kebabs were popular throughout Europe. Walser's $3 million company spent 18 months and more than $300,000 designing and engineering a machine that makes about 4,000 kebabs an hour and sells for about $105,000. The kebab maker now accounts for most of Walser's $350,000 in annual international sales.

So how do you find savvy partners? Walser, like Toner Plastics' Graham and Turner at iDC, had good luck at trade fairs. Patterson Fan's Finewood turned to the Commerce Dept. After the disappointing trip to Mexico, Finewood and Patterson shifted their focus to Europe. They hired a sales rep based in Britain, but he didn't have much success selling outside the country. Finewood then tried the Commerce Dept.'s Gold Key program. For $500 to $1,000 a day, depending on the country, Gold Key staff will set up a small business with up to five potential distributors or customers.

Finewood met distributors in Spain and Germany, among other countries. "Usually someone from the U.S. consulate takes us to various distributors and I pull out my PowerPoint," he says. Results have been good, but Finewood notes that the relationship doesn't end once a contract is signed. "You have to train them, because they don't have a clue as to how you sell your product," Finewood says.

No matter how you locate your partners, don't sign up before you do some digging. "Find out from other U.S. companies what they think of a customer or distributor you're considering working with," says Smith. And check financial-information services such as Dun & Bradstreet, which tracks 83 million companies worldwide, to get a picture of the outfit's financial health.

To sidestep one of small exporters' most common problems -- getting paid -- run a similar credit and reference check on potential customers before you make a deal. If a company isn't paying its other bills on time, there's a good chance it won't pay yours promptly, either.

Unless you plan on all-cash transactions, you'll also need to arrange financing. "There are very few banks in the U.S. that handle trade finance for smaller businesses that are not already long-term customers of the bank," says Morrison. That's because it's difficult for a bank to judge the creditworthiness of a foreign customer or that customer's lender. Entrepreneurs can work with the Export-Import Bank of the United States, a federal agency that assists in financing exports.

Far more difficult to anticipate are currency swings, says Yale's Schott. "There are going to be times when you take a sudden loss or have an unexpected gain because of exchange rates. The best you can do is be prepared." If you're worried, you could ask customers to pay in U.S. dollars. To protect against a dramatic rate change, consider a forward contract. With these, your bank will lock in a rate for a certain period of time for a fee. If your customers pay in euros, for instance, the bank can give you a guaranteed rate for a year or two, so you'll know exactly how much you'll be paid -- in dollars -- during that time.

STAYING THE COURSE. Toner Plastics' international sales were still growing when, in 2001, Graham decided not to seek new foreign customers. One reason was personal: "I have three daughters, and they're growing up fast," says Graham, who wasn't thrilled about the traveling involved. And as the head of a 20-person staff, he also knew that repeatedly sending himself or one of his two salespeople abroad cut into face time with domestic customers. Although he'll continue to supply existing international customers, for now, Graham is sticking closer to home.

But at Patterson Fan, optimism about overseas expansion runs high. Their new factory in Dundee, Scotland, with four local employees, has cut tariffs, duty charges, and shipping. It also lets the company offer 48-hour delivery to customers in Europe -- the same promise Patterson Fan makes to U.S. customers. International sales accounted for 3% of Patterson's 2003 revenues of $15 million. It may not sound like much, but it's a start toward the 20% total Finewood expects for foreign sales by 2007.

Earlier this year, Michael Hodgdon, one of Finewood's sales reps, spent two months wooing potential customers throughout the Mideast -- in Bahrain, Qatar, the United Arab Emirates, and Saudi Arabia. Hodgdon was apprehensive about the trip, but after a few weeks abroad he called Finewood and said, "This place is a gold mine for American businesses." Hodgdon returned with an appreciation of what he called the region's "impressive hospitality" -- and $78,000 in sales.

By Charles Butler

Before it's here, it's on the Bloomberg Terminal.