How to Break into the Export Business
I am starting an export clothing business and would like to export a particular U.S. clothing line to South Korea. It is not sold there now and I think it would fill a niche. How can a small business owner go about convincing a large clothing line that it can enter a foreign market successfully? —J.B., Torrance, Calif.
If you're just starting your company and have no track record of export success, this may be a tough sell. If that's the case, you may want to work with another exporter who has the background necessary to approach the large company. If you do have a good track record, build on that to make a proposal to the clothing company.
Approach the large firm on the basis of your background in this industry, assuming you have one, and point to your job history in the clothing business or in export companies to establish your credibility. If you have some expertise in doing business in South Korea specifically, or in Asia (BusinessWeek.com, 6/27/07) in general, that will help also.
Emphasize Benefits to the Company
Draw up a proposal that includes your background, your credentials, the ways the large firm can benefit from working with you, says Jean Gipe, a professor in the apparel merchandising and management school at California State University, Pomona. "Figure out where the value is to the manufacturer and how they'll realize it if they are willing to do business and take this risk with you," Gipe says. Possible benefits to them might be increased sales volume and revenue, developing a new market that could prove lucrative, and providing an outlet for small amounts of "fill-in" business that could supplement their major sales lines. Make sure you emphasize that you'll be able to pay your bills on time so this partnership will be a low-risk venture for them, Gipe says.
Since this proposal does involve a kind of business partnership, it will be much easier for you if you have a relationship with someone at the executive level in the large company, or if you can develop one before you present your idea to them. Having an ally would be invaluable in terms of getting your foot in the door and being taken seriously. See if you can find out about the company's executives and meet one or more of them at a busines-networking event, industry meeting, or trade show.
You may want to propose exporting small quantities of product to a limited number of South Korean customers at first, Gipe says. The small risk involved in a low-key project that has the potential to pay off big may be a powerful argument in your favor. But keep in mind, one of the biggest problems for domestic companies selling overseas is offering credit to foreign retailers.
Payment in Advance
"It is not uncommon for domestic manufacturers to work with foreign wholesalers who buy the product at a wholesale discount of 20% to 25% from the manufacturer and then resell to foreign retailers. Since the wholesaler is generally located in the country where its customers are located, it can extend credit to the retail customer," says Paul Ratoff, a consultant with Strategy Development Group who has worked in the apparel business for many years.
If the manufacturer wants to work directly with foreign retailers, it must require payment from them in advance or get a letter of credit from the retailer. All this extra work discourages business, Ratoff says. If you are serious about making this export business viable, you must either solve the credit issue by operating as a wholesaler or find a third party in South Korea that will guarantee you retail credit, he says. This might entail working with a Korean factoring or insurance company.
That would leave you to act as an independent sales agent procuring product for the South Korean retailers from the U.S. manufacturer. "If the credit issue is resolved, most domestic apparel companies would be happy to work with you, as long as there is a reasonable sales potential to justify the cost of setting up such an arrangement," Ratoff says.