Are You Ready to Export – How Do You Know?

In my first article in this weekly series, I discussed why so many U.S. manufacturers (roughly 75%) avoid exporting, and why their usual excuses for not exporting don’t add up. In my second article, I explained why exporting should not be all that scary (as one poor excuse), because, in many respects, it’s not so different from the domestic selling you’re already good at. Okay, so let’s say you’re now at least open to the idea of exporting. I recommend as a next step that you do an honest self-assessment of two key “predictors” of your likely export success:

1. Does my product or service have export potential?
2. Is my company ready to take on this new export activity?

In this third article, we’ll explore both aspects of self-assessment. In a follow-on fourth article, I’ll walk you through my own Export Readiness Assessment System (ERAS), a free, online tool I developed specifically for this purpose. In a fifth article, I’ll point you to extensive counseling and information sources, mostly free or low cost, that can help you assess your export potential and readiness and answer the many questions you have or should ask as you get ready for export and beyond.

Assess Your Product’s Export Potential.

Note: When I use the word “product” (e.g., apparel), I mean it more broadly to also include “services” (e.g. architectural). For this assessment, you want to know if the product you sell domestically would also have export potential. Put another way, will there likely be enough foreign buyers to make exporting worthwhile?

To have export potential, your product must find a need or want in at least one foreign market, and you must also be able to meet the competition from other suppliers in that market. If your product is doing well domestically, that’s a great sign. It shows you have already demonstrated both a domestic demand for your product and an ability to compete, including against imports from foreign suppliers. But performance in just your home country is not proof positive, so let’s dig more deeply into the “indicators” of likely demand and competitiveness of your product beyond the domestic market. The good news is, there are nearly 200 countries that might offer potential, and you only need one good one to start.

Indicators of product export potential:

• Your product is already selling reasonably well in the domestic market. A strong domestic sales performance is a good indicator of overseas demand and competitiveness. Stable or better yet increasing domestic sales clearly indicate a demand for your product. It also suggests you could be competitive abroad, because you are already competing successfully against the same domestic and imported products you’d likely face in export markets. Even if you have weak domestic sales, don’t necessarily assume you’re uncompetitive for export. In fact, if your sluggish sales are due mainly to a domestic economic slowdown, exporting may offer a promising outlet. When the domestic economy stagnates, other countries may be booming. As their production and consumption increase, their demand for imports also rises, including possibly for yours.
• You have a relatively strong share of the domestic market. Market share is a key indicator of product competitiveness, whether you’re selling locally, regionally, or nationally. If your share of that market is already high or growing, or at least holding steady, your product likely has fundamental competitive strengths; e.g., attractive pricing, uniqueness, high quality, strong service, and customer support, or others. These competitive assets are as appealing to foreign buyers as domestic. A low or declining market share reflects competitive weaknesses. Because competition is even more intense overseas, the chances are that you would do no better overseas, and probably worse. However, this could depend on the reasons for your low domestic market share. For example, if product obsolescence is the reason, exporting may offer an opportunity. Other countries, particularly lower-income or less developed countries, may not need the latest technology and may value yours for its presumably lower cost. 
• Your product is price-competitive in the domestic market. Domestic price-competitiveness is a big plus in exporting. Competition abroad is usually stiffer than at home, and price is often a decisive competitive factor. A competitive price is a must for products that are otherwise indistinguishable, such as basic commodities. Even for performance-based products, price often becomes decisive at some point. Unless your product is indisputably superior to the others or is indispensable, the buyer may ultimately let price be the final determinant. If your prices are competitive domestically, you’re in a strong position to offer very attractive export pricing as well. While you may need to add some export delivery costs to your prices (e.g., freight, insurance, etc.), so too will most of your exporting competitors. You can thus retain your relative price advantage in many export markets. On the other hand, if you have little or no price advantage domestically, and have no offsetting product strengths (superior quality, uniqueness), exporting may not be a viable option. Given the importance of competitive pricing, you should try to obtain comparative price information before you enter a target market. If necessary, strongly consider adjusting your prices to meet the competition or, if you can’t lower the price, consider offering buyers more time to pay (credit terms). That’s riskier, but you can get low-cost export credit insurance to protect against buyer default. 
• Your product compares favorably with domestic competitors in features and benefits. It helps to be "superior" in some key way, particularly when you’re higher priced than your competition. Foreign buyers look at product performance, not just cost, when they make procurement decisions (e.g., dependability, versatility, durability, repair frequency, productivity, labor-saving, etc.). They will often pay more to get more or better. If your product fits a niche in the domestic market or has some advantage over competing products, you have strong export potential. If you have no particular qualitative advantages, you may still have export potential. Many of the most heavily exported products are virtually indistinguishable (e.g., agricultural products, raw materials, and semi-manufactures). You and your competitors alike must use price and credit as your main selling points. If you do have a distinguishable product, but it’s comparatively “inferior,” consider markets that are less selective. Buyers in many less-developed, cost-conscious, labor-intensive countries may not need or want the "best" or "latest." They’ll often take a lesser product to pay less (e.g., manually-operated vs. automated equipment, yesterday's technology, no-frills models).
• Products just like yours are already exported in significant amounts and/or are growing rapidly, as reflected in official export statistics. If your competitors are already exporting similar products, a demand clearly exists that you may also be able to tap. You can find the latest U.S. export statistics for your product, by its Schedule B or Harmonized System (HS) code number, at USITC Trade DataWeb 
• Products just like yours are already being heavily imported by other countries and/or are growing rapidly, as reflected in official world import statistics. If other countries are importing large and fast-growing amounts of products like yours, particularly if a good share of those imports are coming from your country, it means there is potential for your product as well. You can find the latest foreign import statistics for your product, by HS code, at the UN/International Trade Centre Website.
• Foreign companies have expressed interest in your company or product. Unsolicited foreign inquiries by Email or through your Website are a strong indicator of potential demand. They offer tangible proof that you’ve been discovered abroad. You may not know how or why, but count it as a plus that someone overseas has taken the initiative to search you out. Many companies say they first started exporting only after and because they received unsolicited foreign inquiries. If you haven’t been approached yet, don’t be discouraged. A likely reason is not lack of interest or demand, but lack of awareness. Your company and product probably just aren't known abroad, either favorably or unfavorably. You need exposure abroad to pique interest and demand. 

Assess your Company’s Export Readiness.

While obviously critical, it’s not enough just to have a product with export potential. You must also take steps as a company to get “ready” to export; i.e., to build your capacity to export.  An “export-ready” company has five basic attributes:

• Its top management is willing to give exporting a good try;
• It has adequate finances for at least a small export budget;
• It has in-house staff with some export knowledge, or would acquire it (train or hire);
• Its organizational structure could absorb the additional workload as exports develop; and
• It uses sound business practices domestically that also make sense for exporting.

Indicators of export readiness:

• Your top management is committed to exporting as a new or expanded area of activity. Exporting should not be pursued opportunistically or for the “wrong” reasons – e.g., to make a quick buck, only to shut it off abruptly if not enough happens soon enough. Management should see the “right” reasons for exporting -- as a contribution to sound, specific company goals, and a significant new facet of its business – and be willing to wait the 2-4 times longer it may take to gain traction, compared with domestic selling. "Where there's a will, there's a way." If the management will exists, ways can be found to make a product more salable; overcome or adjust to tight budgets, or to better market a product. Reluctant, indifferent, or impatient top management won't make that happen. If you're not sure, you might try low-risk, go-slow approaches to test the waters and build more confidence in your export potential.
• Your company has adequate finances for a first-year export budget. If you're already established domestically, you might incur incremental export costs for market research to identify best markets and entry strategies, although much of this is freely available from the Web and local federal and state export assistance centers. To gain market exposure abroad, you’ll need funds to market and promote yourself, such as by enhancing your website and marketing materials or by exhibiting at foreign and domestic trade shows that attract foreign buyers. As export orders come in, you may need more working capital to fill them if beyond the stock you have in inventory. If your customers want delayed payment terms, you'll need to cover the cash flow while awaiting payment. You can minimize these and other incremental costs, but you can't eliminate them entirely. 
• Your domestic marketing practices are also conducive to exporting. ?Sound methodology is as critical in exporting as in domestic selling. If you’ve been successful at home, the chances are that you base your decisions on market research and analysis, have a strong sales and distribution network, effectively promote your company and products, and give priority to customer service. Exporting requires the same sound methodology, but may also need to be adapted for countries with different marketing and distribution practices. How you enter and develop a foreign market is important. Marketing and distribution practices vary by country and are often dictated by law, custom, or necessity. Some countries may require or prefer certain marketing or distribution methods, such as the use of local representatives. Some countries have excellent mass media and high receptivity to advertising, trade shows, mail order, etc. Others shun these approaches or do not have or use the available social media and other communication technologies to support them. Are you prepared to adapt your marketing methods? If not, you'll need to limit yourself to markets more like your own.
• You could promptly fill new export orders from present inventory or other sources. Exporters should be able to respond promptly to any new foreign orders. Foreign buyers typically can buy from other sources, and if you can’t fill the order when they want it, they’ll usually find someone else who can. Don’t start or impair a relationship with delays and apologies. If you have idle plant capacity, you’re probably in a good position to fill any new orders. You may already have inventory on hand, or you could increase production fairly quickly without needing more workers, materials, or equipment. With that flexibility, you can go after new export business as aggressively as you wish.

My free, online Export Readiness Assessment diagnostic addresses all the above export prerequisites, tells you how you rate in each area, and suggests steps and actions you can take to become more export-ready. That will be the topic for my next article.

Maurice Kogon has over 60 years in the international business field. In 2012, he founded Kogon Trade Consulting to do mostly pro bono export mentoring and training. In 2018, he teamed up with the Milken Institute to develop and direct an export enabler initiative for new-to-export manufacturers. Maurice established and maintains the website International Trade Compliance Institute (ITCI), with links to extensive online resources on all aspects of international trade. His latest book – Roadmap to Export Success: Take your Company from Local to Global – was just published this month (May 2021). Maurice has a BA and MA in Foreign Affairs from George Washington University (GWU). Maurice is a past President of NASBITE (2008-09), is a longtime NASBITE Board member, and helped to develop NASBITE’s Certified Global Business Professional (CGBP) credential and exam.