In the News
Small businesses look across borders to add markets (4-6-11 USA TODAY)
Executives at Osagian Canoes of Lebanon, Mo. never thought much about selling their product outside the U.S.
Shipping costs for the 17-foot long aluminum canoes seemed exorbitant. And John Carr, vice president of Osagian's parent company, Carmeco, figured he'd have to learn new languages and worried international sales contracts couldn't be enforced.
But since attending a workshop last year developed by the Commerce Department, Osagian has opened a small factory in Denmark and exports are on pace to comprise 15% of sales this year.
The workshop, called ExporTech, "opened my mind to possibilities," Carr said. "It's not that big of a world out there."
Commerce, along with the Small Business Administration and the Export-Import Bank, are making a big push to help small and midsized firms dramatically increase exports. The effort is part of the President Obama's National Export Initiative, which launched early last year and aims to double U.S. exports in five years and create 2 million new jobs.
With debt-laden Americans saving more and spending less, the campaign helps firms tap faster-growing economies, including emerging markets such as China. Eighty-six percent of global economic growth the next decade is projected to be outside the U.S., according to Commerce. Exports of $1.8 trillion were 11% of the U.S. economy last year.
Small companies are at the heart of the effort since they create two-thirds of new jobs in an economic recovery, officials say. Yet they often lack the overseas offices, sales forces and cross-cultural knowledge to mine foreign markets, says Mark Zandi, chief
economist of Moody's Analytics. Small and midsized companies produce half the
nation's economic output but account for just 30% of exports. Overall, just 1%
of the nation's 30 million companies export and 58% of those that do ship to
only one country.
"So much of what America makes is in great demand," Commerce Secretary Gary Locke said in an interview. Small and midsize companies' "growth potential is outside the U.S."
According to a Commerce survey, small businesses' biggest concern is they simply don't know how to identify and sell to overseas customers. That's followed by worries that they won't be able to get financing and won't be paid by foreign buyers. Myriad other concerns include language and cultural barriers, shipping costs, theft of intellectual property, cross-border tax differences, and burdensome red tape.
The department's U.S. Commercial Service has long had officers in dozens of foreign countries who hunt for potential customers for U.S. exporters. Meanwhile, Commerce centers across the USA do market research and shepherd businesses through a thicket of rules and paperwork.
As part of the export initiative, the Commerce Department is working with carriers such as Federal Express and United Parcel Service to identify shippers that have potential to expand overseas. Commerce representatives are also traversing the USA to educate small firms in day-long sessions.
Small firms seeking working capital for exports can now get a Small Business Administration guarantee for up to a $5 million loan, up from $2 million. And the Export-Import Bank aims to provide a total $6 billion in loans for small business exports in fiscal 2011, up from $4.5 billion last year. Commerce is also working to remove trade barriers and crack down on tariff violations.
The initiative is showing results. From October to January, Export-Import Bank loans were $1.5 billion vs. $1.4 billion a year ago. And in 2010, Commerce recruited 13,000 foreign buyers to U.S. trade shows and helped 5,500 companies, including 4,675 small firms, snare overseas buyers. Both are increases over 2009.
Osagian Canoes' Carr says the ExporTech workshop he attended taught him that, for a fee, the Export-Import bank provides insurance if an overseas customer doesn't pay a bill. He also discovered "the English language is the language of business. I thought I was going to have to learn to speak German." Osagian executives looked across the Atlantic because U.S.
sales have been stagnant, at about 750 to 800 canoes each year, mostly to
resorts and camps. "We just felt maybe the U.S. market was a little bit mature," he says.
Carr didn't have to search too strenuously for his first customer. A kayak distributor in Denmark called and asked if he could sell Osagian's canoes to dealers in his country as well as Norway and Sweden. Osagian says he makes the only aluminum canoe whose hull pieces are welded rather than riveted, making it more durable.
Yet it occupies so much space that only 20 fit in a 2,500-cubic-foot shipping container. Delivery costs of $5,000 a shipment, or $250 per canoe, would add a 28% premium to a $900 canoe. But Carr realized that Osagian instead could open a small factory in Denmark and ship 200 unassembled canoes at about a tenth of the per-container cost. Osagian has made about 100 canoes at its two-employee Denmark plant; 22 have been sold.
Carr also attended an outdoor-equipment trade show in Nuremberg, where he met nine sales representatives who agreed to sell Osagian's canoes in Germany, France, England, Switzerland and Austria. All told, Osagian expects to sell about 175 canoes overseas this year, boosting sales 20%.
His next targets: southern hemisphere regions such as South
America and Australia that enjoy summer when the U.S. is slogging through
winter. That would help Osagian prop up sales in the U.S. offseason. Carr
expects to increase foreign sales to about 500 a year by 2013. That would mean
doubling his six-employee staff.
The wake-up call for some fledgling small-business exporters came during the recession.
"You start seeing your business almost failing and we're like OK, we have to (pull out) all stops here," says Jason Meyer, president of Blue Cube LCD, which makes parts and enhancements for liquid crystal displays.
Meyer says the Garner, Iowa, firm's initial overseas buyers were referrals from U.S. customers. It's now making LCD parts for the first exports — to a maker of tractor GPS systems in Italy and a factory automation producer in France. He's also planning an email marketing drive.
He fretted over complex shipping codes and duty payments. Entering the wrong shipping code has caused his products to languish at ports for a week or more. But he says officials at Commerce help centers "are making it a lot easier."
The Italian order, he says, is for 250 units a month, and filling it will require him this year to add 10 to 15 employees to his staff of 18.
Veteran exporters, meanwhile, are growing.
Epicurean, which makes restaurant-quality cutting boards
for consumers, began shipping overseas in 2005 and its exports to 48 countries
now comprise 40% of sales, says President David Benson. The Duluth, Minn., firm
found its first buyers through a Commerce website that links U.S. sellers with
foreign buyers. It expanded by meeting dealers at trade shows. Today, four of
his 27 employees handle exports exclusively, he says.
There are challenges, Benson says, such as being unable to easily visit a store to see how the cutting boards are displayed. But if not for exports, he says, sales growth this year would be 5%, not the 40% Epicurean expects.
Benson says many customers want products made in the USA. "There's just not as many … as there used to be," he says.