Exporting guide for small and medium-sized enterprises

The opportunities are out there

The scope for exporting

Have confidence. You may think that international trade is only for large companies - and it's true that, until quite recently, this was an arena dominated by those who had the critical mass and extensive organisational reach needed to access foreign, often distant, markets. But times are changing. The internet and the growth of international production networks now allow small and medium-sized enterprises (SMEs) to engage fully in international trade.

For instance, e-commerce has opened doors to exporting for SMEs by allowing them to connect with distant customers at relatively little cost, while international production networks mean that SMEs - those that might otherwise have difficulty competing in the market for finished goods or services - can trade profitably within a global value chain.

To underline both the opportunities and the benefits that SMEs can derive through exporting, a 2017 report from the Organisation for Economic Co-operation and Development (OECD) entitled 'Enhancing the contributions of SMEs in a global and digitalised economy' said this:

'Stronger participation by SMEs in global markets can help to strengthen their contributions to economic development and social well-being, by creating opportunities to scale up, accelerating innovation, facilitating spill-overs of technology and managerial know-how, broadening and deepening the skill-set, and enhancing productivity. In addition, greater flexibility and capacity to customise and differentiate products can give SMEs a competitive advantage in global markets relative to larger firms, as they are able to respond rapidly to changing market conditions and increasingly shorter product life cycles.' That sums up concisely how SMEs can broaden their horizons by exporting.  

If you're contemplating exporting for the first time, our aim at Atradius is to help your venture to be successful and to encourage your entrepreneurial spirit. But, as this guide seeks to help you understand, there are many questions to be answered before you set out on this journey. And yes, international trade always involves an element of risk, so we want you to approach those risks in a measured and managed way.

The first step on your journey

Your motivation to export

At the outset, there must be a good reason for you to consider exporting your goods and services. Perhaps it's simply to achieve increased sales and, in the process, economies of scale. Maybe your home market is becoming saturated, over-competitive, or subject to an economic downturn, so that exporting is your only viable option. Or, thanks to the instant information channels that we all enjoy in today's 'global village', perhaps you've already identified that your products and services aren't widely available in other countries, so that foreign demand could give you a ready-made competitive advantage.

Whatever the reason, there's one basic rule to follow if you’re going to consider exporting - it must make business sense. Do you have the resources to expand your business abroad? How much will you have to invest? Do your workers have the right skills or will you need to bring new people into the business? And importantly, do you have the capacity to meet the hoped-for increase in orders? 

You'll find early on that exporting is very different to doing business in your home market. For one thing, it's usually less profitable at first and it may take time to reach break-even and recover your initial costs. It will probably involve more red tape, and can be a real logistical challenge. And, of course, you'll be dealing with a foreign business culture, which can be very different to what you're used to.

Above all, getting paid by foreign customers can be a lot tougher - not least because you may have fewer legal rights overseas if you have problems getting an export customer to settle their bills.

But don't let this deter you. As many others have found, none of these issues are insurmountable.

Do your homework

Choosing your export markets wisely

Two words: 'Market Research’. And it isn’t just a case of checking that there's a demand for your products and services. It also means understanding the economic stability of your chosen export destination, its legal and regulatory framework and its business culture - and of course, the level of competition already there.

If the payment practices of the country are poor and there are few legal safeguards in place to ensure you get your money, then you have to ask yourself whether it's really worth the risk. To assist exporters, Atradius regularly publishes on its website in-depth reports on the economic outlook and typical payment practices of the world’s top export destinations. These are designed to help you weigh your options.

At first, many new exporters choose to target countries that are similar to their home market: for instance in terms of language, standard of living and buying behaviour.  But wherever you decide to export, make sure that your market research encompasses the potential size of your target audience, as well as their tastes and purchasing power, as this will indicate if and how you'll need to adapt your products and your pricing for that market. 

A useful source of information about world markets is the World Bank Group's 'Ease of Doing Business Index'. Updated annually, this extensive study assesses various aspects of conducting business with 185 world markets, in categories that include the cost and complexity of cross-border trade, enforcing contracts, resolving insolvency issues, and the transparency of business regulations.

While, like many others, you'll no doubt want to create a culture within your business that's customer-focused rather than competitor-focused, it's still a useful exercise to see where your competitors are exporting, as this may help you understand the level of demand and also whether there’s room in the market for another provider. 

With your initial market research complete, you'll need to develop an export plan that covers all of these topics and sets objectives for expected volume, revenue growth and profitability, marketing and logistics. Not just for your own product planning but also to assist in seeking any additional financing that you may need. 

When in Rome…

Understanding the business culture of your export markets

In a world of fast travel and even faster communications, it's easy to think of the 'global village' as if it's a marketplace in which everyone behaves in the same way, has the same business manners and the same outlook.

The truth however is that, although we certainly do live in a world that offers vast opportunities for trade, the cultures of trading nations remain steadfastly different.  

And of course this can cause problems for business people trying to break into new and often unknown markets. How should you approach new prospects? How do business people speak to each other at meetings in this or that country? Are you expected to be formal or informal? What behaviour or topics of conversation might cause offence?

How you conduct yourself during customer meetings is just as important in securing a deal as the cost of your products, and understanding the business culture of the country you are targeting cannot be overstated. There are many sources of advice - online and offline - on the business cultures of different countries and it's well worth studying these and, even better, visiting your chosen export markets, perhaps as a member of an organised trade mission, to see first-hand how business is conducted there. 

Having a local partner to attend business meetings with you can also help to smooth the way to a successful deal. As we'll cover next, local representation may also be vital to making your presence felt in your export markets.

Establish a foothold

Creating a presence in the market

There are two key aspects to consider here: the logistics of delivery to your chosen markets and the local representation that you may require. 

The route that you use for your home market may not be suitable for your export markets. In addition, selling direct may involve more set-up costs and local knowledge on your part. But, on the other hand, the upside of going it alone is that you won’t have to share your profits.

However, even if your export market is geographically nearby, it may not be efficient for you to serve it from your headquarters, and therefore it's likely that you'll need some kind of local representation: someone with a good understanding of business practices and networks in the market, as well as language, customs and trading laws. This is particularly vital in markets where business people put a great deal of value in personal relationships. Do some careful research before choosing a partner to ensure that they're a reputable firm, with a proven track record, adequate geographical coverage, and an experienced team to handle sales and after-sales servicing.

It's also vital to weigh the relative advantages and disadvantages of engaging either an agent or distributor in a foreign market. In simple terms, an agent is effectively an extension of your company, while a distributor takes ownership of your products. But the differences - and the 'pros and cons' - are far more detailed than can be covered in this guide, so dig deeper. And, once you've made your decision, seek legal assistance in drawing up your partnership agreement.  

You could also 'piggy back’ with a non-competitive local firm or one in your home country already doing business in your chosen export market. This can provide you with inside knowledge and, if your line of business complements that of your partner, you may have a ready-made customer base too.

It's worth considering all these options and perhaps starting cautiously via a third party until you get to grips with the nature and the potential of the market. Most important of all you need to visit the country to get a feel for the market, your potential customers and to meet any possible partners.

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