It has been a great run for U.S. exporters. The Department of Commerce just announced that our nation’s exports of goods and services were $2.35 trillion in 2014—a record for the fifth year running. Yet clouds are gathering on the horizon, as the economic growth in many foreign markets, specifically those in the emerging and frontier category, has been slowing. Some markets like Russia and Ukraine are set to experience outright GDP contractions brought on by political upheaval.
The single biggest threat facing U.S. exporters is ironically the rising U.S. dollar, which continues to strengthen significantly as the result of the improvement of U.S. economy in the face of the international weakness.
How can U.S. exporters maintain their competitive position and continue to play a leading role in the international export space?
While there is no magic bullet and the process is a comprehensive long-term endeavor, below, most U.S. exporters can use the following five-step approach to maintain and expand their exports, while swimming upstream against the rising dollar:
- Recommit to exports
- Expand the markets served
- Offer open account terms and buyer financing
- Reduce focus on price
- Use available resources more effectively
Recommit to exports.
Despite its undisputed success in the export arena, the U.S. as a nation has been a very anemic exporter. Unlike in countries such as Germany, the Netherlands or Chile, where exports have for years been part of the business’ DNA due to the small size of the home markets, a great number of companies in the U.S. have been treating exports as an afterthought to their domestic sales strategies. Other than the Fortune 500 companies, the majority of U.S. companies export to fewer than three markets. The primary export drivers are either organic demand from overseas, natural affinity of the owners to a particular country, commonality of language or geographic proximity.
In good times, as we know, the tide raises all boats, yet in the face of the upcoming slowdown, it is vital that U.S. companies recommit to exports in a strategic fashion.
To succeed in this endeavor, U.S. firms must make exports an integral part of their sales mix. Whether through building internal export departments or outsourcing to export management firms, the focus on international sales must be relentless and deep. Companies developing or expanding their in-house export departments should invest in training, product adaptation, international network and market analytics. Managers responsible for exports in organizations, along with top management, must make ongoing efforts to follow events in target markets and understand the culture and business customs and attempt to learn as much of the foreign language as possible. Departments not directly involved in exports should undergo inclusionary training to ensure that exports do not become orphans within the organization when it comes to issues such as service, exchanges, spare parts supply, collections, payments and financing.
Expand the markets served.
To succeed in this endeavor, U.S. companies should conduct a top-down review of export markets (there are about 180 countries worth a look) and ascertain the attractiveness of each market. The World Bank’s “Ease of Doing Business,” the Fi3E Export Country Appeal Index compiled by Fluent in Foreign LLC, and the U.S. Commercial Service’s country reports are some of the most effective tools for such a review.
Once the most interesting countries are identified, further investigation of the market prospects for an exporter’s particular products or services should be undertaken. This should include several scouting trips to the most promising countries to find a local partner and, most importantly, to understand the local culture and business practices.
Once a company decides to enter a new country, it is vital that path of least resistance not be pursued. Depending on the market and products, serious attention needs to be paid to localizing the product or service to the market, whether it’s something as trivial as adjusting electrical voltage and converting dimensions to metrics, or something as involved as increasing tensile strength of an electrical cable to adhere to local norms.
Editor’s note: Return next week to read Part 2 of Alexander Gordin’s article, in which he details the three additional steps that ought to be taken to ensure U.S. exporters maintain their competitive position in the world.