All businesses start as small businesses. Some break through to become big businesses by doing something their competitors find intimidating: they cross international borders.
The truth is, venturing into international markets has historically been a smart way for small businesses to increase their size and market share. U.S. companies that expanded internationally between 1993 and 2000 experienced employment growth by an average of 94 percent, according to a study conducted by Georgetown, Yale and Dartmouth economists.
Today, however, it is becoming more and more necessary for survival. Over the past seven years, global trade flows have increased 70 percent to $14 trillion, according to research by the Cato Institute. In 2007, international trade—exports and imports—accounted for nearly 29 percent of the nation’s gross domestic product.
So what’s holding some small businesses back—especially when the current weak dollar may make their products more affordable? Let’s take a look at three common misconceptions.
Misconception #1: It’s tough for a small U.S. company to compete against the local companies in another country.
Not necessarily. The reality is, most small businesses are already competing against foreign companies, right here on our soil.
Whether you’re doing business in the U.S., Canada or across an ocean, nationalism can sometimes play a role in a buyer’s choice of vendors. But in most cases, international customers—like those down the block—are looking for the best-quality goods and services at the best price, regardless of their origin.
In 2007, for example, the U.S. exported $136.5 billion in goods to Mexico—an increase of 242 percent since 1993. In many cases, these are high-quality, specialty items which may be difficult for local manufacturers to produce. Over the last decade, 20 percent of our growth has come from such exports.
To help ensure you get paid, there are tools available to help you price your product in the appropriate currency, taking into account the exchange rate, your competition, shipping and any other extra costs associated with doing business outside of your own borders.
An added bonus: competing in international markets can open your eyes to efficiencies and innovations you may have never previously considered. Foreign customers sometimes test your assumptions and inspire you to think differently, finding solutions that can benefit your business both abroad and back home as well.
Misconception #2: The red tape associated with doing business in other countries is more trouble than it’s worth.
An international border between you and your customer does create obstacles. You must establish relationships with people who may speak a different language and use another form of currency. Your competition is different. The regulations governing trade and product standards are different.
The good news is, these are obstacles you can almost always overcome—or at least learn to navigate. The key is to identify experienced, knowledgeable partners who can bridge your gaps in expertise.
Don’t know where to start? A good place is your banker. A bank that is experienced in international business will typically have a network of international business resources you can tap into, including logistics and freight companies and law firms. By developing a good relationship with a freight company, for example, you can learn not just about shipping costs, but also where the larger shipment volumes are headed and how to best capitalize on sometimes-limited container availability.
Misconception #3: There’s a greater risk of not getting paid.
There is no question, moving money safely from one country to another is not always simple and is generally more expensive than domestic money transfers. Fluctuations in foreign exchange rates, along with freight and customs tariffs, can change profit margins overnight. Some countries lack adequate foreign exchange reserves, potentially causing nonpayment or a delay in payment.
Given the right tools and banking partner, however, these and other payment-related risks can be mitigated. Banks experienced in foreign exchange and risk mitigation products, for example, can serve as an intermediary in your financial transactions, helping ensure you receive payment. They can provide other tools that minimize your credit risk and enable you to “lock in” on the specific amount of U.S. dollars that you’ll receive when your foreign payment is delivered.
Your bank can do a lot to bolster your peace of mind as you venture into foreign waters. For many small businesses, the fears associated with international trade are really fears of the unknown. Get past them, and find a whole new world of opportunity at your doorstep. iBi