Magazine article Business Credit

Exporting Is Good Business

Magazine article Business Credit

Exporting Is Good Business

Article excerpt

The mid-90s were very good to Emmanuel Lagos and his newly formed business, Phone Accessories Inc. (PAI), a manufacturer of cell phone accessories--leather cases, belt clips, etc.--based in Baltimore. The cell phone industry was riding a tremendous growth wave and business was booming; PAI could hardly keep up with the demand, even though sales were limited to just the surrounding Mid-Atlantic region. As Manny looked ahead, he was excited by the prospects for expansion: first up and down the East Coast and then westward; just thinking about it brought a smile to his face.

Unfortunately, as the '90s wound down, demand began to soften while the competition stiffened and PA1 was facing a most uncertain future. As their sales numbers continued to slide, Manny realized that the only way to stem the tide was to think more globally--PAI had to begin exporting.

As a native of Panama, Manny knew the country well, but knew little of the market for cell phone accessories. Also, he did not know much about the mechanics of exporting: what did he need to consider before he started exporting and what were the potential stumbling blocks to success in exporting? How could he research these questions and gain credible information before taking the plunge? What resources were available to help a small business plan for exporting?

Exporting Considerations

How should you approach exporting? Very carefully. Unlike domestic sales, export sales require the seller to take on country risk in addition to the commercial risk of the buyer. For example, the exporter may have been selling to a very strong buyer in Argentina, a company that has always paid its bills on time. However, after the Argentine government severed the link between the U.S. dollar and the peso in late 2001, the country's economy collapsed, leaving thousands out of work and forcing thousands of businesses to close. Suddenly, the very strong buyer became very weak, suffering from too much stock, too much debt, and too few customers. In addition, even if the company had the will and the means to pay its obligation, the government froze all foreign payments, so no monies could leave the country. Preventing money from leaving the country is a classic political risk event.

While no one can safeguard against every pitfall in business, a prudent businessperson plans carefully and gathers as much information as possible before committing any funds to a new venture. This approach should be used for any major business decision, including exporting.

You must also consider--where do you want to sell? Are there any natural markets for your goods? How do you structure your organization to be able to identify prospects, make the deal, close the sale, and collect payment--all in a cost-effective manner?

Making a Plan

Before proceeding to export, research the market and make a plan. A number of good resources exist to help with this process, including many professionals with whom you may already deal such as bankers, lawyers, accountants, and insurance agents. In addition, the government operates U.S. Export Assistance Centers (http://www.sba.gov/oit/) in major cities around the country. Established by the Small Business Administration, these Centers provide one-stop assistance with all matters relating to exporting, lf they cannot answer a question, they can at least provide guidance on finding the answer.

Another good source of information is found in-country. If you are considering exporting you should not be afraid to spend the money to visit the market, check out the competition, gauge consumer interest, and try to identify potential problems. If you know people in the country, talk with them and explain what you plan to do. Ask them for their opinions on your plan and for suggestions of people you should talk to who might be able to help. In many markets, having an in-country representative is the only way to operate. …

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