Seven reasons why small businesses should export
While many small businesses are in “survival” mode during the current economic downturn, there are still strategic decisions that can be made today which may have a positive impact on this year’s bottom line.
Small businesses account for 30 percent of all U.S. exports–a staggering $300 billion per year. The fastest growing segment of U.S. exporting companies–comprising 65 percent of all U.S. exporters–are firms with 20 or fewer employees, demonstrating that size is no longer a requirement for success in global markets.
With domestic customers still reeling from the recession, small business owners may want to diversify their market base by exporting their products or services. The following are seven reasons why small firms should consider exporting as a way to expand sales base and lessen the effects of a down economy.
1. Market growth. Where is your company’s potential growth? If you look at world demographics, you will find that 95.5 percent of the world’s population is outside of the U. S. (Today the world population stands at just over 6 billion – up over 2 billion since 1973. It is estimated that this number will grow to 9.5 billion in 2050) If you have a product or service to sell, you want to go where the buyers are and, increasingly, that is outside the United States.
2. Economies of scale. Assuming your firm has excess production capacity, it will be marginally less expensive to produce 500 units than 400 units, so your per unit cost will come down as you expand your sales into new overseas markets.
3. Extend product life cycle. A product that may be nearing obsolescence in this market may still have demand in Asia or South America. Exporting that product will extend the product’s life cycle. Or, by licensing the technology to an overseas producer, a company could continue to generate a revenue or royalty stream from the product through off-shore production.
4. Moderate seasonal production cycles. Any company that produces products related to the seasons-such as camping gear or ski equipment-should be aware that there are two summers and two winters every year on the planet. By selling seasonal products south of the equator during its off season, a company could moderate seasonal fluctuations in its production cycle–a big benefit both to the company and its employees.
5. Faster growth, higher profits. Several years ago a comprehensive study was done that showed that exporters tend to grow 22 percent faster than non-exporting companies, that they have higher profits, and that they stay in business longer. Exporters are winners, by definition, because they have shown that they can “think outside the box” and successfully compete in global markets.
6. Competition. The U.S. market is extremely competitive compared to many other countries around the world where market share might be easier to obtain and profits might well be higher. Due to increased competition within the U.S. market – which could come from either foreign or domestic companies, or both – a firm might decide it needs to enter other markets in order to grow the business. Also, a small business might explore international opportunities as a response to its chief domestic competitors doing so, in order to remain competitive in the long run. The competitor might be trying to lower production costs and/or attempting to use overseas profits or economies of scale to more aggressively compete at home.
7. Enjoy what you do. Part of life is having fun – even at work. Many entrepreneurs would jump at the opportunity to visit their new distributor in Paris, or make sales calls in Tokyo or Berlin. It is exciting to learn about new cultures, to make friends with people from other countries, to try unusual, often exotic, foods. Not only is it fun, but it brings the world closer together. International trade can benefit everyone, by lowering costs, establishing friendships and making economies and companies more productive and competitive.
Have you made international sales a part of your business strategy for 2010? The U.S. Small Business Administration has a number of programs and services to help entrepreneurs take their business international. For additional assistance, contact Dennis Chrisbaum, SBA’s International Trade Specialist, at 303-844-6622 Ext. 18 or visit www.sba.gov/international.