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The Future is Now: U.S. Small Businesses Overcome Export Barriers
(Released August 2008)

 
  by Peggy Olive  

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Conquering the Global Beast

Contents

Getting paid for goods and services

Collecting payments from customers can be a big problem for small companies, but there are avenues available to help overcome this barrier. One of the safest ways to collect is by wire transfer before a product or service is delivered. The explosive growth of the Internet has leveled the playing field globally, but the Internet also makes entering international markets easier for U.S. small businesses and entrepreneurs. The Internet and the resultant improved communications between global suppliers and prospective buyers help make it easier to set and negotiate prices. Better communication and agreements make it less likely there will be miscommunications when it comes to payments. One such advantage is e-mail communication, which is faster and cheaper than past telephone communications, and provides a paper trail to document the communication in case there is a dispute about prices and payments (Exporting Process Complicated, 2007). Businesses can also seek payment terms that provide guarantees to the exporter. One of Ex-Im Bank's most popular products is credit insurance, which protects the small business owner in the event of buyer default (DeBaise, 2006). A policy covers commercial risks, such as buyer bankruptcy and slow payment, along with some political risks, including war and terrorism (Czurak, 2007).

graph of internet traffic growth
Internet traffic grew 57% from mid-year 2006 to mid-year 2007, down from 74% growth in the previous twelve months.

Shipping and filling orders

Sometimes, the complexities of doing business on a global scale can feel overwhelming, says Tom Travis, author of Doing Business Anywhere: The Essential Guide to Going Global (2007). Travis wrote his book to help global entrepreneurs understand business opportunities and avoid expensive mistakes. One of his recommendations for doing business overseas is to take advantage of trade agreements (Five Basics You Need to Know, 2007). Steve Preston, administrator of the U.S. Small Business Administration, agrees that free trade agreements eliminate or reduce tariffs, duties, and quotas, and work to create a level playing field for U.S .companies. Free trade agreements also reduce non-tariff barriers which can make exporting very difficult for small business, Preston said. These barriers, from excessive paperwork to the inconsistent enforcement of customs policies or valuation of imports, require fixed costs that can be prohibitive for small businesses (Kilkenny, 2008). A government resource that may ease shipping concerns is the Ex-Im Bank, which provides a program for protection of overseas shipments. The bank's web-based service helps U.S. companies buy insurance covering shipments of goods or services to other countries quickly and easily (DeBaise, 2006).

Lack of information about foreign markets

Learning about foreign markets is often complex and constitutes a major barrier for small business owners who want to enter international markets. Fortunately, a wide array of programs and resources is available to small businesses from federal agencies, including the U.S. Department of Commerce (http://www.commerce.gov), the Small Business Administration (http://www.sba.gov), the Overseas Private Investment Corporation (http://www.opic.gov), and the Ex-Im Bank (http://www.exim.gov). The combined export trade services of these federal agencies can be accessed through the 107 United States Export Assistance Centers located throughout the United States. An arm of the U.S .Department of Commerce (USDOC), the U.S. Commercial Service (http://www.trade.gov/cs/ offers reasonably priced marketing services and resources that help new-to-export businesses or small exporters market their products and services, find credit-worthy buyers, and avoid fraud and other risks of loss. The U.S .Commercial Services Market Research Library contains more than 100,000 industry and company-specific market reports written by specialists working in overseas posts. U.S. small businesses can also advertise their products and services in USDOC publications, including the Commercial News USA, for a modest cost. The USDOC's Featured U.S. Exporters Program, a directory of U.S. products featured on Commercial Services websites worldwide, is being expanded: It can be accessed at http://www.buyusa.gov/home/fuse.html.

A number of states, cities and universities also provide export assistance for small businesses and entrepreneurs. Some states maintain Small Business Development Centers (SBDCs) which help small businesses with their exports, and over 1,000 SBDCs are operating across the country. A growing number of universities offer export assistance, such as Duquesne University's Small Business Development Center in Pittsburgh, Pennsylvania, which provides export planning tools and uses foreign-born professionals to help small businesses bridge communication and cultural gaps (Koch, 2007). Some small businesses create strategic alliances with foreign business partners. Others engage the services of commissioned brokers or export management companies to help market their products.

Costs to export

Costs, of course, are always a concern for small businesses, and with entry into global markets comes the need to finance the purchase of inventory, labor, and other associated costs, such as working capital financing. Ex-Im Bank and the Small Business Administration offer joint working capital loan programs that provide guarantees (up to 90%) to private commercial banks for small businesses to assist their entry into global markets. Recently, privately owned merchant finance companies have begun to finance trade by providing purchase order financing (Koch, 2007). Ernst & Young publishes business guides for more than 40 countries, covering governance, compliance, fraud, outsourcing, and tax advice (Trembley, 2008).

map of international e-markets
Morgan Stanley's Internet Trends 2008

Competition with larger companies

Small businesses are always concerned about competing with larger companies and this concern is magnified in the export arena. However, while larger companies have more resources, they also tend to have larger, fixed infrastructures. Flexible smaller companies, on the other hand, can be more responsive in many ways, including shifting resources when necessary. Another way of competing with larger entities is through special services. Customization can be achieved only by using non-standard methods, which is much easier for smaller companies. At the opposite end of customization is specialization - for instance narrowing a product line - which can also be a competitive marketing advantage (Wiersema, 2007). The aforementioned Intuit report notes that small businesses will be better positioned than larger companies to provide customers with highly targeted, customized, and relevant products. The report also states that increased computing power and access to big business infrastructure - as large corporations increasingly tap small business for collaboration - will lower barriers to entering new markets and reaching customers (Small Business Heyday, 2008).

Even as small businesses encounter these and other barriers, they are well-positioned to overcome the obstacles.

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