In a struggling economy, a growing number of New Jersey small businesses are pursuing exporting deals in order to diversify their operations and boost flagging domestic sales. But small businesses often face a steep learning curve and a unique set of challenges when looking to ship their products and services abroad.
As commerce becomes increasingly globalized, “all companies are looking to new markets,” said Charles Dugan, vice president of global banking and finance at TD Bank’s New York office. The traditional product life cycle, with a company starting sales in its own market and expanding from there, has “somewhat been brushed aside,” as the Internet has allowed businesses to attract customers from around the world, he said.
For most of its history, Spectra Colors Corp. has been shipping dyes to Latin America, Europe and Asia. Veronica Pellot-Marrero, manager of business and finance for Spectra, said exports have countered slumping domestic demand. [Christina Mazza]
And exporting has become more attractive in the economic downturn, Dugan said. “Normally, people get a higher margin on their export sales,” he said. “They might not have as many competitors in some of these foreign markets, and so have a little more pricing power.”
Exporting has helped some small businesses stay afloat during the economic downturn.
“It helps us to diversify, reach other markets and be able to expand our business,” said Vicky Pellot-Marrero
, manager of business and finances at Spectra Colors Corp.
, a Kearny-based dyes supplier that has been shipping products abroad for most of its 21-year history. “We serve so many industries and countries that we were not affected by the recession.”
Exports — primarily to Latin America, Europe and Asia — account for 15 percent of the company’s sales, and have helped offset slumping U.S. demand, Pellot-Marrero said. Foreign orders have risen as a result of the weak U.S. dollar, while domestic clients have cut back on their purchases because of the downturn, she said.
Another benefit is because most of Spectra’s export sales are cash in advance, where customers are required to pay before the seller ships, “we can keep better cash flow,” she said.
But starting or expanding exporting activity can be a particular challenge for small businesses. “Our exporters often need a lot of assistance in educating and networking in order to facilitate and grow their business,” said Linda Kellner
, acting executive director of the New Jersey Business Action Center, which hosts various seminars and programs on exporting for New Jersey businesses.
Finding trade partners has been the biggest obstacle for David Flowers
, president and owner of BDF Industrial Fasteners
, a Camden-based fastener and industrial supply company. Although he has attended a number of SBA seminars on exporting, “it’s been difficult, because we don’t have a lot of exposure,” he said.
BDF — which has four full-time and three part-time employees — has been overlooked by many foreign companies looking to import U.S. goods, Flowers said, as “there seems to be an emphasis on medium-sized and large-sized businesses.”
Flowers is interested in exporting BDF’s products — which include bridge fasteners and material-handling equipment — because “markets here are somewhat on the downside, and revenue has dried up somewhat.” While he said his company must try harder to pursue exporting deals, a lot of time is focused on maintaining domestic sales. “Competition has gotten a lot keener,” he said. “It takes a lot more effort than it did in good times.”
Complying with government regulations is another issue, Pellot-Marrero said. At Spectra Colors, the product manager conducts regulation research on the countries the company is shipping to, and helps recommend the dye that’s best for a particular customer, she said.
And “small businesses aren’t going to have the infrastructure that a large company has, in the sense of support functions,” Dugan said. These firms will have to rely more on outsourcing — in particular, export intermediaries that help to arrange shipments and prepare the necessary documents, as well as banks and insurance companies.
Also, companies need to be familiar with payment terms related to exporting, he said. “It has long been the practice that companies that sell on very short terms here in the U.S. often have to sell on longer terms just to get the business,” Dugan said.
But having an accounts receivable for 90 to 120 days, as opposed to 90 days or less, increases an exporter’s credit risk, as well as its financing costs, he said. “A new exporter or would-be exporter has to realize that they’ll need more working capital to support a given amount on the foreign sales than they would that same amount in domestic sales.”
Dugan suggests the first step for any would-be exporter is to do a self-assessment, such as through the U.S. Department of Commerce’s Export University courses, to determine if the business is prepared for exporting. The self-assessment goes over issues such as whether the business has a system in place for getting credit checks on a potential foreign buyer, and if they are licensed to sell their product in a particular country.
He also recommends a would-be exporter “not get apprehensive about exporting.” While there may be linguistic and cultural differences between an exporter and foreign buyer, “business practices are converging, so it may not be that great a leap into the unknown that it used to be for a lot of companies,” he said. “I’d just tell them to get out there and sell.”
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