The following is going to be a slight departure from what I generally talk about in this monthly column. I've been involved with the overseas sale of American-built equipment for most of my career, so talking about exports with readers is not necessarily strange. What is different is that a lot of questions are coming from contract manufacturers who want ideas on the feasibility of selling their services outside of their immediate marketing area.
In this column I will discuss why you should consider exporting your product or services. In next month's column I will go into detail on how you can increase the sales and profitability of your organization by exporting. With a little effort and very little additional expense, your organization can quickly become stronger. A number of American companies, large and small, are doing well overseas. Kennametal Inc., a Latrobe, Pennsylvania, cutting tool manufacturer, generates 25 percent of its $2 billion in annual sales overseas.
However, “You don't have to be a Fortune 500 company to participate in export sales,” says Carl Bongiovanni, owner of the Bon Tool Company, based in Gibsonia, Pennsylvania. The company employs 50 people and sends its products to Canada, China, the Middle East and the former Soviet Union. His biggest concern in doing business overseas is getting paid.
The best way to ensure payment is through a letter of credit, which can be obtained through most banks. The client pays the bank, and then the bank pays you. But Mr. Bongiovanni doesn't like to take letters of credit. Most of his international customers have been with Bon Tool for awhile, and he sells to them on open account. For orders smaller than $15,000 he asks for a credit card. On larger orders, he says, “We feel confident that we are going to be paid.”
Lalit Chordia is president of the Pittsburgh area manufacturer Thar Design, based in Harmarville, Pennsylvania. Mr. Chordia has had problems with payments, but the losses were not enough to dissuade him from international trade. Exporting, in fact, saved his business. Thar Design started selling overseas 5 years ago. “We were struggling,” Mr. Chordia says, “We felt that the international market was necessary, literally, for the survival of the company.” At the time, Thar Design had only $350,000 in annual sales. Now, 5 years later, it sells to England, France, India, Korea and Japan. This year the company expects to have revenues approaching $4.5 million.
For the most part, small- and medium-sized companies are more inclined to concentrate on the domestic market, and they need a compelling reason to want to get into exporting. Exports are a critical part of the U.S. economy, which imports far more goods and services than it ships abroad. Even in the machine tool industry, which exports 20 to 25 percent of the annual production, imports are higher. Overall, fewer than 2 percent of all U.S. companies actually export their products. According to the U.S. Department of Commerce, about 63 percent of the companies that do export send their goods to only one country. Companies send most of their goods to either Canada or Mexico. Canada, of course, benefits from proximity to the U.S. manufacturing base, and there is a common language. Mexico also benefits from the North American Free Trade Agreement.
Please give some serious thought to exporting. It is not as “foreign” as it first appears. With the right support and a little guidance you can begin to expand your customer base. Who knows—you might also learn something from your new customers that will enhance your manufacturing process.