Strength & Export - causation or correlation?

Ed Marsh | Dec 13, 2011

Companies that export are healthier

mcgladrey international business export growth SMB studyAccording to an in-depth study recently released by RSM McGladrey, Inc. "60% of companies that are thriving have increased their exports, a significantly higher percentage than those companies holding their own.  In other words, exporting sales is recognized by those thriving companies as a key driver for growth."  

Is this "correlation" or "causation"?  Are they healthier because they export, or do they succeed at export because they are healthier?  The honest answer is probably both, and more importantly, it doesn't matter!  What is clear is that the benefits of export (increased revenue and profits, lessons learned from other markets to apply at home to improve the core operation, diversification, insulation from single market downturns) are huge.  Even struggling companies can begin the export process, increase sales, and learn and grow in ways which will help them in all their business activities.

This message captured in the McGladrey report is precisely what the US Commercial Service has been preaching on behalf of the Department of Commerce - now with 3rd party, empirical validation, perhaps more will pay heed.

The report offers a number of interesting insights which are captured below:

    • Many companies only begin to export when customers drag them into it.  Strategic vision and long-term market growth are secondary
    • Initial export efforts focus on transactional issues.  Subsequent efforts focus more on strategic issues - lessons learned the hard way from initial efforts and inadequate planning for early attempts
    • Biotech, Industrial Machinery and Automotive are growing export sectors - products which have engineered differences are easier
    • The reasons that companies hesitate to export are valid, but handily overcome by companies which actually export.  Perception of barriers is exaggerated - perhaps as a rationalization
"The challenges that companies face when they initially export appear to change as that impulse evolves into strategy.  Following the first foray into an offshore market...the challenge is focused more at the transaction level (e.g. shipping, transportation, freight)  Subsequent strategic moves into additional foreign markets have different challenges.  This transactional mindset and its primary hurdles change from more process-oriented issues to a strategic mindset and new considerations that did not exist before, such as foreign competition and market acceptability." Manufacturing & Distribution Monitor, Fall 2011 Report / McGladrey International, Inc.
    • Growth appears to be slowing for exports to China.  Brazil is a huge new focus
    • Direct presence is critical to success
    • On average companies which export derive 16% of their sales from foreign markets
    • Companies not exporting may be at risk for decline
    • Central & South America are growing quickly.  Brazil is high-profile but a difficult environment.  Colombia and Panama are attractive target markets
    • Vietnam is becoming increasingly popular
    • "Companies that take a strategic approach to exporting are following a best practice and tend to be thriving and growing."
    • "Global savvy" is important to ongoing success
    • Tax incentives can be substantial benefit
    • Companies should take a "holistic approach" to considering combined opportunity of export and low-cost production
    • FTAs and US Government resources are important tools
"Brazil is today's new China but, based on the survey's results, expect the country to start becoming flooded with foreign imports by 2013.  Exporters may want to turn their attention to other South American countries, such as Colombia, Panama and Peru - which are making considerable investments in infrastructure improvements - and Chile, with its sophisticated financial markets." Frank Le Bihan, Managing Director, International Services, McGladrey, Inc.

Savvy Advisory

The important lessons are only learned through experience.  As helpful as it is to have them outlined, there is no substitute for actually having done business in multiple markets and multiple industries.
A capable advisor will substantially improve the outcomes of an export initiative and shorten the ramp up time.

Contact us to discuss how Consilium can help your company realize the benefits of international business development.