Unfamiliar territory

Posted on Nov 1, 2014 :: Cover Story
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Posted by , Insight on Manufacturing Staff Writer

When Harley-Davidson wanted to sell its motorcycles in Brazil in the mid-1990s, it discovered the exorbitant duties on the fully manufactured bikes — about 27 percent — would make its product cost prohibitive for the average buyer.  “We followed what other companies were doing,” says Roxanne Baumann, director of global engagement for the Wisconsin Manufacturing Extension Partnership, who at the time was manager of international parts, accessories and licensed products at Harley. “If you did a knockdown of that product, and had some assembled content in Brazil, you could come in at a much lower duty — sometimes 2 or 3 percent.”  Not only that, but the product had a higher acceptance level since people there knew it had at least some local assembly.

Working through problems like this can open up the world of exporting to New North area manufacturers. But perceived barriers and unknown factors can be daunting for companies that are new to exporting. While regulations are complex and vary by country, state and local agencies have helped some companies to discover it’s worth the trouble.

“If that’s where you can make money, you just have to figure out the strategy to get there,” Baumann says. Eighty percent of international business has basically the same processes as domestic business.

“It’s the 20 percent you have to figure out that’s a little bit different, but you’ve got great resources in this whole international team in this state.”

Programs such as WMEP’s ExporTech, which Baumann leads, and those offered through New North area technical colleges are great places to start.

Gautam Malik, chief operating officer for the Stevens Point-based Gamber-Johnson, says his company increased exports by 650 percent after going through ExporTech training. Malik, who spoke at the recent Manufacturing First Expo and Conference, says ExporTech helped the company focus on a  specific strategy to tap into foreign markets. For example, the company, which produces docking systems for laptops and tablets for public safety vehicles, broke into the Saudi Arabian market by adding customer service on Saturday and Sunday.

“Saturday was like Monday for them,” Malik says. “When compared to the competition, you’re getting a two-day head start. Those were the small nuances that we learned when we attended the ExporTech program.”

Gamber-Johnson invested about a half-million dollars in capital to develop docking stations for computers sold outside of America, making four unique products for the European market.

“That was a big gamble that we were taking,” Malik says.

“We knew what the risk was going to be. The plan was to break even after year one, and in nine months, we had a positive capital.”

Even though companies like Gamber-Johnson have found success, there’s still a lot of hesitancy to make the leap.

“Part of the challenge for a lot of American companies is that our own market is so huge that it’s hard to get people really excited about other markets because they’re small in comparison,” says Chris Kuehl, international chief economist and managing director of Armada Corporate Intelligence, who presented at a recent FVTC Global Education and Services department program. “One of the things that is constantly pointed out is that almost every state is the size of a country. Wisconsin has the same GDP as South Africa; Texas has the same GDP as Canada.”

Fear of the unknown, like not being able to predict return on investment, can give companies pause.

“I think we’re just a little sheltered here in Wisconsin, too, and we kind of think that those domestic levels that we experienced through the 2009 recession are going to come back,” Baumann says.

But the world is global and to be competitive it’s important to look to new markets, she says.

“We want to go out there armed with a plan and the right partners around you so that you have the least amount of risk and the greatest chance of success,” Baumann says.

The Wisconsin Economic Development Corporation (WEDC) has market development directors who work with other state agencies and trade representatives in 54 countries that can help, says Marie Martin, director of Global Education and Services at FVTC, which offers programs, seminars and language training that can be customized to your business. It offers cultural seminars on working in other countries, including Canada, which does have its own nuances to consider.

“People need to know it’s not the United States,” Martin says. “Canada is a different market with different cultural traditions, very influenced by European culture, and also there is an American influence.”

Sometimes companies don’t have a lot of control over what markets they get involved in — often exporting starts with an inquiry from overseas and before they know it, company leaders are trying to figure out what they need to do to get their product over there, Kuehl says.

“Compliance varies a lot from country to country,” he says. “Some places are very easy to get into, very comfortable with U.S. business. Others are not.”

But possibly the biggest barrier “is simply the issue of getting paid,” Kuehl says. The National Association of Credit Managers has an international division that spends a lot of time on helping companies understand the payment process.

“We’re used to a very organized system here, one where the legal system protects the company that’s selling,” Kuehl says. “In many countries, that’s not the case.”

These unknowns are worrisome to potential exporters because it changes the rules.
“Everything else is routine,” he says. “If you want to ship something, you just call a trucking company and off it goes. Well, now you have to work with freight forwarders and have to figure out what the customs requirements are, and there’s different rules and regulations in regards to what comes in and out of a given country.”

Even then, your company must be responsible for meeting all regulations and requirements.

“It’s not a sufficient argument to say, ‘Well, they said they’d take care of it for us,’” says Dani Long, owner of the Chilton-based International Business Development, Inc. “As the exporter of record, you still have the responsibility to check and make sure all these compliance issues are clear.”

While there’s a lot to consider and plan for, the benefits can be excellent.

“The opportunity for growth through exporting is major,” Long says. “I hear stories time and again of companies that hesitated and their competitors went into global markets ahead of them and it was really hard to catch up.”

Your company can gain a competitive edge by branching into other markets. Your product may fill a niche overseas that hasn’t yet been tapped. Paying attention to changing demographics can also open up brand new markets on a large scale, such as how cell phone use quickly edged out landlines in India to the tune of 750 million users, Malik says.

“People can just leapfrog to the next generation and there could be a market that could open for you that you didn’t even know existed in that country,” Malik says.

The difference in agricultural seasons opens up a new market to U.S. exporters, and the U.S. population is aging, whereas other countries have a different demographic, Kuehl says.

Additionally, if your product has become obsolete in America, it might still be popular in India or Brazil. Agricultural equipment manufacturer Hesston can’t compete with John Deere in the U.S. but is very successful in India, which wants the smaller, easy-to-repair equipment.

It’s largely about finding a niche market and solving the problems – or weathering the headaches of the process – to break in.

Jeff Schwager says he ran into the same problem as Harley did in Brazil while he was working with loading dock equipment manufacturer Rite-Hite. Schwager is now president of Sartori Cheese, which has been trying to enter South American countries for two years, buried under many versions of the regulatory paperwork.

He says it’s worth it, though, because there is a potentially huge market for Sartori’s hard cheeses, and with the help of the U.S. Dairy Export Council, Sartori has taken its export sales from less than 1 percent five years ago to about 10 percent of its total sales. It’s done quite well in Germany and is even breaking into France, a country that’s nationalistic about its cheese products.

“If you’re going to do it, you’ve got to be committed, because the results won’t come in a hurry,” Schwager says. “And I would always tell people you need to plan on two to three years of investment before you start to turn the corner to get enough volume to make it pay off.”

WHERE TO START

» FVTC’s Global Education and Services – www.fvtc.edu/global-education

» NWTC – www.nwtc.edu

» Lakeshore Technical College – www.gotoltc.edu/

» New North, Inc. – www.thenewnorth.com/strategic-initiatives/global-new-north/

» WMEP’s ExporTech program – www.wmep.org/next-generation-manufacturing/global-engagement/exportech

» WEDC – http://inwisconsin.com/exporting/programs/global-business-development-program/

QUESTIONS TO ASK YOURSELF ABOUT EXPORTING

1.
“What is your competitive advantage with your product?” says Roxanne Baumann, director of global engagement for the Wisconsin Manufacturing Extension Partnership. “I can tell you if you’re getting international inquiries right now, people are finding you because they like your value proposition. You want to develop a strategy to find customers who want that value proposition.”

2.
How can we choose the best country to begin exporting, or if a country has approached us about exporting, how do we start? “We can provide that type of information – what are the regulations, how do you comply, how do you find a freight forwarder, how do you find a distributor?” says Tandra Sbrocco, global education coordinator at Lakeshore Technical College.

3.
Who are you selling your product to? What else does your buyer do? What will be the end use of your product? “You as the exporter of record still have the responsibility to check and make sure all these compliance issues are clear,” says Dani Long, owner of the Chilton-based International Business Development, Inc.