As we know, small businesses are part of the backbone of economies around the world. Not only are they a major source of job creation globally, but also they are an integral part of global supply chains, as both buyers and suppliers.
For most companies around the world, winning trade overseas is a key way to kickstart growth and prosper in the marketplace. Small businesses that export successfully can also expect to grow their revenue and profitability by expanding into new markets.
But how can small businesses break into and thrive in international markets? Given the various requirements, companies need to satisfy to ship their products abroad, this sort of expansion can often be a complex and time-consuming process.
To answer the question above, this article explains why small businesses should start exporting and discuss some key export strategies that small businesses can pursue.
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Many small businesses don't consider their export potential because they are so busy running their day-to-day operations. Oftentimes, companies think exporting is too burdensome or complicated, or they are not aware of export assistance or incentives offered by their governments. But there are a lot more reasons why a small business should start exporting.
This has been proved by numerous statistics. For example, a 2015 study by Industry Canada found that exporting companies, on average, have over double the annual revenue of non-exporting companies ($3.4M compared to $1.6M)1. To give you a more specific example, from 2009-2012, American SME manufacturers who exported grew by 37%, while those who didn’t shrink by 7%1.
If your firm has excess production capacity, it will be marginally less expensive to produce 1000 units than 500 units, so your per-unit cost will come down as you expand your customer base with the new overseas markets.
The U.S. market, for example, is extremely competitive compared to many other countries where market share might be easier to obtain and profits might well be higher. To tackle fierce competition within the U.S. market, which could come from either domestic or foreign competitors, or both, a business might decide it needs to enter other markets in order to grow. Also, a small business might expand into overseas markets as a response to its main domestic competitors doing so, in order to stay competitive in the long run. The competitors might be trying to lower production costs or use overseas profits to be able to more aggressively compete domestically.
Where are your company’s potential customers? If you live in the U.S., looking at world demographics, you will find that over 95 percent of the world’s population is outside your country. (Today the world population stands at just over 7.8 billion – up over 3.8 billion since 1973. It is estimated that this number will grow to 9.7 billion in 20502) If you have a product or service to sell, you want to go where the buyers are and, increasingly, they are outside your own country.
Exporting can not only increase profits but also increase growth. Eighty-five percent of British companies felt exporting had helped them grow faster than they thought possible, while 2/3 of American SMEs felt that exporting had contributed to their business growth1. While exporting can help with steady growth, it can also be the catalyst for rapid growth. From 2009-2011, 10% of exporting SMEs in Canada grew by over 20%, while only 8% of non-exporting SMEs did the same1.
Exporting will allow your business to spread the risks, as a wider geographical spread lessens the impact from local downturns or disasters. We have seen a lot of such examples in the current COVID-19 pandemic. Because China has been the only major economy not hit hard by the pandemic, those foreign enterprises (such as those making dairy products and olive oil) that export to China have suffered fewer losses than their non-exporting counterparts.
A product that may be nearing obsolescence in a market may still have demand in other parts of the world such as Africa. So, by exporting that product or licensing its intellectual property to an overseas producer, a company could continue to generate a revenue or royalty stream from the product. For instance, over the past 10 years, some Chinese mobile phone makers have managed to sell large quantities of old-fashioned mobile phones to Africa and other underdeveloped regions. These affordable and reliable phones have not only met the demands of their users but also contributed to the success of these companies.
If you are a company that produces products related to the seasons such as diving gear or down jackets, you should be aware that our planet has two summers and two winters every year. By selling seasonal products south of the equator during their off-seasons, a company could moderate seasonal fluctuations in its production cycle, which is a great benefit for both the company and its employees.
A challenge for small businesses is the need to appear big and established and e-commerce allows this. E-commerce is not just the future of trade, it’s here now and many small businesses see it as a pathway for exporting. For instance, a long-established manufacturing business in Yorkshire, England says, using e-commerce, it has successfully exported worldwide without actually meeting the final customers several times and the export sales have been significant4.
You may have a comparative advantage if your country is known throughout the world for innovative goods and services, high-quality customer services, or sound business practices. Your country's heritage, stories, or reputation can be a real selling point when trading abroad.
Most companies that export have an easier time riding out fluctuations in their own countries and are more likely to stay in business. A study published by the Institute for International Economics concludes that U.S. companies that export not only grows faster but are nearly 8.5% less likely to go out of business than the non-exporting ones. Exporters are winners, by definition, because they have proven that they can “think out of the box” and successfully compete in the global marketplace.
You will be exposed to new and different ways of doing things, new customer requirements, new technologies, etc. You will also better understand your competitors. All of these will lead to better products and services.
Part of life is having fun, even at work. Many entrepreneurs would jump at the opportunity to visit their new distributor in Singapore or make sales calls in Dubai or Tokyo. It is fascinating to learn about new cultures, to make friends with people from foreign countries, or to try unusual, often exotic, foods. Not only is it fun, but also it brings the world closer together. International trade can benefit everyone, by cutting costs, fostering friendships, and making economies and companies more productive and competitive.
The U.S.-Mexico-Canada Agreement (USMCA) was signed on November 30, 2018, and went into effect on July 1, 2020. The huge African Continental Free Trade Area (AfCFTA) was founded in 2018, with trade commencing as of January 1, 2021. The Regional Comprehensive Economic Partnership (RCEP), one of the biggest free trade agreements in history, was signed on November 15, 2020. As global trade is becoming easier, small businesses should not miss out on the opportunities to trade abroad.
Most governments support export and offer assistance and incentives to exporters. For example, exporters in China are entitled to a number of favorable policies such as export tax rebates. China's massive Belt and Road Initiative, which kickstarted in 2013, is also benefiting both domestic and foreign exporters.
As the world is rolling out COVID-19 vaccines, most economies are expected to have faster economic growth in 2021 and 2022. The IMF expects the world economy to grow by 6% this year3. For advanced economies, the IMF estimated growth of 5.1%, with the United States set to expand by 6.4%3. The group’s forecast for emerging and developing economies growth is 6.7% for 2021, with India expected to expand by as much as 12.5%3. So, it is now a good time to start exporting and benefit from such substantial growth.
Quality of products matters to customers both in and outside your country and it really affects the image of your business and your country. So, make sure the products you are exporting not only meet the customers’ needs and the relevant regulations but also are of high quality. In fact, this is one of the most important secrets behind the success of some Chinese smartphone makers in Africa, which helped redefine the meaning of “Made in China”.
When it comes to global trade, every market is different both economically and culturally. A product design or marketing strategy that works in one country may not work in another. Let’s say you want to export a type of Indian chili sauce and your target market is Brazil. You must be aware that most Brazilians do not like the kind of chili sauce popular in India. In order to make a profit by selling this sauce to Brazil, you have to change its ingredients to create a taste that most Brazilians like.
Good customer services not just help acquire new foreign buyers but also retain them. And by word of mouth, existing customers who are happy with your products and services can even bring you, new customers. You will also obtain valuable feedback in the process of providing customer services, which can be used to improve or better adapt your products and services.
It is hard to break into a new foreign market alone, especially when you are a small business with limited resources and expertise. So finding and working with partners who are familiar with the local market can be a big help. For instance, if you are exporting products mainly used by hotels, you may consider forming a partnership with a multinational hotel chain so as to break into multiple export markets by piggybacking on its network and reduce your effort in promotions.
Most governments around the world provide support and incentives to small business exporters, as a way to boost their countries’ exports and economies. For example, in the UK, the Department of Trade and Investment has a number of programs to help with exporting goods including UKTI’s Passport to Export Service and Gateway to Global Growth. In the U.S., the federal government’s Small Business Administration (SBA) provides counseling, training, recommendations, and financing support to small businesses to allow them to take advantage of export opportunities. In China, companies can apply for a rebate, or refund of the value-added tax (VAT) and consumption tax on eligible products destined for overseas markets. As small business owners interested in getting into the export business, you should check out the available support offered by your governments.
Founded in 1999, Alibaba.com is one of the largest B2B wholesale marketplaces in the world. The online marketplace has been helping wholesale businesses of all sizes reach buyers from around the world for over two decades. The established marketplace is trusted by millions of global sellers and buyers. Whether you are an experienced exporter or are still learning to trade abroad, you can use the marketplace to do global trade online 24/7.
So, if you are still wondering which marketplace to use to start your export journey, we highly recommend that you give Alibaba.com a go. To get more export tips and learn how Alibaba.com can help you build export successes, you may check out How to start exporting: the ultimate guide.