How to assess your export options to begin doing business overseas

Victor Notaro, Senior Vice President, PNC Global Treasury Management

Amid the economic gloom and doom of the past two years, a potential bright spot may have been overlooked. In spite of the impression that U.S. exports are not competitive, are shrinking or are hamstrung by protectionism, the U.S. remains a major player with enormous untapped potential.

Victor Notaro, the senior vice president of PNC Global Treasury Management, believes that the U.S. is doing very well as an exporter, but could be doing better.

“While we certainly import more than we export, we remain the third largest exporter of goods in the world,” says Notaro. “And when you add in services, the picture gets even better. In spite of this historic success, however, too many companies are reluctant to explore the international market, even though 95 percent of the world’s consumers are beyond our borders.”

Smart Business spoke with Notaro about what’s holding companies back and how winning companies have learned to grow internationally.

What proportion of U.S. companies export?

According to the U.S. Department of Commerce, only 1 percent of U.S. companies export. On the other hand, the U.S. has about 30 million companies, so even 1 percent of that total is a large number. That small percentage has been able to keep the U.S. in the top tier of all exporters worldwide. When you include high-value services such as professional and technical services, insurance and financial services, the U.S., at $1.5 trillion, tops every other country. And, contrary to popular impression, exports are growing. U.S. goods and services exports in the first two months of 2010 are up 14.8 percent, according to the U.S. Department of Commerce.

Why does such a small percentage of companies export?

First, U.S. companies have enjoyed such a rich home market that they have not needed to export in order to grow. Second is the risk you take on whenever you venture into the unknown. Companies may not be comfortable navigating within other cultures and they are concerned about managing risk, getting timely information, even getting paid.

Is protectionism a problem?

Certainly, we hear that undervalued currencies in China and other countries make U.S. exports more expensive. And foreign governments often provide low-interest loans and subsidies that put the U.S. at a disadvantage.

But there is so much room for growth and hunger for the innovative products and services that the U.S. creates that companies should not let these issues discourage them.

What is the profile of a typical exporter?

Companies of any size can enter the world market successfully. However, we see more of an export concentration by larger companies. So of total exports, 60 percent is accounted for by the top 500 U.S. companies.

Although large companies dominate, smaller companies — those with fewer than 500 workers — are getting into the game in increasing numbers. Our domestic market is very competitive, robust and innovative. If a company is doing well here, it has what it takes to outpace foreign competitors.

If a company is interested in exporting, how does it get started?

First, gather information on the markets you are considering. This doesn’t require a large investment. Trade shows, informal discussions with vendors and even competitors can help you understand how your products might compete abroad.

Second, get as many people as possible involved in the effort. It is particularly important that senior management and key people understand the foreign market.

Third, take advantage of agencies such as the U.S. Commercial Service, a bureau of the Commerce Department that has offices all over the world. Many states have a presence or commercial support in other countries, as well. Industry associations offer different levels of support, but many provide useful information such as changes in the regulatory environment in key countries.

Enlist the support of a financial firm that has a global advisory service that can provide intelligence and advice based on first hand experience. And if you are importing or sourcing abroad, leverage the relationships you have already developed. Many companies are moving from sourcing to selling successfully. Most important, talk to everyone you can — customers, suppliers, even competitors. By asking about their experience, you can pick up a lot of sector-specific information.

What kind of support should companies expect from their bank?

At the very least, you want a bank that understands the full range of financing and settlement options that are available — letters of credit, ExIm Bank facilities, cash management, treasury management for multiple currencies and cross-border transactions. Other important capabilities are foreign exchange and risk mitigation solutions.

On top of that, your bank should be able to provide guidance on local business customs and advice on the creditworthiness of potential trading partners.

Then, look for help in meeting general business challenges in emerging markets. Advisers who have first-person experience in a target country can provide invaluable support as you explore your options.

This article was prepared for general information purposes only and is not intended as legal, tax, accounting or financial advice, or recommendations to buy or sell securities or to engage in any specific transactions, and does not purport to be comprehensive. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Any reliance upon this information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other adviser regarding your specific situation. Any views expressed herein are subject to change without notice due to market conditions and other factors.

©2010 The PNC Financial Services Group Inc. All rights reserved.

Victor Notaro is the senior vice president of PNC Global Treasury Management. Reach him at [email protected]