Revenue and profit from international sales needs to be part of any strategic growth plan. Growing international sales can be done by developing a distribution model (organic) or through acquisition (inorganic).
As chairman of Clark-Reliance, along with Rick Solon, president and CEO, we have successfully used international sales as part of Clark-Reliance’s overall strategic growth plan.
Develop a distribution model (organic growth)
In order to use organic growth to expand internationally, it is important to seek natural markets for your products beyond the borders of the United States. To do this strategically and successfully, you cannot look at the entire international market, but rather regions or countries that offer a reasonable opportunity for product placement.
For example, if you are looking at one of your first international endeavors, you need to look for opportunities in close proximity to the United States. If you are close to home, you will incur less capital risk and become established more rapidly. Initially, you may want to consider looking at Canada and Mexico. This will allow you to get a flavor for international business, currency exchange rates and overall business risk that will be tolerable for your company.
When entering any new market internationally, there are a few critical first steps:
? Start with a select few countries or one region.
Too many options can cause a loss of force evaluating logistics costs. Import/export duties, laws, regulations and demographics all need to be done thoroughly and can be very time consuming.
? Learn how to do business in that country.
Seek information from international trade consultants like Chamber of Commerce Trade forums or a specific country’s trade mission and trade shows. A great deal of information and some potentially good contacts can be gathered. The Internet can also be a great way to find organizations that will help you become established properly. Sometimes a local law firm or financial services company can be a great guide. One of the most effective ways to learn is by visiting potential customers and learning what influences their buying decisions. This also will give you an idea of how much support infrastructure you will need to be successful. Make sure you consider time differences, language barriers, foreign exchange issues, letters of credit and local competition.
? Seek adequate representation in these markets.
Critically look at distribution channels and determine the best course of action. You can utilize a manufacturer’s agent or a direct sales representative. Using a manufacturer’s agent is generally less expensive (you only pay them if they sell) and is a great way to start building sales. Using a direct sales person is more expensive but may be more effective in technical consultative sales. Ultimately, a hybrid of both will prove most productive. After getting established, your success rate may warrant a sales office or manufacturing facility in the region to support your efforts.
? Evaluate and prioritize growth markets.
Once you are established in your initial target countries or region, you should look at other countries or regions in the world that have robust markets for your products. In general, the developing countries or non-OECD (Organization for Economic Cooperation and Development) countries like in Southeast Asia and the Middle East offer the best short-term growth prospects.
The hybrid approach
A hybrid approach to organic growth is to look at a partnership or joint venture. Properly chosen and implemented, joint ventures can be a great way for your small business to get in on opportunities and profits that otherwise you would miss out on. By teaming with other people or businesses in a joint venture, you can extend your marketing reach, access needed information and resources, build credibility in a particular target market and access new markets that would be inaccessible without the partner. This is a good option to consider before growing inorganically because it requires less risk and generally less capital.
Inorganic growth is often a faster way for a company to grow when compared with organic growth. Through acquisition you can align yourself with an established operation and be up and running relatively quickly.
Any acquisition should be a good “fit” with your strategic plan and complement or expand your product line. The acquired company will know competition, customer preferences, buying habits and the general market.
The expertise in a country or region that can be gained through acquisition should not be minimized. Gaining extensive knowledge of customers and markets is expensive and generally takes many years to gather, so the “speed” of an acquisition can be very beneficial. The drawbacks to this approach beyond a significant cash outlay for the acquisition are a longer and more costly period of due diligence, foreign legal issues and the normal complexities of purchasing any company.
Matthew P. Figgie is chairman of Clark-Reliance, a global, multidivisional manufacturing company with sales in more than 80 countries, serving the power generation petroleum, refining and chemical processing industries. He is also chairman of Figgie Capital and the Figgie Foundation.
Rick Solon is president and CEO of Clark-Reliance and has more than 35 years of experience in manufacturing and operating companies.