Watching the evening news you might get the idea that the world economy is all about America.
Here in the United States we get so focused on our own country, that any gain for the rest of the world tends to be presented as a loss for the United States. We hear it all the time:
We are losing jobs here while another country gains.
Businesses are growing in other countries so they must be shrinking here.
But some U.S. companies see growth in the rest of the world as a huge opportunity. This includes small businesses that never before did business outside of a limited geographical area.
They are “rushing” to expand in other countries, according to one source.
Recently I had the chance to interview Larry Harding, founder and President of High Street Partners.
His company assists businesses with the strategic and practical aspects of setting up operations in other countries. He reports that his company and other professional service providers that assist businesses with global expansion “have never seen business so brisk.”
According to Harding, the global expansion binge is due to 3 factors:
- Weak dollar — The dollar’s fall is making U.S. companies attractive. U.S. companies are being “pulled” overseas. “Take the example of a U.S. architectural firm. Today their prices may be 20% cheaper overseas,” said Harding. They go after work in overseas markets and end up opening offices in other countries when they are awarded large projects. Even with the cost of opening an office and hiring some local help, it’s still profitable for the U.S. architectural firm.
- Growing markets — China and parts of the Middle East, among others, “have a pile of cash and are in a frenzy to build out their infrastructure,” Harding says. There’s a tremendous amount of building going on, leading to opportunities in construction, architecture, telecommunications, heavy equipment, technology, finance and a wide range of related products and services used in construction projects or as a result of new construction. The growing middle class in China and other places is also driving demand for consumer goods such as washing machines, bicycles, recreational boats. An example of an opportunity for a U.S. small business, he says, might be for a bicycle supply company, or a boat parts and accessories company to supply the demand in boats.
- The “World is Flat” effect — Referring to Thomas Friedman’s book, The World is Flat, this effect means that cross-border markets are more open than ever before. The Internet, technology, improved transportation and other factors encourage doing business across borders.
But seizing any new opportunity always involves risk.
For one thing, you can easily negate the benefits of the opportunity if you let your costs of selling to other countries get out of hand.
Harding says a common pitfall is that a U.S. company will win a million dollar deal and commit in the contract to be the “importer of record” — not realizing how important those 3 words are. The contract now obligates them to deal with all the paperwork and pay all the import duties. They ship the products. Then they get an unexpected bill for $135,000, eroding much of the deal’s profit.
As long as you are prepared and avoid such pitfalls, Harding says, “the international opportunities are definitely real and should not be dismissed.”
Read Larry Harding’s 5 tips of what SMBs (small and medium businesses) should consider before expanding to other countries, reported by Denise O’Berry over at AllBusiness. It’s a quick read and will give you some idea of what to consider in global expansion.
And don’t miss my earlier interview of Larry Harding from last December. In it he discusses the trend toward smaller and younger companies developing a brick-and-mortar presence overseas.
Do you think we’re going to get to a point where countries in EU or where their currency/economy is stronger than in US move their factories or other production over here?
I heard a recent NPR report where they were talking about how some business in Ireland where considering moving factories to the US because of the Irish economy boom and how it wasn’t profitable to keep them in Ireland.
Heh. This is an election year and news anchors play the “lets protect American jobs” card at the drop of a hat for any news story remotely about jobs or immigration or outsourcing.
If you follow their logic they would have you keep old inefficient plants going and drive the company out of business from unprofitability — just so you can continue to hire unskilled workers.
How about the workers developing their skills instead? No one seems to call on the workers to do anything. No they’d rather have business owners make stupid decisions and drive the whole company out of business, and along with them the jobs of employees who have done something to get education and improve.
We’re going to hear more of it between now and November.
Yes, I have heard about that idea, although so far I don’t know of any specific company that’s located operations here just because it’s cheaper to operate in the United States. (I guess it is the same concept as tourists flocking to the U.S. because their dollars go farther here.)
Foreign companies have been locating operations here in the U.S. for some time, for a variety of reasons. We’ve seen that with the auto manufacturers, such as Toyota and Honda, who found it made economic sense to build cars in the U.S.
I think the difference is that workers don’t have control over the decision to shut down or relocate a plant. That’s why public sentiment is with them and not the business owner.
On the bright side, I feel we’ve come a long way since the gut-wrenching times of the 1970s and 1980s, when the huge forced exodus of factory workers from the workforce took place.
As an American in Spirit, I am sad to hear about these so called “arguments”. I remember the “Real Men Don’t Eat Sushi” commercial with a bad taste by an American car company. I wonder if they have heard about Lexus (made by Toyota)? I recommend you to read Dr. Harry Binswanger’s article, ‘Buy American’ is UN-American – http://www.capmag.com/article.asp?ID=576
Anita: I can’t find the article on AllBusiness.com. The link is not working at the moment.
I have just finished a book by James Turk & John Rubino with the title, The Collapse of the Dollar and How to Profit from it. I recommend it very much. I will write a short book review on my blog later on.
I am interested in the cross-cultural business behavior between USA – Europe – Asia. You have do learn the business culture and the import / export rules before you engage in big business with foreign markets.
Regarding the “world is flat” effect, here is another article worth reading:
From Flat World To Free World by Yaron Brook. http://pheebu.notlong.com
That would be a great boost to our economy if we could attract foreign companies to move their factories here. I had never heard this before. It’s very encouraging considering how many of our factories have taken their production elsewhere.
One other factor to keep in mind, at least for US businesses that are involved in e-commerce: the growing number of Internet users in markets like China, Brazil and Russia. The New York Times recently ran a story on the fact that the number of Internet users in China has surpassed the number in the US.
This trend may represent more of an opportunity than most small business people realize. My company produces software, and yesterday I had two conference calls with new potential clients who found us via our Web site — one in the Middle East and one in Africa. I just did a post on our company blog about whether companies should consider translating their Websites (http://www.idatatechnologies.com/en-US/China_internet_users_and_Weak_dollar.aspx), and we’re working on translating ours now.
– Mark Reichard
I think that the best advantage that American small business owners have is the tag of being American. Yes, it can give them a lot of advantages in East Asia, South Asia and in the Middle East. Many people in this part of the world believe that everything related to USA is best. For example, in my city, there are some private universities that will pay a teacher more money if she/he has a degree from an American University. The logic is that since Mr. A has studied in an American University therefore he is better than Mr. B (who has studied in an Asian University) and must get better salary.
The main problem that I see about American small business owners is that they don’t carry out any research about other countries. Many of them surely lack local knowledge. You have to understand the local market. What is lucrative in Chinese market may not be attractive for the Indian market at all.
Hey Anita! Interesting article! I’m writing from Europe. Here, the economic crisis affects so much domestic demand that even small companies that wouldn’t have thought about going international have to. Our world is getting smaller and the need for internationalization is increasing. However, as you said, going international represents an important risk, even though it can lead (in the long-run) to more security. We just launched a debate on how social-technologies could support SMEs’ internationalization better. You may join it here: http://www.therightsocialmedia.com/?p=505. Thanks for these insights on US small businesses!