How U.S. fabricators can angle in worldwide waters
March 11, 2004
The U.S. is considered to be the best consumer market in the world. However, competition for this market has increased as more and more countries have cast their rods in the U.S consumer pool.
|Welding photo courtesy of Fronius Intl. GmbH, Austria.|
According to the U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the U.S. Department of Commerce (DOC), the U.S. trade deficit for the 12-month period from December 2002 to November 2003 was $489.1 billion.
The percentage of U.S. manufacturing unemployment rose from 3.5 in 2000 to 6.6 in 2003. For the 38 consecutive months from August 2000 to October 2003, 2.8 million manufacturing jobs were lost, according to the National Association of Manufacturers (NAM).
The manufacturing industry's contribution to the gross domestic product (GDP) in 2001 was 16.3 percent; metal fabricated products contributed 1 percent.
Clearly, with the competition for the U.S market intensifying, domestic manufacturers would benefit from casting additional lines in the pools of foreign markets.
Doing so isn't easy, though. Exporters encounter more barriers, more variables, and more complications than nonexporters. Fabricators accustomed to dealing with customers in the same country, state, or city can't cast their rods the same way. Exporting requires using a whole different set of muscles. Selling to a remote location that may require working indirectly through distributors and agents may be an unfamiliar approach for fabricators accustomed to the hands-on, DIY (do-it-yourself) U.S. culture.
|Most exporting manufacturers are small firms.|
It may seem like an overwhelming task. Where to begin? How to go about it?
"You conduct all of the same marketing activities that you use in the U.S., factoring in the cultural and business factors of the target country's marketplace," according to Michael Hetzel, vice president of marketing and sales, E-D-S Intl., McHenry, Ill., an outsourcing services company, in his article, "Transforming Your Company for Global Success."
Fabricators need to take four basic steps, experts advise—research best prospects, establish contacts, manufacture according to specifications and standards, and ship.
Research. "To those companies that wish to grow their export businesses, I would suggest that they first do their research," offered Bernie Bowersock, senior vice president of North American Tool Corp., South Beloit, Ill., a 100-employee manufacturer of specialty threading taps, dies, gauging, and saws that exports to 41 countries. "Which markets do they wish to grow in? What are their strengths compared to their worldwide competitors? Why would international customers want their products?"
"To succeed in exporting, you must first identify the most profitable international markets for your products or services," Hetzel said. "You will need to classify your product. Knowing the HS classification number, the SIC, and the SITC codes for your product is essential to obtaining domestic and international trade and tariff information."
The Standard Industrial Classification (SIC) code is the U.S. government system for classifying goods and services. The Standard International Trade Classification (SITC) system is used to classify data originating outside the U.S. The Harmonized System (HS) is another method for classifying products for export.
Other "must-knows" are infrastructure and services costs, cultural customs and taboos, government policies and regulations, international finance, letters of credit, accounting methods, tax regulations, shipping rules, and how to communicate with companies that speak a different language.
|Export-related jobs grow faster than nonexport jobs. 3.2 million of the 22.4 million jobs created between 1990 and 2000 were from manufactured exports.|
Contact. No matter what a company manufactures or exports, the human element cannot be overlooked.
"Be prepared to visit potential customers," Bowersock advised. "We all want to know who we are buying from or selling to. People buy from people."
"At some point you'll have to establish a relationship with people," said Richard Maskell, president of M-Tek Inc., an Elgin, Ill., stainless steel packaging equipment and cabinet manufacturer.
"Especially in Asia, realize that relationships and gwanji are everything," said Lawrence Kendzior, partner, Gleeson, Sklar, Sawyers & Cumpata LLP, a Chicago-based tax and insurance consulting firm.
Some companies have become exporters just by virtue of the fact that their customers have moved their facilities or set up additional operations offshore. For companies that do not already have direct customers outside the U.S., the best contacts may be foreign distributors and agents who already have connections in place, firsthand knowledge of what the best prospects are, and knowledge of the region.
Manufacture. Once research has been conducted and contacts made, fabricators need to manufacture their products to the specifications required by their offshore customers. This may require changes in lot sizes or packaging or modifications to conform to technical standards.
"You've got to have a really interesting product," Maskell said. "If not, you're just going to be another small cog in a big gear. We have a relatively unique product and an exceptionally effective one."
Hetzel maintains that an export market exists even for companies that don't make a unique product. "Metal stamping and tool- and diemaking may be as common as gas stations here in the U.S., but this is simply not so elsewhere across the world."
Export products often need to be made to comply with standards that the import company's country follows.
"One of the biggest problems Americans have is they think everything should be done the way it is done in Ohio. It's a real provincial mindset. You can't go into another country and tell them how they're going to operate," Maskell said. "The whole world doesn't work Yankee-style. Look at fasteners. The U.S. and Burma are about the last two countries in the world that are not metric."
Ship. Related to shipping, exporters need to know which carriers can best ship their products, what all the costs are, and what type of insurance is required.
Frankly, there are three main ways to approach exporting—the Frank Sinatra approach (My Way), the Franklin D. Roosevelt approach (relying on government agencies and programs), or the L. Frank Baum approach (journey with a group of wise, courageous, and caring friends and associates from trade and export associations, export clubs, and private agencies).
The Frank Sinatra Approach—My Way. How did Maskell learn to export directly to the end user? "Quickly and painfully," he said. Companies venturing into exporting for the first time that take the "my way" approach may have more success in countries in which language does not present a barrier, such as English-speaking parts of Canada, the U.K., Australia, and areas where English is spoken as a second language.
Fabricators also are likely to find fewer challenges in North American Free Trade Agreement (NAFTA) countries because of the common border, proximity, and simpler documentation required. "Before NAFTA documentation became routine, it was brutal," Maskell said.
The U.S. DOC Export Assistance Centers offer free, broad market research, categorized by country, industry, or emerging markets (see "U.S. DOC Offers Export Assistance" on thefabricator.com). The research is produced on location in leading overseas markets and compiled in the National Trade Data Bank (NTDB). It is available in the form of structured reports or as Webcasts.
"We have found two tools of use to exporters—the Country Commercial Guides and the CIA Factbook," Kendzior said.
The Country Commercial Guides provide overviews of more than 120 countries, with information and data on market conditions, best export prospects, financing, distributors, and legal and cultural issues. Briefings on business protocol and cultural customs and taboos are included. The guides also identify legal and regulatory issues.
And they are comprehensive—the China Country Commercial Guide is 143 pages long.
Additional reports, some categorized by industry sector, that represent potential opportunity for U.S. businesses are available. They offer information such as market potential, market size, and competitors; recent market developments; multilateral development bank projects; and upcoming major projects.
Like the DOC's Country Commercial Guides, the CIA Factbook includes population, industry, and other background information, country by country.
Would-be exporters also can access a number of international directories that list companies by industry. Community colleges and universities offer courses on how to master export procedures, regulations, and other information. Many can be accessed by inserting the university's call letters between "www" and "edu."
To establish offshore contacts, fabricators must network with others they are already working with, and broadcast the fact that they are looking for export opportunities, Maskell advised. Manufacturers may obtain information from suppliers and even customers.
"I was always talking to people about exporting. Basically, we networked our way into the connections. Ironically, our first break came when one of the companies that sold bags processed with our equipment told one of their friends in Finland about us," Maskell said. "I guess you could call it 'active discovery.'"
|The number of small and medium manufacturers that exported at least 25 percent of their products grew from 5 percent to nearly 9 percent from 1992 to 1998.|
"Definitely network," Bowersock advised. "Contact others you know who are exporting."
Other ways to garner the attention of potential international buyers include exhibiting in international tradeshows, setting up a Web site, and advertising in international publications and directories.
"Try an international tradeshow to gauge interest in your products," Bowersock said.
"We've been doing business with companies in Mexico and Canada for quite some time," said Michael Rickabaugh, president of Livonia Tool & Laser, Litchfield, Mich., a contract manufacturer that fabricates stamped and laser-cut components for the portable racking and material handling industry. "They're doing work for the Big Three, and they have either found us through advertising or word of mouth."
Fabricators wanting to export may need to alter the standards to which they manufacture their products.
"We had to adapt our equipment to the CE technical standards. We found the CE standards more up-to-date and more sensible than the fragmented U.S. standards—NEMA, ANSI, and SAE. We saved money by building everything to CE standards; everybody else is getting a surcharge to build CE," Maskell said.
Fabricators may need to make slight variations to the packaging, too, to make it more offshore-user-friendly.
"We haven't gone to using metric fasteners, because we're still selling 60 to 70 percent in the nonmetric U.S.," Maskell said. "But it is hard for our metric customers to find nonmetric replacement nuts or bolts, especially in stainless. So our export spare parts kits have spare fasteners and a U.S. standard measurements toolkit. We do simple workarounds like that."
Fabricators also may find that they need to fine-tune their processes and customer service to fit customer needs. "What we found is that we're refocusing on service, as opposed to making a part," Rickabaugh said. "The customer comes to us and says, 'This is the envelope we want to work within, the cost, the material, and this is the job that we want to have done. What can you come up with?' We go after it very aggressively.
"One of our biggest assets is timing. We can get them something quickly, although the farther they get, the more difficult it gets."
Rickabaugh concedes that one of the obstacles exporters face is the buyer's inclination to purchase locally. "Americans like to see 'Made in the U.S.A'; Canadians like to see 'Made in Canada.' You become the guy they want to beat, and you have to be good enough to be that every day."
To obtain information on how to ship, fabricators going it alone may find freight trading companies to be their best allies.
"Freight forwarders were a big help. They can teach you virtually anything you want to know about export documentation, that sort of thing. They do it every day, and they want your business," Maskell said.
The FDR Way—Government Programs and Agencies. Trying to foray into exporting for the first time without help is a little like going on a safari without a guide—fraught with peril and uncertainty. Fabricators might get into areas where they could be torn to shreds or miss the good stuff altogether.
"Without proper guidance and assistance, this process can be time-consuming and costly—particularly for a small business," Hetzel said.
Fabricators trying to export for the first time are strongly advised to consult with federal, state, and regional trade organizations.
The Export Assistance Centers network of the DOC is a rich resource that offers several federal and local export programs and services under one roof. Through these centers, fabricators can get assistance from the U.S. Commercial Service, U.S. Export-Import Bank, Small Business Administration, and other government agencies. The centers offer comprehensive services.
In addition to providing generalized, free reports, the centers offer customized research to pinpoint export prospects, profile companies, and run background checks. They will prequalify prospective customers and distributors, set up meetings with them, provide logistical assistance for the meetings, assist with obtaining financing and legal assistance, and provide advocacy in trade disputes.
Other export counseling services available from the centers are:
These customized services are fee-based; however, the DOC's mission statement to support U.S. commercial interests ... and help companies increase sales and market share around the world is a credible one. After all, a U.S. company's export successes are the government's tax revenues.
Some of the U.S. Export Assistance Centers' services are quite affordable. A customized report that identifies target markets for a particular company can be obtained for as little as $600. Through the Gold Key program, a fabricator can obtain a custom-tailored service that includes orientation briefings, market research, and one-on-one appointments with preselected and prequalified potential business partners in a targeted export market.
A meeting can be arranged, for example, with a prequalified Mexican customer in a Mexican city, complete with export consultation, logistical support, and translator for $700 for the first day and $600 each additional day. "Depending on its product, a firm may spend one to three days in a market, visiting the areas our counseling indicates holds the best potential. Some firms visit Mexico City, Monterrey, Guadalajara, and Tijuana on the same trip," said Patrick Hope, manager, U.S. Export Assistance Center, Rockford, Ill.
Bowersock said he found the Gold Key program to be especially helpful. "We have used the Gold Key program with excellent success. They also have economic data on any area you may have an interest in doing business with. Their personnel are experienced, and their research capabilities are excellent."
The U.S. Export Assistance Centers also offer a Trade Fair Certification program that supports major international industry tradeshows providing high-profile promotion of U.S. products. According to the literature, "Certification encourages private organizers to recruit new-to-market, new-to-export U.S. exhibitors; to maintain Commerce Department standards for the event; and to provide services ranging from advance promotion to on-site assistance for U.S. exhibitors."
"I am a big proponent of international tradeshows. We have had great success participating in this type of venue," Bowersock said.
American Crane & Tractor Parts Inc. (AC&T), Kansas City, Kansas' 2003 Exporter of the Year, supplies heavy-equipment parts and components for Caterpillar® machines. The U.S. Commercial Service's regional export center provided the company with counseling to help determine its current export market and potential new markets. AC&T also participated in the U.S. Commercial Service's catalog shows, which provide international market exposure for its products. It now sells its products in 64 countries, and exports make up 38 percent of total sales.
Trade Adjustment Assistance for Firms. This program is designed specifically for import-impacted manufacturers, according to Ruth Kasson, senior project manager of Applied Strategies Intl., the sponsoring organization for the Midwest Trade Adjustment Assistance Center (centers are located in all regions), which is funded by the DOC.
"We offer 50/50 cost-sharing of the outside expertise for improvements that will help make companies more competitive," said Kasson. "We help them find the expertise source to do the projects, and then help pay for it. Projects may include product development, quality upgrades, information technology, or sales and marketing—any area of business that they need to improve upon.
"One of the strategies that we might suggest is to expand their export base. We can help them pay for expertise such as researching export markets, setting up distribution channels, or getting marketing materials or a Web site produced in a particular language. Sometimes a product needs certain certifications to get into a market; for example, if they want to get into Europe, they may need to obtain a CE mark," she said.
"I have nothing but praise for this program," said Tom Simeone, president of Manor Tool and Manufacturing Co., Schiller Park, Ill., a contract manufacturer and precision metal stamper that fabricates phone enclosures, among other products. "That program is amazing. What it's allowing us to do is get more competitive by using the most advanced software out there that we could never afford before.
"Our goal is to get tools down to a short lead-time, and that takes a lot of fancy 3-D software—and that software costs a ton of money," Simeone added. "We currently are analyzing three different 3-D packages to see which gives us the performance we demand."
Although Manor is not yet exporting, Simeone said he thinks that once the company finalizes its Web site redesign to accommodate online ordering and finishes installing its new marketing and technical software, it will be in a better position to do international marketing.
State and Local Trade Offices."Not only does the U.S federal government provide worldwide offshore trade missions so do most of the states, several larger counties, and some metro areas," Hetzel said.
The L. Frank Baum Approach—Associates, Friends, and Private Agencies. Private-sector resources include trade organizations, world trade centers, import/ export clubs, and export trade organizations such as the American Association of Exporters and Importers and the Small Business Exporters Association.
The Federation of International Trade Associations lists more than 150 organizations in the U.S. to help new-to-export small businesses conduct trade in international markets. Many of these associations maintain libraries and databanks and have established relationships with foreign governments to assist exporters.
Services similar to those provided by the U.S. Export Assistance Centers are available from private sources as well, although because they are not government-supported, they often are more costly. Just entering "export services" online brings up numerous listings of private firms. Most of them offer some specialized services, such as freight trading, although some are full-service agencies. Some specialized services are:
"For our clients who export, our main function is to educate them in accounting and tax rules; to help them formulate business strategies; and to hook them up with people in government, with people in the foreign country of interest, or with others who can help them," said Kendzior.
Interpreters are helpful, but Maskell advises would-be exporters not to be afraid to use the foreign language skills they may have. "In Europe, people are not inhibited about communicating. They use whatever it takes—a few words, drawing pictures on a napkin." He added, "And most businesspeople in western Europe speak English—even my Australian friends speak some English."
Charts courtesy of National Association of Manufacturers (NAM), Washington, D.C.
Applied Strategies Intl., 150 N. Wacker Drive, Ste. 2240, Chicago, IL 60606, firstname.lastname@example.org, www.taacenters.orgE-D-S Intl. Inc., 780 Ridgeview Drive, McHenry, IL 60050, 815-578-4100, email@example.com, www.eds-international.comGleeson, Sklar, Sawyers & Cumpata LLP, 225 W. Washington, Ste. 400, Chicago, IL 60606, 312-899-4460, fax 312-726-3262, firstname.lastname@example.org, www.gsscllp.com
Manor Tool and Manufacturing Co., 9200 Ivanhoe St., Schiller Park, IL 60176, 847-678-2020, fax 847-678-6937, www.manortool.com