In the past few months, the dollar has fallen to a low against many of the world’s major currencies. This is great news for small manufacturers who can now compete more effectively in the world export market. According to Federal trade statistics, the export potential for small manufacturers is huge. Today, small and medium sized firms account for 97% of the number of firms exporting from the U.S., yet they only represent 30% of the total export value of U.S. goods. In addition, nearly two thirds of small and medium-sized exporters are only selling to one foreign market, leaving the rest of the world as a wide open opportunity.
Now is the time for small manufacturers to take advantage of a weak dollar and export more aggressively. Economists focused on the budget deficits are predicting a further weakening of the dollar for the second half of 2005. Given this, small firms can’t afford to lose this opportunity―it’s a once in a lifetime opportunity. But how can you determine if your firm’s products would do well in an export market?
To begin, good export candidates are those that are light and valuable as opposed to bulky and cheap. For example, if you manufacture chicken wire, you might be less competitive overseas than if you manufacture a metal stamping that requires a larger press, a coating and a weld (provided you can pack the pieces tightly).
From a cost standpoint, a quick rule of thumb is that your price must be 25% cheaper than a foreign competitor. Though 25% appears high, it covers currency costs, international transportation, longer lead limes, extended supply chain (and hence inventory build-up costs) on behalf of potential buyers.
Another statistic to look at is the percentage of “value add” in your products. By value add, we are referring to manufacturing processes such as welding, punching, stamping, molding, laser cutting etc., and in particular if that value can come through technology as opposed to labor, the opportunities will be even better. The more value-add in your product, the greater likelihood that a SME can be competitive offshore. A general rule is that the value-add should be at least 20% to even consider the export market. 30% is a more conservative estimate.
Based on these numbers, if you know your firm’s products would make for a good export but don’t know which country to focus your efforts on, here are a few tips on how best to decide where to focus.
First, look to your home base of customers for clues. If you are selling your metal stampings into the automotive industry here, you might be able to sell your products into other similar automotive markets abroad (e.g. the German automotive market which historically has not done a great job of sourcing globally).
Second, try to obtain quotations from global competitors in the country that you seek to sell to. The quotations from the local companies can provide you with an indication, of your competitiveness. Be sure to factor in total costs (e.g. tax, tariff, freight, etc.) relative to the benchmark quotation to arrive at a landed cost comparison for your potential overseas customers.
Third, examine market research reports by country to identify how well developed your particular customer industries are in that country. Check currencies as well, countries that peg their currencies to the dollar will make for more difficult export markets, but countries that do not (e.g. the British Pound or the Euro) could make for good target markets.
Last, there are several great organizations that can help small manufacturers get started with exporting. www.export.gov, the International Trade Administration and the U.S. Commercial Service all offer lots of “how-to” for companies looking to sell overseas.
Given all of these resources and the current opportunity, there’s no excuse not to get started. Seize the moment!