I recently received the following question from a reader of The Global Small Business Blog:
For fear of not getting the sales we'd like this year due to challenging economic times, what are some ways to maintain our existing export sales base, yet squeeze out more profits?
Here’s my answer, including eight ways to cut expenses.
One of the first measures companies practice to remain competitive in the global marketplace is severe price-cutting, often at the risk of operating at a loss. If you use a price-reduction strategy merely as a knee-jerk reaction to a rough economic climate, it won't work over the longhaul. You must develop an export action plan that supports a process.
To build up your exports, start selling in new countries or territories; strengthen relationships with your distributors and agents; create a more innovative and effective international sales and marketing strategy; have your staff take on more responsibilities; sell more on open account with export credit insurance; and work more closely with your credit manager.
The next step is to cut expenses. Here are eight ways to go about it:
1. Shift your production to a nation with lower labor costs. For example, if you currently manufacture in North America, try outsourcing to Vietnam, Indonesia or Malaysia, where the labor cost is cheaper and the quality acceptable. At the same time, examine potential transportation costs (refer to No. 7) to ensure you maintain, or even lower, that part of your overseas expenses.
2. Cut production costs. Eliminate unnecessary employees and hire temps or outsource when you need to fill in.
3. Build your sales force according to the needs and demands of your overseas customers. For example, if your customers demand extraservice, make sure they get it by way of telephone calls, e-mails, in-person visits, Skyping and faxes. If they want a more efficient logistics process— pardon the pun—deliver it.
4. Reduce the U.S. content of your product to remain competitive overseas. To pre-qualify for the U.S. Export-Import Bank Working Capital Guarantee Program, each product must have more than 50 percent U.S content, based on all direct and indirect costs, so keep that in mind as you consider cutting back.
5. Use the best possible payment method. The one that works best is the one that gets the deal done. Do not be shy about contacting your bank, credit-card company or other financial institution to help you finance an export sale, guide you in structuring competitive payment terms or even advise you on risk factors before you transact business in a new overseas market. Pay attention to service or processing fees, as they can add up.
6. Secure financing from a variety of sources (including the U.S. Export-Import Bank). There are several federal agencies that offer financial assistance to exporters: International Trade Loan Program,Small Business Investment Company and 7(a) Regular Loan Program to name just a few. And remember, there are a variety of methods of payment, such as in advance, installment, progress, deferred and mixed drawing. To explore all your options, have your international finance expert outline every possible creative financing method.
7. Work more closely with your logistics experts, such as UPS, FedEx and DHL. Call up your logistics company and say, “Can you help me reduce my transportation costs on my import or export?” Then ask: “What should we do to make that happen? Are we declaring our commodity appropriately? Should we be re-packing to create greater efficiencies? Is consolidation an option?” The more questions you ask and the more you talk through your situation, the greater your chance of reducing your transportation costs on international shipments.
8. Use the Internet to increase efficiency. You should go online to find, service and keep customers. Communicate constantly through all Web channels, such as blogs, wikis, LinkedIn, Facebook and Twitter to stay front and center with your customer base and your all-around fans. Being accessible and responsive 24/7 is the key to superior international customer service.
If you do all of the above, you will be able to offer more favorable export pricing to your customers, increase your international sales and make your stakeholders happy. If you need additional information, I suggest you read "Start and Run a Profitable Exporting Business," which is available for free. It has a chapter dedicated specifically to export pricing. Now, go make a plan to cut costs and strengthen your business. Good luck and let me know what happens in the comments below.
