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Sale Away
Want to broaden, literally, your firm's horizons? Four who have done it
tell how even small companies can enter export markets
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Business New Haven
6/4/1995
By: BNH
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When the Bank of Boston last month announced a major export initiative for its New England commercial customers (and, of course, prospective customers), it crystallized what many business people have long known and profited from: the fact that, for many firms, the only obstacles to exporting are psychological and educational. To discuss export markets - and how companies can begin to penetrate them - we invited four business people who have been there: James C. Nicholas, executive director of the Connecticut World Trade Association in Bridgeport; Maureen E. Mauro of Milford's North Cloth, a division of North Sails, which makes performance sailcloth for cruising and racing sailboats (including both finalists in the recently concluded America's Cup finals); Frank Piascik, vice president of marketing for the Clinton Instrument Co., which manufacturers electronic instruments; and Rhonda Caldwell of Krell Industries, which manufactures and exports audio equipment for the high-end market worldwide.
By some measures, Connecticut businesses underperform in the export market. Do you agree, and if so, why?
Nicholas: The national average for exports is about 12 percent [of manufacturing companies which export]. Twenty percent of all Connecticut manufacturers - about 1,300 companies - export. And Connecticut saw a 23-percent growth in its exports between 1993 and 1994, rising to $7.2 billion.
Caldwell: Are those companies exporting more to one part of the world than the rest?
Nicholas: Twenty percent of Connecticut exports go to Canada, 27 percent to the European Community, nine percent to Japan, six percent to Mexico, and the Pacific Rim - 12 countries excluding Japan - account for 17 percent.
Maureen, how's the export market for North Sails?
Mauro: We've actually seen a decrease in exporting overseas. We went from 50 percent down to 35 percent, mainly because of currency issues. With the unification of Europe, they're trying to get a common currency, plus the problems they're having in Japan economically with their real-estate market - all those things [affect our sales]. It's not that the money's not there, it's just that they choose to spend it [otherwise].
Caldwell: When we were doing 50 percent of our business overseas, 32 percent of it was to Europe. And that's what's dropped.
Piascik: Our experience has been a little different. We've had successful years ever since we entered foreign markets. Up until the past few years, the Europeans never felt the pains of recession. Within the last year or so we've reached almost the same plateau of sales we reached in the past to Germany, Scandinavia and Spain. Fifteen percent of everything we sell goes to Japan. But then again, we have a very technical product, so it's a lot easier for our type of business to succeed in world markets. Getting back to the European union and their homogenization of specifications, they've also come up with a set of 1,400 European directives covering everything from toys to electronic equipment. And they are detailing the guidelines you have to following in order to continue to sell into Europe. These are very restrictive, especially in the electronics field. There's a large expense we're going to have to support in order to protect our market in Europe. We have to stand back, look at our product line and reduce it to product that we have that we can afford to spend the money on.
Is ISO 9000 certification one of the requirements?
Piascik: No. ISO 9000 is not a requirement at this point, although everyone's getting onto the bandwagon - in many cases, for the wrong reason; more for marketing purposes than for developing a good quality system within your own facilities.
How does a smaller company that hasn't been exporting begin to think about penetrating new markets?
Nicholas: Number one, you have to understand how to participate and be effective in reaching the market, because most small companies don't have a lot of marketing a salespeople to make that happen. So you have to develop good strategic alliances and work with and through others in order to make things happen.
So what do you say to someone who comes to you and says, 'I want to export my company's product or service'?
Nicholas: First of all, you have to assess the market attractiveness for your particular product. I believe in market stratification and segmenting the market. People say, 'I want to sell to China.' I don't view China as one market; I view China as eight different countries, and I grouped the different provinces in order to be able to identify what are the needs there. People talk about how China has a low per-capita income, but if we look at different groupings - if we looked a Shanghai, if we look down at Guangdong - all of those are different factors come to bear on the receptivity to your product and [consumers'] ability to pay for it. So we look at the market, we look at the demographics, we look at the distribution channels, the environment and, of course, what are the written and unwritten barriers to entry. I put together a joint venture in Japan, and the restrictions were so great there, because they kept coming up with one objection after the other, so that it became impossible to export without entering into a joint venture [with a Japanese firm]. Obviously, Frank has a different situation because he's doing very well in Japan.
Piascik: That's true. We're not a company that's looking for joint ventures. It's our belief that if we can keep the business and the people employed in our company, that's what we're happy with. The volume of business, the number of units, we trade - because it's so specialized - we're not selling our equipment like you would sell TV sets. So there would never be a need for us to enter into a joint venture. We work strictly through manufacturers' representatives that we have selected over the years who are professionals in the field we work in, and they have basically been the ramrods for getting our product into the market.
How did Krell get into international markets?
Caldwell: When the company first started, our founder and CEO, Dan D'Agostino, defined the market. He saw a need for the development of high-end audio electronics using solid-state [technology] rather than [vacuum] tubes. They literally built a couple of amplifiers, practically at home, popped them in the car and drove to a consumer electronics show in Chicago that's heavily attended by foreign distributors, and immediately found people with whom to develop relationships - many of which we still maintain. It's interesting: We had to change distributors in Japan a couple of years ago because ours was not really doing much for us any more, and we were approached by what we thought of as a large manufacturer of mid-fi products, and they have really made an impressive effort to promote our products [through] a lot of shows, and a lot of literature, and so forth. And they're having a tough time cracking the high-end market - even with all their good strategies for the mid-fi range. They came back and said, 'Why don't you manufacture some mid-fi [product] for us over here,' which is not what we wanted to do.
Mauro: We started out by starting our own company overseas, and we found out that employees responding to [management] back in the U.S. weren't doing as well as a franchise, run by people in that country, would do. So we switched over to all franchises.
How does that work?
Mauro: My division provides the actual sail cloth. We produce it here; the actual sails are made by our franchise operations. Either they'll approach the president of our company when he's over there sailing, or if we need somebody in that country, we'll know who the players are that we want to have involved with our business marketing our products. It's a high-end yacht-racing product.
Caldwell: How often do you visit your franchisees to see that they're maintaining the standards you want for your products?
Mauro: The president, the vice president and myself go over to visit at least once a year. There are different things that we talk to them about as far as the cloth. There are producers of cloth overseas that they can buy from if they want; they don't have to buy from their own company. They have the ability to buy from a competitor.
How sensitive are your companies to currency fluctuations?
Piascik: Coming back from Japan, their financial problems are very visible. McDonald's reduced their prices by 32 percent in order to keep business coming in.
So now it's only $10 for a Big Mac?
Piascik: [Laughs] Right.
Caldwell: When we sell a pair of amplifiers for $32,000, it's $76,000 in Japan.
Piascik: But getting back to fluctuations of currency, U.S. goods right now are a good value for anybody who wants to buy them. The Japanese government has ordered banks to lower the amount of interest on savings accounts in order to get them to spend more money to support their own economy.
Nicholas: From a U.S. export standpoint, with a very weak dollar it's certainly advantageous to export, because now the price of your goods in your target area will be more competitive. The disadvantage would be if you have a manufacturing operation in another country. While you may export the raw material and they receive it very expensively, when they convert it and try to re-export, they run into some problems because of their cost of operations.
Are trade shows a big factor for any of your companies?
Caldwell: They certainly are for our company. We attend two major [consumer electronics] shows: one in Las Vegas in January, and one in Chicago in June. And there are other shows beginning to develop around the world now that we feel we're going to need to attend.
Piascik: We attend four major trade shows - in Dusseldorf, Tokyo, India and a domestic show in Atlanta. And I'm exploring now a show in Singapore to cover most of the Pacific Rim. Those are very important trade areas for us, and we have representatives in most of that area. We find it very important to support their efforts by our presence. And we've found that the same business tactics we've used to develop our domestic market are almost mirrored - and almost over the same amount of time - as to develop a foreign market.
I would think it would take longer in an unfamiliar country.
Piascik: No, surprisingly enough. When we first entered the European market we concentrated on Scandinavia, Germany and England because we felt they were the major centers of Europe as far as the type of industry that we cover. One would suspect that we would do the best in England, but where we did our quickest development was in Scandinavia. This was true because most of the people there were very open-minded; they already trade because they have so few resources themselves, and our products were easily accepted there. Germany was second. And England is still developing.
How did you get into Japan?
Piascik: American small businesses feel, 'Oh, we'll never do business in Japan,' and you hear all these stories about doing things the Japanese way. But actually, while it took us five years to develop the market in Scandinavia and Germany, it only took us two years to develop the Japanese market. So they were even more receptive to technical advances, and they're not afraid to spend money and try something if they think it's a superior product.
Caldwell: But what you guys don't face that we do, being a luxury product, are exorbitant duties in some countries - 80 percent, 75 percent.
Will that be affected by world trade agreements?
Caldwell: Well, we're really leery of doing business with a lot of countries in Eastern Europe, particularly Poland, because they don't anticipate a change [in trade restrictions], they're not part of EU. So what we try to do is set them up with a distributor in Europe that they can work with more effectively. Because everything they do with us costs them so much more than it does anyone else.
Nicholas: It's important to acknowledge that, number one, trade shows are an integral part of your marketing mix. It's not the only thing; it has to be part of a total program in order to facilitate [orders]. The second thing is that you have to have patience. You're not going to go out immediately and sell a good tomorrow. To put together a systematic approach takes time. You also have to have commitment from top management, and they have to be willing to provide the resources - people and financial - in order to help you penetrate your market. Many times companies in trouble say, 'We have to go to the export market.' But the export market is not a panacea. If you don't have a sound company, you're not going to get well by getting involved in the international marketplace. You have to do investment spending in order to be successful.
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