How Government Can Help Small and Midsize Manufacturers Export
In 2009 President Obama set a goal of doubling exports in 5 years. The President portrayed his initiative as a boon for small companies. The large publicly held companies are already exporting or have built plants in overseas markets. And, less than 4% of all service businesses export according to the Small Business Administration. So I am assuming the goal is really to assist small and midsize manufacturers (SMMs) to increase exports.
In the mid 1990s, I did a survey of small and midsize manufacturers who had completed a 20 page audit form for the Manufacturing Extension Partnership (An organization in the Commerce Department dedicated to improving competitiveness of manufacturers). When asked “When was the last time you conducted market research?” 70 % of the manufacturers answered – never. We also asked them if they had a written business plan that defined the company’s marketing strategies and 90% said no. These answers confirmed my own experiences and field work with manufacturers all over the U.S. Any government program that wants to help them export should know that the vast majority of small and midsize manufacturers (SMMs) do not do market research or written business plans. So the question how can government agencies help SMMs export?
Jason Stoeker is the CEO of Airfloat LLC, which is a Manufacturing company in Illinois that manufactures an air bearing product that moves large products around the assembly floor for companies like Boeing, Caterpillar and Ford Motor Company. When I called Jason he had just come back from a long trip in Europe and from developing a partnership deal with a company in Italy.
Jason has found many of his foreign market opportunities by following many of his U.S. customers overseas. His customers are often large American Manufacturers like Case Holland who build plants and set up sales offices in foreign markets.
He feels the best way to market his type of products into foreign markets is to look for potential partners. Specifically Jason looks for similar companies who will distribute his products in foreign markets and he will sell their products in the U.S. The partnership can be in the form of a licensing arrangement or joint venture.
I asked Jason if he had used any of the government agencies that want to help American manufacturers export. He said that he had tried to get government help but there were two big problems. First he said that there were too many government departments that were in the export business and it took a lot of networking time to find someone who could help him with his specific export problems. He also said that the answers he got from government agencies were too general and did not boil down to something that would help him get immediate orders.
Jason went on to explain that manufacturing companies below $30 million really do not have the people to either do market research or to interpret research results. To justify exploring foreign market they need to have a good chance of getting a good quotation and/or order from the visit. That is why many SMMs want to attend foreign trade shows.
Small and midsize Manufacturers (SMMs) are action oriented and they don’t like attending seminars or doing market research. They want to visit foreign countries but visiting foreign countries is expensive. Jason says “the fact is that if a company spends the time and money exploring foreign markets they will need orders to justify the expenses.”
Therefore, he feels that there are two ways the government can help them in exporting. First the government should spend more time and money helping the SMMs to protect their technology and intellectual property. Second, the government should invest their resources help0ing to offset the costs of visiting foreign countries and attending trade shows. For instance, the state of Illinois paid for 50% of his travel expenses and his trade show booth costs when he visited Germany and England.
Jason summarized his thoughts by saying “most SMMs simply do not relate to seminars, research or export planning. They are much more interested in the services and assistance that gets them closer to getting orders.”
Another owner of a small manufacturing company has similar thoughts about government assistance. Hal Hickman is President of Powerhammer, Inc., which makes large pneumatic hammers that are designed to knock risers (pouring spouts) off large castings in foundries. Hal was literally forced into the export business because most of the foundry business moved offshore to low cost countries around the world. His customers are now foundries in Asia, South America, and Eastern Europe and he must visit them in their markets to sell his hammers.
He has found the best method to get his products in front of International buyers is to attend foundry trade shows around the world and exhibit his various types of pneumatic hammers. He is fortunate because the foundry industry has trade shows that are very specific to foundry products and is attended by very specific foundry buyers. But these trade shows are in China, Brazil, Turkey, and all over the world, so getting to the show and bringing products to display is a significant cost.
Hal is much like Jason Stoeker in that he feels small manufacturing companies cannot afford to do market research or strategic planning. To decide to attend a foundry trade show he needs to believe that his prospects will be at the show and that he has a strong chance of getting some very good quotes or will eventually place an order that will justify the trip. Hal also believes that the best thing that governments can do to help manufacturers export is to help offset the costs of getting there. He was assisted by the State of Oregon’s Global Trade Department and they paid 50% of his travel and trade show booth costs for various countries.
Another viewpoint on the export business comes from Chad Summers. He is a consultant and President of the firm 2 Lane Marketing in Oregon, which focuses on helping SMMs grow. Chad has a lot of experience both exporting and importing because he used to be CEO of wood products business headquartered in the Northwest. Chad feels that government’s role in helping manufacturers export is to do more in assisting them with legal issues and technology protection. Chad says, “It can be scary not knowing where to turn if an agreement is broken and what options you have available to protect your business when not on U.S. soil.” In his experience as a company owner and consultant he has found that small and midsize manufacturers do not really understand industrial marketing and most cannot afford to pay for market research. While he feels government research is sometimes interesting, “it is usually too broad and rarely provides specific market data most businesses require to take action and secure business abroad.”
From his own experience, Chad feels that most SMMs can find out how to target a country or specific customer by following U.S. companies overseas, finding out where competitors are selling, or to talk to a U.S. consulate in a foreign country. Whether through an introduction from another U.S. company to an overseas market or through the help of a U.S. consulate in a foreign market, the objective is to find a guide who can introduce you to specific potential partners or customers for your goods and what challenges to watch out for. He says “nothing beats face to face contact and going there.” Visiting foreign countries is much more expensive than making a sales call in the U.S. and offsetting those travel costs with government assistance could help lower one of the barriers for SMMs to begin selling abroad.
If small and midsize manufactures (SMMs) are going to be the targets for the government’s goal of doubling exports then government agencies should take a hard look at who they are and what they do. The following chart pretty much sums up the point of this article.
Manufacturers with less than 100 employees are about 90% of the manufacturing establishments. Yes, there are going to be manufacturers who want to do market research and an export plan but they are in a small minority (mostly Type 3s). If we are really going to make progress in doubling exports, governments need to do some market research of their own to find out more about Type 1 and Type 2 manufacturers and what they really want and need to get into the export game.
I am very encouraged by the fact that some state governments have figured out that offsetting travel and tradeshow costs is something small and midsize manufacturers want and need. and is already achieving results.
Mike Collins is the author of "Saving American Manufacturing" and its companion book, the "Growth Planning Handbook for Manufacturers." To learn more about the author or these titles, visit http://www.mpcmgt.com/.