Crossing the Border

Manufacturing companies weigh the risks and rewards of going global.

James B. Cole has seen the ups and downs of international trade. As CEO of Noshok, a manufacturer and distributor of industrial instruments, pressure gauges, transducers and other auto-industry parts, he has learned to distribute the 34-year-old company's products to a wider market: the world.

Although Noshok sells primarily to American companies, Cole, who took the reins at Berea-based Noshok in 1976, recognized in 1980 that to grow sales in the 54-employee company, he would have to go global. 'We're a small company with a small number of products,' he says. But cornering a small percentage of a world market would — and did — increase sales.

'We just felt that although the United States is still our largest market, we could open up a world market,' Cole says.

For advice and resources dealing with international exporting, Noshok turned to the Ohio Department of Development's (ODOD) International Trade Division. The company has since tapped markets it otherwise couldn't, in regions such as Canada, Mexico, Latin America, Asia, Australia and New Zealand.

Among other services, ODOD promotes Noshok's products to potential customers throughout the world and at trade shows. Cole likens ODOD's assistance to having an international sales force on staff. 'It opens up an avenue to market for small businesses like ours,' he says.

Today, international sales at Noshok account for more than 10 percent of total revenue.

Despite Noshok's success, Cole admits that going global carries risks. From collecting payment on deliveries to overcoming issues with government regulations and required documentation, global markets can be tricky. 'We're growing in that area, but it's a market that can be volatile,' Cole says.

Yet if approached correctly, the global marketplace also offers rewards. 'There are good people around the world you can do business with, then there are others who will take advantage of you,' he adds.

Venturing into Foreign Territory

Northeast Ohio manufacturers realize that remaining competitive means entering foreign markets. While many companies perceive the risks to be extreme, those risks can be minimized with proper research and planning. And the benefits today are too great to disregard, says Mike Miller, director of the Cleveland U.S. Export Assistance Center within the Department of Commerce.

'There aren't many excuses for businesses to not do — or attempt to do — business internationally,' he adds, noting that a variety of organizations, such as the Export Assistance Center and ODOD, provide support for nominal fees. Miller's organization has a database of 2,700 Northeast Ohio companies that it helps in exporting and increasing overseas market share.

'There are basically two main reasons to conduct business overseas: Increased market share, that's the obvious one. It translates into increased profit,' says Miller. 'Second is the ability to weather cycles when the economy's not so good here. Rather than depending on just the U.S. market, you have many, many markets to depend on.'

Further, a stronger demand for a domestic company's products may exist in foreign markets.

Steve Schoeny, assistant deputy director for ODOD's International Trade Division in Columbus, says there are benefits to tapping multiple world markets. 'It's just like investing in multiple stock markets,' he says. 'You want diversity in your portfolio.'

The Payment Factor

The biggest fear many manufacturing companies face is not getting paid for the products they sell to a foreign company. Recovering a debt from a foreign country can be difficult because no common legal system exists to pursue collections.

Five years ago, Noshok spent a great deal of time and money to set up operations with a company in Venezuela, only to have the company 'disappear' and skip out on payment, leaving Noshok with no recourse in recovering its investment. 'We lost a lot of money on that,' Cole says.

Such an experience can prompt a domestic company to give up international sales altogether, and Cole admits that he no longer conducts business in Venezuela. 'Once you get your fingers burned, you usually don't put them in the same fire,' he says.

While payment worries are valid — and common — there are simple ways to avoid an experience such as Cole's. David Yen is deputy director of World Trade Center Cleveland, part of a worldwide alliance that provides counseling and resources to companies involved in international trade, and its regional manager for Asia. A good place to start, he says, is to check a foreign company's credit, just as you would a domestic one. 'Getting paid is always an issue,' he says. 'You really have to have your wits about you.'

Companies can insure themselves against payment defaults in various ways. Although the safest payment plan for the seller is to receive cash up-front, buyers are usually wary of these agreements since the risk transfers to them. Instead, Yen recommends that companies set up payment agreements with a third party, such as an international bank, to conduct credit checks and serve as a clearinghouse between the buyer and seller. Companies can also work with a freight forwarder that assumes responsibility for delivery and payment.

Kirk Merritt, deputy director with ODOD's International Trade Division, agrees that payment is an important risk, but one companies can overcome. Working with a third party to ensure payment is a wise move, he says. 'Companies certainly encounter more risks when they're selling in Thailand than when they're selling in Texas,' says Merritt. 'Getting an order is only half the battle. Just as they would do domestically, they need to evaluate the credit-worthiness of a foreign buyer.'

Noshok learned its lesson from its experience with the Venezuelan company. Conversely, Cole cites a Mexican company that Noshok has successfully worked with for 20 years without incident. 'You have your ups and downs,' he says of doing business in the world market. 'Usually, we try to control all that with credit programs and the like.'

Limiting Risk

Diebold Inc., a North Canton-based manufacturer of ATMs and security solutions, has been involved in international trade for several decades through various affiliations, but began handling all aspects of its international trade privately in 1998. Today, international business accounts for 42 percent of Diebold's sales. Cassie Metzger, senior marketing manager for Diebold, says the company conducts thorough credit research on its buyers to prevent payment defaults and other lost investments.

But doing the homework extends far beyond credit reports and credibility checks. Companies face high risk of running into problems when they don't plan properly before jumping into foreign markets, says Yen.

'It's been my experience that many companies don't even have a strategy on how they want to pursue international markets,' he says. The biggest risk is not recognizing where potential customers are. His advice: Know your market and customer, do research and know that you're putting resources in the right places.

Metzger adds that companies should understand their customers' needs, just as Diebold strived to, 'because one ATM doesn't fit all.'

Methodical research includes — but is not limited to — knowing where demand for a particular product is high or low. Aside from knowing where the biggest opportunities and competitors are, companies should determine other requirements to enter that market and make sure they understand how foreign markets do business.

For instance, Diebold does not do business in Japan. 'Japan likes manufacturers from its own country, and the ATMs are very different than elsewhere in the world, even other parts of Asia,' Metzger says.

To avoid snags in the global market, Miller recommends making the endeavor an integral part of a company's business plan. 'Companies don't take it as seriously as they should,' he says. 'International trade is no different than any other aspect of your business. It can't be a hobby.'

Merritt agrees: 'At the highest levels of the company, try to commit to a business plan. It will take some time to be successful.'

Domestic companies that ship abroad could find trouble if they aren't familiar with specific documentation required by many countries before a shipment is allowed to pass through customs, Miller says. 'Documentation errors happen, especially when companies aren't using a freight forwarder to help with documentation,' he says.

It is crucial, therefore, to thoroughly research documentation requirements and other export regulations before exporting to a foreign company. Even when working with a third-party expert, Miller advises companies to stay informed. 'It's like working with any service provider. You have to know what's going on,' he says.

Miller recalls when a U.S. company shipped a container to a company in Mexico, only to have it held up with customs officials because the paperwork was completed incorrectly and was not in Spanish as required. 'It took quite a while to straighten out; it was sitting there for about a week,' he says. 'We finally got a translator and a documentation expert together in a room and they worked it out. The container was released that afternoon.'

Culture Clash

Cultural differences can pose a significant risk for American companies unfamiliar with practices of their foreign customers: Businesses could lose money due to miscommunications or insult potential customers inadvertently.

Knowing a customer's culture can make or break a deal, says World Trade Center Cleveland's Yen. For instance, one of his clients had begun negotiations to do business with a Chinese company. 'In China, businesses always want discounts, and they will negotiate very, very hard. I was able to at least clue them in on how the Chinese negotiate, and it allowed them to go in better prepared,' Yen says.

'If you're negotiating with a Chinese company,' he continues, 'they will know you're tired, you're suffering from jet lag, you have a plane reservation and you can't go home empty-handed. They will take advantage of that and push negotiations to the last minute.'

Metzger learns her clients' cultures through her travels and research. 'When I go overseas, I talk to my associates so I know what I need to be aware of,' she says.

Despite her research, Metzger remembers being quite amazed at how familiar some parts of Asia were with Western culture. 'I was very worried about their traditions, doing something wrong, making the wrong gesture or wearing the wrong clothes,' she recalls. 'I was really surprised at how westernized they were in China. But then I found in Thailand that they were still very traditional.'

Regardless of the culture she deals with, Metzger always remembers that she is a visitor in her customer's country. 'As a business professional, when I travel I keep in mind that this is their country, and I have to know what their traditions are,' she says.

It is virtually a necessity in today's economy to establish a global presence, and the rewards can far outweigh the avoidable risks. For companies just entering the international market, ODOD's Schoeny advises starting slowly and considering markets closer to home — such as Mexico and Canada, where more than 50 percent of Ohio's exports go. 'The good thing about those two markets is they have a lot of trade, and quite frankly, travel expenses aren't that expensive. You can export there relatively cheaply,' he says. 'Unless you have good reason for Japan or China to be your first market, I'd stay close to home.'

The bottom line, Miller says, is that companies of all sizes can and should tap into the world market. He cites as an example a local four-person cutting-tool manufacturer that went global in the late 1980s and today exports to 37 countries.

'At some point, you are going to reach the saturation point if you stick with one country. Over 90 percent of the world's population is outside of the United States,' he says. 'All a company needs is a good product or service, the wherewithal to get the product overseas, some monies in place — and it doesn't have to be a fortune — and commitment.'