M&D Companies: Enter global markets on your terms with advance planning
July 14, 2017 | Global Growth: How Iowa companies find success abroad
Manufacturers and distributors that conscientiously and assertively develop global markets typically have twice the growth rate of those that merely chase opportunities as they arise. As with most facets of business, planning makes a huge difference in outcomes.
How does your business compare?
According to CLA’s sixth annual Manufacturing and Distribution Outlook report, many companies enter the global market or supply chain to fill a customer’s specific need, and while this kind of happy accident can help you get your international feet wet, it comes with considerable risk. It’s tough to fault a company for taking advantage of any growth opportunity that presents itself, but advance planning is a far better strategy on the world stage.
Benefits of an export plan: A deliberate, customized export growth plan can give your company three distinct benefits:
More control over the terms. When you take a proactive approach to fulfilling the needs and wants of a customer, you will likely have more say in how you execute. Customers look for suppliers that provide ideas and answers, and they are often willing to pay a premium to receive them. On the other hand, when you wait to be asked to participate, the customer tends to drive the relationship and calls the shots. Many will shop the opportunity among other manufacturers or distributors, turning your value-added product into a commodity.
Reduced risk and uncertainty. Entering foreign markets without experience can increase the risk of loss or theft; there are security issues associated with transporting goods across international lines. Unfamiliarity with logistics and customs procedures can create delays that affect the entire supply chain (regardless of size). International transactions can also be financially tricky, and if they aren’t managed properly, they can put stress on your cash flow. Determine the markets you want to enter, chart the course in advance, and anticipate the constraints you’ll likely encounter, both logistically and financially.
Enhanced capacity management and diversification. Many manufacturers struggle with concentrations and diversification. Entering different geographic markets can help offset the volatility of your local market and even out peaks and valleys. Venturing into another hemisphere can also create different seasonal opportunities, spreading production into a year-round schedule.
Planning for anticipated growth: Manufacturers and distributors that are actively participating in the global markets project global sales will make up a greater percentage of their overall revenue in coming years. Forty-five percent of CLA survey respondents said they generate 10 percent or less of their revenue from sales outside the United States (down from 50 percent reporting so in the prior year). Typically, this is a reactionary position — participating when required — and the same companies expect that percentage to shrink three years from now. But the proactive businesses — those with a larger stake in the global market (as much as 50 percent revenue from non-U.S. sales) — expect to see increases ranging from 5 to 10 percent. Of the survey respondents that had increased revenue from the prior year, 14 percent listed the reason as “competing in a global environment.” The message here is clear: The more intentional your global plans, the better your results will likely be.
It is also worth noting that only 7 percent of survey respondents listed “competing in a global environment” as one of their top two growth strategies. Instead, most expect to grow by expanding relationships with their current customers, entering new industries and markets, and developing new products and capabilities.
Planned entry into the global market mitigates risk and can help your company realize a diversification sales plan that drives greater volume and profitability, both of which are essential to building your business’s value and sustainability.
Don’t sit back and wait for a customer to escort you onto the international scene. Take charge of your own global destiny and enter it on your terms.
Learn more about what’s on the minds of manufacturing and distribution leaders in CLA’s Manufacturing and Distribution Outlook. Download the full report at CLAconnect. com/2017Outlook.