Exporting to China can be an uphill battle for US small businesses, but many are succeeding with patience and the right partners.
When Michael Strange sent an order of ice cream to China more than six years ago, he was pretty sure that would be the last time his company would export to China.
“I did not think it would take off,” says Strange, president of Bassetts Ice Cream. “When I first shipped samples over, I kind of thought I was wasting my money on FedEx and dry ice and packaging.”
But today, the Philadelphia-based company generates approximately 20 percent of its revenue from exports to China.
Bassetts is just one of the nearly 300,000 small or medium-sized American businesses—companies with less than 500 employees—that export goods or services abroad. Small businesses make up 97 percent of American companies that export, according to the US Census Bureau, and their numbers are growing.
According to the National Small Business Association (NBSA), 64 percent of firms surveyed in 2013 had sold merchandise or services to a customer outside of the United States, compared to 52 percent it 2010. And in 2013, 63 percent of non-exporting firms said they would be interested in selling merchandise or services abroad if their concerns about exporting were addressed. Just 43 percent said they would consider exporting in 2010.
But barriers to exporting still exist for small businesses. The NSBA survey reports that small business owners often lack information about exporting, have an unclear understanding of how to get started, fear they won’t get paid by customers, and believe that exporting is too costly.
“It’s definitely doable, but it’s not for the faint of heart,” says Jeremy Haft, CEO of SafeSource Trading, a company that helps agricultural businesses export to China. “China is a very complex place to do business.”
The complexity of exporting varies by product and industry, but small business owners recommend similar overall strategies when considering whether to export to China.
Getting to know the market
Mark Morrison, general manager of Austin, Texas-based Cypress Creek Hardwoods, learned the hard way that just because something sells in the United States doesn’t mean it will sell in China.
Just a few years ago, Morrison was hired by a company that builds multi-family homes in Austin to start a lumberyard, but “the business model was not very compelling,” he says. The stagnant US economy and housing market were making it even more difficult to survive in an industry that had long been facing pressure from Asian furniture imports. Morrison had seen many lumber mills go out of business as a result.
“The ones that stayed in business more likely had some toehold in exports,” he says.
Although he had no experience doing business in China, Morrison was impressed by the country’s economic growth and saw an opening for lumber exports. So he and the owner of the construction company decided to give exporting a try with a new company, Cypress Creek Hardwoods, which works exclusively with small sawmills to export American hardwood to China.
Morrison’s first trip to China challenged many of his assumptions. He had planned to sell mesquite—a drought-resistant hardwood native to the southwestern United States and Mexico—but Chinese buyers weren’t interested. He also thought it would be possible sell directly to small and medium-sized furniture manufacturers, but many of them lacked the logistical capabilities that large purchasers had for handling lumber shipments.
Two and a half years after starting the business, Morrison said he has learned a few more lessons about the China market: Chinese customers are incredibly price-sensitive and they tend to care more about the appearance of the wood than American buyers. As a result, his hardwood sellers generally make less from their exports than they do from their domestic accounts.
But other imports still sell at a premium in China, including high-end foods and luxury products, according to SafeSource Trading’s Haft. “With the right pricing strategy and the right marketing, you can still make a premium,” he says.
Tapping all available resources
Once a company has found a market for its product, it can face a mountain of paperwork before exporting. This was true for SafeSource Trading, which has exported everything from maple syrup to chocolate-covered fruit to China. Fortunately, Haft says, there are a lot of companies and government agencies that can assist with “wading through all those documents.”
The Department of Commerce, the Small Business Administration (SBA) and the Export-Import Bank run US Export Assistance Centers to help connect US businesses with buyers abroad and with resources to help them get started exporting. SBA and Ex-Im provide financing for exporters, and Ex-Im offers trade credit insurance, which protects businesses if they do not receive payment from a buyer abroad.
“If you can start with one or two, the US Commercial Service and the Small Business Administration…they will point you in the direction of other resources,” says Strange.
Strange says that connecting with just one or two organizations led to networking events, which led to invitations to speak on panels. “And then the next thing you know you’re going to know a half dozen people or organizations that can help you with exports,” he said.
Haft also recommends finding a good freight forwarder—who should be well versed in the necessary documents—and a good importer. Vetting potential buyers and finding trade leads is often easier with the help of the Commerce department, he says.
Finally, new exporters should get in touch with trade associations, according to Morrison. The American Hardwood Export Council, which had industry-specific connections and knowledge, put Morrison in touch with a larger Chinese lumber distributor, leading to breakthroughs for his business.
Investing time and resources
Between finding the right customer, arranging logistics, dealing with paperwork and fulfilling orders, exporting products to China can take a lot of time. Haft’s company has dealt with its share of document and approval issues, and he says small businesses just starting to export to China need to have patience.
“It doesn’t have to be a big expenditure in money but it does have to be a big expenditure in time,” Haft says.
Even so, it can be easy to get discouraged.
“It took us six months to figure out pricing and shipping,” says Morrison. “How do you price [your product] so you can make money and sell it? And how do you get it over there and get paid? That took us six months to figure out. You have to have a vision for the long term.”
Strange says hiring someone who can bridge the linguistic and cultural divide can be important. His broker is a Chinese-born US citizen, and he regularly hires Chinese interns who are interested in international trade.
Meeting your customers face-to-face
Small business exporters agree that going to China and meeting customers face-to-face is critical. “I don’t believe that because we have the Internet there’s no risk in the buyer-seller transaction,” Haft says.
Strange enjoys Chinese culture and visiting distributor James Sun, who sells his company’s ice cream to supermarkets, hotels, and restaurants, and operates four retail outlets in China.
“He knows I love Chinese food so the last time I went over, he made it his business to make sure that I had a meal that represented each of the eight major cuisines of China,” he says. And Strange’s personal relationship with his customer has translated into a great business relationship. “We work together to solve any issue,” he says.
Morrison—who has traveled to China seven times in the last two and a half years—says one of his company’s selling points to US suppliers is his frequent travel to China and his close relationships with Chinese customers.
“To be here and to never have gone over there and built a relationship, I think you’re asking for trouble,” he says.
[author] Christina Nelson is a writer and communications strategist in Washington, DC. [/author]