Most days, the global economy is busy swirling in Pam Schmidt's
office. When reached by phone, the international and regional sales rep for Daktronics was taking a call from a potential
client in Chile. During the interview, she sent well-wishes along with
an in-office visitor from the United Kingdom.
Daktronics, headquartered in Brookings, S.D., manufactures and services
large-screen video displays, scoreboards and computer-programmable display
systems, and employs about 1,200. If you've been in an airport, casino
or sports stadium, or seen sophisticated electronic signage along the
interstate, chances are you've seen Daktronics on display.
The company has been intimately involved with the Olympic games over the
last two decades and has used that visibility to help make sales around
the world. Among its recent sales was a display system to PSA Peugeot
Citroën of Paris, Rayyan Stadium and Ittehad Stadium in Doha, Qatar,
and an advertising display in Mahkota Parade in Malaysia.
Still, the company's major marketfar and awayis the United
States. When it comes to export markets, "we're opportunistic,"
Schmidt said. "If [foreign customers] contact us, we will follow
up." But exports make up less than 5 percent of company sales, Schmidt
said, "so we have a lot of growth [potential] there."
The lure of exporting is obvious: 95 percent of the world's population,
and some 70 percent of its income, lies outside U.S. borders. But as countless
companies learn the hard way, Daktronics included, exporting often comes
with its own set of rules and headacheslike tariffs, those charges
that are levied against nondomestic goods that come into a foreign country.
For example, there is a significant duty on Daktronics' merchandise to
Brazil "and then you have to pay taxes on top of that," Schmidt
said. "That's where we struggle. Before we even leave Brookings,
we have a higher product charge. That could keep us out of the marketplace."
But while tariffs and other trade-based rules usually dominate the international
trade discussion, business and other sources revealed that many of the
difficulties of exporting, particularly for small and medium-sized companies,
are more company-specific; their first focus is not on political trade
According to a 2002 company survey by the state of North Dakota, the top
three export problems identified by respondents were related to shipping,
documentation and finding an agent or distributor. Among those not exporting,
the most common reasons given for not doing so had to do with lack of
interest in exporting, a lack of knowledge or business contacts, and marketing
and business capacity issues.
For Daktronics, one of the biggest export challenges is financing. "Financing
is a factor that affects the sale," said Schmidt, who was negotiating
with the Chilean reseller for a potential $35,000 sale. "Finding
a financial company that will offer favorable payment terms to a one-time
customer is difficult," she added. "Not getting paid on a small
contract would be a risk Daktronics is not willing to take."
Exporting stuff, importing dollars
Businesses in all district states are involved in exports to varying
degrees. Minnesota and Wisconsin are the export giants by both aggregate
and comparative measures. North Dakota is a big agricultural exporter,
but beyond this industry, exporting "remains relatively invisible
to government, the public and the media," said Neil Whittey, president
and CEO of LAS International of Bismarck, N.D., and chairman of the North
Dakota District Export Council, a nonprofit that promotes exporting and
provides assistance to exporting businesses.
LAS International is a manufacturer of water and wastewater treatment
systems and equipment, and as the name implies, it does work around the
world because in the environmental field "you're automatically international"
because of the comparatively small market, Whittey said. Though not renowned
for high-profile exports, North Dakota companies have products all over
the world. "I was driving around the hinterlands of Argentina, and
there sits a [North Dakota-made] Bobcat," said Whittey of his discovery
during a trip to South America.
Why is exporting so important? There's a shipload of reasons, the most
obvious being an expanded customer base and higher revenue potential.
U.S. manufacturers are also eager to pursue export business to increase
plant utilization to take better advantage of fixed costs, according to
Curt Hanson, a principal with the Trade Acceptance Group, an international
trade consultant in Edina, Minn.
|As a Percent
|Source: U.S. Census Bureau
On a broader, economywide scale, most of the push for exporting boils
down to a simple promise of "new" or outside money that local
businesses receive when the customer is located outside the United States.
As the Export North Dakota Web site proclaims, "Every time a North
Dakota company exports a product or service ... new money is injected
into the state's economy."
Exports have other economic benefits as well. Other things being equal,
research has shown that worker productivity tends to be higher among exporting
companies. The federal Department of Commerce points out that wages in
export-related jobs are anywhere from 13 percent to 18 percent higher
than the national average. Those jobs are also more secure, because exporting
plants are 9 percent less likely to close than comparable nonexporting
Since 1960, exports have more than doubled their share of U.S. gross domestic
product and now ring up sales of close to $1 trillion, or about 9 percent
of GDP. But the global economic slowdown has put a crimp in most state,
national and even worldwide export trends (see "An
unwanted rest for hustling exporters"), but the basic push for
expanding exports still holds.
"Businesses really need to realize they need to export," said
Nancy Libersky, Minneapolis-based regional manager of international finance
for the Small Business Administration. Exports open up new sales opportunities
and offer a hedge against a soft U.S. economy. "When the domestic
[market] is low, foreign is high and vice versa," Libersky said,
but she added that the current world market is an exception to that rule.
Despite the advantages and opportunities that come with exporting, a
majority of businesses have never made a sale outside the domestic market.
Said Whittey, "We have an awful lot of businesses that should be
exporting" from North Dakota, but are not for a variety of reasons.
"A lot of companies wish they would export," said Cinnamon King,
manager for the U.S. Foreign Commercial Service, a federal agency with
105 export assistance centers in the United States and 151 international
offices in 83 countries. King's office covers South Dakota and 10 northwestern
counties in Iowa. In most cases, she said, businesses don't export "because
they are already overwhelmed with their domestic market" and don't
have the time, energy or resources to invest in managing foreign markets
"[Businesses] think there's this huge log of obstacles to overcome.
That's the mentality," King said. She acknowledged that "there
are horror stories and they're true," but companies usually find
exporting worthwhile once they've gotten their feet wet. For example,
King helped a "grandma and grandpa" company export made-for-kids
tepees for the first time. People in London saw their Web site and inquired
about a purchase, but the couple didn't know how to go about exporting
their product, King said.
And in fact, more businesses are getting into the action. From 1996 to
2001, every district state experienced growth in the number of exporting
businesses, and most saw strong growth in the double digits, according
to the Census figures. Neither are exports the territory of only large
corporations. Thanks to falling transportation and communication costs,
among other things, exporting is a realistic goal for even the smallest
company. In fact, the latest figures show that small and medium-sized
companies make up about 70 percent to 80 percent of all exporting businesses
in each district state in a given year.
That said, the majority of businessesbetter than 95 percent districtwidedon't
export in a given year. The overarching reason: "Exporting is just
a big risk," said Amanda Mack, administrator of the North Dakota
District Export Council. Companies have to uncover new markets that actually
want their product or service, then develop new skills in financing and
marketing, and ultimately find the money to expand their business. "There's
a lot of failure," especially early on, Mack said, and that scares
away many businesses that might have come to exporting on a whim, or from
a single Internet query.
For large companies like 3M and Cargill with a major international presence,
the difficulties of exporting are different from those of small companies
or those with little or no exporting experience. Exporting is not a matter
of "if" for a major exporter like IBM, but where and how. Still,
even multinational companies experience difficulties, like foreign markets
that go bust.
Most big companies get started in exporting like everyone else: one customer
at a time. "There's a kind of natural evolution" to exporting,
said Ed Hayward, a lawyer with Oppenheimer Wolff & Donnelly of Minneapolis
and a member of the Minnesota District Export Council. Hayward works with
a variety of international clients, and the law firm itself has offices
in Paris, Brussels and Geneva.
Exporting, Hayward said, often starts with a few queries from future foreign
customers, which lead to a greater interest in exports and increased participation
in trade shows and other marketing events, where a company starts to find
distributors and other useful contacts in a foreign market. Over time,
exports grow to the point that a company can consider a sales or other
subsidiary in the foreign country, and then finally it might move production
there altogether to take advantage of certain efficiencies if that market
can sustain the business.
But surprises lurk everywhereso many in fact that Hayward said a
person almost gets used to them. For example, Hayward said, one of Oppenheimer's
clients wanted to know if there were restrictions on safety flares in
Lebanon. Upon checking, it was discovered that, indeed, a license was
needed for such products, and the order had to be canceled because a license
could not be obtained in time for the event for which the flares were
Today, Marvin Windows exports its custom-made windows and doors to Canada,
Asia, Latin American, Europe and the Middle East. But it was a fairly
slow process of building that business, according to Ley Soltis, European
sales manager for Marvin, which is headquartered in Warroad, Minn., and
has manufacturing operations in the district in Fargo and Grafton, N.D.,
as well as in Warroad.
"At first, you're just poking around," Soltis said. "To
start [export business] up, it takes a while to build it."
In some ways, exporting came easy to the company because it is only a
stone's throw from the Canadian border. "We always sold into Canada.
In fact, one of the [original Marvin] brothers lived up there," Soltis
said. "But going offshore was a big step ... and it started by accident,
At a 1980 trade show, the company was approached by a Japanese home builder.
Early orders were small, "a couple of loads a month," Soltis
said. But business to Japan grew strongly over time, and new orders started
trickling in from elsewhere. "We started getting inquiries ... a
lot of people [in other countries] read U.S. architectural magazines.
... There's a market for the U.S. lifestyle almost everywhere."
But there are issues to address at almost every turn when exporting. Doing
business in California or Rhode Island is very similar to doing business
in Minnesota. But when exporting, Soltis said, "you go somewhere
else where the currency is different, the language is different. ... There
is different everything."
Product quality and industry maturity have a lot to do with likely success
in a foreign market, according to Soltis. "A lot depends on what
you're selling." Marvin considers its product a luxury good because
it demands a fair amount of disposable income. But with a specialty product
in a premium market, "then even a small company can do well,"
Going into a competitive foreign market, "you need products that
are significantly better or unique if you're going to be exporting."
If you're in the so-called mid-marketwhere you're competing with
domestic suppliers on an identical product"then you must be
cheaper," Soltis said. "If you're doing the 'me-too' thing,
Soltis pointed out that windows, as a component product, don't get sold
until houses go up, or old windows in existing houses fall apart. For
that reason, stand-alone products (electronics, furniture) can have more
success because their sale is dependent on fewer other factors.
The company also has to keep its eye on numerous extraneous factors that
can pull the rug out from under its foreign sales. For example, faltering
economies can wreak havoc on sales. Marvin Windows was doing a "good
business" in Argentina, Soltis said, "but [economic] problems
down there shut that off." Ongoing military conflict in Israel has
cut exports there in half.
Exchange rates and currency fluctuations also "have a huge impact.
Every day the price of your product is changing. It can go up 20 percent.
That would have more impact [on sales] than the [condition of the] local
economy a lot of times," Soltis said.
Even mundane things like measurement systems need attention because windows
have to be converted from feet and inches in many cases. Getting that
initial toehold in the local retail market can also be tough, Soltis said,
because the local retailer has to worry about how domestic window makerswho
might provide the majority of products to the retailerwill react
to added competition from foreign imports.
Despite the obstacle course, Soltis believes that exporting is actually
getting easier. "I think some of the infrastructure is better,"
he said, pointing to containerized shipping and computer-generated paperwork
as a few examples. "The operations side is maybe easier."
Your bill, sir
But for small companies or those new to exporting, still other headaches
lurk, probably none more important than financing.
"[Businesses] are afraid they are not going to get paid," said
King, from the Commercial Service program in South Dakota. Most of her
clients are small mom-and-pop shops that export on a prepaid basis or
by letter of credit, which is a payment agreement between the banks of
the buyer and seller. But a letter of credit can be difficult to arrange,
and it adds cost to the transaction, which can be a big deterrent if the
export shipment is small.
Whittey, from LAS International, agreed that financing is a major problem
for companies looking to start exporting. If a company's bank has no export
experience, "the banker will probably discourage" the company
from pursuing exports, Whittey said. "Banks know virtually nothing
about exporting, and they don't want to know anything about exporting."
The Institute for International Economics (IIE) has published several
papers in the last two years on export finance. In one, it said small
companies were "handicapped by the cumbersome character of trade
finance," and pointed out that over the past decade, "innovation
in the private financial markets has moved at a breathtaking pacebut
not in the realm of export finance, where the trend has been more retreat
Though there is clear risk involved with export financing, particularly
with companies in developing countries, the IIE pointed out that financial
markets have developed tools to spread risk, like the securitization of
home mortgages. "[A] whole new menu of financial products has been
invented. These innovations have not, however, transformed the world of
As a result, small and medium-sized exporters report difficulty getting
export credits, even for shipments to stable markets like Europe or Japan,
according to the IIE. "Small exporters are not big enough to establish
strong client relationships with giant banks, and their trade finance
business is not worth the hassle for medium-sized banks," which do
not have the resources to appropriately evaluate risk on export transactions.
Government loan programs, like those of the Export-Import Bank and Small
Business Administration, help fill the financial void somewhat. Both organizations
offer loan guarantees or insurance products to mitigate the financial
risk to private banks.
"[Banks] are not going to do [export financing] on their own. No
matter what you're exporting, it's a gamble," said the SBA's Libersky.
Not only can companies find financing through the SBA, but given the government
guarantee, that loan can come at a lower price than what a company would
find in the open market, she said. The SBA also helps make sure there
is a legitimate buyerone with enough money and a proper method of
paymenton the other end because "the seller does not have the
wherewithal of performing credit checks," Libersky said.
There's even some evidence to suggest that perceived export risks might
be overblown. The IIE noted that the default rate on loans from the Export-Import
Bankjust 1.4 percentis a fraction of what market-rate export
loans would suggest. In her nine years with the SBA, Libersky said she's
had maybe two loans go bad out of 100. "It's a very minute default
But the scale of these programs is small. From (fiscal years) 1997 to
2002, the Ex-Im Bank was involved in just $55 million worth of export
loans in the Dakotas and Montana combined, or less than 1 percent of the
value of all exported goods from these states during this period.
Libersky said SBA loans are far from oversubscribed, in part because "a
lot of times when people hear 'government,' they don't want to fill out
the paperwork" and deal with the other bureaucratic headaches assumed
to accompany any government program. "The feds have a bad reputation,"
Daktronics has faced the financing issue before. Speaking from experience,
Schmidt said, "Payments by letters of credit is a scary thing to
go through if you are a small to medium exporter and you don't know where
to turn for assistance."
The firm has used the Ex-Im Bank only once directly, but several other
times through a financial broker. But even Ex-Im loans have a fairly high
bar to clear. For example, Schmidt said the foreign company has to provide
trade and credit references, and three years' worth of financial statements.
"A lot of these companies don't have the history" to meet such
requirements, she said.
Despite all the hassles and added risk, two overarching themes seem to
carry the day regarding exports. First, more businesses are convinced
of the need to export. "In South Dakota, I'm seeing a lot more companies
get involved," said King, from Commercial Service. "I think
companies are finally finding out that exporting is not as hard as they
thought it was."
But second, exporting is not for the frail-of-business-plan. "They
have to be dedicated. ... You have to make sure your product will be welcome
in that market," according to Libersky. "[Exporting] is a procedure,
but not a bad procedure."
Ultimately, developing export markets takes the same timemaybe moreas
developing domestic ones. "One thing we've learned is perseverance,"
Schmidt said, adding that experience helps, but "every market is
unique. Every project is unique. But it's not as scary each time."
Five years ago, Daktronics officials decided to make a push into South
America. But the company was forced to re-evaluate when the biggest economies
thereBrazil and Argentinawent in the tank recently. The company
still has three Spanish-speaking people on staff.
"We have not forgotten South America. We're not in it for a year.
We're in it for years," Schmidt said. In the meantime, however, the
company is focusing its attention on the European market. "We need
to go where the opportunities are."