Export Opportunities, Best Practices and Resources for IM&E Manufacturers
Despite the political rhetoric, it is a great time for global expansion. Exporting industrial machinery and equipment is easier today than ever before thanks to technology, trade agreements, greater access to financing opportunities, outsourcing and sociocultural changes.
Technology has simplified the export process, lowering many of the costs associated with doing business internationally, while new trade agreements increase access to foreign markets and make it easier for U.S. companies to export.
Based on the current pace of globalization, global trade in goods and services is expected to grow significantly in the future. Consider the following statistics:
- The value of U.S. goods and services exported in 2016 totaled $2.2 trillion.
- With $398 billion domestic and foreign sales in 2016, the U.S. is the world’s largest market for industrial machinery and equipment (IM&E) and the third-largest supplier.1
- As of November 2016, more than one million Americans were employed directly in industrial machinery manufacturing after the unemployment rate in the sector dove from a mid-recession high of 14.2 percent in October 2009 to 4.1 percent in November 2016.2
- The 2013 Trade Facilitation Agreement, effective February 2017, is expected to add $1 trillion to the global gross domestic product. The agreement was designed to cut regulatory red tape and expedite the movement, release and clearance of goods, including those in transit, among World Trade Organization members.
For small and medium businesses, going global is no small matter. It is a challenging enterprise that requires careful analysis and strategic planning to determine if the rewards will outweigh the risks.
Why You Should Consider Exporting Industrial Machinery
Exporting offers small- and mid-sized enterprises (SMEs) awesome opportunities that can result in considerable benefits.
- Exporting can significantly increase sales because 95 percent of the world’s consumers are outside the U.S.
- It can generate greater profit margins because U.S. products are perceived abroad as being innovative and high quality.
- Orders from foreign buyers tend to be larger than domestic orders, as goods are purchased by the container and not by the pallet.
- Exporting allows U.S. companies to reduce economic risk by diversifying their markets.
- Companies can achieve longer and more sustainable sales patterns for their products by selling in markets with different shopping seasons.
- Exporting makes it possible to extend the life cycle of product lines in markets where they would be new.
Popular Countries for Exports
SMEs in the U.S. are focusing the majority of their exports in the following countries, according to the Office of the United States Trade Representative.
- Mexico is the second largest export market for the U.S., representing 16 percent of total exports in 2016.
- U.S. exports of goods to Mexico in 2016 totaled $231 billion.
- Top export categories in 2016:
- Industrial Machinery ($48 billion)
- Electrical machinery and equipment ($40 billion)
- Vehicles ($24 billion)
- Mineral fuels ($16 billion)
- Plastics ($12 billion)
- Medical and technical equipment ($7.1 billion)
- Canada is the largest export market for the U.S., representing 18.3 percent of total exports in 2016.
- U.S. goods exports to Canada in 2016 totaled $266 billion.
- Top export categories in 2016:
- Vehicles ($48 billion)
- Industrial Machinery ($ 40 billion)
- Electrical machinery and equipment ($24 billion)
- Mineral fuels ($16 billion)
- Plastics ($12billion)
Global and Export Opportunities for Manufacturers
The key to a successful global expansion is to identify an underserved niche market that your company can serve. Industrial machinery and equipment manufacturers are taking advantage of new sales opportunities by expanding product lines, adapting existing machines and technologies to new niches, customizing products to individual customers, and exploring new business models to engage customers in long-term relationships.
- The global heavy construction equipment market will grow to $180.7 billion by 2021, a 7 percent compound annual growth rate (CAGR) since 2015, driven by emerging economies focused on infrastructure projects as well as increased spending in construction.3
- The global food processing and packaging equipment market will reach $52.9 billion by 2022, a 14 percent CAGR since 2014.4
- The global material handling equipment market will expand to $134 billion by 2020, driven by demand of automated systems, cloud computing, increased use of business analytics and Internet of Things technologies.5
Opportunities in Mexico
The packaging machinery market in Mexico is presenting strong opportunities for U.S. IM&E exporters, with imports reaching a record $678.1 million in 2015, up 8 percent from 2014, making the U.S. Mexico’s top supplier with 35 percent of all imports.
Imports to Mexico are expected to grow 2-5 percent during 2016-2017.6
Mexico is the second largest buyer of U.S. packaging equipment in the world, buying almost 80 percent of its industrial machinery from the States.
Capturing IM&E Opportunities
According the MPI’s “Global Opportunities Await IM&E Manufacturers” report7, capturing new profits from export and global opportunities will require them to take the following actions:
- Identify new opportunities and requirements. Even opportunities that seem far beyond current capabilities may be too lucrative to ignore.
- Establish clear objectives. For each IM&E opportunity, thoroughly research local demand, operational and financial benchmarks, and regulatory and logistical hurdles.
- Assess capability and capacity. With objectives established, focus next on assessing capabilities and capacity. Some opportunities will require substantial investment for assets, facilities or field locations and human resources. Develop detailed cost structures that quantify not only returns on the investment but risks as well.
7 Steps to Take Your IM&E Business Global
Going global may be easier and more cost effective than ever before, but it requires deep analysis of numerous factors, strategic planning and skillful execution.
1. Build Your Global Entrepreneurship Network
The U.S. federal, state and local governments as well as business incubator groups can help small- and medium-sized businesses penetrate foreign markets. Make sure you contact the following resources:
- Regional U.S. Export-Import Bank representative
- Local Small Business Development Center (SBDC)
- ITA: International Trade Association
- U.S. Commercial Service: part of ITA that helps smaller businesses find international partners
- U.S. House Committee on Small Business’ Small Business Export Guide
- SCORE Association: business education and mentoring
- IC-DISC: a tax incentive
- ELAN: Export Legal Assistance Network
- WITS: World Integrated Trade Solution, software that allows users to access trade and tariffs information
- SBA Export Business Planner
2. Develop an Export Strategy
To go global, you will need to develop a solid export strategy to assess your capital resource needs and anticipated revenues, select potential markets, identify additional costs and legal requirements, connect with foreign customers, and engage qualified supply chain partners.
While experience and expertise in your domestic operations will come in handy, you will still need to understand the language, cultural, market, governmental and economic requirements, and nuances of the foreign country, including its currency, product mandates, import rules, labeling requisites and property rights.
The U.S. government has its own requirements, including obtaining the pertinent authorizations, such as export licenses when required; compliance with export regulations; timely processing of export documentation; and screening trade parties to make sure you are not dealing with a restricted, embargoed or sanctioned country.
3. Define Your Product Positioning and Identify Target Markets
As in any business venture, you need to identify potential markets that need, want and can purchase what you have to offer.
Consider the following questions:
- What products/services will you export?
- Is your product unique, or can it be easily duplicated abroad?
- Can you offer a competitive advantage in terms of customer service?
- Do your products qualify under U.S. Free Trade Agreements?
You must also identify potential obstacles that could hinder your ability to penetrate these markets, such as requirements on manufacturing materials or environmental regulations.
4. Establish an Export Budget
Make sure you take into account the following elements in your export budget:
- Marketing campaigns
- Website enhancements (language translations, inbound marketing)
- Travel expenses
- Trade show expenses
- Export staff, new hires
- Legal and tax outsourcing
- Additional export market research
- Logistics expenses (freight forwarding, insurance, etc.)
5. Outsource Key Functions
- Legal advisor: localized commercial agreements, certifications, corporate records
- Accounting firm: accounting, payroll, local banking, foreign import tariffs, VAT taxes
- Marketing and PR consultant: local help to set the right tone for marketing and introduce you to key players
6. Establish Key Partnerships and Relationships
This step cannot be overstated. Strong relationships with local companies, products and individuals will give you a competitive advantage. These partnerships are valuable assets that can support the scaling of the organization while minimizing the financial risk.
Building trusting relationships in the following key areas will minimize risk and give you confidence when entering a new market:
- Financing partner: mitigate the risk of foreign non-payment by having a financial institution pay you directly and take the risk of collecting from a foreign country.
- Retail channel
7. Set up a Beachhead Team
Launching a global operation by stretching existing executives or a new inexperienced local team is time consuming and risky. Using proven senior interim executives allows you to hit the ground running and expedite key readiness initiatives while the company hires the right senior management team for the operation. Consider outsourcing interim leadership for your international expansion.
Your beachhead team will be the primary point of contact with all your local partners. Additionally, it must ensure your company is ready in the following areas:
- Product: government- and industry-specific regulations, patents, trademarks, quality assurance, distribution networks
- Organizational: local IT infrastructure, competitive benefits packages, policies and procedures, HR functions
In addition to these useful steps, there are plenty of resources to help you start exporting. The U.S. Department of Commerce’ “A Basic Guide to Exporting” will help you navigate the processes required to export your products.
It is an undeniable fact that global markets offer an opportunity for growth beyond domestic markets. A meticulous investigation, effective strategic planning and resourceful, creative execution will lay a solid foundation for your efforts and help you succeed going global.
Endnotes and data sources:
1. U.S. Census Bureau: U.S. Bureau of Economic Analysis
2. U.S. International Trade Administration: SelectUSA
3. Markets and Markets
4. Statistics MRC.
5. Global Industry Analysts
6. Export.gov: a collaboration between the U.S. Department of Commerce’s International Trade Administration and 19 government agencies
7. The MPI Group, an Ohio-based market research and analysis firm focused on management, marketing and manufacturing