Photos courtesy of istockphoto.com
Last year, Minnesota’s exports — manufactured and non-manufactured — tallied up to about $19 billion. That’s despite an historically strong dollar, which makes U.S.-made goods more expensive abroad. About half of that total went to five countries: Canada, Mexico, China, Japan and South Korea. All stats are from the Minnesota Trade Office at DEED.
Minnesota Export Numbers
The largest destinations are Canada and Mexico, but there’s growth in Asia Pacific countries.
Export campaigns are inevitably resource-intensive, so the prospect of selling into strange new markets gives risk-averse leaders pause.
“Many business owners and executives don’t know what they don’t know about exporting,” says Steve Riedel, international trade representative at the Minnesota Trade Office. “Our job is to convince them that going international is both possible and potentially profitable.”
Hesitant leaders needn’t go all in right away. According to Matt McInerney, vice president of global forwarding sales at third-party logistics provider C.H. Robinson, most don’t. “Start with one overseas market, one supplier, and learn as much as you can,” says McInerney.
Riedel provides export-curious business owners with a one-pager that asks obvious but important questions: From what countries have your foreign inquiries come, if any? Which products appeal most to foreign buyers? Are any domestic customers buying your products for shipment overseas?
Don’t do it all yourself
Business owners are used to solving tough problems on their own, says Riedel, but exporting overseas is different. When you’re dealing with complex issues like tariffs, regulatory requirements, and third-party logistics, Google only gets you so far.
Here’s a tip: Google if you wish, but reach out to Riedel’s team at the Minnesota Trade Office. They can point you to experts on taxes, international business structures, trade policy, conformity requirements. “I can’t tell you how many times people tell us, ‘I wish I’d heard of you 10 years ago,’” laughs Riedel.
Find a logistics partner
Whether you’re self-shipping a handful of units to Canada or sending thousands of items to dozens of international markets each year, you need a trusted logistics partner.
For low-volume exporters whose products are compact and lightweight, UPS or FedEx are likely fine. If you’re shipping heavier products at higher volumes to multiple markets, you’ll need a third-party logistics provider.
Understand trade policy
Successful exporters needn’t be political savants, but they must grasp the basics of export markets’ trade policies, which are inextricably bound up with local politics. Every government erects trade barriers — import duties, tariffs, certification requirements, and other protectionist schemes — to protect native industries. These barriers put foreign firms at a disadvantage — unless they can fight back.
Michael J. Brown, vice president of international sales at Anoka-based Mate Precision Tooling, did just that.
Years ago, when he worked in international sales for Bayport-based Andersen Corporation, his employer teamed up with competitors Marvin Windows and Doors (based in Eagan) and Iowa-based Pella to successfully lobby against a punitive Japanese product certification scheme designed to penalize foreign firms, thereby preserving the American window industry’s access.
MINNESOTA EXPORTS FACTS
Total # of products: 1,044
Total # of national trading partners: 207
Total value of manufactured exports: $18 billion (-5% over 2015)
Biggest region: Asia, $6.4 billion
Biggest gainer: Ethiopia, 1,104%
Jobs supported: 120,000
TOP PRODUCT GROUPS
Minnesota’s leading exports of optic, medical, machinery and vehicles all lost ground in 2016. The greatest increase were seen in cereals and manufactured parts for aircraft and spacecraft.
As a general rule, says McInerney, it’s easier to operate in markets with which the U.S. has free or preferential trade agreements — for instance, Canada and Mexico, our NAFTA partners.
Don’t forget local taxes
Yes, you do have to pay taxes on foreign sales. Most countries impose value-added taxes (VATs). VAT is “a consumption-based indirect tax that is collected incrementally based on the value added, at each stage of production,” says Lynette Stolarzyk, international tax principal (Midwest region) at Baker Tilly.
According to Stolarzyk, VAT “is usually implemented as a destination-based tax, where the rate is based on the location of the customer.” This inherently penalizes U.S. companies because foreign companies do not pay a VAT when they export into the U.S.
Soft entry barriers
What about “soft” barriers to entry — like language and culture? All things being equal, developed, English-speaking countries such as Canada and the U.K. present fewer cultural barriers to entry. But, with lots of international competition, mature markets have higher economic barriers to entry. So, the more comfortable is less profitable.
If resources allow, hire locally. Brown’s current employer, Mate Precision Tooling, has multilingual salespeople in key markets, where people are more comfortable dealing with people who dress, talk, and think like them.
“Local reps really help build bridges to customers, especially new prospects,” says Brown.
Locate local distributors
Don’t linger in challenging markets without pairing up with a trusted local distribution partner — and, if your model requires, dealers or resellers too. Even in the age of eBay and Amazon, an on-the-ground distribution network is far superior to a DIY approach.
“Find a trusted partner who speaks the language and knows the local customer base, and you’ll automatically have a leg up on international competitors,” says McInerney.
“The archetypal international growth sequence begins with direct sales into the market and continues on with local distributor partnerships,” adds Stolarzyk. “Once you’re well established and sufficiently capitalized, you can consider buying up your distributor or establishing your own [national or regional] distribution subsidiary.”
Export Case Study: Mate Precision Tooling
We sought out a local stalwart that’s been exporting for decades: Anoka-based Mate Precision Tooling, a diversified sheet metal tooling manufacturer that sells into more than three dozen countries. I spoke with Michael J. Brown, Mate’s vice president of international sales, to learn about Mate’s overseas success.
Getting started in the export game
Mate’s first successful tooling components fit Wiedemann sheet metal punch press machines. In 1964, Wiedemann (now Muratec) developed the world’s first numerical control (NC) turret punch press. That immediately changed the game; every manufacturer that could afford one had to have one.
As Wiedemann’s punch press business went international, tooling suppliers followed. By the mid-1970s, Mate was selling its punch press components into top Wiedemann markets such as the U.K. and Canada.
“[Mate’s international expansion] was more by accident than design,” says Brown, who wasn’t with the company back then. “We asked, ‘How do we follow these machines?’ — and then made it happen.”
On growing global revenue
Mate’s Wiedemann punch press tooling components were “consumable.” They wore out faster than the machines they fit. If Mate’s international clients wanted to keep their spiffy Wiedemann machines running for long, they needed to reorder. And reorder. And reorder.
The reorder cycle established Mate’s overseas foothold. That was enough to ensure robust international revenue growth — until new, lower-cost competitors began undercutting Wiedemann machines worldwide.
A professional global footprint
By the late 1980s, Mate had moved well beyond its Wiedemann origins. With a diversified product line that could adapt to many different machine types and brands, it was poised for explosive international growth.
One problem: Mate didn’t have anyone who could manage a complex global footprint.
MATE PRECISION TOOLING
LEADERSHIP: Dean Sundquist, Chairman & CEO
DESCRIPTION: A diversified manufacturer of superior productas and solutions for sheet metal fabricators
Then-CFO Mike Sundquist knew someone who could: Frank Baumler, an international trade guru ensconced at the Minnesota Trade Office. Sundquist poached Baumler away, then directed him to design a global sales network. As a subject matter expert, Baumler knew about all sorts of resources and tricks that hadn’t been visible to Sundquist. Within five years, Mate had roughly 30 overseas dealers; today, it’s up to 78 dealers in 65 countries.
Logistics and shipping
Most of Mate’s tooling components are compact and relatively lightweight. They fit easily in cardboard shipping boxes or, at worst, on a shrink-wrapped pallet. It’s easy and cost-effective to ship them by air freight.
Mate uses UPS for air freight and local ground shipping. Some competitors use FedEx or (globally) DHL. For prolific shippers, it’s a consequential decision.
“We’re strongly tied to UPS and its global support system,” says Brown. Translation: UPS is the critical link in Mate’s fulfillment chain. When UPS has a problem, Mate has a problem. Good thing Mate has complete trust in UPS; it hasn’t been let down yet.
Brown knows full well that air freight isn’t ideal for every manufacturer. His previous employer, Bayport-based Andersen Corporation, leaned heavily on ocean freight to ship its heavy, bulky windows and doors.
“The nature of your product, your global footprint, and your customers’ needs will determine your shipping method and logistics partner,” says Brown.
Oh yeah — time zones!
Minor detail? Not quite. When Mate first expanded into Europe, its U.S.-based customer contact center was inundated with support calls in the middle of the night. The team quickly adjusted its shifts, bringing reps in as early as midnight CST to take 7 a.m. Central European Time calls from anxious customers
On overseas pricing
Taxes. Import duties. Regulatory requirements. Local purchasing power. Currency fluctuations. The list goes on.
All affect international pricing. Mate settled on a simple solution: two distinct price points, one for the NAFTA free trade zone and one for the rest of the world. The international price accounts for dealers’ import duties and other costs — allowing Mate to maintain an expansive global presence at the expense of its NAFTA margins.