- change ups
Van Andel Center Offers Trade Expertise
GRAND RAPIDS — Jeff Meyer, executive director of Grand Valley State University's Van Andel Global Trade Center (VAGTC), estimates a third of Grand Rapids area companies are involved in international trade in some form or another, whether it be importing, exporting, joint ventures or global sourcing activities.
The international trade efforts of many small- to mid-size local firms, however, are often stunted because they're poorly planned or coordinated and not proactive, Meyer said.
The VAGTC, housed in GVSU's DeVos Center in downtown Grand Rapids, has been offering import-export counseling services since October and has since counseled more than 40 companies on the intricacies of international trade.
"What we often do is go back to the beginning and take a look at a company's strengths, weaknesses and potential markets to help them proactively engage their markets so they can achieve the highest probability of success," he said.
Meyer told the Business Journal that as far as exports are concerned, the first step to entering into international trade is determining trade readiness. Doing so, he said, requires an assessment of management's level of interest in and commitment to pursuing exports, as well as a careful evaluation of the company's financial position.
"The rule of thumb is it takes two years to get back in the black when you enter international markets, so you typically take some loses up front," he explained.
A firm also must determine what internal resources it already possesses and what external resources are yet needed to carry out the plan, and what the product's potential for sustainability is in a selected new market.
Sometimes a company must make product modifications before taking it overseas, Meyers noted. For example, if the product's measurements are based on standard rather than metric units, and the product will require servicing, adjustments or maintenance in another market, measurement systems have to be aligned.
Similarly, there has to be what he termed technological equality: the market to be served must match up technologically.
"In general, most of the world is five to 10 years behind us in technology," Meyer observed. "That's why you see us exporting some of our older equipment. If they don't have the skilled labor to support the technology of the product, it's not going to help much."
Another factor to be considered is the competitive landscape and current availability of the product or service in the international market under consideration. How many others are doing what you want to do in that market? What is the ease and cost of entry into that market?
Meyer said as part of the trade readiness process, a firm has to figure out what's required of the product once it enters the market, and whether or not the company can provide the necessary service maintenance and support.
Once the readiness issues have been tackled, the next step is researching the markets and pinpointing where in the world to go. That means identifying the most beneficial markets — those with the highest probability of success and the least risk.
"What we do is basically a matrix that posts the various countries up against everything that drives a company's market," Meyer explained. The matrix system evaluates all factors and works to narrow down the possibilities.
From the macro drivers, such as a country's political stability and the health of its monetary system, the matrix works down to the micro drivers, such as availability of labor and materials, cost of shipping and intellectual property protections.
The objective, Meyer said, is to find short-, medium- and long-term entry markets of one to three years, three to five years, and five to 10 years, respectively.
"Then, you start to enter these markets by the numbers because you've determined these markets are the highest probability for the most profit.
"Whatever you do, don't just start taking countries and picking them based upon some obscure reason. The reasoning has to be based upon market potential, ease of entry, access to distributors — all of those kinds of things. And it has to be based on the numbers."
He added that for most small- to mid-size companies that have never entered a foreign market before, there are more uncertainties than they can handle in about 80 percent of the world's countries. So realistically, they're limited to selecting markets in only about 20 percent to 25 percent of the world.
Most companies start with just one international market, typically Canada or Mexico. In terms of trade, Meyer noted, Americans are most familiar with those two countries. In addition, shipping costs and tariffs are low in both Canada and Mexico, and there's the added benefit of trade guidelines and dispute resolution provisions provided by the North American Free Trade Agreement (NAFTA).
"The more sophisticated countries to begin trading with are in Eastern Europe and the Middle East and places where the laws are more transparent, so the risk is higher," Meyer pointed out.
Once the best potential markets have been identified, the plan has to be operationalized. A significant part of that is assembling an international service team, which involves an internal team on the home end and external service providers on the other.
For most small- to medium-sized firms, an internal team consists of one or two people focusing on international, Meyer said.
"What we try to do is help firms integrate their international processes within their company so international is not this separate orphan sitting out there," he said.
"You have to be very aware and have the ability to work with the service providers because not all of them have expertise in your region of the world or your industry."
From that point, the tasks are to come up with a strategy for entering the selected market; to identify overseas contacts and leads, key customers, and any support services needed; to develop a cost structure for exporting; and to identify any obstacles to trading.
Once a company enters a new market it has to have some benchmark by which to gage the success of entry.
"It's not about signing up distributors," Meyer explained. "It's about getting the highest percentage of that market. What do you need to get out of this market to be profitable? And you have to have contingency plans in relation to political, economical, currency or shipping risks — the what ifs.
"There are inherent risks in international markets. That's why you go through all this — to make sure you're making the right decisions."
The VAGTC is available to help firms at all different stages of entry, whether it concerns sourcing, trade agreements, shipping routes, distributors or whatever. If a firm isn't getting as much out of a foreign market as it anticipated, the center can offer recommendations for improving profitability as well.
Service fees for import-export counseling range from $75 to $125 an hour.