What We Can Learn from Central Illinois' Exporting Success

by James F. Foley
Illinois SBDC International Trade Center & NAFTA Opportunity Center, Bradley University

In the summer of 2008, Peoria was ranked as the 20th largest market for exports from the U.S., with sales totaling $5.3 billion. This places Peoria just behind Atlanta, and ahead of much larger metro areas, including St. Louis (#23) and Tampa/St. Petersburg (#37).

Clearly, our high ranking is due in large part to the export success of Caterpillar and our agriculture-related products. However, what is often misunderstood is the strength of small- to mid-sized firms in the Peoria area. At the Bradley University Illinois SBDC International Trade and NAFTA Opportunity Centers, we interact daily with these companies and have the benefit of learning what they do right. And getting it right is critical, as research has shown that companies engaged internationally pay higher wages and retain employees longer. In addition, access to international markets is critical in a recession to help mitigate lost domestic sales, even with depressed international demand.

Here is a summary of the exporting best practices used by many firms in central Illinois.

Management Commitment
Companies that succeed internationally have the full support of management. Going international can take time and test the patience of managers. Without commitment from the top, employees won’t be able to push through the barriers and challenges encountered when expanding exports. They also will not grow their exports as quickly. But how do you increase that commitment if it is lacking? I faced this situation in a previous position in the computer industry. The company’s president saw our international sales as a way to ‘dump’ older product at higher prices—not a good long-term strategy. Everything changed after a single sales trip through Europe. He quickly saw the tremendous potential to increase exports by changing our strategy. Thereafter, I always made sure all foreign distributors visiting our headquarters stopped by and met with senior management. So the key to building commitment is to be sure top management is fully engaged.

Proactive Foreign Market Selection
Many companies let their foreign markets choose them. This is understandable, as often companies are focused on their U.S. sales. An inquiry from an overseas distributor may lead to signing an agreement, even though the U.S. company did not specifically select that market. In other cases, companies choose which foreign market to enter based on countries their competitors have selected. This reactive approach is fast, easy and low-cost—but not always the best route. Your competitors and initial overseas leads may be misleading. The most important markets may be elsewhere. This is particularly true if your competitive analysis only included U.S. companies. Foreign competitors may have long known of other markets of significant importance in your industry. Their markets may still be missing from your selection process.

The companies we see with export success base their market selection on a thorough marketing analysis using industry and market data, backed by visits to the country to confirm strong product or service demand.

Strategic Foreign Direct Investment
Companies with strong export success ultimately must develop greater control and feedback from their foreign markets. This is best done by getting closer to the customer. The process may begin by simply hiring a sales manager based in a foreign country to oversee local and regional distributors. The manager may work out of their home, minimizing expenses. Eventually exports grow sufficiently to justify an office with local staff. Though sales may still be made through distributors, the foreign office ensures all company functions are successful, including marketing, training, support and logistics. We have seen good examples of this in China, where deep relationships are often critical to success. By opening a “rep-office,” the U.S. company gains a stronger insight into the China market and can better develop their export strategy.

Promote from Within
In general, the employees in local companies that have international responsibilities began with the company in a domestic capacity. This is also common in larger companies. To be effective in representing a company overseas or in dealing with export transactions, you must first understand the company inside and out. Employees dealing with international issues often have to act fast and across many departments, which requires not only knowledge of the company, but the support of fellow employees. When traveling overseas, company representatives are essentially ambassadors and must be well versed on the company, its history, and its products and services. How does a company develop the necessary international skills? Bradley University offers a variety of workshops and training programs in international trade, and the Chicago area has weekly training events.

Leverage Resources
Local companies know they cannot do this alone. Central Illinois enjoys a number of resources to help a company go global. We have excellent supporting companies to offer financial, legal, accounting and logistics support. There are numerous nonprofit entities, including the Heartland Partnership, Peoria NEXT and the International Trade and NAFTA Opportunity Centers at Bradley University. Peoria also hosts the only downstate U.S. Department of Commerce Export Assistance Center. And our numerous sister-city relationships also support our trade interests.

What Can We Still Do Better?
Ranking in the top 20 is great, but we can still do better. First, companies must remain focused on the basics of export success. We encourage companies to add one to three new export markets per year. It is also useful to participate in a new foreign trade show. These often have the support of the State of Illinois or U.S. Department of Commerce, which can assist with matchmaking and logistics.

Secondly, a growing concern is international trade compliance. In a post-9/11 world, trade transactions have become more complex, and remaining compliant with U.S. regulations more difficult. Meanwhile the penalties for noncompliance have become more severe. Regulations often change with little time to prepare, such as the recent “10 Plus 2” Importer Security Filing. Even long-standing compliance issues remain problematic. We recently assisted a company that, unfortunately, had been incorrectly completing the NAFTA Certificate of Origin for many years, possibly resulting in fines. To address these issues, companies must continue to seek education and assistance, and develop strong relationships with their freight forwarder. We are launching a service later this year to serve as a “trade compliance check-up” so companies can benchmark their compliance efforts.

Finally, companies need to be more aggressive in their trade financing. Last April, we hosted a workshop on effective trade finance to help companies be more effective in the financial aspects of trade transactions. This includes greater use of foreign receivable insurance, leveraging government programs for debt financing and keeping abreast of accounting rulings to maximize international profitability. These many not be headline-grabbing issues, but when used effectively, they greatly strengthen a company’s international trade.

Notwithstanding these challenges, we should celebrate our region’s export success. Watch out Atlanta! iBi