by Timothy McQuiston, Vermont Business Magazine Vermont exports are down, the task of entering the export market can be daunting for a small Vermont company and some Vermont companies have been, frankly, ripped off by foreign entities. But a new-to-Vermont effort is generating intensive interest and initial success for a program called ExporTech.
ExporTech was started by the National Institute of Standards and Technology (NIST) to bolster local exporting efforts for small companies and support the local exporting landscape.
When officials from the award-winning innovator BioTek Instruments went to China they found many of their products. Only they were unlicensed imitations of the Winooski firm’s high-tech products. Hubbardton Forge in Castleton has battled the same issue with its one-of-a-kind lamps.
BioTek is now using its expertise (“don’t use exclusive distributorships”) to help other Vermont companies find their way in the maze of exporting logistics, legal, cultural pitfalls, Website design (some like it wordy), trademarks, compliance (CE mark for the Euro zone), financing, sales channels, monetary exchange, translation, and, ultimately, “how do I get paid?”
BioTek, for instance, designs, manufactures, and sells microplate instrumentation and software to aid life science research and facilitate drug discovery. It found that while trying to keep China from duplicating its hardware might be impossible, it could always stay ahead in software. This is the kind of hard-won experience available in the ExporTech process.
“This is the first time we’ve done it in Vermont,” said Ken Horsemen, Senior Economic Development Specialist for the Vermont Department of Economic Development. He calls exporting a “minefield” but with tremendous potential.
“It’s a well-vetted, tested program,” Horseman said, which is consistent with the data-driven NIST. NIST started it in 2007, just as the Great Recession was bearing down on the US. In part for that reason, Vermont only started its program this year when Brent Raymond, Vermont’s International Trade Director, enlisted several partners to offer a spring and fall program. Raymond was able to get a grant from the Northern Borders Trade Partnership for $168,000 that covered company tuition of $5,000, another $3,000 assisted in marketing (typically Website development).
The initial program targeted the six northern Vermont counties. Dick Morse, VMEC Director of Business Development, said they want to go down to the southern part of the state in 2015 or to the Burlington area. Even if the scholarships are not available next year, Horseman said, the success of the program and the value to the companies should draw enough interest to fill all the seats.
The program is intensive and requires developing an export plan. The companies are required to participate in three day-long sessions over the course of three months. The fall session concluded November 12. There is a maximum of eight companies that can participate in each session to keep the program tight and the benefit to the participating companies high.
Morse said most of the companies who participate already have some export sales, but it’s mostly serendipitous and, as Horseman says, potentially problematic. For instance, the US Department of State has a long list of entities (countries, people, even just addresses) that a US company cannot sell to. To do so would be to commit a crime. Yet how would a company even think of such things when someone just shows up at their Website? ExporTech, he said, helps navigate the many mines in the minefield.
The need for foreign sales is significant.
According to e-forecasting.com (see VBM November 2014 page 20), the latest trade statistics show that foreign sales from Vermont exporting companies fell 0.6 percent in August, following a decrease of 6.2 percent in July, to $295.9 million worth of goods leaving Vermont for international markets. Year-over-year, exports were down 22.1 percent.
US exports stalled in August to $138.8 billion, which was unchanged from July. Vermont ranks 49th out of the 50 states in exports. The global economy is generally not doing as well as the US economy, and therefore the demand for US goods is down.
While these statistics suggest Vermont is on par with the rest of the nation because of its size and that global stagnation, the influence of IBM’s chip making plant is out-sized in Vermont exports. Much of what the Essex Junction plant makes is exported, which skews the numbers here, though the exact number is not made public.
But despite the issues, the foreign markets are immense compared to Vermont. The ExporTech process gives participating companies a “reasonable chance to succeed.”
Everyone loves Cabot cheddar. Photos from VBM's Made in Vermont Marketplace show in April. Vermont Business Magazine photos.
Six companies – Agri-Mark/Cabot Creamery, Liquid Measurement Systems, Superior Technical Ceramics, Trow and Holden, Vermont Precision Tools and Vermont Teddy Bear Company – participated in the first-ever ExporTech program in Vermont in the spring of 2014.
In the fall session, eight companies participated: Hearthstone, LEDdynamics, Manufacturing Solutions, Newport Furniture Parts, Numia Medical Technology, Turtle Fur Company, Vermont Natural Coatings and Way Out Wax.
Cabot, for instance, has found a new use for what had been a waste product. Whey is one of the byproducts of making cheese. At one time it had to be disposed of, maybe it was spread on farmers’ field for fertilizer.
Now the dried product is sent to many places for use in baby formula and sports drinks because it is an excellent source of protein. This is done in the US and now it’s also shipped in foreign markets, especially in regions of the world where there is little dairy production, as in the Middle East.
Vermont Teddy Bear markets to the US by blitzing Valentine’s Day and Mothers Day, holidays which don’t exist in most other parts of the world. The US is holiday heavy compared even to England.
Teddy Bear uses 800-numbers and floods the airways with radio spots before holidays, which are marketing strategies largely unique in the US. They put an air hole in the box so the bear can breathe and they have a bear “hospital.” All this may be as foreign to an international customer as their cultural traits might be to us.
What exports also offer, besides just sales, is a smoothing out of financial ups and downs domestically. Different holidays, like “Coming of Age (seijin no hi)” in Japan (which has many festivals and holidays including the usual Western ones), or different seasons in the Southern Hemisphere can smooth out revenues streams.
Besides being a natural exporter, a Vermont company “must have meaningful uniqueness,” Morse said. “So, what makes you different?”
Vermont is unique and the small size of the state’s manufacturers is ideal for this program. If a company can add just a few employees through this, then that will positively impact the local economy, he said.
"ExporTech has opened many doors for our company. In addition to the knowledge we have gained during this experience, we have acquired resources that will continue to aid us as we grow our export business," said Sarah Gallant in a testimonial for ExporTech. She is the Supervisor, Export Logistics, for Agri-Mark, Inc. Cabot Creamery.
Simon Doran, Sales Manager, Superior Technical Ceramics, said in a testimonial: "ExporTech gathered in one place the State and Federal government resources that are available to helpsmall Vermont companies supply export markets. It was an eye opening experience to see first-handthe help ready to support Vermont business succeed. Interacting with the other participating companiesemphasized that we are not alone in the struggle to be successful at exporting. Hearing the stories of theirexperience, successes and mistakes, was an important factor in the success of this program.”
Horseman said ExporTech offers a customized, detailed roadmap. Those companies who have already had a taste of foreign sales are likely candidates, but maybe they’ve just been sitting back.
“It gets them from being reactive,” he said, “to proactive.”
Vermont businesses, he said, are willing to share their experiences overseas with others. While actual results may take 6-12 months and NIST will do a data-driven report later, a survey given to the spring participants gave the program a 4.8 out of 5.
Morse said they target small manufacturers because that was for whom the original program was intended.
“That’s really our marching orders,” Morse said, “to help manufacturers and grow jobs.”
These jobs tend to have better wages and better benefits, he said.
The Vermont Department of Labor reports that in the first quarter of 2014, there were 31,034 individuals working in manufacturing at an average annualized wage of $55,436. The wages were unchanged but employment was down 1.7 percent from the first quarter of 2013.
By comparison, construction employs 12,531 (up 4.9 percent) at an annual wage of $43,312. Retail trade employs 37,048 at an annual wage of $27,700. And Professional and Business Services employees 25,318 at an average annual wage of $55,932. The average annual wage for all industries in Vermont is $41,976, up 1.9 percent, for a total of 301,311 workers, an increase of 0.8 percent from the prior year.
“Promoting exports creates jobs,” Horseman said.
While the Vermont brand can add 15 percent to the value of the same product made elsewhere in the US, that cache in some cases extends overseas.
“These companies may come to find that the Vermont brand has value that they might not expect,” Horseman said.
A good example is Trow and Holden, which makes stonecutting tools in Barre. They were already at about 30 percent of their sales in exports, in part because the Vermont brand extends to Norway.
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Refocusing on exports In an article by Mike Stone of Stone & Associates on “Refocusing US Export Assistance Strategy for Manufacturers,” he explains why this relatively new export effort is vital for US companies. Without significant growth in exports, the US cannot hope to decrease its trade deficit, reduce its reliance on domestic consumption, or offset sluggish job creation. Manufacturing represents a large portion of the traded sector and without significant expansion of manufactured exports, the U.S. will not make appreciable improvements to the trade deficit or to its broader economic objectives. Within the manufacturing sector, large companies represent the bulk of exports, but small and mid-sized manufacturers (SMMs) play a critical role. Why is exporting important to SMMs? • U.S. manufacturers underperform in exports versus other developed nations because historically they have been able to rely on the large domestic market. But this is no longer the case: the U.S. market offers limited growth and intense competition, including from imports. • Global markets offer growth opportunities and help to improve company performance. Exporters grow faster than non-exporters, have higher productivity, and are exposed to new ideas that stimulate innovation. • Moreover, it is not just about growth, but survival. International sales reduce vulnerability to domestic demand volatility, and manufacturers that do not reap the benefits of competing in international markets are vulnerable to those that do. Who are the SMMs with the greatest export growth potential, and how do export assistance providers identify them? • Given limited resources, export assistance organizations must focus on those companies and products with the greatest export potential. The reality is that not all SMMs have global opportunities. • Based on what is known about successful exporters, firms with the greatest export growth potential - which we call threshold firms - have two key characteristics: 1. T hey have a differentiated product/service, i.e. there is something unique, superior or specialized about an exporter’s product, service or capabilities; 2. T hey are ready to commit resources to become more proactive, aggressive, and systematic about exporting. • Threshold firms have not fully realized their export potential, but are positioned for rapid international growth. If these firms can commit resources to export sales and become more proactive, they can realize their full potential. • The threshold segment is comprised of two distinct categories of SMMs: moderate exporters that export to a few foreign markets but are often reactive in their approach to exports; and new-to-export companies that have received foreign inquiries. Because both groups of companies already sell to, or receive inquiries from, foreign markets, there is evidence of global demand and differentiation from competition. • Export assistance resources should be focused on threshold companies (among manufacturers). The oftcited statistic that only 1% of U.S. small businesses export is misleading, as it implies that the other 99% have export potential. The reality is that only a limited percentage of companies that do not export have a tradable, differentiated product with export potential. • But there remains a huge opportunity. The export assistance community serves fewer than half of the moderate exporters, and probably a low percentage of the export-ready new-to-export companies.i Based on these numbers (and assumptions about how many companies are ready to commit resources to export growth) we roughly estimate that 25-80,000i threshold SMMs are not being served by the export assistance world. This is a large but manageable number. If export assistance providers can reach more of these threshold firms (particularly those with 20 or more employees) and help them to become successful exporters, export assistance organizations will help move the needle on US export performance. • A straightforward way to identify new-to-export companies with export potential is to determine whether they have received inquiries from foreign customers. What type of assistance do exporters — particularly threshold companies — need? • Helping threshold firms progress from a reactive mindset to a proactive one will unlock their full export growth potential. Because of their scale, SMMs are resourceconstrained, and a lack of management capacity for export — both expertise and bandwidth — is a key barrier to overcome. SMMs need support and programs that help them expand their leadership team’s capacity to manage export sales. • Marketing campaigns about exporting rarely compel SMMs to act. Concrete export sales opportunities, such as those that come from personal connections in foreign markets, foreign customer inquiries, or specific market intelligence, help to open the eyes of company leadership to international prospects and thus drive action. Consequently, business matchmaking services and trade missions, as well as funding support for participating in tradeshows, are invaluable to helping companies see opportunities and trigger a more proactive mindset. • SMM exporters are often niche players and thus need market data that is far more in-depth and specific, relative to their products and value propositions, than broad data at the country or Harmonized System (HS)/ NAICS code level. • To reach their full potential, threshold firms need international business coaches, not just “technicians” on export mechanics. Trade counselors must be able to “go deeper” with clients, providing guidance on more advanced topics, such as how to manage distributor and rep relationships, or international marketing. Why are innovation and the supply chain important for growing exports? • Promoting innovation programs will help established manufacturers in particular, but startups as well, to develop new products, processes and technologies, enabling them to become or remain differentiated in global markets. • The role of SMMs is often in the supply chain of OEMs, and that role is critical to export performance: large manufacturers may represent the bulk of exports, but suppliers contribute indirectly to a significant portion of export value added. This indirect contribution by SMMs is as important to the U.S. economy as direct exports. The US needs a strong, innovative and diversified supply base that collaborates with OEMs on innovation, that can defend itself against competition from imports, and that also exports directly to customers worldwide. |
Not all SMMs (small and medium sized manufacturers as NIST calls them) are a perfect fit for this program and some who would fit might need time to prepare, Horseman said. For instance, a small company might not have the employment capacity to handle more work, or may have conflicts with tradeshows that coincide with the program.
Horseman said that a company must have a dedicated foreign sales staff for this to succeed.
“You don’t dabble in international trade,” Horseman said. “You have to put both feet in.”
He said they are frank with companies about whether they are ready and able to participate. One important question to answer in this process is, what’s been holding you back – cost, no available labor or time, fear of failure?
But failure is part of the process for those who export. The expert panelists have failed themselves, Morse said. The expert panelists have learned by their own failures and pass along the insight. But it’s a big world that should not be missed.
“Most of the consumers in the world are outside the US,” he said. And regulations might not be as onerous as they are in the US.
While China is the 700-pound gorilla, Western Europe alone is about the same population and GDP as the United States.
“Our work at VMEC is really about relationships and it really works well in Vermont because we’re all connected,” Morse said.
“Our partners are key,” he said, “We couldn’t do it without them.”
The program is sponsored by: VMEC, the State of Vermont's Agency of Commerce and Community DevelopmentVermont Global Trade Partnership,Vermont Small Business Development Center, the State of Vermont's Agency of Agriculture, Food and Markets, Vermont Economic Development Authority, US Small Business Administration, NIST MEP, US Commercial Service and FedEx. The program is also supported by the State of Vermont's Department of Economic, Housing and Community Development Vermont Training Program.
About ExporTech
According to the NIST Website, ExporTech is a national export assistance program that helps companies enter or expand in global markets. Jointly offered by the NIST Manufacturing Extension Partnership (VMEC is the local MEP) and the US Export Assistance Centers of the US Department of Commerce, ExporTech applies a structured export strategy development process that assists 4-8 companies to accelerate growth. It is the only national program where each company develops a written export plan that is vetted by a panel of experts upon completion.
ExporTech connects companies with a wide range of world-class experts that help navigate the export sales process. The result is that companies rapidly expand global sales and save countless hours of effort.
Since 2007, over 100 ExporTech programs have been delivered in 29 states with over 575 participating companies. The average sales increase is $770,000.
ExporTech provides companies with a systematic process for entering or expanding in global markets and connects them with the best international business experts in the region. The program assists participants in developing a peer-reviewed export growth plan in 12 weeks, quickly moving them from planning to closing export sales. The program involves a unique combination of innovative group sessions and individualized coaching.