Increase Sales, Profits Through Exporting
With 96% of consumers outside the U.S., many small businesses are losing out on critical growth opportunities. Latin Business Today discusses tips on how Hispanic small business leaders can navigate their business abroad.
Thanks to a shift in spending habits following the recession, foreign markets offer the greatest growth opportunities for many Hispanic small businesses. From Southeast Asia to Latin America, Hispanic business leaders are discovering that foreign markets are far more approachable than initially thought.
The U.S. government estimates two-thirds of the world’s purchasing power are in foreign countries. According to Commerce Secretary Gary Locke, “So much of what America makes is in great demand. Small and midsize companies’ growth potential is outside the U.S.”
Many small businesses mistakenly believe that they are too small to expand overseas. International expansion is viewed as too risky, too complicated and simply unaffordable. However, from Mexico to China, news agencies continue to report strong expansion opportunities for the Hispanic market.
Still Doing Business Only in the U.S.?
Consider this: 93 percent of the world’s consumers and 66 percent of the world’s purchasing power is outside the United States. In 2011, U.S. exports hit a record high of $13.8 trillion. That’s a 13.8 percent increase over 2010’s exports. Small businesses that only do business in the United States are losing out on critical growth opportunities.
The U.S. government is now providing financial backing for small business expansion overseas. The Small Business Administration will guarantee $5 million in working capital loans–an increase from $2 million in 2009. In 2011, the Export-Import Bank estimated that it provided $6 billion in loans for small business exports, up from $4.5 billion in 2010. The Commerce Department is actively working to remove trade barriers and tariff violations, expanding the international market for U.S. small businesses. To facilitate partnerships, the Commerce Department also launched a new website linking U.S. sellers to foreign buyers.
American-made products are also synonymous with high quality and reliability. Thanks to a plethora of recent recall scandals, many Asian consumers are turning from Asian-made food products to U.S. brand products.
According to Alyson Bisceglia, who works for Performance Packaging, “The weakening economy here has opened up our eyes or forced us to look elsewhere for market places. People recognize the United States as organic and the products have been safe, which is another concern over there [in Asia].”
International business is not without its challenges. Each country has its own language, laws and customs. Is your business considering an overseas expansion? Keep these business tips in mind.
- Many American-based Hispanic businesses have a leg up in Latin America, thanks to reduced language barriers for Spanish-speakers. However, cultures can vary widely across Latin America, and Hispanic leaders should carefully research a country’s specific business customs rather than assuming a cultural norm from one country translates to another.
- While Argentina remains a receptive market for Hispanic business, Argentines are tough negotiators. The pace of business is much slower and strong personal relationships are essential to successful negotiations. Multiple meetings are often necessary to accomplish what could be completed in one in the United States. Decisions are made by top-level executives; so direct meetings with senior officials are essential.
- Despite women’s professional advancement in both Argentina and Chile, the cultures’ machismo attitude can negatively impact female business professionals. It is important to be aware of this attitude prior to beginning business negotiations.
- Despite the recent Euro crisis, European markets are open to American-made consumer goods, especially those deemed of superior quality.
- Many American small businesses can save on high shipping costs by manufacturing and selling goods directly in Europe. A small production company of less than five people may ultimately cost less than dealing with shipping fees and customs forms.
- Despite the multitude of languages spoken in Europe, English remains the language of business for many countries and language barriers are far less of a concern for Hispanic business than they are in Asia.
- Men and women are viewed as professional equals.
- In Southeast Asia, a contract is considered to only be an outline or letter of intent, while in the United States a contract is legally binding.
- Chinese companies prefer to do business with the top executive. Rather than sending salespeople, Hispanic leaders are best served by traveling to China themselves to establish a relationship with potential vendors, suppliers and business partners.
- Unlike some Asian countries with a British colonial history, such as India or Malaysia, the majority of Chinese business leaders speak limited English. Mandarin speaking employees are a must for any Hispanic business looking to enter the Chinese market.
- The pace of business varies widely. In India, decisions can be reached instantly. According to Amol Sarva, the founder of mobile company Peek, India is a “go-go-go environment,” although meandering business meetings and extensive personal contact with suppliers, investors and partners is a must.
International Business Tax Tips
- The U.S. government taxes citizens and domestic corporations on all of their income, including that generated by foreign enterprise. Generally, the U.S. allows a foreign tax credit for tax paid to other countries as long as the rate paid does not exceed that in the United States. For many years, any excess tax that is paid could carry over to future years’ tax returns. However, starting in 2011, President Obama cracked down on this tax credit, ending the deferral of tax on income generated abroad. This applies to businesses producing goods overseas, rather than companies that produce goods in the United States and export them.
- The majority of international countries have a form of income tax that U.S. businesses are responsible for paying if they conduct business in that country.
- To reduce the burden of foreign tax, the United States has tax treaties with foreign countries stating that the U.S. resident or company is not subject to that company’s income tax if the individual or company does not have a “permanent residence” in the foreign country.
A final tip that’s universal for every region and every language: know how to say “hello,” “good-bye,” “thank you” and “excuse me” in the local dialect. From “Ni Hao” in China to “Chao” in Argentina, knowing a few words in the local dialect is the fastest way to earn professional respect from your new business partners.
While international business expansion is not without risks, the potential for sizable growth significantly outweighs any challenges. Before expanding overseas, Hispanic business leaders must carefully research both the legal regulations and cultural customs that impact how a country conducts its business. With proper preparation, Hispanic small businesses will be poised for successful overseas expansion.