Smart Answers

Small Manufacturers Bet on Exports


Nancy Mercolino’s 160-employee manufacturing business, Ceilings Plus, started supplying walls and ceilings for overseas building projects about five years ago. Her Los Angeles company, which began with the 1987 merger of two small construction suppliers, now has $30 million in annual revenue, she says, with about 55 percent of sales coming from Europe and the Middle East.

Her relationships with U.S. architects and engineers got her products in the door, and then she hired an international sales director in Germany to expand her clientele. “There’s a definite learning curve to exporting, but once we started to understand international markets, we started feeling empowered and excited,” says Mercolino, 52.

The dearth of American competitors—most of the other bidders she runs into are Europeans—and the reputation of the “made in U.S.A.” brand have been instrumental to her success, Mercolino says. “Being an American-made product is a definite selling point. If our bid comes in even close to the target range, we’re preferred.”

The U.S. Commerce Dept. reported an all-time high export figure of $180.6 billion in September. Exports declined to $179.2 billion in October, but the department says that total exports are up 12.3 percent from October 2010 to October 2011, an increase of $19.7 billion. And small businesses played a big role: Small Business Administration data show that about 70 percent of U.S. exporters have 20 or fewer employees.

GOOD STRATEGY

While the recession has left U.S. economic growth straggling at less than 3 percent, annual growth in such emerging economies as China, India, Brazil, and Turkey is ticking along at 7 percent or higher, notes Fred P. Hochberg, chairman and president of the U.S. Export-Import Bank. That’s an irresistible lure for savvy U.S. companies.

“When I was in business myself, the rule was that once you saturated the U.S. market, then you’d think about exporting. But that’s dated; exporting is now an integral part of any good business strategy,” says Hochberg, who served in the Small Business Administration under President Clinton and was appointed to his current post by President Obama in January 2009. He steered his mother’s catalog company, Lillian Vernon, from 1974 to 1993. Under his leadership, it went from a family-owned, $4 million retailer to a $180 million public company.

The Ex-Im Bank approved more than $32 billion in export financing in the 12 months through September, with more than $6 billion of the total going to support overseas sales for small businesses. That figure is up from $24.5 billion for the 12 months ended September 2010. The bank works to fill financing gaps for small and midsize exporters, providing working capital guarantees, export-credit insurance, and supply chain financing.

Hochberg has lofty goals for the bank: to increase small business export financing to $9 billion and bring in a total of 5,000 new customers by 2015. The bank has brought in 1,527 new customers since October 2009. He has retooled some of the bank’s core products, improved approval times, and done extensive small business outreach in partnership with state and local politicians and economic development officials under the auspices of President Obama’s National Export Initiative.

SHIFTING CURRENCIES

Of course, international economic trends may stymie his goals. One of the factors providing momentum to U.S. exporters in recent years has been a relatively weak dollar. But as the European Union struggles with a widening financial crisis, many predict that the U.S. dollar will again become a “safe haven” currency. That could negatively affect exporters, because U.S. goods and services would become more expensive as the dollar strengthens.

Jamie Heighway, a foreign currency trader at Western Union Business Solutions (WU) in Chicago, sees the dollar strengthening amid the uncertainty besetting European markets in 2012. “The U.S. dollar is going to come back in favor as a go-to currency. That doesn’t make U.S. exporters too happy, because they lose some of the price advantage they’ve enjoyed, and it’s tougher to sell their products,” he says.

That prospect “slightly concerns” Ray Zuckerman, the 70-year-old chief executive of ServerLIFT, an equipment manufacturer and distributor in Phoenix with 10 employees. Sales of his heavy lifting units, designed specifically for computer data centers, bring in $3 million annually. He says $1 million of that revenue comes from customers in 20 foreign countries, including Australia and China. “One of our first customers had an on-site injury using a traditional forklift, and he wanted to show he was doing everything he could to avoid another employee injury. He purchased the first article off our production line in 2005, and it is still in service,” says Zuckerman. “We’ve always offered a money-back guarantee with paid return freight, and we’ve never had a product returned.”

It’s the perception of American quality, rather than the weak dollar, that drives sales of his motorized and crank lifters, Zuckerman says. “We’ve been growing about 50 percent a year for the past two years, through the ups and downs of the marketplace, and we don’t see any reason for contraction in our market.”

Karen_klein
Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.

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