Some Distributors Find a Home for Products Overseas
By Dan Markham Senior Editor
Though exporting offers considerable challenges to North American service centers, finding an alternate destination for material can be a source of growth.
Two years ago, Bill Baker traveled to Washington, D.C., to be honored for his selection as Louisiana’s Small Business Person of the Year. But amid the well wishes and congratulations from various Capitol Hill types, Baker noticed one common refrain.
“Everywhere I went I heard, ‘Mr. Baker, you’re doing such a great job, but if you were in exports, we could really be helping you,’” recalls Baker, the president of Baker Sales. Further discussions with state officials revealed similar suggestions.
“I kept hearing that, and I realized something was up,” says Baker, who distributes tubing and fencing products from his Slidell, La.-based facility.
At these urgings, Baker has joined the small fraternity of metal distributors who sell materials to end-users in countries other than the United States, Canada and Mexico. Baker’s company has already begun distributing its products in Panama and is seeking to do the same in the Dominican Republic.
Exporting to nations outside NAFTA is a different beast than managing strictly domestic sales, one rife with challenges, but also one that can deliver otherwise untapped potential. Baker Sales is just getting started with the process, feeling its way through the issues that accompany selling outside U.S. borders. Other distribution companies have far more experience in that realm.
Titanium Industries has been selling outside the U.S. for about as long as the company has been in existence. In fact, the Rockaway, N.J.-based high-performance metal distributor’s international presence has grown to include a significant global sales and distribution foothold. The company maintains five distribution facilities and three sales offices in the U.S., complemented by sales or warehouse operations in Montreal, the United Kingdom, Norway, India and Taiwan.
“With that coverage, we are selling into all markets,” says Tom Demming, export compliance manager for TI. “As we get orders into those markets, we either ship from the facility that’s closest to them or from another facility around the world.”
Great Plains Stainless does not have quite as much global coverage, but it’s moving in that direction. The Oklahoma-based company opened its first overseas facility in New Zealand in the 1990s, and followed with a second facility in China. Those facilities export about 80 percent of their products, while 20 percent of products from the Tulsa operation are bound for foreign buyers.
CEO Joe Gibbons, who operates out of the New Zealand office in part because it has overlapping office hours with both the other facilities, says his company entered the market because it was handling some specialty items that were difficult for customers to source in some foreign locales. “It happened because we carry so many specialty alloys. Some of our products, such as 446 or 347, are very rare overseas,” Gibbons says.
And filling a specific, hard-to-meet need is extremely important, if not crucial, for the would-be exporter. “The more niche your product is, the easier it is to get into an export market. Something about your product has to be a little uncommon or people tend to buy closer to home. You don’t buy a car in Santa Fe, N.M., if you live in New York,” he says.
When Great Plains Stainless first considered selling to foreign customers, Gibbons began noticing some inefficiencies in the existing export system. He learned that business was typically bid in U.S. dollars, FOB Chattanooga, Tenn.
“That struck me as very user unfriendly. The average person overseas may not know where Chattanooga, Tenn., is, let alone how much it’s going to cost them to get it to the port from there.” As a result, GPS makes sure it prices material in the local currency, and the bid is made based on cost, insurance and freight to the home port, not FOB.
Not only does such an approach make life easier for the foreign buyer, but also cheaper. “If he tries to get an inland freight price from Tulsa to Long Beach, Calif., to export it to Kuala Lumpur, he’s going to get a truck rate that’s 50 percent higher than the rate Great Plains Stainless gets because he’s just going through a freight forwarder that has no discount established with the freight company,” Gibbons says.
Companies looking to establish an export presence can’t just do it haphazardly, but should have a sound reason for making the move. One of the most common ways is to simply follow existing customers.
Olympic Steel has adhered to that blueprint for success when it comes to selling in new markets, a plan it is attempting to duplicate. The Cleveland-based service center company has sold for many years in Mexico, serving its customers from domestic locations. Recently, the company announced plans to open its first physical plant south of the border to better to serve its sizable Mexican customer base.
“We’re in Mexico because we already have a customer base there and the next logical step is to have a physical presence,” says Olympic’s Chief Financial Officer Rick Marabito.
The company also has opened a new sales office in South Florida, the first step in growing its sales to Caribbean nations. “Anytime you’re selling outside of your borders, there are challenges if you don’t have a physical presence. When you get to critical mass in certain areas, it’s a lot easier and logistically cheaper to physically be in the markets you serve,” he says. Like customers in the United States, foreign buyers are keenly interested in better service, faster deliveries and keeping less inventory on the floor.
Ultimately, Marabito says, it’s about the customers. “To just announce you’re going to plunk down a service center there, I don’t know how much sense that makes. It’s a
The progression must be made with considerable diligence, says Demming at Titanium Industries. “As a U.S. company, we’re governed by U.S. law, plus local country laws and local ordinance laws. We abide by all those laws when it comes to export restrictions.”
The restrictions can be overwhelming, particularly to newcomers. And particularly for distributors in specialty metals such as titanium. If a product can be used in weapons or nuclear power applications, the number of regulations governing its sales multiplies. “Every country has a different rank. I can sell an alloy round piece of Ti to EU countries, but I’d need an export license if I go to Taiwan. It doesn’t stop us from taking business—we are approved for an export license—but it can be intimidating,” he says.
And suppliers must be fully aware of where the material will be used. Distributors are required to know their customers and what the product will be used for. Furthermore, when dealing with specialty metals, a company can’t get around regulations if the product is re-
exported from its first destination. End-use statements and destination control statements are required for certain products, and the consequences of failing to provide these are severe.
“All of these requirements have to be covered, otherwise you’re into fines and penalties. And they can hit hard,”
But, he also notes, the government makes itself available to guide exporters through the process via a help line and other resources. “Most of the companies that get in trouble, it’s intentional,” he says.
If Titanium Industries has a question or concern about any legalities, Demming can call upon a customs attorney. Along those lines, similar top-notch professionals are required in a company’s finance department to navigate the issues associated with rapidly changing currency rates, tax rates and other factors. “You must have sharp people in the accounting department,” says Gibbons. “That’s like casino work.”
While the government may be a stickler about certain rules, it isn’t in an effort to discourage exporting. As Baker notes, the Commerce Department and state government entities strongly encourage U.S. companies to sell into foreign markets. Moreover, both federal and state governments are taking steps to assist business owners with the learning curve.
“The small business development group has been very helpful,” Baker says. “There are courses and seminars available and I started taking them.”
Better yet, the opportunities are extremely affordable, often running less than $100 for a class or seminar. “They’re very economical,” Demming says. “Commerce runs classes and web seminars that offer the best bang for the buck. There’s no reason to pay $500 for a day class from a private learning institution when there are plenty of low-budget places where you can learn the game.”
Baker also tapped the Louisiana Small Business Development Association for two hires already well-versed in world trade. The company’s new general manager and an outside salesman came to the company pre-screened by the LSBDA.
But the programs can only teach so much, Gibbons says. The unique characteristics of any business demand a certain trial-and-error process for any company dipping its toe in the export waters. He points to his company’s discovery about packaging requirements, which are much different for sending a product thousands of miles than they are if the material is going to a fabricator down the road.
“We’ve learned anything that’s a schedule 10 or lighter, and anything that’s 1 1/2 inch or smaller, we automatically pack in a wooden box,” Gibbons says. “We know it’s not going to get there safely on a ship, being handled by cranes in a port. That’s a general rule of thumb you pick up as you go along.”
The upsides to exporting include the possibility that growth may be ongoing in another region when conditions domestically stagnate. Additionally, American-made still carries considerable cache in many areas, experts say.
“There are parts of the world where an American-branded product is very attractive to customers,” Gibbons says. “We beat ourselves up, but the opinion of the rest of the world is still quite high. The quality of our products is a given.” n