News Column

Small Exporters in a Big World

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Not Business as Usual
It is noteworthy that Brightstar turned traditional business wisdom upside down. Most companies establish domestic markets first and then build their exports by copying a U.S.-based sales and distribution model. Instead, Brightstar decided to start out selling cellular phones in Latin America. In 2002, the company sold $420 million worth of phones and services abroad.

With expected revenues of $1.2 billion this year, Brightstar offers proof that some traditions were meant to be broken. And that spirit of re-invention offers another strategic advantage for small U.S. exporters.

"We have changed the paradigm of how business is done in Latin America – at least in our space," Mr. Fumagali says. "There are a lot of people who are traditional exporters – they sell to the customers from the U.S. and provide support from here. Even though the product flows from here to Latin America, I'm not sure we're an exporter in the traditional sense of the word. We operate as a local company in each of the markets we operate in, providing local support and acting as a vendor from here to our legal subsidiaries. Doing it this way has made the difference." Previously, customers typically had to wait as much as two months to receive a new phone, Mr. Fumagali says, but Brightstar can deliver the goods within 48 hours.

Manufacturing Abroad
Yet another strategy that has helped small businesses compete against larger companies is manufacturing abroad. The Commerce Department study indicates that NAFTA helped spur small companies to export to Mexico and Canada – such exports increased by 127 and 118 percent, respectively, between 1992 and 1997. But the move by many large U.S. companies to manufacture more goods in Mexico has been mirrored by many small companies, and not only in Mexico but around the world.

About 40 percent of HUSCO's exported goods, for example, are manufactured abroad. The company has two foreign factories – in England and China – that cater primarily to foreign markets.

"The most ideal situation," Mr. Ramirez says, "is to manufacture a product for each major market at that market," to avoid duties and to reduce freight costs. "We try to do that when we can. Over time, we expect to be manufacturing 60 percent of all goods abroad."

Manufacturing abroad complements the strategy of focusing on a few markets. The larger your share of a given market, the more you can justify setting up a manufacturing plant in that market, Mr. Ramirez explains.

Service Exports
The Commerce Department study revealed that nearly 70 percent of all small and medium-sized exporters in 1997 were non-manufacturers. Although this group included wholesalers and other members of the distribution chain, it also included a large number of companies in the service sector. Among this year's Top 50 Exporters, the top three sectors were wholesale, manufacturing, and service (see table, "Hispanic Business Top 50 Exporters, by Sector"). According to Commerce Department figures, while the export of goods from the United States dropped by 5 percent between 2001 and 2002, exports of U.S. services increased by 1.5 percent.

In the aftermath of two U.S. conflicts and the continuing war on terror, service companies focused on international development are finding strong demand for their expertise. Through contracts with the Defense Department, USAID, and other government agencies, small companies are working in war-torn countries to implement social, financial, agricultural, and infrastructure improvements.

One such company is Washington, D.C.–based Creative Associates International, the number 113 company on the Hispanic Business 500®. Although technically the company doesn't export – payment for its services comes from federal agencies in U.S. dollars – the company has worked in Iraq, Jordan, Afghanistan, Lebanon, South Africa, Morocco, Serbia and Montenegro, Angola, Haiti, Guatemala, El Salvador, and Peru. Its services include such tasks as the demobilization of armed forces and the long-term implementation of community-service projects aimed at facilitating democratic reform.

"Our people are knowledge workers who tend to be highly skilled," says Steve Horblitt, director of external affairs for Creative Associates. "It is about ideas and the ability to translate those ideas into a reality that helps people. One part of the project in Iraq, for example, is logistics – delivering supplies to schools on time. It can be very basic. You have to have people who are comfortable with a military presence, as most of the work involves a transition from a conflict to a post-conflict situation."

The strategies Creative Associates International employs for winning government contracts are not much different from the strategies any other business would use to increase its exports. Although the company began 27 years ago in the Small Business Administration's 8(a) development program, it has since graduated and competes for every contract on the open market. "We win our share of contracts as long as there's open competition," says Mr. Horblitt, suggesting that being small isn't necessarily a disadvantage. The company expects 2003 revenues of approximately $50 million, about 27 percent more than last year's $39.34 million.

The Challenge of Smallness
Mr. Horblitt's views are not echoed by everyone in the service sector. Jaime Bordenave, president of The Communities Group, based in Washington, D.C., says that competing against larger firms for World Bank and USAID contracts poses a significant obstacle for his firm. The company was established in 1984 to work on affordable housing initiatives in the United States. But since winning a USAID contract to help finance long-term infrastructure projects in India 10 years ago, The Communities Group has had a significant international component. It currently ranks number 48 among the Top 50 Exporters, with annual revenues from overseas amounting to $2 million, or about 17.5 percent of its 2002 revenue total of $11.43 million.

"Right now, there aren't any advantages to being small," Mr. Bordenave says. "When we were smaller, we got a set-aside contract as a small business. We've outgrown that. … But our smallest competitor is doing $25 million and our largest is doing $100 million–plus. They have people on the ground all around the world. We just have people on the ground in some countries when we have ongoing projects there."

His colleague Chuck Billand explains that The Communities Group, as a relatively small company, does not have resources to fly to each market in advance of a contract bid to spend weeks "figuring out what the problems are." Such advance work can help a company win a contract, since it enables it to better pitch the relevant unique strengths it would bring to a given project. It also helps the company make more realistic financial and strategic plans for each undertaking.

Given the world's unstable geopolitical and economic situation, international development has become a growth industry. The U.S. government's budget for development work looks likely to increase over time: in his $87 billion funding request for Iraq and Afghanistan, President George W. Bush has earmarked more than $20 billion for infrastructure projects in Iraq. Hispanic players such as The Communities Group and Creative Associates International are poised to compete for more business.

Development service firms epitomize the way a niche-market focus, multi-cultural experience, and original thinking contribute to the success of small Hispanic exporters. "We don't experience anti-American sentiment," Mr. Bordenave summarizes. "What we're doing is highly valued by our clients. We're bringing them techniques and opportunities for creating financial vehicles and getting billions of dollars of infrastructure."

HISPANIC BUSINESS TOP 50 EXPORTERS, BY SECTOR
Industry

Automotive
Construction
Manufacturing
Retail
Service
Transportation
Wholesale
TOTAL
Number of
companies

4
1
14
2
6
3
20
50
Total 2002
export sales ($M)

$29.34
$15.00
$198.22
$17.21
$59.45
$18.90
$1,173.85
$1,511.97
© 2003 Hispanic Business Inc. Reprinting, copying, or transmitting all or part of this information requires written permission.



Source: HISPANIC BUSINESS Magazine


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