CASE SpinCent: The Decision to Export More than 300,000 U.S. companies export goods. Some 7,000 of from foreign suppliers. Increasing price competition was inevitable. these, such as Caterpillar, Boeing, General Electric, and Intel, gen- Knepper knew the day of reckoning was at hand: SpinCent must erate about 65 percent of total exports."Their smallest shipments (1) focus on the domestic market and exploit every possible efficiency are typically larger than the largest shipments of smaller companies. to sustain productivity or (2) expand aggressively into export, look- Still, some 297,000 small and medium-size enterprises (SMEs) ing to fast-growing overseas markets. Ultimately, Knepper conceded, specifically, companies with fewer than 500 workers-account for market trends forced his hand. The slow-moving deindustrialization nearly 98 percent of all U.S. exporters." One such SME is SpinCent of the United States, forecast to continue for years, would steadily of Pennsylvania. reduce domestic demand. Meanwhile, quickly industrializing emerg- SpinCent manufactures laboratory and industrial centrifuges. ing economies, particularly in Asia, signaled rich opportunities. Companies in chemical, pharmaceutical, food, environmental, and Hence, Knepper accepted, somewhat grudgingly, that SpinCent must mining industries use them to spin a substance into high-speed rota- export to promising markets. tion around a fixed axis, thereby moving heavy elements to the bot- tom, lighter objects toward the top, and liquid in between. SpinCent's ASIA CALLS 56 employees-43 workers, 8 product and process engineers, and 5 managers-operate out of its 90,000-square-foot facility in subur Big market trends signaled big opportunities in Asia. "Industries ban Philadelphia. SpinCent began operations in 2010 with one goal were coming online everywhere and seemingly overnight," observed in mind: create high-performance centrifuges that inspire absolute Knepper. Pro-market reform, improving economic freedom, and ac- confidence. Its patented technology anchors a full line of automatic celerating economic development spurred industrialization through and manual centrifuges recognized for quality and value. To this day, out Asia. Moreover, the types of goods moving through Asia's management believes it builds "centrifuges for which there simply seaports signaled budding industries that used SpinCent's sorts of are no equals." centrifuges. And, unlike the United States, which was in the mature part of the product life cycle, emerging economies looked set to grow for years. TO EXPORT OR NOT TO EXPORT: THAT IS THE QUESTION GETTING STARTED From inception, SpinCent approached export passively. Its interna- New to the idea of the Asian market, SpinCent sought help on how tional sales often resulted from other U.S. firms' orders that were best to access the large, diverse region. Knepper feared wasting set for export, occasional sale leads received at trade shows, or an resources flying solo. Moreover, he was not looking to generate a unsolicited order from a foreign buyer. Export sales generated high single-shot export burst, but aimed to build relationships that would gross margins; occasionally, unexpected complications, such as support long-term growth. Hence, the primary challenge was finding customs or credit problems, increased administrative costs. Still, competent and trustworthy distributors who would develop, make, SpinCent's net margins on export sales ran about 15 percent higher and service local sales. "We were looking for a long-term partner than domestic sales. and not a quick export sale," said Knepper. "The right partner for Paul Knepper, CEO and founder, explained that recurring problems SpinCent needed to be as confident and competent about the product had dampened his interest in exporting. First, he and his colleagues as we are, and able to promote, educate, and serve consumers in were skeptical about the likelihood of international success. Previous the respective territories." The key, he added, was partnering with efforts, they felt, had spent more time on unfocused searching or solv- respected firms. On the flip side, SpinCent had to convince potential ing situations than on purposefully growing export activity. Moreover, agents that partnering with it made long-term sense. serving customers in the domestic market had kept them quite busy. Knepper began by seeking information on potential distributors, As a result, developing exports stretched their already thin management confirming their reputation and resources. A few of the company's structure. Going international, they feared, would pose tough challenges, earlier export transactions, for instance, had run into problems with especially heading into direct competition with seasoned exporters from agents who struggled financially. As Knepper warned, "Getting paid Germany and Japan. is a huge part of running a business, and unless a company has Still, as time passed, market pressures raised concerns about the right payment policies in place with the right partners, it will get SpinCent's ongoing productivity and profitability. The struggling U.S. scammed. manufacturing sector had slowed SpinCent's growth and pushed Mindful of these issues, Knepper attended a trade seminar spon- some of its customers to import cheaper, lower-end centrifuges sored by the U.S. Commercial Service's Export Assistance Center ofPhiladelphia. On the agenda were market analysis and trade reports Thinking back to his days as a Boy Scout, Knepper believed that on the emerging economies of Asia. Taking his seat, he couldn't help he met the sacred command: "Be prepared." With a briefcase full of but wonder about the opportunities. Sure, he conceded, they sound- brochures, a laptop loaded with profiles of his product line, and the ed great. However, he had seen hype like this come back to bite, not sense of doing something potentially great, he headed to Asia. Over to mention the horror stories he'd heard of the problems and pitfalls the next two weeks, he interviewed potential agents, chatted with of exporting. Indeed, he reflected, a key reason for attending was likely customers, scouted competitors' offerings, test called their reconciling his sense of the opportunities and threats. service support, spoke to freight forwarders and logistics companies, and visited local government officials and customs agencies. GETTING HELP Since exports promote economic growth, government agencies of- ASIA CALLS, SPINCENT ANSWERS fer extensive assistance, such as trade seminars, market research, On the flight home, tired but charged, Knepper realized that his mis- training programs, and financial planning. Trade officials encourage givings about exporting had been unfounded. There were risks, but SMEs like SpinCent, seeing them as the primary beneficiaries of ini- the opportunities outweighed them. Exporting was no longer an op- tiatives to initiate and accelerate international trade activity. Given tion for SpinCent-it was an imperative. Besides a new sense of that 60 percent or so of all SME exporters posted sales to only one commitment, Knepper had a bit more confidence, given the newly foreign market, many could boost performance by entering just one signed distributors in the Philippines and Taiwan as well as promising or two others. Expanding SMEs' market horizons through trade semi- sales leads there and in Hong Kong. nars, official reasoned, bolstered their confidence to do so. Back in Philadelphia, Knepper tested the Asian market a bit After a full morning of profiles and presentations, Knepper more, advertising in trade publications as well as running banner believed Asian markets held far more opportunities than risk. He ads on trade sites in tandem with his newly signed distributors (he had learned quite a bit about Asia, as well as some technicalities handled the English ads, they, the Mandarin versions). In addition, of exporting. Still, his unfamiliarity of local business practicalities, he began working with an agent from Commercial Services on an compounded by the lack of local sales representatives, bothered export plan. This work helped SpinCent secure its largest overseas him. Filling in these blanks, he concluded, called for some on-the- partner to date, a distributor in Hong Kong who served the fast-grow- ground research. So, before leaving, he spoke to Commercial Ser- ing Chinese market. Commercial Services arranged meetings with vice agents and arranged to join a 12-day trade mission that was others, eventually signing a distributor in Singapore and generating heading to Hong Kong, the Philippines, Vietnam, and Taiwan the leads in Australia. following month. Allied with strong partners, SpinCent continues tapping the sup- port provided by government agencies. The more he has dealt with GOAL SETTING them, the more Knepper appreciates a friend's advice: "Let the gov- Knepper's trip had straightforward goals: assess market potential, emnment do what it can for you. This is their niche and they're the identify competitors, get a sense of reasonable price points, and re- best at it." Now, with an export plan in hand, Knepper has begun cruit local sales representatives and distributors. Although he had working with the Export-Import Bank to secure financing options for never visited Asia, he believed he had prepared well. His time with overseas distributors and customers." And, with a gleam in his eye, the trade representatives in Philadelphia gave him a good sense of he's set to attend a U.S. Commercial Service's profile of the emerging the general characteristics and industry conditions in Asian markets. markets of sub-Saharan Africa. Also, in the past, SpinCent had received inquiries from Asian dis- tributors ordering centrifuges; some had inquired about representing GOING FORWARD the company locally. Depending on how busy it was with domestic Steadily, as SpinCent gains experience in Taiwan, the Philippines, customers, SpinCent tried to respond yet nothing substantial had Hong Kong, and Singapore, it looks onward and upward. Although ex- ever come of it. Still, these contacts had been saved, thereby giving porting creates challenges, it helps SpinCent boost productivity and Knepper a start on potential distributors and likely customers. profitability. Indeed, overseas sales provided the firm with a grow- Knepper also tapped the Commercial Services' Gold Key pro- ing stream of business during the economic downturn in the United gram to prescreen potential distributors. This program helps SMEs States, while rivals who had not diversified via exports struggled. enlist Commercial Services agents overseas to scan local markets for More important, exporting taps a low-cost, high-return opportunity to qualified agents, distributors, and representatives. Gold Key agents leverage SpinCent's centrifuge technology. will prescreen and prequalify potential partners, conduct background This experience, reflects Knepper, has straightforward lessons: checks, and customize local market research. Exporters report that "If you are thinking about exporting internationally, do it. Get going, the Gold Key program ensures that when a firm adds a partner to its do your homework, utilize low-cost resources, participate in trade network, it is a respected company in the target country. missions, learn about business cultures, and build relationships.Always verify your potential business partners. Gather as much QUESTIONS information as you can. Stress-test your assumptions; the wrong guess costs you time and money. Above all, no matter the prob- 141. Analyze two challenges that SpinCent overcame in devel- lems that you'll run into, stay committed. All of these seem tough, oping its export activity. Describe how it overcame them. 142. Based on its Asian experiences, map a sequence to guide but they only cost pennies on the dollar and the returns can be substantial." SpinCent's export expansion to sub-Saharan Africa