Small U.S. firms make big global sales

In a powerful trend that is reshaping the economic landscape, a rising wave of U.S. small businesses and start-ups are going cross-border and selling hundreds of billions of dollars in goods and services to Asia, Canada, Latin America, Europe and Africa.

While big corporations dominate global business news, small companies are charging into overseas markets at a faster pace. From 1992 through 2007, exports by U.S. small businesses have soared nearly fourfold to $400 billion, according to a preliminary estimate by economist Harvey Bronstein of the U.S. Small Business Administration.

That number could climb more if the weak U.S. dollar continues to boost exports, and if the Federal Reserve and lenders keep lowering rates to help fire up the cooling economy.

"Exports are the under-recognized opportunity for many American small businesses," says SBA Administrator Steve Preston, who hosted a trade conference Monday in Hialeah, Fla., with Commerce Secretary Carlos Gutierrez. "A lot of small businesses have very good products that are very competitive overseas."

As the global economy grows, half of U.S. small businesses will be involved in trade by 2018, predicts a recent report by the Institute for the Future think tank in Silicon Valley and software company Intuit.

A confluence of forces — from the weak dollar to more open markets — is feeding the trend, according to consultants, business professors and government officials.

Small businesses are getting a lift from the flagging U.S. dollar, which makes exports cheaper for customers in other nations.

At Breakaway Technologies (www.BreakawayTechnologies.com), a small firm in Park City, Ill., that leases computer equipment, more than half its increasing sales go directly to customers abroad or to U.S. buyers who then ship goods overseas, says founder and CEO Betsy Shields.

Even with the U.S. economic slowdown, her revenue for this year's first quarter has risen 3% from the same time in 2007 — "which is better than I expected in this economy," Shields says.

Other forces: Free trade is opening more markets for small businesses, which the SBA defines as firms with fewer than 500 employees. Millions of immigrant entrepreneurs, from mom-and-pop chains to technology firms, are hungry to grow their businesses by selling in their homelands. The Internet and stronger transportation and banking networks make it easier for small companies and consumers to hook up.

"The timing has never been better for small businesses to get out of their backyards and become global players," says Laurel Delaney, founder of GlobeTrade.com, a consulting firm for small businesses.

Small business owners who are taking advantage of cultural ties, the Internet's global reach and marketing savvy to dive into international trade include:

•A Vietnamese-American entrepreneur. Jacquelyn Tran, the 31-year-old CEO of online cosmetics retailer Beauty Encounter (www.BeautyEncounter.com), was a toddler when her parents left Vietnam to settle in Orange County, Calif., three decades ago.

Her parents sold perfume and other goods at a flea market for several years, then opened a retail store in the fashion and garment district of downtown Los Angeles.

After Tran graduated from the University of California at Irvine with her business degree, she raised her parents' business to a new level in 1999 by launching an online business to sell their goods.

Tran made only $150,000 in sales the first year. But she says that business took off the second year through online advertising, a new website and other Yahoo online services for small businesses.

Last year, Beauty Encounter hit $20 million in sales, with 15% coming from the United Kingdom, Canada, France, Germany, Latin America and Japan. The weak U.S. dollar has boosted sales abroad by 10%, with foreign customers placing larger orders for fragrances, cosmetics and skin-care products to take advantage of favorable currency rates, Tran says.

Beauty Encounter is growing so quickly that Tran plans to move her company to a larger warehouse-and-office site later this year. "I'm still kind of in shock," Tran says. "The beauty industry has always been a passion of mine, but to see it taking off on the Internet and internationally is really cool."

•A young online designer. Joe Gebbia, a 26-year-old entrepreneur and designer in San Francisco, credits sore backsides for helping him to create CritBuns (www.CritBuns.com), an online maker of colorful foam seat cushions.

As a student at the Rhode Island School of Design, Gebbia noticed that classmates were uncomfortable sitting on hard chairs and floors during day-long critiques of their work by professors. He designed the fashionable cushions and plunged full time into his new business after graduation.

Scores of skeptical retailers rejected his cushions, until Gebbia finally sold 200 units to the Museum of Modern Art in New York. Last year, Gebbia launched his website, and the cushions were featured at a Tokyo design show and in I.D., a design magazine.

Demand for the cushions took off. Now, 25% of his sales are to customers in Canada, Europe, Australia, Japan and other countries and regions. He also plans to market the cushions as "Sports Buns" to professional and school athletic events in the USA and abroad.

"I hadn't anticipated international sales at all," Gebbia says, "but people found the website, and I started getting orders from all over the world."

•A motorcycle-riding businesswoman. As a teen growing up in Missouri, Rebecca Herwick loved dirt bikes and big motorcycles. Today, the 49-year-old Herwick is owner and CEO of Global Products (www.GlobalProductsInc.com), a St. Peters, Mo., firm that is the exclusive dealer and licensee for Harley-Davidson decals, caps, T-shirts and other gift items.

Herwick saw the international potential for Harley-Davidson products during a trip to Europe in the mid-1990s with her former husband, who founded Global Products. The demand for goods with Harley-Davidson's famous bar-and-shield logo has grown steadily each year.

Herwick sells her products through dealers and distributors in Canada, Europe, Japan, Australia, South Korea and Dubai. This month, she's helping a Chinese auto dealer open the fourth Harley-Davidson dealership in China, in the large city of Qingdao.

International sales last year accounted for 10% of her company's $18 million in annual revenue, and she expects the figure to grow to 25% in the near future if she expands to potential markets in Latin America and other regions.

"When you ride a Harley, you have a sense of independence and empowerment and luxury," says Herwick. "It doesn't matter where in the world you may be — that feeling is still there."

Immigrants' connections

Why are more U.S. small businesses leaping into the global marketplace?

Many cite the boom in entrepreneurial immigrants with strong ties between the USA and their cultural homelands in Asia, Latin America, Europe and the Middle East.

Twenty-five percent of new U.S. technology and engineering companies that were launched from 1995 to 2005 have at least one founder who is foreign-born. Those firms hauled in $52 billion in sales in 2005, according to a study last year by Duke University and the University of California at Berkeley.

"You can go to almost any city in India, China, Saudi Arabia, Dubai — many economies in the world now — and see people buzzing with energy and entrepreneurship," says Vivek Wadhwa, a Duke University engineering professor and technology entrepreneur who has launched two start-ups. "There's a cross-fertilization of talent and a new sense of confidence."

An increasing number of venture capital firms — always hunting for hot entrepreneurs and new technology — have poured $83 billion in the past decade into start-ups in the USA, India, China and other countries, reports the National Venture Capital Association and Thomson Financial.

More than half of U.S. and foreign venture capitalists surveyed in 2006 by Deloitte & Touche and the NVCA said that they plan to expand their global investments, "a sea change in the venture industry," the report found.

Another factor: Just like corporate giants, small firms today can readily sell their goods and services worldwide because of new technology, quicker and cheaper manufacturing, and stronger shipping and banking networks. The Institute for the Future calls it a "plug-and-play infrastructure."

"The infrastructure is building up to support global trade, and the costs have fallen dramatically," says Steve King, a senior adviser at the Institute for the Future. "Suddenly, you can export more easily than ever before."

Trade issues

Government agencies and trade groups see U.S. small businesses as potent forces for trade and economic growth. Aiming to boost small-business exports, the SBA, the Commerce Department, the Export-Import Bank and the U.S. Chamber of Commerce's TradeRoots program offer financing, conferences and other resources.

The SBA's Preston says free-trade agreements create a fairer playing field for small businesses, which lack the firepower of large firms to break into foreign markets.

"Tariffs come down dramatically, rules become simpler, and (intellectual property) protections become greater," Preston says. "That opens the door for small businesses."

Pro-trade forces are lobbying Congress to pass free-trade agreements with Colombia, South Korea and Panama. Last year, those countries generated $16 billion in exports for U.S. small businesses, and those exports will grow if trade barriers fall, says SBA spokeswoman Christine Mangi.

Of course, U.S. small business owners and analysts say, going global isn't as easy as setting up shop in the local neighborhood.

Language and cultural roadblocks can lead to a maze of problems. Hefty foreign taxes and customs duties can erase profits. Weak legal systems, corruption and shady business partners can sabotage sales and deals. Intellectual property theft remains a huge problem.

"There are giant challenges that can't be dismissed," King says. "A lot of companies fail or have problems, although enough are going to succeed."

Tran at BeautyEncounter.com says she struggles to keep down international shipping costs for overseas customers. At Global Products, Herwick says regulatory and audit issues in many countries are the toughest export-related tasks for her to juggle.

Even the weak dollar is a dual-edge sword. With the greenback falling, Herwick is making more sales abroad. But her inventory in Europe sells for less than it did under old exchange rates, when European dealers paid her one-to-one for her goods. With $1 fetching well under 0.7 euros in recent months, her profits dip.

"I did not anticipate the horrible performance of our dollar the last few years, and that's hurt me," she says.

But the potential pitfalls aren't scaring Herwick and other small business owners.

As corporations embraced technology through the 1990s, Shields at Breakaway Technologies saw her firm grow steadily and reach $4 million in sales. Her sales slowed, though, when Dell and Hewlett-Packard became competitors.

To grow again, Shields is prowling for more international customers in Canada and Europe, where she already does business. She's also researching potential markets in Latin America, Asia and Africa.

"We realize we need better penetration, and the U.S. market won't always provide it," Shields says. "If you stay static, you're not going to stay in business very long."

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