Finally nearing a post-COVID world, small and medium-sized businesses (SMBs) face a seemingly looming economic recession. I recently shared four ways SMBs can help recession-proof their business, and market diversification is the linchpin in that strategy.
The U.S. Small Business Administration estimates nearly 96% of the world’s consumers live outside the United States, and two-thirds of the world’s purchasing power is held in foreign countries. Yet only 3% of the U.S.'s small businesses export goods or services. For many U.S.-based entrepreneurs and SMBs, this is a blind spot.
SMBs that haven’t expanded internationally are missing out on a major growth opportunity, but the path to accessing those markets can oftentimes feel daunting. It doesn’t have to be. Here are the top three questions small businesses should contemplate on their journey into international commerce and how leaning into digitalization can provide much-needed answers.
1. Open for Business — Physical or Virtual Presence?
Once a business has decided to sell goods internationally, it first needs to ask if it is going to open a physical location. Opening a brick-and-mortar location overseas broadly involves the same considerations as opening a storefront or showroom in the United States. Choosing a location, setting up a team, and securing warehouse space are some of the considerations most businesses have already navigated on U.S. soil. Replicating that undertaking in other countries is an additional investment of time and money, and local requirements in a foreign jurisdiction can be complex.
The digitalization of commerce provides merchants the opportunity to bypass those components and sell their products virtually, either from their own website or a marketplace. Rather than your company handling the store processing, in-country fulfillment businesses can manage the entire process. That solves the need of renting warehouses and hiring staff and logistics employees. With digitalization, businesses can skip the physical presence and outsource local delivery to third parties.
2. How Do You Navigate Cross-Border Currency Collection and Payment?
The second question businesses must address is foreign currency exchange and banking requirements. Entering and operating in global markets can be intimidating, as international currencies and foreign banking regulations come into play. Traditionally, the arduous process of obtaining a local bank account was seen as necessary to ensure business owners could collect funds locally from their customers and then remit those funds back to their home country in their home currency.
Today, small businesses can lean on digital solutions to outsource banking logistics and make buying and selling more convenient and secure. For example, a fintech commerce company can offer customers the ability to pay locally in their local currency to the seller’s virtual account. The seller receives funds into their virtual account and repatriates those funds to their chosen destination in their preferred currency. Customers aren’t sending payments internationally, no one is paying for expensive wire transfers, and the entire transaction appears local to all parties.
3. Where Should the Business Sell Its Products?
By now, we see that entering an international market is less complicated than it used to be with the assistance of e-commerce enablement resources. The final question to address is how to offer the product online. There is a spectrum of options, ranging from direct-to-customer (DTC) via the business's own web store, all the way through to third-party marketing and sales in online marketplaces.
Many marketplaces based in the U.S. can help SMBs go global, since they often offer a way to sell via their foreign entities. In addition, many non-U.S. marketplaces are looking for U.S. sellers to join their digital platforms. Alternatively, selling a product on a web store, or directly to consumers, means creating an online brand presence and building a relationship with customers.
There is no right answer to this question, and neither option is better than the other. Businesses can do both: Many SMBs start with marketplace selling and take those valuable lessons to then add a direct-to-consumer channel online. The path a business takes depends solely on what is best for it, the kind of customer relationship desired, and how much capital and time are available.
Michael Levine is the chief financial officer of Payoneer.