How Hard is it to Export Internationally? Here's one Irvine Business' Experience
Monday, October 03, 2016
Two years ago, Robb Dorf, an Irvine entrepreneur, faced a calamity.
In the cutthroat competition for supermarket shelf space, rivals had edged his high-protein, gluten-free, California-made nutrition bars out of a major American grocery chain.
Dorf’s company, PureFit, had just three employees and under $10 million in sales, “but we didn’t curl up in a ball,” he recalled. “We kept fighting. We realized, there’s a lot more opportunity outside the U.S.”
Today, PureFit exports to 20 countries from Switzerland to Singapore. Foreign sales rose 53 percent in two years, accounting for a quarter of revenue and making up for domestic losses.
“International business saved my company,” said Dorf, 48, an avid cyclist who launched his brand 15 years ago because “most nutrition bars were dressed-up candy bars.”
Foreign trade is in the news. President Barack Obama is pushing Congress to approve a massive trade deal with 12 nations, the Trans-Pacific Partnership. And the broader question of whether trade agreements create or destroy jobs has become a hot-button issue in presidential and congressional campaigns.
For exporters such as Dorf, trade deals can mean fewer tariffs on their goods. And that could be good news for Southern California, which, with its massive ports, ethnically mixed population and diversified industries, is an export powerhouse.
Los Angeles County produced a quarter of California’s $165 billion in merchandise exports in 2015. Orange County, with $19 billion, made up 11 percent, and the Inland Empire, with $9 billion, accounted for 5.4 percent.
“International trade is a key driver of California’s $2.5 trillion economy,” said Cal State Fullerton economist Mira Farka, co-author of an annual export forecast. “If California were a separate country, it would rank as the 21st largest exporter in the world.”
Aerospace and high-tech giants can take credit for a big chunk of the goods that Californians send abroad. But small and medium-sized companies such as Dorf’s account for more than 45 percent of exports, higher than the national ratio of one-third.
PROMISE AND PERIL
Still, only about 1 percent of small businesses venture into the global market. “Many are afraid,” said Karen Scuncio, a consultant with the Orange County Small Business Development Center in Santa Ana. “They don’t understand the opportunities – or how many resources are out there to help.”
From her Santa Ana office, Scuncio has advised 90 would-be exporters in the past year, including a Laguna Beach bikini designer, a Rancho Santa Margarita pet food maker, a Corona del Mar lice shampoo manufacturer and an Anaheim aerospace engineer who invented a new type of baby swaddle.
But exporting isn’t for the faint of heart, as PureFit’s experience shows.
“It’s hard enough to compete in your own back yard,” said Dorf, who pegs the number of U.S. nutrition bar makers at about a thousand, with a few giants, such as Clif Bar and Quest, dominating the market.
But compared with selling in the U.S., Dorf acknowledges, “exporting is overwhelmingly complicated.”
To carve out a domestic niche, PureFit has had to repeatedly reinvent itself, first as a gluten-free vegan nutrition bar, and, when others moved into that space, by eliminating any genetically-modified ingredients.
Dorf’s first puzzle as an exporter: Which countries to target?
CHINA TO THE ARAB EMIRATES
In a two-room Irvine headquarters attached to a small warehouse, the wiry, intense entrepreneur pulled out a list of China’s 30 top grocery stores. How did he find them? Besides getting advice from government trade officials, “I do a lot of research on Wikipedia,” he said.
In May, Dorf traveled to Shanghai on a trade mission sponsored by theSacramento-based CalAsian Chamber of Commerce. But he came home discouraged.
“Chinese consumers want American products,” he said. “But the government deliberately makes the process complicated. I got the feeling it takes a lot of palm-greasing of officials to get stuff done. It’s daunting.”
Holding up a knockoff of a Red Bull can that he picked up on his trip, he said, “China is the Wild West of counterfeiting.”
Dorf crossed Brazil and Russia off his target list after deciding they were “too corrupt.” India was an initial goal, until a savvy Indian consultant advised him, “We can’t afford nutrition bars, period.”
PureFit has become a top-selling bar at 60 GNC outlets in the Philippines, he said. And the United Arab Emirates has surpassed Canada as Dorf’s biggest export market, thanks to a new distributor there that also represents sportswear brands.
Among Dorf’s logistical hurdles: Outdated international shipping codes, used for tariffs and taxes, make it nearly impossible to figure out which countries already import nutrition bars in what quantities, he said. Countries use different codes for different sorts of bars, and wrongly-coded products are blocked at customs.
Every country also has different rules for ingredients and language. Labeling is complex. In Canada, information on the wrapper must be in French as well as English.
Pulling out a kosher Almond Crunch bar with Hebrew lettering on the wrapper, Dorf said, “It took a year-plus to get approved by the Israeli health ministry. Finally, our first order of 20,000 bars shipped in March.”
In some countries, PureFit targets specialized markets. Turkey and Germany have strong vegan populations, Dorf said. But Turkey “is a mess,” and in Germany, European brands offered stiff competition.
“I can’t tell you how many rejections we got there, but I just shipped our first pallet to Germany,” he said.
Despite the obstacles, Scuncio at the Small Business Development Center tells clients, “Exporting can stabilize companies. So when the U.S. economy goes down, revenues come from elsewhere.
“Also, businesses with seasonal goods, like action sports, can sell in the Southern Hemisphere to balance their revenue year-round.”
Dorf was among some 300 business executives who attended a sold-out conference in Costa Mesa last year sponsored by the U.S. Commercial Service, a federal agency which connects companies with foreign distributors.
“Asia is the economic center of the universe,” Holly Vineyard, a U.S. Commerce Department official, told the crowd. “California is the gateway to Pacific Rim markets.”
By 2022, she added, Asia will likely be home to a majority of the world’s middle class, and its demand for imported goods and services is expected to double.
THE CALIFORNIA CACHET
Moreover, Asian consumers, plagued by food and pharmaceutical contamination at home, are partial to U.S. brands. “They know their products are not always safe, and now they have more disposable income,” Scuncio said.
“Southern California is known for healthy lifestyle – things such as vitamin supplements, skin care, fitness and action-sports products.”
That’s what PureFit is counting on – and why all its packaging features a small American flag.
Like other manufacturers, PureFit often faces onerous tariffs, a situation the proposed Trans-Pacific Partnership, by slashing 18,000 foreign taxes on U.S. exports, seeks to address.
Dorf recently met with Taiwan trade officials in Los Angeles. “I was shocked that their import duty on a nutrition bar was 30 percent,” he said.
PureFit’s bar, which sells for $2.49 in the U.S., is usually discounted for export as it is, Dorf said. High tariffs, on top of shipping and brokerage fees, boost the price to consumers unless he cuts into his own profit. “But I can’t lower my prices any more,” he said.
Even when small businesses master export logistics, they can be buffeted by the whims of the global economy and the caprices of currency flows.
Sluggish foreign economies, especially in developing nations such as China and Brazil, have cut into demand for U.S. goods. Last week, the Geneva-based World Trade Organization predicted international trade growth will slow to 1.7 percent this year, the lowest rate since 2009. Additionally, a rise in the value of the dollar has made U.S. exports more expensive.
Overall, California goods exports declined in value by 5.6 percent in the first seven months of this year, compared with the same period in 2015, according to Beacon Economics, a Los Angeles consultancy.
PureFit is feeling the pain. Dorf’s firm has seen a 9 percent drop in foreign sales this year. So he has temporarily cut back on his international push, but stresses he is “bullish long-term.”
Jim Mayfield, the U.S. Commercial Service’s Orange County director, said he advises businesses that exporting is “not about short-term opportunism, but about long-term strategy. Smart companies are laying the groundwork for when global markets rebound.”
Dorf agreed. “If you put the time and patience into international business, it can pay huge dividends ... the world is so big.”
Category: International Trade