Question

Case assignments must be completed with a written 1-page study on the assigned case questions in the textbook. The format requested for these assignments is based on elaborating and including two basic parts in the essay: 1) in a bullet presentation style (one phrase each bullet), list a summary of the key issues, situations, problems, opportunities and threats you may identify as relevant; 2) answer all the questions listed in each case in two or three sound paragraphs. Use the APA style for these assignments.

Case SpinCent: The Decision To Export

More than 300,000 U.S. companies export goods. Some 7,000 of these, such as Caterpillar, Boeing, General Electric, and Intel, generate about 65 percent of total exports.2  Their smallest shipments are typically larger than the largest shipments of smaller companies. Still, some 297,000 small and medium-sized enterprises (SMEs)— specifically, companies with fewer than 500 workers—account for nearly 98 percent of all U.S. exporters.3  One such SME is SpinCent of Pennsylvania.

SpinCent manufactures laboratory and industrial centrifuges.

Companies in chemical, pharmaceutical, food, environmental, and

mining industries use them to spin a substance into high-speed rotation

around a fixed axis, thereby moving heavy elements to the bottom,

lighter objects toward the top, and liquid in between. SpinCent’s

56 employees—43 workers, 8 product and process engineers, and

5 managers—operate out of its 90,000-square-foot facility in suburban

Philadelphia. SpinCent began operations in 2010 with one goal

in mind: create high-performance centrifuges that inspire absolute

confidence. Its patented technology anchors a full line of automatic

and manual centrifuges recognized for quality and value. To this day,

management believes it builds “centrifuges for which there simply

are no equals.”

To Export Or Not To Export: That Is The Question

From inception, SpinCent approached export passively. Its international

sales often resulted from other U.S. firms’ orders that were

set for export, occasional sale leads received at trade shows, or an

unsolicited order from a foreign buyer. Export sales generated high

gross margins; occasionally, unexpected complications, such as

customs or credit problems, increased administrative costs. Still,

SpinCent’s net margins on export sales ran about 15 percent higher

than domestic sales.

Paul Knepper, CEO and founder, explained that recurring problems

had dampened his interest in exporting. First, he and his colleagues

were skeptical about the likelihood of international success. Previous

efforts, they felt, had spent more time on unfocused searching or solving

situations than on purposefully growing export activity. Moreover,

serving customers in the domestic market had kept them quite busy.

As a result, developing exports stretched their already thin management

structure. Going international, they feared, would pose tough challenges,

especially heading into direct competition with seasoned exporters from

Germany and Japan.

Still, as time passed, market pressures raised concerns about

SpinCent’s ongoing productivity and profitability. The struggling U.S.

manufacturing sector had slowed SpinCent’s growth and pushed

some of its customers to import cheaper, lower-end centrifuges from foreign suppliers. Increasing price competition was inevitable.

Knepper knew the day of reckoning was at hand: SpinCent must

(1) focus on the domestic market and exploit every possible efficiency

to sustain productivity or (2) expand aggressively into export, looking

to fast-growing overseas markets. Ultimately, Knepper conceded,

market trends forced his hand. The slow-moving deindustrialization

of the United States, forecast to continue for years, would steadily

reduce domestic demand. Meanwhile, quickly industrializing emerging

economies, particularly in Asia, signaled rich opportunities.

Hence, Knepper accepted, somewhat grudgingly, that SpinCent must

export to promising markets.

Asia Calls

Big market trends signaled big opportunities in Asia. “Industries

were coming online everywhere and seemingly overnight,” observed

Knepper. Pro-market reform, improving economic freedom, and accelerating

economic development spurred industrialization throughout

Asia. Moreover, the types of goods moving through Asia’s

seaports signaled budding industries that used SpinCent’s sorts of

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.

Getting Started

New to the idea of the Asian market, SpinCent sought help on how

best to access the large, diverse region. Knepper feared wasting

resources flying solo. Moreover, he was not looking to generate a

single-shot export burst, but aimed to build relationships that would

support long-term growth. Hence, the primary challenge was finding

competent and trustworthy distributors who would develop, make,

and service local sales. “We were looking for a long-term partner

and not a quick export sale,” said Knepper. “The right partner for

SpinCent needed to be as confident and competent about the product

as we are, and able to promote, educate, and serve consumers in

the respective territories.” The key, he added, was partnering with

respected firms. On the flip side, SpinCent had to convince potential

agents that partnering with it made long-term sense.

Knepper began by seeking information on potential distributors,

confirming their reputation and resources. A few of the company’s

earlier export transactions, for instance, had run into problems with

agents who struggled financially. As Knepper warned, “Getting paid

is a huge part of running a business, and unless a company has

the right payment policies in place with the right partners, it will get

scammed.”

Mindful of these issues, Knepper attended a trade seminar sponsored

by the U.S. Commercial Service’s Export Assistance Center of  Philadelphia. On the agenda were market analysis and trade reports

on the emerging economies of Asia. Taking his seat, he couldn’t help

but wonder about the opportunities. Sure, he conceded, they sounded

great. However, he had seen hype like this come back to bite, not

to mention the horror stories he’d heard of the problems and pitfalls

of exporting. Indeed, he reflected, a key reason for attending was

reconciling his sense of the opportunities and threats.

Getting Help

Since exports promote economic growth, government agencies offer

extensive assistance, such as trade seminars, market research,

training programs, and financial planning. Trade officials encourage

SMEs like SpinCent, seeing them as the primary beneficiaries of initiatives

to initiate and accelerate international trade activity. Given

that 60 percent or so of all SME exporters posted sales to only one

foreign market, many could boost performance by entering just one

or two others. Expanding SMEs’ market horizons through trade seminars,

official reasoned, bolstered their confidence to do so.

After a full morning of profiles and presentations, Knepper

believed Asian markets held far more opportunities than risk. He

had learned quite a bit about Asia, as well as some technicalities

of exporting. Still, his unfamiliarity of local business practicalities,

compounded by the lack of local sales representatives, bothered

him. Filling in these blanks, he concluded, called for some on-the-ground

research. So, before leaving, he spoke to Commercial Service

agents and arranged to join a 12-day trade mission that was

heading to Hong Kong, the Philippines, Vietnam, and Taiwan the

following month.

Goal Setting

Knepper’s trip had straightforward goals: assess market potential,

identify competitors, get a sense of reasonable price points, and recruit

local sales representatives and distributors. Although he had

never visited Asia, he believed he had prepared well. His time with

the trade representatives in Philadelphia gave him a good sense of

the general characteristics and industry conditions in Asian markets.

Also, in the past, SpinCent had received inquiries from Asian distributors

ordering centrifuges; some had inquired about representing

the company locally. Depending on how busy it was with domestic

customers, SpinCent tried to respond yet nothing substantial had

ever come of it. Still, these contacts had been saved, thereby giving

Knepper a start on potential distributors and likely customers.

Knepper also tapped the Commercial Services’ Gold Key program

to prescreen potential distributors. This program helps SMEs

enlist Commercial Services agents overseas to scan local markets for

qualified agents, distributors, and representatives. Gold Key agents

will prescreen and prequalify potential partners, conduct background

checks, and customize local market research. Exporters report that

the Gold Key program ensures that when a firm adds a partner to its

network, it is a respected company in the target country. Thinking back to his days as a Boy Scout, Knepper believed that

he met the sacred command: “Be prepared.” With a briefcase full of

brochures, a laptop loaded with profiles of his product line, and the

sense of doing something potentially great, he headed to Asia. Over

the next two weeks, he interviewed potential agents, chatted with

likely customers, scouted competitors’ offerings, test called their

service support, spoke to freight forwarders and logistics companies,

and visited local government officials and customs agencies.

Asia Calls, Spincent Answers

On the flight home, tired but charged, Knepper realized that his misgivings

about exporting had been unfounded. There were risks, but

the opportunities outweighed them. Exporting was no longer an option

for SpinCent—it was an imperative. Besides a new sense of

commitment, Knepper had a bit more confidence, given the newly

signed distributors in the Philippines and Taiwan as well as promising

sales leads there and in Hong Kong.

Back in Philadelphia, Knepper tested the Asian market a bit

more, advertising in trade publications as well as running banner

ads on trade sites in tandem with his newly signed distributors (he

handled the English ads, they, the Mandarin versions). In addition,

he began working with an agent from Commercial Services on an

export plan. This work helped SpinCent secure its largest overseas

partner to date, a distributor in Hong Kong who served the fast-growing

Chinese market. Commercial Services arranged meetings with

others, eventually signing a distributor in Singapore and generating

leads in Australia.

Allied with strong partners, SpinCent continues tapping the support

provided by government agencies. The more he has dealt with

them, the more Knepper appreciates a friend’s advice: “Let the government

do what it can for you. This is their niche and they’re the

best at it.” Now, with an export plan in hand, Knepper has begun

working with the Export-Import Bank to secure financing options for

overseas distributors and customers.4 And, with a gleam in his eye,

he’s set to attend a U.S. Commercial Service’s profile of the emerging

markets of sub-Saharan Africa.

Going Forward

Steadily, as SpinCent gains experience in Taiwan, the Philippines,

Hong Kong, and Singapore, look onward and upward. Although exporting

creates challenges, it helps SpinCent boost productivity and

profitability. Indeed, overseas sales provided the firm with a growing

stream of business during the economic downturn in the United

States, while rivals who had not diversified via exports struggled.

More important, exporting taps a low-cost, high-return opportunity to

leverage SpinCent’s centrifuge technology.

This experience reflects Knepper, has straightforward lessons:

“If you are thinking about exporting internationally, do it. Get going,

do your homework, utilize low-cost resources, participate in trade missions, learn about business cultures, and build relationships.

Always verify your potential business partners. Gather as much

information as you can. Stress-test your assumptions; the wrong

guess costs you time and money. Above all, no matter the problems

that you’ll run into, stay committed. All of these seem tough,

but they only cost pennies on the dollar and the returns can be

substantial.”

Questions

14-1. Analyze two challenges that SpinCent overcame in developing its export activity. Describe how it overcame them.

14-2. Based on its Asian experiences, map a sequence to guide SpinCent’s export expansion to sub-Saharan Africa.

Answer 1

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14-1. Analyze two challenges that SpinCent overcame in developing its export activity. Describe how it overcame them.

After analyzing this case study, it was noticeable that one of the challenges was profitability. SpinCent was skeptical about the likelihood of international success, since serving domestic customers was their main focus at the time, and they felt that they lacked both the financial resources and management talent. With this in mind, the market was fierce and competitive since their competitors were from Germany and Japan. I believe the company could have avoided these issues to begin with. In fact, they could have utilized low-cost local resources to cut back in expenses, as well as understanding potential candidates.

The second challenge identified is productivity. The struggling U.S. economy and market trends forced them to either focus on the domestic market and exploit every possible efficiency or expand aggressively into export. While demand for their products domestically was declining, industrialized emerging economies signaled opportunities, which they then began pursuing. “A significant market size and a steady increase in demand are two main prerequisites for increased export opportunities” (McMichael, 1994, pg 195).

When the decision to export was made, SpinCent decided to focus on creating relationships that would allow them to develop long-term relationships, which would eventually help them grow. So, the focus was on identifying competent and trustworthy distributors, using the services of the U.S. Commercial Services Export Assistance Center in Philadelphia.

14-2. Based on its Asian experiences, map a sequence to guide SpinCent’s export expansion to sub-Saharan Africa.

The SpinCents’s export expansion to sub-Saharan Africa based on Asian experience was monitored by the following sequence:

1. Define Market potential: They need to analyze and identify the market potential for laboratory and industrial centrifuges. With this in mind, they should also create benchmarking project to identify and sell their products at a competitive price.

2. Competitor evaluation: They need to analyze the competition in the segment for arriving at their strengths, weakness and product offerings in the region. After identifying their competitors, the firm should be able to promote their products to a specific target market.

3. Pricing strategy: They need to check the price points of competitors and the market requirement. They can define their prices based on the competitor’s prices and their costs.

4. Recruit a sales team: If the company recruits local staff, they would be able to be trained with a different perspective. Even though they will have the knowledge to understand locals, complying with the company’s values would make them better employees.

5. Conducts a risk analysis: To understand the country’s local laws, they should be able to conduct an analysis that would allow them to be in compliance with their political factors, economy and social classes, respectively.

6. Create a network: By establishing a long-term beneficial relationship with the local government, businesses, and the community, they would ensure to have a good network, which would allow them to grow their business, if that was the long term goal. “Market size also can be considerably diminished by the protective barriers that usually form part of any country’s economic policies” (McMichael, 1994, pg 196). Establish a relationship with people already in a similar business and who would support you to develop a distribution network.

In conclusion, SpinCent must understand the host country’s culture, social and economic situation, as well understanding their laws. If doing so, they would be able to come up with a strategical plan to ensure they can exploit the market potential, which would provide them the ability to meet their organization's objectives.

References

Daniels, J. D., Radebaugh, L. H., & Sullivan, D. P. (2018). International business (16th ed.). Upper Saddle River: Pearson Education Limited.

McMichael, P. (1994). The global restructuring of agro-food systems(HD900.5,G588). Ithaca, NY: Cornell University.

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