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August 11, 2011
4 Min Read
Have you heard the news? Smaller businesses are vital to the American economy.
That line, or some variation of the idea behind it, has been uttered repeatedly by politicians and pundits as the economy tries to find its sea legs. Most notably, small businesses--and the entrepreneurs that start them--have been front-and-center in President Obama's economic plans. As part of its broader strategy, the White House has put significant emphasis on encouraging more small companies to sell their products overseas, led by the National Export Initiative.
Rare is the SMB that doesn't want to tap into new customer markets, but there's a problem: Global trade involves a navigating a mind-boggling maze of compliance and operational issues. That can keep smaller firms stuck on the sidelines, or get them into big trouble if they run afoul of regulators. Therein lies an intriguing application of the Software-as-a-Service (SaaS) model: Automated, pay-as-you-go export management and compliance delivered online.
Nathan Pieri, VP of marketing and product management at Management Dynamics, a global trade and supply chain management company, said that in the past many businesses pursued a policy of willful ignorance when it came to international sales. Pieri described the mindset in an interview: "We know that there are regulations out there, but I really don't want to understand them too much because I don't want to have to change my process." In 2011, with increased attention on globalization and a variety of other factors in play, that's liable to get SMBs into hot water--even as the government is actively encouraging them to export.
"The fallacy with that argument is that the government won't accept it as an excuse," Pieri said. "You can't say 'I won't pay my income taxes because I didn't know I had to.'"
Pieri's firm just released version 1.2 of its Export On-Demand tool, a modular SaaS platform that can automate and manage key aspects of the global trade game. Those include product classification, restricted-party compliance, and the reams of paperwork exporting generates.
"The challenge that small businesses have is really organizing their approach to globalization," Pieri said. "Part of it is understanding the rules and regulations and setting up an environment where they can comply with the export laws of the U.S., and successfully expand their business overseas."
If it sounds like a lot painstaking work to do business abroad, well, it is. But the SaaS model could help: recent Aberdeen Group research found that growing complexity of security regulations for international trade and growing risks associated with non-compliance were among the top drivers of automation.
Product classification means pretty much what it sounds like: the U.S. government, for one, groups products into a variety of categories, and the rules, tariffs, and licensing that applies to each varies. Restricted-party compliance deals with where you plan to sell: Certain countries, such as Iran or Cuba, are embargoed; likewise, the U.S. and other governments prohibit sales to terrorist groups, known criminals, and other persona non grata. Pieri said keeping up with these lists manually is extremely difficult for SMBs, and added that this module is a popular one for companies looking to start small and add functionality as they grow. Last, the paperwork: As if there wasn't enough on your desk already, exporting generates a tremendous amount of it, much of which needs to be sent to customers or filed with government agencies. The Export On-Demand program automates that process.
The return on investment case here could be quite straightforward for companies looking to move into new overseas markets or expand existing ones: According to Pieri, qualified compliance managers typically command anywhere from $65,000 to upwards of $100,000 a year in salary; meanwhile, smaller Export On-Demand customers typically spend in the "low five figures" annually. The transaction-based model ensures they only pay for what their business actually needs, and easily scales for future growth.
That doesn't completely eliminate the human element: Pieri said SMBs still need an "empowered official" in-house responsible for compliance issues, though that could be the international sales manager or equivalent. Management Dynamics also opens its platform to third parties; Pieri said it's common for small exporters to outsource their operations to a freight forwarder or other qualified vendor, and Export On-Demand can integrate with their systems.
Aside from not necessarily having to hire a small department's worth of people, Pieri pointed to another potential advantage of the SaaS model in the exporting context: The ability to steer clear of regulatory no-nos without waiting on a multi-month software deployment.
"Most folks realize they need to have the right infrastructure to have a consistent and repeatable process. They need to have controls to demonstrate reasonable care to protect their export privileges." Pieri said. "They also need a platform that can scale as their business grows where it's not directly related to hiring more people."
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