They Export Efficiency With Computer Parts
Bill Smolenske and two of his co-workers purchased the computer parts exporting firm where they worked in 1995. Despite low margins, price erosion and the difficulties of exporting in the era of the strong dollar, they managed to increase sales from $5.3 million to $28 million in three years, thanks in part to an export working capital loan from the U.S. Small Business Administration. Recently, Smolenske was named Exporter of the Year by the SBA’s Los Angeles district office. He was interviewed by freelance writer Karen E. Klein.
*
I’ve learned a lot of lessons about exporting. The biggest one is that we are always at the mercy of fluctuations in the exchange rate and we have to prepare for them. When the dollar is strong overseas, that makes it difficult for us to sell, because our products cost more and our customers can’t afford them anymore. They will hold off on purchasing, hoping the dollar will fall again.
We’re in a hugely competitive business and our margins are very small, in the 2% to 3% range, so we can’t really discount our products for those slow times.
And in the computer business, prices are falling every single day, so when we’re not moving product, we’re losing money. This is the reason we’ve learned not to keep inventory in a warehouse. Inventory in the computer business is like lettuce or fish: It goes bad really fast. For this reason, we also ship everything air freight, because it’s faster, even though cargo ships are cheaper.
One thing we do to tide us over the slow periods is keep some cash in reserve. We also look around and see if we can push other, less expensive products that our customers need badly. And we’ve developed some domestic customers along the way to help us out when the European market slows down.
Fortunately, the slow periods tend to be short, and then we have to be ready to deal with pent-up demand when a currency shift occurs or our customers finally realize that the dollar is going to stay strong and they have to raise their prices and buy product anyway.
When we’re dealing with a new customer, there’s sometimes a reluctance to purchase from overseas. We overcome that by building trust with them. Typically, we accept their letter of credit for an order, then we ship the product to their country and put it on hold with a freight forwarding firm. They notify the company that the order has arrived and we’ve fulfilled our end of the bargain. Then, once the company has wired us the money and we know they’ve fulfilled their end, we release the goods to them.
Because we take time to build trust and we’re always honest upfront if we cannot fulfill an order, our customers are loyal. They stay with us because they know we will go the extra distance to make sure they get their products and they’re satisfied with them.
For instance, most of our customers dictate which freight forwarder they want to use and technically, once we deliver their product to the freight forwarder, our responsibility ends. But we track things for them and stay on top of the process so we can help out with the occasional glitches, like when products get stuck in customs.
We’ll also work with customers when products go bad. We guarantee that we will fix or replace them. They pay the shipping costs to send it back and we fix it or have it fixed and pay to ship it back to them. Customers like to know that if there’s a problem with a product, we’ll take care of it.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
At A Glance
* Company: Santa Barbara Peripherals Inc.
* Owners: Bill Smolenske, Jim Cooper and Wim Verkaik
* Nature of business: Computer peripheral brokerage
* Location: 3944 State St., Santa Barbara
* E-mail address: sbperiphs@aol.com
* Year founded: 1995
* Employees: 5
* Annual revenue: $28 million
