Monday, July 5, 2010

Exports


“With our increasingly interconnected world — where 95 percent of consumers reside outside our borders — global markets can help revive the fortunes of U.S. companies and spur future economic growth.”

-U.S. Department of Commerce, November 2009

Exports are a critical component to the success of the U.S. economy and small to medium-sized businesses help to drive that success. Now may very well be the time for your company to consider expanding its business borders. The number of small business exports has tripled in the past decade, while the value of small business exports has increased 300 percent in the past five years. 20 percent of small to medium-sized enterprise (SME) exporters are companies with a single employee. In fact, 97 percent of all exporters are small to medium-sized companies.
International trade: Will it drive your company’s future growth and success?

IS EXPORTING RIGHT FOR MY BUSINESS?

You see the opportunities made possible by international trade. Now how can you maximize that potential for your business? There are several important questions to think about:

1. Your product has done well in the U.S. What overseas markets will be able to use it? Are there local competitors? Will your product easily adapt overseas? How can you assess demand for your product in other countries?

2. How will you sell your product overseas? Will you set up a local office, obtain a local agent/distributor or depend on internet sales? Will you need any special licenses to ship overseas? Will you be able to visit your overseas customers in person?

3. How will you ship your product overseas? Have you identified international freight forwarders and freight costing?

4. Does your company have capacity to support additional production? Are you prepared to accommodate changes in labeling that might be required to conform with overseas markets? Have you identified translators who can help you with documents, labeling and even cultural issues that might arise? Do you have employees to help with that or will you hire people on site to be your eyes and ears and provide market intelligence?

5. How will you finance this growth in your business? What are the special financing tools required for international trade, such as letters of credit? Have you identified financing experts who can help you with these issues? How will you collect your invoices from overseas sales and protect yourself from bad debts?

OPPORTUNITIES FOR EXPORTING

Globalization has made exporting — even for the smallest companies — a reality. It is changing the way companies make money. New markets diversify revenue streams for SMEs, helping to protect their companies. A recent survey of U.S. exporters found that 60 percent of small companies derived 20 percent of their annual earnings from exports. This percentage grows to 44 percent for medium-sized companies. More than three-quarters of the companies surveyed forecast export sales to grow by at least 5 percent each year for the next three years.

Would growth be good for your business? In this case study, Bibby Financial Services helped a client cross borders and expand into international markets in a complex transaction that involved five counterparties:

"Our company won a contract to deliver $4 million of our product to Brazil. This sale mattered because it was larger than all of our sales for the previous year. To begin with, the Brazilian customer issued us a non-transferable letter of credit through their bank, detailing the terms and conditions of the sale. Because the size of the deal was so large, our company needed cash to pay the manufacturer ahead of time. We turned to Bibby Financial Services (BFS). BFS ensured that the Letter of Credit (LC) was in order and that it could be assigned to BFS. They then sent third-party inspectors to the manufacturer to verify the product complied with standards set by the Brazilian customer. BFS paid the manufacturer based on that report. BFS also coordinated with the manufacturer, trucking company and freight forwarder to ensure that the goods would arrive in Brazil on time so they could collect from the LC. The goods were shipped to Brazil by air, and then BFS presented the paperwork to the bank to obtain payment under the LC."


WHY EXPORT?

95 percent of the world’s consumers live outside of the United States, so if a U.S. business is only selling domestically, it is reaching just a small share of potential customers. Free trade agreements have opened up markets in Australia, Chile, Singapore, Jordan, Israel, Canada, Mexico and Central America, creating more opportunities for U.S. businesses. Exporting helps small companies grow and become more competitive in all of their markets. Selling into new markets diversifies your revenue stream and can help you take advantage of currency fluctuations. For example, a weak U.S. dollar can reduce manufacturing costs, giving you a pricing advantage for your exported goods.

In the past 30 years, U.S. exports increased from $224 billion to nearly $2 trillion by 2008. Small and medium-sized firms account for the vast majority of growth in new exporters. About one of every five factory jobs — or 20 percent of all jobs in America’s manufacturing sector — depends on exports. Workers in jobs supported by merchandise exports typically receive wages higher than the national average. Small and medium-sized companies account for almost 97 percent of U.S. exporters, but still represent only about 30 percent of the total export value of U.S. goods.

Because nearly two-thirds of small and medium-sized exporters only sell to one foreign market, many of these firms could boost exports by expanding the number of countries they sell to. The quality of your product, competitive pricing and supply of your product are key to its success in international markets — the same as selling in your own backyard.


FINANCING INTERNATIONAL TRADE

Getting paid is always the hardest part for any business, and working with customers many thousands of miles away can be intimidating. Understanding the language of international financing and working with an experienced lender can smooth out that bumpy process. Here are some terms that will be helpful for you to know:

Letters of credit (LC) – a very secure way of controlling the international shipment of goods (both import and export) and obtaining payment that requires your customer to obtain the
guarantee of a lender.

Export finance – cash advanced against the value of your outstanding export invoices and an ongoing supply of working capital. Similar to accounts receivable financing or factoring, it provides your business with a source of funding, which grows in line with your export sales. This can be very useful in overseas transactions where customer payments often extend beyond the traditional 30 days, resulting in a cash flow gap.

Export-Import Bank of U.S. – the Ex-Im Bank guarantees the financing that a lender provides to its clients. If the exporter fails, the Ex-Im Bank will step in and pay off the lender under the terms of their guaranty. A financing company is more willing to provide funds to companies seeking exporting opportunities with Ex-Im Bank’s guaranty in place.

Purchase order finance – provides funding against confirmed orders, so that you have the cash in hand to pay for the production and delivery of the goods. The lender advances the funds to your supplier or opens a letter of credit. Once the goods are delivered, you invoice your customer and the lender collects those payments and pays you the balance minus their funds advanced. This is especially useful when your supplier is based overseas and you need to import the goods/arrange for direct delivery to an overseas customer — all with the peace of mind that the goods will be manufactured to your specifications and delivered on time.


HELPFUL RESOURCES ON INTERNATIONAL TRADE

The Small Business Administration,
http://www.sba.gov/ — for information related to running a small business, including financing options.

U.S. Department of Commerce,
http://www.buyusa.gov/ — the primary resource center for new and seasoned exporters to research markets and gain information.

World Trade Center Association,
http://www.wtca.org/

The Export-Import Bank of the United States,
http://www.exim.gov/ — provides credit insurance, finance guarantees and advice for U.S. exporting companies.

Small Business Exporter’s Association,
http://www.sbea.org/

International Chamber of Commerce,
http://www.iccwbo.org/

The International Factors Group,
http://www.ifgroup.com/ — the leading worldwide association of factoring companies.

U.S. Council for International Business,
http://www.uscib.org/

The International Freight Association,
http://www.uscib.org/ — to find accredited companies for handling shipments.

National Federation of Independent Businesses,
http://www.nfib.com/ — offers training seminars, legislative updates and statistics about small businesses.

The U.S. District Export Council,
http://www.us-dec.com/ — supports the U.S. Commercial Service by offering advice on private sector export matters.

Local chambers of commerce, industry associations and state commerce departments can also provideinformation on exporting and importing.

Credit: Bibby International Trade Finance
 
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