Who can you depend on to help you expand globally?
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Doing business globally is more complex than working solely in the U.S. Every country has its own market conditions, cultural traits, government regulations and business conventions. Using resources available and finding the right partners - both domestically and locally in your selected market - will be vital to your success.
Tap into government resources
Take advantage of third party resources such as the U.S. Department of Commerce and sourcing agents experienced in your industry. Experienced partners like these can often get you the intelligence you need about markets, customers, suppliers, and costs to jump start you into the global economy affordably within a short time period.
U.S. Commercial Service has 85 international offices and a U.S. Export Assistance Center (www.export.gov) that can provide a host of services to help you target and select the best markets and customers for your offering including:
Market research and due diligence — to help you target the best countries to sell your product or service, and evaluate potential business partners with whom to work.
An International Partner Search, which targets, qualifies, contacts and even introduces your organization to prospective international customers.
The Commodity Credit Corporation (CCC) of the U.S. Department of Agriculture (USDA) has several export credit guarantee programs (www.fsa.usda.gov).
Overseas Private Investment Corporation (OPIC), a federal agency that provides political risk insurance, all-risk guarantees and direct loans for U.S. investment projects in developing nations and emerging markets (www.opic.gov).
The Export-Import Bank of the United States (Ex-Im Bank), an independent U.S. government agency, facilitates the export of U.S. goods and services by providing loans, guarantees and insurance programs that reduce commercial and political risks (www.exim.gov).
Practical financial tools
Businesses that are successfully engaged in global trade use a set of risk management tools to balance their ability to compete globally with their need to protect profits and maximize working capital.
Export Financing Programs
Ex-Im Bank, as discussed above, provides financing for U.S. businesses and their customers in foreign markets where the private sector is not readily willing or able to provide financing. During fiscal year 2012, Ex-Im reported a fourth-straight record breaking year with $35.7 billion in authorizations and more than $50 billion in sales supported.
Small Business Administration (SBA) helps small businesses that might otherwise not be able to obtain trade financing. The SBA's Export Working Capital Program can provide loans of up to $5 million with 90 percent guaranteed by the SBA (www.sba.gov).
Payment risk mitigation
Unprotected trade—open account trade transactions, simply a payment between buyer and seller, make up well over 80% of Global Trade payments. If you know your counterparty, you may be comfortable with a payment method that has no financial protection. In this case, the buyer simply pays for the merchandise upon receipt. This payment method favors the buyer as the exporter bears the cost of the merchandise during shipping and the risk of a delay in payment.
Clean payment in advance is an arrangement where the buyer importer pays for the merchandise before it is shipped. This protects the exporter against virtually all risks, but it exposes the buyer to the risk that merchandise might not be shipped on time, in good order, or at all.
Documentary collection is a process whereby the exporter presents a draft or bill of exchange to its bank, along with the shipping documentation. The exporter’s bank forwards the draft and documentation to the buyer's bank. In order to receive documentation for the merchandise, the buyer must make a payment or provide assurance of payment at a specified future date. The documents then can be released to the buyer, who can take possession of the merchandise. This arrangement gives more protection to the exporter than an open account and exposes the buyer to less risk than a clean payment in advance.
Letters of credit are a universally accepted form of payment which commits a bank to honor drafts and documents that are presented in conformance with stated terms and conditions. The bank substitutes its creditworthiness and reputation for the buyer’s. The bank is obliged to pay the exporter as long as the stipulated documents are presented within a prescribed period of time. This gives the exporter an additional degree of security over the documentary collection method. While a letter of credit can’t protect the buyer or exporter fully against the risk of fraud, it provides important benefits to both the buyer and exporter. The buyer doesn’t need to pay until the shipment documents are presented. Meanwhile, the exporter doesn’t worry about the buyer's financial situation, and controls merchandise until payment is made or the documents are accepted for payment.
Export credit insurance protects the exporter against the risk of nonpayment by their overseas buyer. It gives the exporter protection against payment default by providing conditional assurance that the insurance policy will make payment if the foreign buyer is unable to pay. This important risk mitigation tool allows the exporter to offer the buyer competitive open-account terms. Export credit insurance is provided through both Ex-Im Bank and a variety of private sector providers, and once an exporters foreign accounts receivable are insured, many lenders will allow them to be used as collateral for export financing purposes.
International Treasury Solutions
International wire transfers are one of the safest and quickest ways to send money overseas. Online access allows for management and execution of global financial transactions and large volumes of wire transfer requests across many continents
International Automated Clearing House (ACH) payments provides a secure and low-cost solution for sending payments internationally.
Multi-currency reporting services will combine foreign currency payables and receivables into a single overseas account, providing streamlined international transaction monitoring capabilities. Multi-bank reporting services may also be available, which aggregate account balance and transaction information for accounts held at various financial institutions around the world.
Expertise matters in trade
The saying "it's not what you know, but who you know" applies particularly well to Global Trade. To be successful, your company needs knowledge - knowledge of economies, of business environments, of market mentality, of appropriate financial products and services and much more. Choosing the right partner to assist in developing Global Trade strategies, both domestically and locally in the chosen market, is critical to your success.
Keough explains SunTrust's outlook on global trade solutions as "consultative listening and understanding of clients' needs in order to help them avoid pitfalls while growing their international business. “Our trade sales teammates are technically sales people," she goes on to detail, "however they have enormous background and experience in the foreign trade field. We provide the knowledge of international markets so that the client will understand how they get paid as well as how they can navigate the various risks found in selected markets in order to achieve their growth objectives."
Building long-term partnerships with knowledgeable experts should be a primary goal when embarking on - or expanding - your company's global business opportunities. Choose a partner who will align themselves closely with your purpose and help you define your strategy. Now more than ever, as economies and political situations around the globe fluctuate, it is important to have a partner who can give you access to the local contacts necessary to help determine your international trade strategy, as well as help navigate the systems and technologies that are being made available for small and medium-sized businesses to access those foreign markets.
The road map to prosperous global trade initiative
"Your company can never start too early learning all you can about the exporting of your product," SunTrust's Keough emphasizes. "Investing time now could pay off later on, when time is scarce and critically important." Use all the resources at your disposal, such as national, state and local-level programs. Work with experts in global trade, including attorneys, freight forwarders, customs brokers, international trade insurance specialists, and your SunTrust financial partners to find and develop the most suitable solutions to mitigate risk and increase profit. The key to success is to find and work with partners who can simplify the complexity of global business and accelerate your progress by bringing years of trade experience and local market knowledge to your management team.
Developing a strategy to start or expand your global initiatives begins with a macro understanding of the market. Next you will need to explore your product’s fit with global markets , and analyze local market conditions Even using the resources outlined here, you’ll have other decisions to make. The SunTrust team has deep bench of resources who can help you make those calls. Talk to your SunTrust relationship manager or global trade specialist about your situation. They help many companies like yours make good decisions about global business, and they help provide them with the necessary financial and trade tools.
1 National Export Initiative Fact Sheet, International Trade Administration, U.S. Department of Commerce, http://www.trade.gov/nei/nei-fact-sheet.asp, accessed 8/14/2014
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Margaret Callihan, President and CEO of the South Florida Division for SunTrust Bank, discusses how businesses in her region are partnering with their bankers to finance growth, streamline financial operations and address their short-term cash needs
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