Expanding global operations can create new opportunities for manufacturers, and there are several resources that companies can use to find new customers while also mitigating the risk of working with partners abroad.
“There are a lot of regulatory and legal issues to deal with when you’re exporting, particularly in today’s environment,” said Chuck Decker, president of American Oil.
Exporters must tackle legal issues, language barriers, tariffs and taxes, as well as cultural differences, he said.
Jim Kudis, owner of Allegheny Petroleum, said a lot of the challenges that exporters face abroad are the same issues they face in the U.S., but the issues get compounded.
However, expanding operations has been worth the effort. “Certainly, there are advantages to and satisfaction in setting up business in places your competitors aren’t,” he said, noting that Allegheny Petroleum does business throughout the Caribbean.
Sharyn Koenig, managing director, Eastern & Western Regions for the Export-Import Bank of the United States (EXIM), said business owners tend to face three primary initial challenges: finding foreign buyers, extending open credit terms and collecting payments.
Finding New Customers
It is essential for exporters to determine where to export. “What product do they have? What countries need that product? The next logical item to think about is where you’re going to find your buyers,” Koenig said.
The U.S. Department of Commerce can assist companies with developing their international business and identifying which markets have the best potential for their products or services, said Tony Michalski, senior international trade specialist for U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce’s International Trade Administration.
Michalski said the Commerce Department helps exporters address market selection, which markets may have good potential and what is needed to get into that market successfully. “What companies know and appreciate us for is our ability to connect them with different distributors or importers, buyers of product and the companies they want to sell to,” Michalski said. “We’re in about 75 countries out of the U.S. embassies and consulates.”
Michalski said he is able to pull in his colleagues from the specific countries that exporters are targeting. “We would work together to counsel the person on doing business in that country and evaluating their product more thoroughly,” he said. “We do an initial check, and if it proves positive, we have programs where we can meet with potential buyers, distributors or partners they want to work with.”
If the company can’t travel to the market, Michalski says he makes virtual introductions. “There are a number of ways we can connect the buyer and the seller,” he said. “Our strength is to connect with you and understand where you’re at with the general export process.”
Commerce’s services and the work it does is intended for U.S. companies and companies that have at least 51% U.S. content for their product and services. There are some nominal fees for the department’s services. “We charge when we line up meetings with specific distributors when only that company will benefit from [it] and not U.S. industry in general,” Michalski said.
Decker said trade shows are an excellent resource for finding international partners. “We did a trade show last year and found a possible partner in Australia. They were there looking for new products to bring to Australia,” he said, adding that a lot of international businesses come to the ILMA meetings. “You build the relationship over time.”
Meeting Regulatory Requirements
The Commerce Department can help exporters identify the regulatory concerns they need to comply with and any standards issues they must address to be in compliance within the importing country.
An important issue is the availability of EXIM support. “One of the best tools EXIM can provide is our country schedule, which lists the countries and the public and private sectors where EXIM can provide support,” Koenig said.
EXIM’s country schedule is available on exim.gov. The site lists every country in the world and identifies which countries the bank can support and those where it has limitations. “We think the country schedule is a great tool because it tells what the risk is,” Koenig said. “In some countries, we may not be able to support the public sector, and in others, we may not be able to support private-sector business. If there are any special conditions in a market, they are all keyed on that document.”
Decker said exporters have to know where their product is going. “There are certain countries we can’t do business with, like Iran, so you have to know the laws — the U.S. law and their law,” he said. “Make sure you research the countries you want to do business with and study the competition. Make sure it is an ethical fit.”
Koenig said exporters should get to know the country they’re shipping into. “There may or may not be import regulations. One of the best tools EXIM can provide is our country schedule,” Koenig said.
She added that exporters have to understand the export documentation. “There is quite a bit of documentation, but there is a lot of help out there as well,” Koenig said, adding that freight forwarders can often help with the required paperwork.
For ILMA members, partnering with other businesses can help them ensure they’re meeting all local requirements. Decker said American Oil has formed partnerships abroad. “I’m a big believer, especially for small businesses, that localizing is key,” he said. “You utilize someone that is there doing business that is from that country.”
Manufacturers can also partner with U.S. companies that have international operations. American Oil does this with its lubricant product line for cables. “We have a partner that is a U.S.-based company, but they have operations throughout the world, so our product is getting out into the world through them.”
Kudis noted that there are import taxes and fees that exporters have to keep up on, and he said Allegheny Petroleum has worked with partner companies in the countries where it sells products. “It is helpful having partner companies who are local to our international customers. The local ‘partner’ companies live it day to day. They understand the taxes, fees and local regulations,” Kudis said, adding that Allegheny has licensed products with a partner company.
Barbara Kudis, president of Allegheny Petroleum, said she has found the companies that Allegheny is working with want to bring higher-quality oils into the market. “We’re helping them get there,” she said, adding that Allegheny Petroleum was approached by a distributor in San Juan, Puerto Rico, that wanted to take advantage of Allegheny Petroleum’s expertise, as the distributor had previously received inconsistent products with questionable quality and documentation issues.
“We visited them and noticed their labels and safety datasheets were incorrect,” Jim Kudis said. As a result, Allegheny Petroleum’s GHS expert worked with the distributor to redo labels and SDS sheets, and “now that customer receives the most current specification-based products with consistent quality confidence.”
Jim Kudis said he has also invested time in sharing information with his Jamaican counterparts who are often eager for technical details. “We had a lot of discussions when there were new specifications when CK-4 was coming in,” he said. “They listened wholeheartedly, trying to grab as much information as they could get.”
Mitigating Financial Risk
EXIM offers insurance policies to minimize the risks of foreign-buyer nonpayment that exporters may face. “We have several different types of insurance, so it can be customized to what the exporter is selling,” Koenig said.
Policies typically offer either 100%, 95% or 90% of coverage of nonpayment by a foreign buyer. Koenig said many exporters are using this risk protection as a sales tool because it enables them to extend open credit terms to customers when securing new business. She added that many of today’s buyers are now asking for credit terms.
“They don’t want to pay cash in advance before they get the product, and letters of credit can be costly,” Koenig said. “I think the exporters should at least engage in a conversation to learn how they can extend open account credit and still be protected from potential loss.”
What’s more, an exporter can use its insured receivables to add into its borrowing base with its bank, Koenig explained. “Most banks exclude foreign receivables to a borrowing base.
When an exporter goes to the bank for a loan, they’re going to look for their domestic receivables,” she said, adding that foreign receivables are often excluded because they can be difficult to collect.
To get to know more about their buyers’ finances, exporters could create a credit questionnaire or ask for references from other U.S. companies that have sold to them. “Knowing them from a credit point of view is very important, and it is a prudent business practice,” Koenig said.
EXIM also offers pre-export financing with a working capital guarantee program. “That is a guarantee that we offer to a commercial bank that makes a loan to an exporter to either purchase or produce U.S. products and/or services for export,” Koenig said.
Working capital is a vital issue because exporters may get orders from overseas and need money to make that product or purchase that product to be exported. “We protect the lenders against the exporters’ default of the loans, so it enables the lender to make a loan where it may not have made one,” Koenig said.
The guarantee can also cover performance bonds. “If a company is a manufacturer, the buyer might say, ‘I need you to post a performance bond, and I want to make sure you’re meeting all of the milestones you say you’re going to meet,’” Koenig said.
EXIM can also support exporters with the sale of capital equipment with medium-term buyer credit. “Many exporters are not able to carry a receivable when they have a buyer that wants two years to pay for it. We have a medium-term product that is usually bank-driven,” Koenig explained. “We help exporters access their own bank or find a bank that will make a loan to a creditworthy foreign buyer.”
For the exporter, it means that once the piece of equipment ships, the bank can cash them out at 100%. The buyer gets multiyear financing at U.S. interest rates, and the U.S. lender gets an EXIM bank guarantee in case the buyer defaults on that loan.
In terms of fees on working capital, the interest rate on that loan is negotiated between the exporter and the lender. “The lender is our customer because they’re coming to us for a guarantee,” Koenig said. “We have a guarantee fee, up to a $2 million loan, of 1.75%. Our fee is to the lender, so they may or may not pass that off to the exporter.”
Costs for EXIM’s services vary. On the credit insurance, there are two types of short-term insurance. The first type is a multi-buyer policy. For that type of private-sector policy with a credit term of up to 60 days on an open account, no matter what country it is, as long as EXIM can service that country, the rate is 65 cents per hundred of the gross invoice value.
“If an exporter has a $25,000 invoice, that coverage under the express policy is going to cost $162.50 for 95% coverage with no deductible,” Koenig explained. “The exporter only pays a premium on what they ship when they ship.” EXIM also has a single-buyer policy, and those rates are published on exim.gov.
Understanding Cultural Differences
Holly Alfano, CEO of ILMA, said that recognizing and understanding cultural differences can go a long way when forming lasting relationships.
Allegheny Petroleum operates in Jamaica, and Jim Kudis said he has seen significant cultural differences between that country and the U.S. “We seem to be faster to get to the point and move on to the next thing. Jamaican culture is based more on friendships and relationships,” he said. “Both approaches are helpful. It’s a matter of understanding and leveraging the nuances of each other’s cultures.”
To help ILMA members better understand important cultural nuances, ILMA will present a session on the topic during its 2019 Annual Meeting, Sept. 21–24 at The Broadmoor in Colorado Springs, Colorado.
Koenig suggested that ILMA members involved in global operations reach out to EXIM’s regional office staff to discuss what their export challenges are. “Many of us have
been with EXIM a long time and in this industry a long time, so we are very good resources for the members. If they need something EXIM doesn’t directly provide, we can help them identify where to go,” she said.
Trade specialists can help exporters learn about how ILMA’s members do their export business and how to craft the right policy that is going to help them the most, Koenig said. “We don’t want them to feel like we’re pointing them to a webpage, and they have to go figure it out,” she said. “We want them to know there is a live person at the other end of the phone, and we are eager to help them.”