Middle Market Companies Succeed with Well-Defined Export Strategy
U.S. exports reached a record-high $2.2 trillion in 2012, up by 40 percent from $1.6 trillion in 2009, according to the U.S. Department of Commerce, and middle market companies are emerging as significant contributors to this growth. No surprises about this trend, considering 95 percent of the world’s consumers live outside the U.S. and the government launched the National Export Initiative to promote exports and encourage U.S. companies to double exports or reach $3.14 trillion in export sales by the end of 2014. In order to gain access to a larger customer base, middle market companies need to develop a well-defined export strategy in their business plan.
Typically, selling in global markets is more complicated than selling domestically. Exporters must have an understanding of the key risks in global commerce – country/political, commercial, currency, transportation, documentary, buyer, foreign bank, and product risk. Developing and implementing a successful export strategy requires an assessment of these risks and careful review of your “Global Trade Cycle.” The Global Trade Cycle (also known as the Global Supply Chain), illustrated in the diagram, represents the common business activities required in the buying and selling process between companies.
The review of your Global Trade Cycle will help you effectively analyze the flow of goods, the flow of information, and the flow of funds. This process will invariably help you identify the right solutions for your company to satisfy its primary objectives – to mitigate risk, reduce costs, optimize working capital, and simplify the trade process, says Gigi R. Moore, senior vice president and group manager of International Trade Finance at Comerica Bank. Moore says based on Comerica’s experience, it’s vital to offer the right global trade solutions to help a company achieve these objectives.
For example, to achieve your working capital objective, the Export-Import Bank of the United States (Ex-Im Bank) offers a Working Capital Guarantee Program in conjunction with commercial banks to provide working capital during the pre-shipment and post-shipment stages of your global trade cycle. This loan is funded by the commercial banks and 90% guaranteed by Ex-Im Bank. “We hold the super delegated authority and Fast Track lender designations to assist exporters,” says Gary Luxon, director of Ex-Im Bank programs at Comerica Bank. “We are actively working with middle market companies to structure these loans, and we expect the growth to continue,” he adds. FY 2012 was a third-consecutive record-breaking year for Ex-Im Bank. Ex-Im Bank provided financing of $35.8 billion in FY 2012, a 9-percent increase over the previous fiscal year and a new record in Ex-Im Bank’s 78-year history.
Another example is to identify a solution to mitigate the risk of non-payment by a buyer, where the risk can be higher if the export sale lacks a secure payment method. If a customer in the U.S. misses a payment, the situation can usually be sorted out fairly easily with a telephone call or quick trip. But if a customer is in India, it’s not so easy. To help prevent such a situation, Moore recommends obtaining a commercial letter of credit from the buyer’s bank that stipulates the terms and conditions for payment. Those terms and conditions can specify the currency used for payment, terms of payment (i.e., 60-90-120 days, upon shipment or receipt) and required documentation. But most important, the commercial letter of credit provides the backing of the buyer’s bank and his or her ability to pay. “It raises everyone’s comfort level because it validates that the buyer is real – that he or she has a legitimate banking relationship, as well as a source of financing,” Moore says.
The U.S. is the third largest exporting country in the world. As more middle market companies look to engage in global commerce, they will need to develop and implement a well-defined export strategy. To accomplish this, ideally they should engage experienced professionals (international trade finance banker, accountant, attorney, transportation specialist), who will help them review their Global Trade Cycle and identify the right global trade solutions.
To discuss global trade cycle solutions to advance your company’s export strategy, contact Gary Luxon at 313.222.4903 or email@example.com.
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