America is behind in trade. Hey, we’ve been behind before. The Russians beat us to space (but we landed on the Moon). The Japanese listened to management gurus like Peter Drucker and beat us up on automobiles for a while (but we had the jet-powered Pinto!). Presently, the Chinese and a host of other countries are beating us on international trade. How will the U.S. respond? Will we make an Apollo-esque effort to catch up?
Our products and services need to be world-class. If they’re not, we will lose to competitors regardless of whether WE enter world markets or not. Luckily, American-made is a sign of quality around the world – our stuff just isn’t getting out there enough.
Our companies also need to “put their big boy pants on” and learn to do business the way the rest of the world does. Far too many manufacturers insist on cash up front, in dollars, and the overseas buyer is responsible for picking up the goods at the manufacturer’s plant. That’s not how it’s done.
Globally, 80% of trade is done on open account. In other words, the goods are shipped along with an invoice and the customer pays per the terms of the invoice. Scary? That’s why the rest of the world also utilizes credit insurance. Here in the U.S., we have ExIm Bank for that. For often well less than 1% of the transaction, the U.S. government will guarantee that you get paid!
Foreign buyers may find it easier to pay in Euros or whatever their local currency is. Your bank, if it has a good international trade desk, can help you with that, either locking in an exchange rate to limit your risk of volatility, or facilitating collection and currency exchange. Does your buyer need time to come up with the funds? Your bank can provide them terms of 30, 60, 90 days or more; the customer will pay for the privilege, and you’ve made the sale easier. In e-commerce, we speak of reducing “friction” in a transaction, unnecessary steps that get in the way of a sale. Your bank can similarly help you reduce friction in your international sales. And while on the subject of banks, if you need working capital or funding to expand because of international orders, the U.S. government can offer your bank a 90% guaranty for export loans – the combination of a purchase contract and Uncle Sam being your co-signer makes you a pretty compelling loan applicant!
The majority of international shipments are shipped to an overseas port, utilizing the C and D Incoterms. Shipping overseas is complicated, though, and many U.S. businesses don’t want to tackle it. But that’s why we have freight forwarders, who were accurately described in a recent seminar as travel agents for your goods. Freight forwarders can assist with a whole slew of tasks: packaging or palletizing requirements, paperwork and compliance (here and abroad), securing space on a ship or plane, insurance and much more.
There is expert assistance available at every stage of the export process (there’s even money available for Kansas companies to get export training, attend overseas trade shows or translate web sites and other marketing collateral). Work with your KSBDC international trade advisors to utilize these valuable resources and partners. Just as you diversify your stock holdings, you want to spread your customer base around the world. You can be more competitive, increase revenue, reduce risk, and increase your bottom line. If the Moon is within our reach, foreign shores certainly are.
*Name the mixed movie references for extra credit!
