Easier importing and exporting

As international trade becomes
increasingly important to companies
of all sizes, it is essential that small and medium-sized companies look for and
take advantage of the capabilities their
banks have to compete.

“Just like within the U.S. economy, small-to medium-sized businesses are the backbone of international trade,” says Bart
Brown, principal business relationship
manager with Wells Fargo Bank. “Many
banks, including the large ones, don’t go
after this market or provide some of the
technology that would help their customers engage in international trade.”

Smart Business asked Brown how
banks can help smaller business stay even
with the larger ones.

What has helped the small-business owner
the most?

The drop in communication costs and the
advent of the Internet has made foreign
markets available to small and mediumsized businesses in a way that it wasn’t
before. Now, any business can advertise
itself on the Internet to a global audience,
and sophisticated search engines help buyers and sellers find one another easily. The
old method of attending trade shows and
making expensive trips, while certainly
successful, is often out of reach, pricewise,
for many smaller companies.

In turn, this has driven a need in the
small-business segment of the market for
banks to develop international expertise in
those areas necessary to support their customers. Up to now, that client base has
been tapped into by small, boutique, mostly Asian-owned banks. International trade
is a way of life for most markets outside
the U.S. and their banks long ago developed an expertise in servicing that need.
However, the major U.S. banks, the top 10
or 20, really haven’t taken their international trade capabilities down market, even
though they have the capability.

What should a company look for when choosing a bank to help them grow internationally?

There’s basically six issues. The first is the bank should have in-house experts
who can provide advice and counsel.
People who have dealt with international trade issues, methods of payment,
etc., and who can help the company navigate through the risks of international
trade.

Secondly, the bank should have a
broad correspondent bank base. They
need to have relationships with many
foreign banks so that when their client’s
customer or vendor wants to route a
transaction into the bank, it comes
through directly rather than through two
or three other banks, which results in
additional costs and, possibly, delays.
There is no international clearing bank
like the Federal Reserve in the U.S., so
the ability to route transactions internationally is dependent on correspondent
bank relationships.

Third, the bank must be large enough
so that international banks recognize its
letters of credit. There is a whole cottage
industry of larger banks that act as
upstream correspondents for smaller
banks, adding further costs to the transaction. A company needs to find a bank
that’s sufficiently known overseas so
that their transactions can arrive expeditiously and cost effectively.

Fourth, the bank needs expertise in the
various government programs that are
available to assist smaller importers and
exporters, under either the Small
Business Administration (SBA) or the
Export-Import Bank (EXIM). Many
banks have what is called Delegated
Lender Status with these agencies,
which helps streamline the approval
process. A bank that doesn’t have this
authority will have to go out and get
every transaction approved by the SBA
or EXIM Bank as opposed to a Delegated
Lender that can say, ‘All right, we’ve
approved you, here’s the paperwork.’ It
leads to a tremendous savings in time
and money.

The fifth issue whether the bank has
foreign exchange capabilities. Whether
importing or exporting, there can be
advantages to a U.S. company in offering
to purchase or sell in the customer/vendors local currency. At the end of the
day, someone is hedging the transaction,
either you or your customer/vendor. So
use it to your advantage. Your bank
should be able to deal in a broad array of
the major/minor trading currencies on
both a ‘spot’ or immediate basis or a ‘forward’ or future value basis.

Finally, the bank should have a local
support network. A lot of the larger
banks have gone to centralized processing of transactions so that clients are
always making a call out of state, as
opposed to a bank that has support in
the area and the market where you do
business. Exporters in particular benefit
from this approach as there tends to be
more hand-holding required on export
transactions.

BART BROWN is principal business relationship manager with
Wells Fargo Bank. Reach him at (713) 319-1764 or
[email protected].