As a result of slowing economies here in the United States and in many of the world’s industrialized countries over the last decade, many companies have shifted their focus to emerging international markets. Companies both experienced and new to international markets find much of their business migrating from comfortable and familiar markets in North America and Western Europe to those in emerging parts of the world, which have higher risk profiles and are generally more difficult places to do business.
Thus, banking services have evolved to help companies successfully compete for, win and ultimately reap the benefits of a tremendously greater number of potential customers.
“When a company does business internationally, it needs to fully understand that not all countries are the same from a risk perspective,” says Craig Schurr, senior vice president and international banking division manager with FirstMerit Bank. “It may be riskier to do business with companies in places like Brazil, Russia, India and China (known as the BRICs) than it is doing business in places like Canada, Japan and Western Europe.”
Smart Business spoke with Schurr about how your bank can help you navigate uncharted international waters.
Why are companies moving away from tried-and-true international business partners?
At any point in time there are about 230 countries total in the world. Of those, 30 are industrialized nations and 200 are defined as emerging countries. Needless to say, there are a lot of risky places to do business. Approximately 10 years ago, the U.S. did 55 percent of its business with those 30 industrialized countries. If you look at the same statistics today, it’s almost 50/50. Companies are finding themselves doing business in all kinds of countries, many of them unfamiliar, whether they are buying or selling. To help companies make sense of these differences, banks are now offering a wealth of services that vary by the types of countries involved. For example, these services can identify new markets, compare restrictive trade policies, highlight government assistance programs and facilitate travel arrangements.
What types of international banking services are most important to business owners?
One of the primary free products the bank offers to its clients is advice and counsel. If your company receives an offer to sell to someone in England, the bank can provide information to help you make decisions pertaining to mitigating risks and expediting receipt of payment or goods purchased. For instance, your banker may tell you that it is an easy place to do business with low risk levels, you can sell in local currency and the bank can convert pounds sterling to dollars for you.
But, if you call the bank about a potential sale to a buyer in China, it may be a different conversation. The risks are significantly different. For instance, your company won’t be able to receive or convert the buyer’s currency, the Chinese Yuan, so the sale would have to be made in dollars. Also, you may not be able to understand the financial condition of the company buying from you, which might dictate the use of a letter of credit to mitigate the buyer’s payment.
If you have a commercial relationship with a bank, your relationship manager or banker is your advocate. If you come across an international opportunity, your advocate will direct you to someone in the bank’s international division who can help you understand the risks of that specific opportunity.
How can banks make international transactions less complicated?
When selling or buying internationally, the main issue is getting paid for what you sell or receiving what you bought. If getting paid for what you sold requires receiving money from someone overseas, one specific service the bank offers is an inbound international funds transfer.
On the other side, if you are buying something from an overseas seller, the person you are buying from wants to be paid for what they are selling. Sending money overseas on behalf of clients is called an outbound foreign funds transfer. Both transactions can be made in either U.S. dollars or a foreign currency from the checking account you maintain through your local bank.
How can you ensure your new business partner is legit?
Another service banks offer is risk mitigation. If you are selling to someone you don’t know well in a foreign country, you have to make a decision on whether or not you are going to send payment before they send you anything. Alternatively, you could send the product with an invoice, and the buyer pays for it upon receipt. That’s called open account. Each of these scenarios has risks to one party in the transaction.
Unlike eBay, which tracks buyer and seller satisfaction, there is nothing similar for international business. To make up for this lack, banks help their customers gather information on the companies they are potentially doing business with.
Why would business owners want to use these services?
To make sure they get paid, to drive better relationships with business partners, and to be more competitive with people they compete against around the world. If you are selling to someone in Germany, you may want your money up front in U.S. dollars. At the same time, your competition may be an Italian firm that does business in Euros, the same currency in which the German company conducts its business. Now you are at two competitive disadvantages.
Your international banker can help you understand the services that are available, help you structure the services, help you lower the cost of using those services, and, ultimately, help you expand your international business.
Craig Schurr is international banking division manager at FirstMerit Bank. Reach him at firstname.lastname@example.org or (330) 384-7325.