In our global economy, competition isn’t just around the corner it’s across the map. Business owners can tap new customers, vendors and markets that exist beyond our U.S. borders. While many Michigan companies are accustomed to doing business with Canada, the strong industrial activity taking place in Asia cannot be ignored. Doing business overseas is a proactive and, in many cases, necessary growth strategy for businesses.
“As manufacturers and other types of businesses seek new business partners, they look toward China and India, which are two of the fastest-growing economies in the world,” says Craig Johnson, president and CEO, Franklin Bank in Southfield, Mich.
But just as customs are different in every country, so are currency and payment processes. How do you know you can trust a company you’ve never worked with overseas? A bank can serve as an intermediary. By taking full advantage of a bank’s international services, you can increase the security of conducting business in China and other countries and also perform smooth monetary transactions so you can earn repeat business from those foreign customers.
Smart Business discussed with Johnson a bank’s role in your business’s international affairs.
How might a company learn about overseas business opportunities and new markets to tap?
Local trade organizations are a great place to start. Network with other peers in your industry and find out where they are seeking new partners overseas. You may find out about vendor opportunities, customers seeking your products or services, or simply learn more background on how overseas transactions take place. In the greater Detroit area, Automation Alley can provide information and support for businesses related to the automotive industry who are interested in crossing borders. Also, connect with the local office of the International Trade Administration and U.S. Department of Commerce to learn about trade events or interact with an advisory committee.
When starting a relationship with an overseas partner, what securities measures should a business owner here take?
When you conduct business for the first time with an overseas partner, there is naturally mistrust between both parties. How do you know you’ll get paid? What if the goods are never shipped? International collection services go beyond wire transfers and exchanging currency, whereby the bank actually serves as a collection agency of sorts. With collections services, the bank manages the payment process. Documents such as the invoice, packing list, document of title and customs information are sent directly to the bank. The financial institution then presents these documents to you for payment, and then wires your money overseas. This prevents you from having to work through a new international customer’s payables and receivables system. Both parties can rest assured that a trusted mediator is facilitating the payment transactions.
What if a business owner wants more security with overseas transactions?
International letters of credit are similar to collections services, but the bank acts as an importer on behalf of your business. Letters of credit guarantee payment to overseas customers or vendors. The financial institution provides ‘full faith and credit’ and assumes liability for the payment transaction. While a letter of credit does not replace insurance on products, it does protect your collections process. Letters of credit create a tracking process whereby payments are made at certain trigger points, such as when goods arrive in the United States. A letter-of-credit arrangement is a good way to begin a relationship with a new international vendor. As you develop a rapport with that overseas partner, you may feel more comfortable reverting to a traditional transaction method doing business on ‘normal terms,’ if you will.
What basic services do banks offer to make international business more convenient?
Exchange services allow you to buy and sell foreign currency notes. If you travel overseas to do business, your bank will exchange currency for you before and after trips. Wire transfers are a seamless way to transfer money in foreign currencies. Also, your bank can sell you a foreign draft, which are checks payable in the country of the vendor.
How can banks help business owners do their due diligence on their international business?
The sooner you discuss any business plans with your banker, including expansion into international markets, the more value he or she can bring to you as an adviser. Once you have identified a prospective business to partner with overseas, you begin checking references. Your bank can help with this by finding out more about the company, its bank, the way it processes payment and its overall financial health. Above all this, your bank can help coordinate payment terms and complete transactions in a secure way.
CRAIG JOHNSON is president and CEO of Franklin Bank in Southfield, Mich. Reach him at firstname.lastname@example.org or (248) 386-9860.