Opportunities in exporting Featured

8:00pm EDT September 25, 2008

The U.S. Commercial Service provides offerings to help small and mediumsize businesses expand international sales. With trade specialists in more than 100 American cities and more than 80 countries, the primary thrust of the U.S. Commercial Service is to help equip businesses with the knowledge and tools necessary to navigate the foreign market.

Currently, one of the few bright spots in the flagging local economy is exporting, says Tim Murphy, first vice president for Comerica Bank.

“So far this year, California exports have totaled $49.7 billion, an increase of 10 percent over 2007,” he says.

Smart Business spoke with Murphy about the U.S. Commercial Service, what it provides and how a company can secure export financing.

What is the U.S. Commercial Service?

The U.S. Commercial Service is a division of the Department of Commerce that assists small- to medium-size businesses in exporting their products and services throughout the world. It helps educate companies about how to tailor their activities to a specific market with respect to their product slate, financing, marketing, assembly and logistics. In 2007 alone, the U.S. Commercial Service counseled 25,000 U.S. companies. This counseling facilitated exports worth $21 billion and helped create or retain 275,000 jobs in the United States.

What type of assistance does the U.S. Commercial Service provide to exporters?

The U.S. Commercial Service works with companies just getting started in exporting and helps companies increase sales to new global markets. Their services include world-class market research, trade events that promote a company’s product or service to qualified buyers, introductions to qualified buyers and distributors, as well as counseling and advocacy through every step of the export process. Probably the most popular service offered is the Gold Key service. Prescreened appointments with buyers and distributors are arranged by the trade specialist before an exporter arrives in any country. Help with travel, accommodations, interpreter services and clerical support are also part of the service.

How does the U.S. Commercial Service partner with corporate organizations to build awareness of exporting opportunities?

The U.S. Commercial Service recognized that it has limited resources and decided to expand the U.S. export base through innovative government and private-sector partnerships. By using each other’s organization, data bases and global/regional networks they are able to reach as many small and medium-sized enterprises (SMEs) as possible. Under the partnership program, seminars are co-sponsored to support the domestic and international marketing efforts of these SMEs. Topics range from ‘Export Basics 101’ to market- or industry-specific topics. A popular alternative to the seminar is the webinar — a seminar conducted on the Internet and telephone. This can reach participants all over the country and allow access to industry specialists located globally. Finally, trade missions are an excellent way for SMEs to cost-effectively visit specific countries and meet with pre-screened business opportunities.

How can a company secure export financing?

Trade-cycle financing is financing that starts at the pre-export stage and continues all the way through the collection cycle. Two programs that we found to be very helpful to exporters are the working capital guarantees program offered by the Export-Import Bank of the United States (Ex-Im Bank) and the Small Business Administration (SBA). Additionally, we have a private insurance product that we call a trade payables policy, where we make short-term working capital loans to U.S. exporters that are guaranteed by private insurance. The loan proceeds can be used to purchase finished products for export or to pay for raw materials, supplies, labor and overhead to produce goods for export.

What other options are available?

Since exporters are selling globally, they need to consider how they differentiate themselves from the competition. Two ways of achieving this is to offer competitive terms and to price in the local currency (i.e. euro or yen). Both of these have additional exposures for the exporter, but they can be mitigated by using export credit insurance and hedging strategies.

While cash in advance is great if you can get it, many exporters find that they need to offer terms to their foreign buyers. Credit insurance policies protect against both the political and commercial risks of a foreign buyer defaulting on payment. In addition to the risk mitigation, insured receivables can be used to obtain bank financing.

To eliminate foreign exchange risk, an exporter can sell the foreign currency for delivery at a future date through a forward contract. This is called hedging and allows for the company to lock in a rate, assuring the company of a certain profit margin. Subsequent changes in rates will not affect the company’s profit margin.

TIM MURPHY is first vice president for Comerica Bank. Reach him at (562) 463-6530 or tim_murphy@comerica.com. As a partner with the U.S. Commercial Service, Comerica Bank has the opportunity to work closely with its local offices in San Diego, Los Angeles and Ontario.