Overcoming the Psychological Trade Barrier
Many U.S. companies have already taken advantage of the foreign appetite for U.S. products, but the majority of small- and medium-sized enterprises has not ventured beyond U.S. borders.
Although there are huge complexities that come with entering the international market, exporting is beginning to resemble a mission-critical reality for those organizations that want to remain competitive. However, the Department of Commerce reports that of the 30 million companies in the U.S., only 1 percent (or 280,000 businesses) currently exports products or services. Of those, nearly 60 percent export to only one market.
A key challenge is that many U.S. firms that do not currently export view foreign transactions as an unsettling proposition. This is especially true for those that have never exported previously and are unfamiliar with the risks or have limited capital to undertake it. These become good reasons to stick with the status quo rather than pushing the boundaries of competitiveness and crucial, export-led growth.
Fortunately, help is at hand. The U.S. government is spearheading the charge, working with commercial banks to remove any real or perceived hurdles and smooth the path to global expansion. In the United States, exports are growing and, in the midst of a slow economic recovery, they are even more vital than ever.
The United States is the world’s third-largest exporter and, according to the Commerce Department, 60 percent of GDP growth in 2013 is expected to come from increased exports. Several factors have helped drive exports higher over the past 12 months, including the rise of many developing nations in Latin America, consistent growth in China, Russia and India, and a weaker U.S. dollar.
Many U.S. companies are already leveraging an increasing appetite for the “Made in the USA” label abroad. This is most prevalent in industries such as machinery and equipment, industrial supplies, consumer goods, communications and technology, motor vehicles, aircraft, and food and beverage. Small and medium enterprises (SMEs) are the backbone suppliers to these industry segments and, for many, this is a ripe opportunity to stake their claims in the global marketplace and become less reliant on the domestic economy.
Staying competitive in the global marketplace
In his 2010 State of the Union address, President Barack Obama announced the National Export Initiative (NEI), his plan to double exports in five years to $3 trillion. It is clear that early on in his economic recovery plan, the president recognized the significant impact growing exports could have on the U.S. economy, job growth and economic stability, and he enlisted the help of the Export-Import Bank of the United States (Ex-Im Bank) to drive his message. Ex-Im Bank is the official U.S. export credit agency and assists in financing the export of U.S. goods and services to international markets, thereby leveling the playing field for U.S. companies in an increasingly competitive global marketplace. Ex-Im Bank enables U.S. companies of all sizes to turn export opportunities into real sales, helping to maintain and create U.S. jobs and contribute to a stronger national economy.
As part of the NEI, Ex-Im Bank plans to add 5,000 new small businesses to its portfolio, double its annual small-business support volume to $9 billion and approve $30 billion in new small-business transactions. It plans to accomplish these goals by supporting SMEs with its Working Capital Guarantee Program (WCGP). The program provides U.S. exporters access to working capital lines of credit from various commercial lenders, all backed by the Ex-Im Bank guarantee. These loans provide the liquidity and confidence for a small business to accept new international contracts, grow export sales and compete more effectively in international markets.
For example, by leveraging the Ex-Im program to offer foreign buyers up to 180-day receivable terms, it allows the U.S. exporter to obtain larger export contracts, finance rapid export growth and expand into new markets with competitive sales terms. This has no impact on cash flows, which is critical given the higher costs of capital in developing markets, making access to longer payables an even greater priority for many foreign buyers. Equally, the assistance Ex-Im provides in expanding borrowing capacity enables SMEs far greater flexibility than if they borrowed against foreign receivables under a traditional asset-based lending structure. The SME access to pre-export working capital financing is facilitated by Ex-Im’s support of project-related capital goods deliverables with longer build-out cycles.
The benefits of this are evident from recent work undertaken with Mill Masters Inc., a welded-seam tube mill manufacturer that was concerned it would outgrow the credit facility from its local bank. Leveraging the Ex-Im Working Capital Guarantee Program through Bank of America Merrill Lynch, a solutions-based finance package enabled the company to manage its export sales growth, improve liquidity, extend terms to foreign buyers and gain an ability to lend against work-in-progress inventory. This collaboration enabled Mill Masters to undertake new contracts and support its working capital needs, while also creating operational efficiencies by leveraging one bank’s global treasury management capabilities. This enables Mill Masters not only to expand its operations on a regional basis, but also to optimize its global opportunities by exporting to new markets.
Understanding the importance of exporting
For business owners, the greatest growth opportunity lies outside the United States. With China adding millions to its population every year, it already has greater purchasing power than Japan, Germany and the U.K. combined. India, Russia and Brazil continue to grow quickly, fueling demand as they realize their projections to surpass the GDP of most developed countries within the next few decades. These large, developing economies will not only serve as the engines to global growth, but they will have a strong peripheral growth effect on the economies of neighboring countries as well.
No business owner can afford to rely solely on the U.S. market to grow the business and ignore the global opportunity. The challenge is to understand how to enhance capital positions and to be able to mitigate the risks involved in exporting. Today, success lies in pushing the physical boundaries to achieve export-led growth, achieve greater competitiveness and seize the opportunities that the global economy presents.
“Bank of America Merrill Lynch” is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives and other commercial banking activities are performed globally by banking affiliates of Bank of America Corp., including Bank of America, N.A., member FDIC.
Sean Meadows is vice president, Global Trade Sales at Bank of America Merrill Lynch.
Banking On Exports