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HOW TO EXPORT TO THE UNITED STATES: 6 SIMPLE STEPS FOR SMEs

SMEs

HOW TO EXPORT TO THE UNITED STATES: 6 SIMPLE STEPS FOR SMEs

According to the Organization for Economic Cooperation and Development, International Trade Statistics 1, participation in exports remains largely led by large enterprises (250 or more employees) in industrialized countries. In developing countries, the story is the same, and only a small percentage of small and medium sized businesses export at all. The World Trade Organization (WTO) reports that SMEs in developing countries make up roughly 45%, on average, of a country’s Gross Domestic Product (WTO, 2016), but SMEs’ exports represent on average 7.6 per cent of total manufacturing sales, compared to 14.1 per cent in the case of large manufacturing firms (WTO, 2016).

If you want your small or medium-sized business to get a piece of the export pie, according to the OECD Trade Committee, there are a number of challenges to be overcome. These include everything from limited access to credit, insufficient use of technology, and lack of export experience, to border controls. The most significant challenge posed, remains learning the ins and outs of getting your product from your country to foreign markets in a cost effective manner. These tips can help your small business become better equipped to enter the exciting world of exports.

The first stage in export planning is to investigate the market and identify your reasons for exporting to customers.
First, determine demand. You need to know where in the U.S. your product is needed. If you sell bathing suits, better export to Florida and California than to Nebraska or Alaska.

Second, you’ll need access to buyers. Start with researching buyers on the Internet, use your local U.S. Chamber of Commerce as a first resource, followed by the Economic Officer in the U.S. Embassy or Consulate in your country. Then, watch for upcoming trade shows where your goods could be featured.

Next, either start selling directly on your own ecommerce platform (secure payment and delivery systems should be integrated), or build a relationship with an international trade agent, whom you trust to help you navigate state and city markets, regulations, and opportunities for you to sell your goods in the U.S. , either to wholesale distributors, or directly to retailers. Improved logistics channels, eCommerce, and free trade agreements make that possible.

Third, find out what, if any, tariffs or exemptions exist for your goods. If there are no trade agreements between your country and the U.S., exempting your goods from tariffs, you’ll need the help of a U.S. licensed Customs Broker. A U.S. Customs Broker will be familiar with the Harmonized Tariff Schedule of the United States (“HTSUS”), and help you classify your goods and determine the tariffs you’ll have to pay to the U.S. Customs and Border Patrol, before your goods can enter the United States.

The National Customs Brokers and Freight Forwarders Association of America can easily provide brokers in the state or region you’re targeting.

Fourth, once you’ve got a better understanding of your profit margin to determine how you’ll sell your goods in the export market, you may wish to consider how to potentially mitigate any risks that can occur while your goods are being shipped, or once your goods arrive at their destination and are with the buyer(s). There are payment risks, damage or destruction of goods risks, documentary risks with customs, and many others.

You may have access to a good trade and customs attorney in the originating country, but he or she may not be thoroughly familiar with U.S. trade compliance requirements. In that case, you may benefit from consulting with a U.S. international trade lawyer to learn how they can help you mitigate risks in exporting by intervening with customs on your behalf, managing disputes through a properly drafted contract, and putting you in touch with relevant agents for information on U.S. trade insurance and compliance with government regulations.

In the U.S., generally, a phone or email consultation with a reputable lawyer would be free. If they want you to pay to talk with them for a few minutes about your problem and find out if they can help you, then hang up and call another lawyer.

Fifth, you need to build a relationship with a reputable freight forwarder or consolidator, who will help you decide: whether to ship by air or by sea; what documents are required for the country you are exporting to; how to pack your products for shipment; label them, and insure them. Normally, the freight forwarder will take care of it all, for a premium, but beware of INCOTERMS (regulations that define the responsibilities of buyers and sellers involved in commercial trade).

You must have at least a basic understanding of them to comprehend the shipping documents your freight forwarder will have you sign, and to protect your rights and limit liability.

Sixth, yes exporting is exciting, but it’s also risky doing business across oceans and continents with buyers you don’t know and may never see. To that end, there are many export resources in the originating country that companies, small and large, can benefit from. Usually Chambers of Commerce are a good starting point. There are associations of American Chambers of Commerce in every region of the world; just check the American Chamber of Commerce online directory for the specific one in your region or country.

Your own government’s resources can usually also offer invaluable information and global networks, including relevant contacts in the U.S. This is particularly helpful if you have a problem that can be fixed by your government seeking the intervention of commercial or economic officers at the local U.S. embassy in your country (keep in mind though that the Embassy is meant to assist U.S. citizens and residents, not foreigners).

Further, your local manufacturers association(s) may have members who have exported in the past, and can share their expertise. Lastly, commercial banks and local Export-Import Banks can guide you on how to leverage export financing, and minimize your financial exposure, when transacting business with foreign buyers.

Against this backdrop, you can reduce the external challenges SMEs face in trading, and better manage the uncertainty inherent in doing business internationally, all while making a healthy profit and expanding to new markets.

Magda Theodate is an international trade attorney and Director of Global Executive Trade Consulting Ltd. She works as a senior consultant for international development agencies in lower and middle income countries, resolving project execution challenges affecting trade, procurement and governance. To learn more, please visit: www.globalexecutivetrade.com

geopolitical

How to Successfully Conduct Global Business During a Time of Geopolitical Instability

The way organizations approach global commerce is undergoing a radical change. Geopolitical instability is slowing growth in a volatile global economy as organizations are forced to adapt their tactics, making complex decisions that increase operational costs and, if mishandled, make them less competitive in an unforgiving business landscape. So, what can organizations do to navigate this ‘new normal’? As an association whose members deal with small- to medium-sized enterprises (SMEs) at the local level on a regular basis, we at the World Trade Centers Association (WTCA) released our second annual WTCA Trade and Investment Report: Navigating Uncertainty, in partnership with FP Analytics. The report focuses on how cities around the world are optimizing trade and investment opportunities despite challenges, both economic and political, and how SMEs benefit from these strategies

The report shows that the majority (83%) of business leaders interviewed believe that global economic uncertainty will stay at its current elevated levels (30%) or get worse (53%) in the coming year. However, 69% of business leaders polled are cautiously optimistic about the coming year, as the report shows that resilient cities—defined as those that outperform their countries during economic downturns—have Foreign Direct Investment (FDI) as a percentage of GDP twice as high as non-resilient cities.

Despite their differences in location and culture, resilient cities have a set of commonalities that allow trade and investment to thrive. These characteristics include diversified economies and strong service sectors. In fact, resilient cities on average saw the share of services in GDP grow by 3.3% over the last five years; more than double the pace of non-resilient cities. Their populations are largely educated, with many inhabitants having college or other advanced degrees, as well as diverse, with higher rates of foreign citizens. On average, foreign citizens represent 11.6% of resilient cities’ populations, which is one-quarter higher than that of non-resilient cities. These cities also tend to have strong transportation infrastructures, including both airports and public transit options. 

Building Resilience 

The report also identified specific tactics used by resilient cities that organizations, including business and civic leaders looking to improve their own city’s resilience, can mirror. 

In resilient cities, key stakeholders are prioritizing direct diplomacy, meeting face-to-face to navigate obstacles created by regional or national governments. By cutting through political red tape, organizations have been able to create new meaningful relationships with each other and strengthen existing ties. The ability to engage in a direct dialogue creates efficient business interactions that are beneficial to all parties. For example, World Trade Center (WTC) Arkansas has organized multiple diplomatic trade missions with Mexico. As a result, its exports to Mexico are growing 3.6 times faster than to any other country. 

Cities are also proactively building programs to attract and retain skilled foreign citizens. For example, Twente, located in the eastern Netherlands, is evolving from a region focused on machine-building and textiles to one with an economy driven by high-tech systems. To retain young, skilled workers from across the globe, WTC Twente created an Expat Center that offers a range of services, including Dutch language courses, visas and work permits, housing, and support for families, as well as social events with the goal of enticing technically-skilled foreign workers and their families to integrate into the community for the long term.

Turning Obstacles into Opportunity

Economic turmoil affects everyone, but not always in the same way. For some, the current geopolitical reality presents opportunity. City leaders are adapting to these geopolitical changes and establishing themselves as cost-efficient and low-risk trade and investment partners to capitalize on the situation. FDI is being redirected towards these agile cities who have recognized the advantages created by this global uncertainty, and supply chains are shifting and realigning based on new benefits. Competition for FDI is escalating (global FDI slowed 27% over the last year, according to the OECD) and the private and public sectors need to work hand-in-hand to create attractive fiscal and tax environments, and institute policies that will attract business. 

Cities are also increasingly investing in both high-tech industries, and SMEs to ensure they are able to attract FDI at a time when this investment comes at a premium. These high-tech industries will lead to future growth and play a central role in the next industrial revolution. Additionally, partnerships with major research institutions are being used to create new technology and modernize existing tech. For instance, in Delaware, private agriculture technology or “ag-tech” companies have partnered with universities to pioneer better technology in seeding, pest management, antibiotic reduction, and biopharmaceuticals. 

SMEs are well suited to adapt quickly in the face of change and evolving economic realities, which enables them to capitalize on changing conditions. However, their size can prevent them from competing on a global scale. To combat this, programs that help SMEs move forward given limited resources can be critical in encouraging and nurturing growth opportunities. As an example, WTC Toronto created the Trade Accelerator Program (TAP), a six-week program that connects SMEs with export and business experts to train them on developing export plans fit for the global market. This program has now been adopted by several other WTC members in Canada, including Vancouver and Winnipeg. 

At the moment the global economy is relatively unpredictable, and increasing risks for businesses have made sound strategic business planning more difficult at a time when it is absolutely vital. Knowledge, preparedness, and agility are key traits cities and businesses need to acquire in order to achieve success and growth. Despite the prevailing conditions, with a strategic approach and tactics proven to increase resilience, organizations can optimize current trade and investment opportunities and set themselves up for success now and in the future.

To review the full 2019 WTCA Trade and Investment Report: Navigating Uncertainty, including commentary from WTCA Members, visit www.WTCAReports.org

blockchain

SMALL AND MEDIUM-SIZED GLOBAL TRADERS ARE BANKING ON BLOCKCHAIN

This is the second in a three-part series by Christine McDaniel for TradeVistas on how blockchain technologies will play an increasing role in international trade.

Give Me Some Credit

Every business requires capital to operate. To sell products to customers overseas, many companies also need trade financing and insurance from third-party lenders. About 80 percent of all global trade is transacted through third-party lenders and cargo insurers, but the process is complex, can be costly and many banks find it too risky to support small and medium-sized enterprises (SMEs).

Blockchain has the potential to increase transparency, speed and accuracy in assessing risk across the trade finance process, which in turn could expand the supply of credit available for international trade transactions – good news especially for SMEs that face significant hurdles accessing credit. Here’s how.

Pay Me Now or Pay Me Later

Buyers who import goods from sellers in other countries generally want to pay upon receiving the merchandise so they can verify its physical integrity on arrival. Exporters, on the other hand, generally prefer to be paid as soon as they ship the goods. Trade finance can bridge this gap.

Exporters and importers engage third-party lenders and insurers who will guarantee payments on the basis of collateral and indemnify the exporter, importer and related parties in the event that the merchandise is damaged, stolen or lost while in transit. In this way, trade finance provides the credit, payment guarantee and insurance needed to facilitate an international trade transaction on terms that will satisfy all parties.

80% of trade relies on finance

Steps on the Trade Journey

Intermediaries such as freight forwarders typically manage the physical journey of merchandise, from the original producer to the border, across the border (maybe several borders), and to the final buyer.

Each step must be verified: when was the merchandise transported from the factory or farm to a warehouse, when was it moved from the warehouse to a container, when was the container loaded onto a ship, when did the ship get underway, when was the container unloaded from the ship at port, and when was the merchandise transported from the port to the end consumer.

Different trade finance instruments, such as lending, letters of credit, factoring and cargo insurance cover legs of the journey. A letter of credit is a guarantee from a bank that a buyer’s payment will be received and be on time or else the bank will take responsibility for the payment. Factoring is accounts receivable financing to accelerate cash flow. Cargo insurance insures the merchandise while en route.

Without Finance, Trade Would Sink

The World Trade Organization estimates that 80 percent of global trade relies on trade finance or credit insurance. The global trade finance sector (i.e., the global volume of letters of credit) is worth roughly $2.8 trillion. Demand for trade financing exceeds availability, resulting in the underutilization of existing capital. According to the Asian Development Bank, the global trade finance gap — the difference between the demand for and supply of trade finance — has reached $1.6 trillion.

SMEs Face a 50 Percent Rejection Rate

The shortfall in supply reflects the complex and risky nature of trade finance which often involves multiple parties. Before banks will issue letters of credit in trade finance, they require potential customers to present a solid credit history and a strong balance sheet, conditions that tend to favor larger institutions.

SMEs typically experience more difficulty navigating the trade finance process and dealing with the cost and complexity of banking regulations than larger companies. In 2014, SMEs had trade finance requests before financial institutions rejected at a rate of over 50 percent. In comparison, the rejection rate for multinational corporations was only seven percent.

Links in the Trade Finance Chain

According to the United Nations, there are typically eight major steps required to obtain a letter of credit, although in practice the Credit Research Foundation lists more than twenty. Each step of the process is dependent on the previous steps, and some steps involve sending the same document back and forth for verification purposes. The administrative burden is greater for SMEs than for large firms.

survey of 2,350 SMEs and 850 large firms conducted by the U.S. International Trade Commission in 2010 showed that lack of access to credit is the major constraint for SME manufacturing firms seeking to export or expand into new markets and it is one of the top three constraints for SME services firms.

rate of rejection for trade finance

How Blockchain Can Help Ease Trade Finance

Requirements to authenticate each transaction in the trade finance and insurance process can engender large amounts of paperwork and cause delays at each step. Every handoff must be approved and verified.

Instead, blockchain uses digital tokens that are issued by each participant in the supply chain to authenticate the movement of goods. Every time the item changes hands, the token moves in lockstep. The real-world chain of custody is mirrored by a chain of transactions recorded in the blockchain.

The token acts as a virtual “certificate of authenticity” that is much harder to steal, forge or hack than a piece of paper, barcode or digital file. The records can be trusted and greatly improve the information available to assure supply-chain quality.

Using blockchain as a digital ledger for these handoffs would allow involved parties to instantly track and receive secure information about the traded goods. Parties can monitor the entire shipping process and verify the completion of each step in real time. This increased transparency and ease of monitoring reduces the risk that a borrower presents to a potential lender or insurer.

Banking on Blockchain

A number of financial institutions are piloting the use of blockchain-enabled trade finance platforms.

Bank of America, HSBC, and the Infocomm Development Authority of Singapore collaborated in 2016 to develop a trade finance application designed “to streamline the manual processing of import/export documentation, improve security by reducing errors, increase convenience for all parties through mobile interaction, and make companies’ working capital more predictable.” Using the application, each action in the workflow is captured in a distributed ledger and all parties (the exporter, the importer, and their respective banks) can visualize data in real time, offering transparency to authorized participants while ensuring confidential data is protected through encryption.

Barclays used blockchain in 2017 to issue letter of credit that reportedly guaranteed the export of $100,000 worth of agricultural products from Irish cooperative Ornua to the Seychelles Trading Company, noting the parties were able to execute a deal in four hours that would usually take up to 10 days to complete.

A group of European banks launched a trade finance blockchain platform in July 2018, initially focused on facilitating small and medium-sized businesses trading within Europe. In September 2018, the Hong Kong Monetary Authority announced plans to launch a trade finance blockchain platform. Twenty-one banks are participating in the platform, including large institutions such as HSBC and Standard Chartered. The Hong Kong Monetary Authority is also reportedly working with its counterpart in Singapore to develop a blockchain-based trade finance network to settle cross-border transactions.

Lessons for Trade Policymakers

As the trade finance industry begins to utilize blockchain technology, there are some potential implications worthy of policymakers’ attention.

First, the large number of intermediaries and corresponding administrative costs in trade finance tend to fall particularly hard on SMEs and the relatively higher cost of each transaction makes SME financing less attractive to banks. If blockchain can reduce the costs of trade finance, more small and medium-sized businesses could trade globally.

Second, although blockchain technology does not alter the fundamental credit risk of borrowers, the increased transparency and access to information it delivers could improve the accuracy of banks’ risk assessments. If perceived risk is greater than actual risk, a nontrivial number of loan applications may be denied even though those loans have the potential to be successful. If blockchain brings greater confidence and issuance of good loans — that is, those that are paid back — the transactions they support would bring value to the economy.

In these important ways, blockchain can increase transparency across the trade finance process and decrease risk for all parties, in turn expanding the supply of credit available for international trade transactions.

ChristineMcDaniel

 

Christine McDaniel a former senior economist with the White House Council of Economic Advisers and deputy assistant Treasury secretary for economic policy, is a senior research fellow with the Mercatus Center at George Mason University.

This article originally appeared on TradeVistas.org. Republished with permission.

HSBC Boosts International Loan Program to $5B

New York, NYHSBC Bank USA is adding $3 billion more to its international loan program, raising the program’s total funding to $5 billion, as “the demand by US small and medium size businesses looking to export or expand internationally continues to rise.”

The funding increase is the third in 15 months and will “satisfy the demand by companies who want financing to grow and compete,” said Steve Bottomley, group general manager, senior executive vice president and head of Commercial Banking for HSBC in North America.

In 2013, US exports hit an all-time record of $2.3 trillion and supported 11.3 million US jobs, directly and indirectly, according to data supplied by the US International Trade Administration.

The latest HSBC Global Connections Trade report shows that developing economies, such as China and India, present the best US trade prospects, with US export growth to average nine percent a year to each country through 2030.

Additionally, global trade is expected to grow annually by eight percent beginning in 2016 from 2.5 percent in 2013, as businesses capitalize on the rise of the emerging market consumer and developing markets stabilize their productivity levels for the future.

“US small- and medium-size businesses are key contributors to US exports and domestic job growth,” said Derrick Ragland, HSBC executive vice president and head of US Middle Market Corporate Banking.

HSBC launched its international loan program for US small and medium size businesses seeking to export or expand internationally in July 2013with $1 billion in funding.

It doubled the program to $2 billion at the start of 2014, and today’s addition of $3 billion more raises the program’s total funding to $5 billion.

The international loan program is available to businesses with at least $3 million to $500 million in annual revenue, and who are focused on cross border trading or global expansion.

Only applications for new business loans will be accepted and all of HSBC’s usual credit and lending criteria apply. The program runs through December 2015.

International trade and financing, said Bottomley, “is critical not only for U.S. companies who want to excel, but also for the wider US economy.”

Since launching the program last year, “We’ve been impressed by the pace with which businesses around the country and across industries have taken advantage of the program to capture international growth market opportunities.”

10/09/2014