I have received many inquiries over the past few months related to Europe’s stability and the growth of emerging countries and what that might mean for Maine businesses. Some clients have expressed concerns about expanding into those markets while others are worried about the overall impact on the business climate here.
As a longtime supporter of the Maine International Trade Center, I see exports as a good opportunity for many Maine businesses, as long as they are explored and executed with care and financial awareness.
In 2011, businesses in Maine exported merchandise to more than 50 countries, according to the Maine International Trade Center. MITC also reports that Maine businesses in 2011 exported merchandise valued at approximately $3.25 billion — a $400 million increase over the value of goods exported in 2010.
Maine is in good company when it comes to increased export activity. U.S. exports have been growing at the rate of 15 percent a year. In 2011, exports totaled more than $2.1 trillion — more than 30 percent above the 2009 export levels and President Obama has set a goal of doubling U.S. exports by 2015.
Interest in international trade continues to grow despite the lingering effects of the recession and ongoing instability in Europe, a traditional outlet for U.S. exports, for several reasons:
- The global market’s growing appetite for U.S.-made goods. The International Monetary Fund anticipates that 87% of world economic growth over the next five years will take place outside the United States.
- The cautious optimism of the average American consumer, who appears less pessimistic about the economy but continues to keep a close watch on expenditures. That means U.S.-based companies increasingly look outside the United States for new business.
- And finally, Europe’s well-documented fiscal woes notwithstanding, U.S. companies are finding customers for their goods in Canada, Asia and Southeast Asia, Latin America and South Africa, according to the U.S. Commerce Department.
The right tools
International trade poses a variety of challenges for business, whether a novice to foreign trade or a well-established exporter. It involves more than just moving goods and services from one location to the other. Financing a successful export venture requires appropriate financial tools tailored to work in specific situations.
Some typical financing challenges include needing capital to push a company’s competitive edge, leveraging assets to obtain the working capital needed to support export sales, and being able to offer financing to overseas buyers.
The Export-Import Bank of the United States can be an invaluable resource for businesses ready to take international trade to the next level, but that have exhausted the typical working capital lines.
Ex-Im Bank is an independent federal agency that helps to fill gaps in private export financing. The bank provides a range of financing mechanisms, including working capital guarantees and export-credit insurance.
While Ex-Im Bank does provide direct loans, the bank also works with a delegated lender — a bank with the authority to process and commit Ex-Im Bank working capital loan applications — to help exporting businesses structure pre-export financing. This pre-export working capital financing is 90 percent guaranteed by Ex-Im Bank.
Pre-export financing is a loan guarantee on principal and interest for export-related inventory and accounts. The key benefit to pre-export financing is that it gives the exporting business more access to credit during the goods production phases. As a result, the exporting business is more likely to increase sales and profit and expand its base of collateral.
U.S. businesses competing in the global marketplace at times might be called on to extend credit terms to foreign buyers. The solution might be foreign receivables financing that allows businesses to stay competitive by borrowing against the companies’ foreign receivables.
Businesses experienced in international trade could also require support when dealing with trading partners in increasingly popular emerging market countries, such as China, Brazil and India.
In addition, Turkey, Panama, Honduras, Argentina, China (specifically Hong Kong), Peru, Chile, South Africa and Thailand are some of the countries that have the largest annualized increase in purchasing goods made in the United States.
While there is tremendous potential to add to sales by exporting products to qualified foreign buyers located in these emerging markets, Maine businesses might be stymied in their efforts to obtain medium-term buyer financing. That’s because in these desirable emerging markets, interest rates can be very high and local term financing — if available — difficult to obtain.
In this case, the combined resources of Ex-Im Bank and one of its participating lender partners are key to success. The solution might be medium-term financing that is based on obtaining appropriate Ex-Im Bank export credit insurance that protects against a foreign buyer’s failure to pay an obligation for commercial or political reasons. Such insured medium-term financing gives Maine exporters the ability to offer foreign customers attractive loan terms and significantly reduces non-payment risks.
Finally, it is important to think in terms of the international trade finance solution that is the best fit for the specific business. There is no room for a one-size-fits-all approach when it comes to expanding business horizons beyond geographic borders.
Sterling Kozlowski is president of the Maine district for Key Bank.