When venturing to compete in the global marketplace, it’s important for businesses to be prepared to ride the waves. Those that have successfully permeated their niche markets domestically often need to “go big” by expanding into the global marketplace if they have any hope of further growth.
This is a big step for large and small businesses alike, but the step can be a very lucrative one.
In 2015, the value of goods exported from the Northwest Seaport Alliance — a joint partnership between the ports of Tacoma and Seattle — totaled more than $10 billion, with top commodities like industrial machinery and computers, as well as oil, seeds, and grains, bringing in $1.3 billion respectively, shipping to locations across the Pacific Rim and beyond.
But when should a business attempt to go global? This decision can be wrought with potential peril if not executed properly. Language and cultural barriers need to be navigated carefully and diplomatically; tax codes, regulations, and compliance issues need to be addressed; and foreign competitors that have home-field advantages need to be considered. There’s also the agonizingly slow rate at which cargo ships cross the ocean and at which foreign business partnerships are formed.
Moreover, the financial risks can be substantial.
A foreign buyer might place an order for a custom project or for more product than a manufacturer might have on hand, forcing a company to seek working capital from its lender in order to fill a client’s order.
Another way in which a business can stumble when selling to foreign buyers is when that buyer goes absolvent or bankrupt during the manufacturing process. Likewise, many U.S.-based manufacturers encounter situations where a product has been delivered to the foreign buyer, yet the manufacturer never receives payment for the goods.
The latter financial hiccup happened to Fife-based plastic traffic safety product manufacturer Pexco in the mid-1980s, according to strategic accounts and global affairs manager Peter Speer. Speer said a shipment the company sent to a Turkey-based buyer was never fully paid for.
“(We lost) 50 percent of our sale,” Speer, who has been with Pexco for close to 34 years, explained. “Salesmanship 101 — a sale isn’t a sale until it’s paid for … So, once burned, twice cautious, right? After that, we started looking into various tools (to help prevent that).”
That was when Pexco began its relationship with the Export-Import Bank of the United States, or EXIM Bank, as it is commonly known. Among other services, EXIM Bank assists U.S. businesses by helping increase overseas sales through export credit insurance to protect against buyer nonpayment in more than 180 countries.
“We basically work with any company that has a U.S.-made product or service that wants to export,” said Sharyn H. Koenig, managing director of U.S. eastern and western regions of EXIM Bank. “(It doesn’t matter if) it is electrical components or agricultural products; anything that is manufactured or produced here in the U.S. is covered.”
While EXIM Bank’s insurance doesn’t cover theft, loss, or damage to export goods in transit — for that, an exporter needs a marine cargo insurance policy — it can help the exporter recover between 90 to 100 percent of its lost sales, depending on the EXIM Bank policy it holds, according to Koenig. Moreover, EXIM Bank also will insure U.S.-based services performed on site for a foreign buyer.
“Sometimes services are freestanding services, such as architectural or engineering services, where an architect or engineer would perform a service for a foreign buyer, and then they invoice for those services overseas,” Koenig said. “That also is something we can support.”
Pexco’s Speer said the greatest advantage for his company has been being able to offer credit terms to the company’s buyers, especially because Pexco’s products are higher-quality, he said, and thus more expensive, than its Chinese competitors’.
“The way that we take the sting out of (our higher prices) is by leveraging the service EXIM Bank provides to offer open terms,” Speer said. “So when we ship, we get payment in 60 days versus having (our foreign buyer) buy something from a Chinese competitor where they have to buy in advance. They would have to wait for it to arrive across the ocean, then it gets there and it’s not what they wanted or it is not the quality they expected, but the money has already been paid.”
Indeed, Koenig said that’s a big selling point for the bank’s insurance coverage.
“Many companies actually use it as a marketing tool because credit terms are the proverbial carrot on the stick,” she said. “Credit terms are usually what is going to swing a sale their way as opposed to an exporter requiring cash in advance. It is a very important tool.”
With 15 percent of its business coming from exported commodities, this carrot-on-the-stick approach seems to be working well for Pexco. Speer said the company’s overseas sales are up 20 percent from 2016, and the production cycle has changed from a seasonal cycle to a full-time operation.
Of course, Speer added that Pexco’s other marketing tactics and the superior quality of its goods also contributed to this boost in foreign sales.
“We focus on building that market and educating international decision-makers, basically traffic safety engineers, about solutions that they may not have known about,” he said. “People get tired of buying a cheap Chinese-made product 10 times when they could have purchased ours once.”
This increase in revenue for companies expanding into the global market can’t be ignored. As product and service demands increase, so, too, must the demand for a reliable and qualified workforce. That’s why Speer said Pexco’s human resources department is currently on the hunt to fill many positions in its Fife manufacturing and processing plant.
Currently, Pexco employs between 150 and 160 workers, so it is not considered a small business, but it wouldn’t matter if it were. EXIM’s Koenig said sometimes small businesses believe they are too small to qualify for the insurance, but the bank has clients that range in size from a single-person operation to one of Washington’s largest exporters, Boeing.
“We are willing to take a look at any size transaction, even if they are one buyer that they have in Canada or Mexico,” Koenig said. “(That way) they can lay their head down on the pillow at night and not have to worry about not getting paid by their foreign buyer.”
If nothing else, Koenig said, the one thing she wants current and potential future exporters to know is that EXIM Bank and others like it are great resources whether they become an EXIM client or not.
“There is a lot of help out there; don’t be afraid,” she said. “There are a lot of government partners that we work with to direct an exporter toward what they need … and we are going to spend a lot of time with them learning about how they do their business so we can come up with the best way to grow their business and expand their bottom line.”