Small and medium-sized US businesses are starting to sense that the global marketplace might be ready for more vibrant activity by spring, and countries around the world are looking to the US as a major trading partner in their recoveries. Financial journalist, Joe Mont, offers some advice for a safe and successful foray into the murky waters of international commerce. See the following article from The Street to learn more.
Small to midsized businesses are optimistic about the upside of global trade growth, with 56% of U.S. respondents anticipating higher trade volumes in the next six months.
That’s the assessment of the HSBC Trade Confidence Index, an international survey of cross-border traders released Sept. 28 by HSBC Bank USA, a subsidiary of HSBC North America Holdings(HBC_), which services global banking and small and medium-sized business needs.
The findings — derived from surveys with 5,124 exporters, importers and traders in 17 markets — are “encouraging,” and that emerging markets, in particular China, offer tremendous opportunities for businesses of all sizes, says Bill Nowicki, an executive vice president and head of trade and supply chain at HSBC.
The trend for intraregional trade between the U.S. and Canada also continues to build. More than 86% of U.S. businesses identified their northern neighbor as the nation they trade with the most.
U.S. companies are also increasingly enthusiastic about trade with Latin America, according to the index. Respondents listed it as the most promising region for trade growth in the next six months, followed by Greater China and Canada.
The sentiment is reciprocated. Among nations surveyed in the HSBC Index, Canada, China, Hong Kong, India and Mexico all included the U.S. among the top three most promising regions for trade growth in the next six months.
“Exporters and importers remain confident about trade prospects, albeit slightly less bullish than they were six months ago — which indicates that growth in emerging markets has become more evenly paced, while growth in established markets remains somewhat constrained,” Nowicki says.
Mark Luppi, executive vice president and head of business banking for HSBC in North America, says many small-business owners don’t fully realize the potential of targeting overseas partners for imports, exports and services. He offered the following tips for cracking into a marketplace:
1. Know Your Market
“There is a lot of interest in doing business with the U.S.,” Luppi says. “I think people will be pleasantly surprised by the reception that they get.”
Still, narrowing the markets to those most receptive to your goods or services is the first step in expanding your business internationally.
“It helps if you understand what areas are experiencing economic recovery at a faster pace and are more attractive to U.S. companies looking to expand,” he says. “Once you see which geographies really provide opportunity, then you have to look to see which ones are the best fit for what you do and what their needs are.”
2. Build A Team
Don’t try to tackle international expansion all by yourself.
“Build your team by surrounding yourself with people who have done business internationally and who can help you understand the process,” Luppi says. “One of the biggest problems is that you don’t know what you don’t know.”
This team should include a CPA who has worked with companies internationally, an attorney, a bank, insurance agents and a freight forwarder if you plan to export hard goods.
“Once you surround yourself with key providers and individuals it takes a lot of the mystery out of this,” Luppi says. “It is really not as complex as people make it out to be, and there are actually a lot of similarities with domestic business. But where there are differences, going through the process with someone who has done it before can make all the difference in the world.
3. Think Locally
Once a team is assembled and you have picked a market to enter, research the local laws and trade regulations. Be aware of inspections and required certifications.
“As you start to do your due diligence, consider taxes and how this works in the import/export country,” Luppi says. “You also want to understand the economic conditions overall. Is this a market that is growing or is it contracting? Also, understand the political environment, because it can be very different from the U.S.”
4. Get Your Frequent Flier Miles
Until you have a reliable person on the ground, be prepared to personally travel to your new sales territory.
“You really need to understand the culture and the customs of that marketplace, how they do business, their needs and the process,” Luppi says. “I recommend that people find 10 good companies that they think would be appropriate partners and set up time to meet them.”
5. Get Paid
Account receivables can be challenging enough dealing with vendors and customers down the block, never mind an ocean away.
“You really need to understand the timing of transactions,” Luppi says. “You really should look at it in terms of, ‘From the day I actually place the order, make the goods and ship those goods overseas, when am I going to get my money?'”
It is important that you and your trade partner “have sufficient funds and financing available to support the entire transaction,” he says.
Understand the local currency and, if possible, minimize fluctuations and exchange risks by locking in a rate the day you actually set the agreement with a company to do business.
Don’t become over-reliant on a specific trade partner,” Luppi says.
“If you have one buyer of a particular program and that is a large chunk of your revenues, a shift in their program can have a drastic change in your overall results,” he says. “We urge people to take a look at diversifying the activity into multiple buyers and sellers.”
7. Work Out the Financing
Financing an overseas expansion “is no more complex” than obtaining a normal credit line, Luppi says. HSBC, for example, is primarily concerned with reviewing two years of financial records, looking for evidence of a profitable operation.
8. Not Just For Widgets
The need for consulting services is just as in demand as the market for more tangible goods and exports, Luppi says. Other countries see value in the research-focused skills many American companies have to offer.
9. Get Organized
Make sure to consider the basics of what you will need well ahead of your first trip or business deal.
Make sure your passport is up to date and visas are in order. Secure local currency and arrange to have credit and debit cards that will provide access to your funds while overseas. Work with your bank to consolidate your various accounts and have online access.
“You want to be able to transact business, move funds and access information wherever you are,” Luppi says.
This article has been republished from The Street. You can also view this article at The Street, an investment news and analysis site.