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"Learning the Ropes
of Business " (Part 2)
-March 5, 2010

 

(click here to go back to part 1)

In the first installment on Exporting for Small Business, we discussed ways an entrepreneur could start or expand an existing business into foreign markets. Spurred by a domestic need to increase exporting, several government programs are available all designed specifically with America’s small businesses in mind. Ranging from Small Business Administration loans to U.S. Department of Commerce training programs, support for small business entering exporting is readily available.

Finding Funding

As part of the American Recovery and Reinvestment Act of 2009 (ARRA), additional funding was allocated for small businesses looking to grow new markets overseas. By visiting the SBA.gov web site, business owners can find valuable resources and loan applications for exporting businesses. There are three primary loan programs for exporting businesses. These are:

  • Export Express
  • Export Working Capital
  • International Trade Loan

Export Express

Similar to the Small Business Express loans, the Export Express loans were created for small businesses who are seeking a more streamlined and simplified loan process as well as a motivation to spur an increase in U.S. exporting. The SBA-backed program helps small business owners finance exporting efforts with loans and lines of credit. The Export Express loan has a maximum of up to $250,000. The application process is fast, 24 hours in most cases, and currently offers a 90% guaranty for lenders making the funds available. The guaranty was increased from 85% to 90% as part of ARRA and is available through February 28, 2010 but has the possibility of another extension through Congress. If no extension is granted, it will revert back to an 85% guaranty. The loan can be used for standby letters of credit when required as a bid bond or performance payment guarantee; performance in a foreign trade show, general lines of credit for export purposes, and many transaction-specific financing needs associated with completing export on orders. The loan is available for 5 to 10 years for working capital, 10 to 15 years for machinery and equipment and up to 25 years for real estate.

Export Working Capital (EWP)

These SBA-backed loans are intended for small businesses that are able to generate export sales and require additional working capital in order to meet the sales demands. The SBA provides lenders guaranties of up to 90% on export loans to ensure “that qualified exporters do not lose viable sales due to a lack of working capital.” There is not content requirement for the type of product or service being exported, but the items must be shipped and titled from the U.S. Maximum loan amounts for the EWP are $2 million. Lenders receive a 90% guaranty provided that the total SBA-guaranteed portion does not exceed $1.5 million. EWP loans are typically for a one-year term.

International Trade Loan Program

The International Trade Loan Program offers loans to small businesses that are planning to start or continuing to conduct business in foreign countries but are faced with adversity due to foreign imports. According to the SBA web site, “funds may be used for the acquisition, construction, renovation, modernization, improvement or expansion of long-term fixed assets or the refinancing of an existing loan for these purposes. Maximum loan amounts are $2 million and SBA-guaranteed amounts cannot exceed $1.5 million. One exception: If the borrower has an International Trade loan and a separate working capital loan, the maximum SBA guaranty on the combined loans can be up to 1.75 million as long as the SBA guaranty on the working capital loan does not exceed $1.25 million.”

To learn more you can check with the SBA web site at www.SBA.gov, or talk with your financial advisor about options that may be right for your small business business.

Culture Shock

Beyond funding, starting or expanding your current business into an international company requires a great deal of understanding of the culture that you and your company are about to enter.

Atim Annette Oton is the owner of Calabar Imports in Brooklyn, NY and ZimaZee Ventures in Lagos, Nigeria and soon in Ghana. “Business works differently overseas,” says Oton. “It’s important to understand the culture and the language.” Even with simple levels of expectations such as how long a traditional work day is to how quickly the pace of business moves, there are nuances to working overseas that must be communicated and completely understood in order to be successful, warns Oton. She recommends that the first exporting or retail experience be in a country where you are most familiar. Business owners can do this by recruiting natives in the U.S. who are from the country under consideration. When she began investigating the idea of exporting she chose Nigeria first because it was her home country. If you don’t have native experiences yourself, hiring someone from your target country is a great second choice. “A foreign born local employee can help with market research, making overseas phone calls and even setting up a retail location because they are familiar with the processes, the culture and the language.”

If hiring a local native isn’t an option, Duncan McCampbell, president of McCampbell Global may be able to help. His firm specializes in helping businesses enter foreign markets by teaching what he calls the “four dimensions of international business development.” These four pillars include commercial, legal, political and cultural areas where many small businesses can fail to thoroughly understand and effectively compete in foreign markets.

“When a company decides to go to a foreign market, they carry with them certain preconceived notions about how business is conducted on foreign soil,” says McCampbell. “These notions can create a bad experience. We work with American CEOs to help explain the process and prepare them and their employees for the transition into foreign commerce.” Some of the biggest mistakes occur because business owners make assumptions that are entirely false.

  • Commercial – While a balance sheet is a balance sheet in any country, there are certain nuances to business management and expectation that should be addressed up front. These can include local and country tax codes, rules around taking money out of the country and other employee related issues. “From a fiduciary standpoint, American businesses must have people in their tax and accounting departments who understanding how to move money around global markets, transfer pricing, cross boarder tax issues, exchange rates, etc.,” says McCambell. “All of these issues will come into play and can make or break the business.”

For example, it’s very hard to take profits out of China. Chinese law prohibits foreign ownership of an information service provider. There are certain mechanisms called, Wholly Owned Form of Enterprise (WOFE) where an off shore corporation is established in order to make loans to your Chinese-based business from the WOFE. This helps to circumvent the requirement that Chinese-based businesses can only loan or bring a specific amount of money out of the country each year,” advised McCampbell. It’s not as difficult in the Euro zone. There businesses can create holding companies within the Euro Zone that will allow the business to take returns from European operations and feed them back into U.S. treasury.

  • Legal – In many countries, property ownership is an evolving concept. “Take China for example; there is no such thing as real property in China,” continues McCampbell. “Every square centimeter [of land] is owned by the government. You must completely learn a new set of rules with regard to how you can acquire space and manage property there.”
Political – There are important thresholds for what ‘normal’ and acceptable practices are with regard to small business. “In many parts of the world, bribery is a standard business practice,” says Campbell. “We have laws against bribery in the U.S. which prohibits American businesses from bribing foreign officials. Americans can be prosecuted for participating in these practices.” Yet, in many countries, it’s not possible to function commercially without participating in some of these activities. What is a small business owner to do? Many companies need to examine the political situation in foreign countries and ask if these practices will allow them to conduct business which is consistent with their core values and American law. If the answer’ is no or even maybe not’, then it may be time to consider a country with values more aligned with your own.
  • Cultural – From the American standpoint, this is one of the most critical areas when considering exporting. The fact is that workers in other countries behave differently. China is a Confucian society in which the chain of command and the authority figure is supreme. “Our biggest challenge in China is finding people who wanted to and were capable of managing other people,” says McCampbell. “If your cultural orientation is to please the next person in the chain of command, it’s difficult to make the leap from that reward structure to middle management leadership.” To succeed in China, McCampbell advises his business clients to consider alternative ways to reward positive leadership behavior. Chinese workers are very interested in learning about Western ways of conducting business. “By offering them education and personalized experiences in Western business and culture, we’re rewarding them for taking leadership roles and initiative,” continues McCampbell.

While it may seem overwhelming and intimidating to enter such a restrictive market as China, the over 4 billion person market is very tempting. There are numerous agencies in the U.S. government that stand ready to offer education, training and assistance with establishing export to other countries. Start with your local Office of Economic Development, the U.S. State Department, the Department of Commerce and even U.S. Embassies in the countries under consideration. “These organizations help businesses move product from one place to another and they do this WELL,” says McCampbell.

Lastly, venture into friendly waters first and learn the lay of the land. Most small American businesses enter foreign markets by entering into sales and distribution agreements with foreign countries. It’s a good way to start, learn some lessons, culture, finances, and logistics without all of the expense. To learn more about how you can shift your domestic business into foreign markets, talk with a Fiducial Advisor by calling 866-Fiducial or visit the web site at www.Fiducial.com.