"Business Scene: How to grow with international business"
By: Steven N. Czetli
Source: Pittsburgh Post Gazette
July 17, 2003
In any economy, international business provides opportunities for growth. This is especially true today, when many domestic markets are saturated or stagnant. However, the steps to entering international markets are a mystery to many business owners.
At a seminar on International Business Opportunities and Connections at the University of Pittsburgh last Thursday, three experts on international business offered advice to entrepreneurs who are seeking to enter international markets. The seminar was hosted by the Pittsburgh Technology Council and the United States Commercial Service and was sponsored by Conference Archives Inc.
What kinds of opportunities await U.S. companies in international markets? Even in such mature markets as the United Kingdom, the potential rewards are great. According to the United States Commercial Service, 40,000 U.S. companies exported $40 billion worth of goods and $32 billion worth of services last year. Developing nations and former communist bloc countries such as the Czech Republic are making massive investments in waste management and environmental cleanup that required the expertise and equipment of U.S.-based companies.
Having some sort of presence in a foreign market is a prerequisite to nearly any form of international business. This can take many forms, from a partnership with a foreign company to a wholly owned international subsidiary. Alexandra Hendrickson, president of Pittsburgh-based Amaranth Group Inc., presented several options for businesses that want to establish an international presence.
Even if you are not currently pursuing international markets, Hendrickson noted that your business might already be getting international sales over the Internet. If so, she suggested that you monitor those sales and look for opportunities that you can develop later on. You may take action to encourage international sales with small steps, such as localizing your Web site in the languages of NAFTA countries.
Hendrickson said the lowest-cost, lowest-risk route to international business is by licensing your product or service to a foreign manufacturer or producer. However, this can result in unforeseen control and management issues, and may require more work than may be initially apparent.
Many companies enter international markets by finding and working with local partners. This option requires somewhat more effort than licensing, in order to identify an appropriate partner and negotiate terms of business. This partner is likely to handle product distribution, paperwork and customer service. For this to be successful, according to Hendrickson, you must find a good partner and make a successful relationship.
U.S. companies that seek even greater control, at the cost of additional resources, can form a formal joint venture with a local company.
For the greatest control in the overseas market, a U.S. company can open a foreign office or purchase a foreign company. This option, of course, requires the greatest investment. Hendrickson also cautioned that subsidiaries could expose the U.S. company to all liability concerns of the foreign subsidiary.
Hendrickson advised that entering international markets requires a high level of planning, resources and commitment. According to Hendrickson, " 'International' should be part of your everyday thinking." She advised that businesses considering international sales develop a written plan to guide their efforts and help to secure assistance and partners. "A high-quality plan and vision will yield high-quality results."
Show me the money
"How do I get paid?" is perhaps the greatest mystery for companies that are considering entering international markets. Alan Andrews, vice president of PNC Bank, offered some advice on this difficult issue.
As in the United States, there are several ways that an overseas customer can pay a U.S. company. Some methods are highly advantageous to the seller; some are advantageous to the buyer. The ideal case for a U.S. exporter is to specify payment in U.S. dollars, possibly even before shipment.
However, according to Andrews, overseas clients are not likely to accept these terms unless you are selling a highly desirable niche product that is not available elsewhere.
Getting paid for international business is clearly far more challenging than getting paid for domestic business. In addition to issues of political uncertainty in many parts of the world, most nations offer a poor level of banking support, Andrews noted. If money is available, it is loaned on a 100 percent secured basis for short periods at exorbitant interest rates. According to Andrews, this level of banking support is shocking to many U.S. suppliers that are attempting to enter international markets.
Andrews noted that because of the difficult financing environment in many parts of the world, Europeans often provide financing in their proposals. U.S. companies need to "level the playing field" with the Europeans by doing the same. Andrews proposed several financing solutions that would make this possible. By providing financing with your proposal, you can greatly increase your chances of winning international business contracts.
One option for credit-worthy foreign clients is "buyer credit." In this financing mechanism, a U.S. bank provides credit for the export transaction directly to the foreign buyer. Foreign companies that meet U.S. bank lending requirements can obtain financing on terms that are normal and reasonable for U.S. banks. In buyer credit financing, the U.S. exporter receives payment upon shipment.
Andrews noted many changes in the U.S. banking environment as mergers and consolidations have resulted in layoffs and a loss of expertise in financing international transactions. Many very large banks have become more risk-averse, especially in international financing. Andrews advised that companies "work with a bank that has trade financing as a core business, not just a sideline."