Small Business Vulnerable in Trade Crises, Expert Says : Sanctions and foreign currency devaluations are not insurmountable, but they should serve as a reminder to be prepared, O.C. official warns.

Government and businesses have looked to international trade to spur Southern California’s economic recovery since the downturn of the aerospace industry. Global trade was in the news through much of 1994. Congress ratified the General Agreement on Tariffs and Trade, President Clinton signed the North American Free Trade Agreement and renewed China’s most favored nation status.

But, the situation has changed radically in the past few months. Few headlines detail new markets opening to American trade. Instead, recent news has been of trade sanctions and currency devaluation--both dampers to international trade.

Lydia McClure-Lee is the past president of the local chapter of Women in World Trade and is now national chairwoman of the American Electronics Assn.’s customs committee. McClure-Lee, who works as director of export administration at New Gen Systems Corp. in Fountain Valley, said the current trade difficulties are not insurmountable. They should, however, be looked at by small businesses as a reminder to be prepared for the unexpected.

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Question: When something like a currency devaluation or the imposition of trade sanctions happens, who does it hurt most?

Answer: You may see more damage to small business, because they may have fewer alternatives than larger companies. They may have no other place to market their goods or no other place to buy supplies. Sometimes you will have receivables you can’t collect on or orders en route that may be canceled. Smaller business generally has fewer resources to ride out the tough times.

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Q: Understandably, most of the large companies that trade overseas are prepared for such disruptions in trade, but what about the small firms that make up most of Orange County’s trading community? What can they do to protect themselves from events over which they have no control?

A: You would benefit by having cash on hand or by having a friendly banker who will stand by you. You will get paid but it may take some time if banks are not permitted to process payments on letters of credit.

In some drastic cases, it can affect your ability to make payroll or the bottom line--and small businesses can go out of business. Large companies can often manufacture in other sites.

Another way to minimize your risk is to get a government agency, like the California Export Finance office, to underwrite your contract. Or the Small Business Administration.

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Q: Orange County had such high hopes about trading with Mexico, especially given our geographic proximity to that country. How should we be looking at the devaluation of the peso? Is it a temporary crisis or an indication of worse things to come?

A: My perception is that it is short-term. I do think that they will be able to stabilize the peso, especially with the assistance they are getting from the international community. I am still optimistic about Mexico. I still see it as a gateway to the rest of Latin America.

There are significant risks doing business there because they are growing and developing and because the infrastructure is not there. The regulatory environment is not there. The political stability is not there.

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Q: So what can companies, suffering from loss of business in the short run, do to stay in the game with Mexico?

A: It is something that you get into for the long term. If you get in there and don’t over-invest you will see the fruits of your investment in Latin America and Mexico. We may feel a little negative about Mexico right now but others don’t. The European Community just approached Mexico about drafting some kind of trade agreement.

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Q: And what can traders do to guard against future problems with Mexico’s currency?

A: There may be future disruptions, we don’t know. But, it is very important to make a commitment to your business partners in Mexico. Try to be part of the solution by developing a strategy to get through the crisis. If it is a true partnership, they are going to be just as interested in the harm a devaluation may do to your business as to their own. Small businesses don’t spend enough time developing these business relationships.

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Q: What advice would you give someone just getting into international trade?

A: You have to be prepared to understand the country before going into it as a market. What is its economic situation and what is its currency fluctuation? What is the United State’s foreign policy toward that country?

It is positive to be involved with a group such as Women in World Trade or the World Trade Center Assn. so that you can be aware of events that may affect your business. Also get involved with a trade group that watches what goes on regarding your particular industry. For example, the American Electronics Assn. has looked at all the electronics categories that would fall under a China (trade) sanction.

You also have to be a bit of a political activist, because events in Washington do affect us. You need to know what is going on and you have to educate your congressmen. A lot of Orange County’s congressmen have taken very anti-trade stances.

You can keep in touch with the Department of Commerce and the United States trade representative to stay on top of things that will affect you.