Changing Course


Sandy Futterman returned from a sales trip to Southeast Asia last fall with a list of prospective buyers and an uneasy feeling. His hunch was correct: Within a few weeks, even his most loyal customers began delaying or canceling orders.

"We went from selling tons to selling hundreds of pounds," said Futterman's wife, Hilda, who works with her husband at their small industrial coatings firm. "We're still reeling from it."

Across the United States, small firms such as Austin, Texas-based Global Coatings are shedding workers, slashing costs and desperately seeking new customers to offset the sudden disappearance of fast-growing new markets. Asia's fiscal meltdown has been particularly devastating to their bottom line because they lack the diversified markets and deep pockets of larger U.S. firms competing overseas.

While recent headlines have focused on the impact of Asia's problems on America's name-brand multinationals, scant attention has been paid to the firms with fewer than 500 employees that make up the backbone of this country's trade sector. They represent a surprising 95.7% of all U.S. exporters and contribute 30% of the value of all exports, according to a recent report by the Small Business Administration.

The survival of America's small international trade players is of particular concern in California, where 97.6% of the economy is made up of firms with fewer than 100 employees, many of them involved in foreign trade, according to Jack Kyser, chief economist at the Los Angeles Economic Development Corp.

"These companies may not have the resources to ride it out, even though the local economy is doing fine and the U.S. economy is doing fine," he said.

Size isn't always a negative. Confronted by the unexpected, small companies can sometimes react more quickly than their bigger, more bureaucratic competitors, according to Spencer Kim, president of CBOL Corp., a small Woodland Hills-based aerospace components broker.

When the Asian financial crisis first hit Thailand last summer, CBOL moved quickly to minimize the damage. It quit signing contracts to reduce its exposure in the region and concentrated on helping its strongest customers stay in business by offering to help them obtain protection against additional foreign currency shifts.

Kim is hopeful he can ride out the recession in Asia without laying off any of his 160 employees.

"We are freer to make decisions, and it doesn't take committees and lots of meeting to make a change in direction," he said.

Others have not been as fortunate. Small firms are particularly vulnerable to a regional slowdown because they often focus their sales in one geographic area due to limited resources. The loss of one or two large contracts can wipe them out.

Hilda Futterman said even stepped-up sales in the U.S. and Latin America have not offset the disappearance of Global Coatings' Asian business, which made up 75% of the firm's $2 million in annual sales. To make ends meet, the firm has cut costs and laid off two of its four full-time employees.

"It's really tough when your expenses are surpassing your income," said Futterman, who has taken a job as an office manager in the small family firm to save money.

Survival depends on finding new customers. But that isn't easy or cheap. Unlike multinational corporations that can shift resources within a global network, these small companies usually have to start from ground zero.

That means participating in trade shows, finding new avenues in which to advertise their products, learning a new set of cultural and financial dos and don'ts and spending thousands of dollars on travel that may or may not pay off.

Small firms looking for funding to develop new markets, or to keep their old ones afloat, have not always found their bankers to be sympathetic to their needs, according to Tom Teofilo, president of the World Trade Center Assn. of Los Angeles-Long Beach.

"Small companies have literally had the doors closed in their face," he said. "It's a historic problem."

But Teofilo said U.S. banks, both the large players and the community banks, in recent months have begun waking up to the potential profits that can be made by serving this fast-growing sector of the trade community.

"Our operation recently put on an international banking symposium and 160 bank representatives showed up," he said. "Our organization, the World Trade Center, in the past four months, has probably acquired a half-dozen banks as new members."

Liz Lagmanson, vice president of Advanced Geosciences Inc., an Austin, Texas, manufacturer of high-tech surveying equipment, said it can take several years to develop a new market for their product, which carries a $30,000 price tag.

"It's like throwing pearls into the water and waiting for them to grow," she said. "It's a long time before you see any results."

Advanced Geosciences is counting on its efforts at cultivating new markets in India and Latin America to begin paying off soon. That would help offset the loss of their Asia business, which accounted for 70% of sales last year. Many of their customers are government agencies whose budgets have been slashed since steep currency devaluations swept across Southeast Asia and South Korea, pushing governments and companies with large dollar-denominated debt to the edge of insolvency.

The Internet--where Advanced Geosciences has established a Web page to publicize its high-tech surveying tool--has proved to be an effective and low-cost vehicle for reaching customers around the world.

"South America is turning out to be our new Asia," Lagmanson said.

The steep currency declines in Southeast Asia were supposed to translate into lower production costs for importers such as Matthew Mulyanto, president and chief executive of Westwood International. His 36-employee firm, based in Chino, sells ceramic housewares to retailers such as Wal-Mart Stores Inc.

But Mulyanto, one of the nation's leading importers of ceramic coffee mugs, said his suppliers in the hard-hit countries of Indonesia, Thailand and South Korea have been unable to get bank financing to purchase raw materials. Earlier this year, he was forced to shift all his Southeast Asia manufacturing contracts to China.

That didn't solve all his problems. China has proved to be a high-quality, low-cost supplier. But being so dependent on one country--particularly one with a long history of rocky relations with the U.S.--makes Mulyanto uncomfortable. So he has begun making trips to Eastern Europe and South America looking for additional manufacturing sources.

"What happens if suddenly the relationship between the U.S. and China should go sour?" he said. "I'm quite nervous right now."

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