With the Economy Cooling, Exporters Should Be Looking for Diversification
Asia’s economies continued to rebound last year, helping to push the volume of California exports up 22% from January to September. That good news, however, has been tempered by concern that a slowing U.S. economy could spread globally and dampen demand for U.S. goods overseas. Gladys Moreau, director of the El Segundo-based Export Small Business Development Center, which arranges free expert consulting for companies seeking to sell their products abroad, recently spoke about that and other issues.
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Q. Is there any indication that softening in the U.S. economy is hurting exports from California?
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A. As of right now there isn’t. These ups and downs in the economic cycle certainly have hurt local exporters in the past, though, and that’s why we’re here to help them look at several different markets and not just concentrate on one. If Asia is hurt by our slowdown, maybe Europe won’t be hurt to the same extent.
If the U.S. economy slows down, Americans will be buying fewer imported goods and the economies abroad will have less money to buy U.S. exports. But we also have to take into account the strength of the dollar. One could argue that as the U.S. slows down the dollar won’t be as strong as it is today. That would work in favor of increasing exports because a weaker dollar would make American goods cheaper for foreign companies and buyers.
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Q. What can exporters do now to prepare for a slowdown?
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A. Besides diversifying their markets, they can always solidify their relationships with their buyers, depending on the industry they’re in.
If they’re involved in building infrastructure-type stuff, like roads, dams and power plants, that’s not going to change all that much because that’s much more of a long-term industry. If they are in the apparel industry, that would be much more affected. California-style clothing and related things like surfboards and roller-blades are big sellers overseas, and those are the types of businesses I would think would be the first affected.
You’re talking about a problem of buying power. There will basically be less money overseas to buy those products. The best strategy these businesses can adopt is to try to figure out which countries are going to be hurt the most. A slowdown is not going to hit all countries the same, so you have to look at it on a country-by-country basis and do some kind of risk analysis about where to concentrate your efforts.
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Q. How does your organization help small and medium-sized businesses export their products and expand their market overseas?
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A. We provide expert professional consulting. We hire the consultant and the service is free to the client.
For example, if a company comes up and says, “I just shipped to Mexico and my container is stuck at the border. What do I do?” Or if somebody comes up and says, “Do I need an export license for my high-tech widget?” A lot of products are borderline. Some things we know for sure require an export license and some don’t. There are many in between, and the companies need help in classifying the product and making the correct determination whether they need the export license or not.
We also help with financing, transportation, marketing and entering new markets.
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Q. What are the main challenges small to medium-sized businesses face when they want to sell abroad?
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A. A large one is financing. It’s very difficult for smaller companies, and even the larger ones, to get the banks to finance their exports. The greatest reason is they just don’t know how to deal with exports, especially for smaller companies who might need to borrow between $50,000 and $250,000. That’s quite small for most banks.
So what we do is work with state and federal government guarantee programs. If the exporter doesn’t repay the loan, the government will back it. We work with those programs as well as with the exporter to structure the transaction in such a way that it is appealing to the banks. We even refer the exporter to some non-bank financing resources.
Marketing is also a huge challenge. We hire experts who know the market that these companies are looking to get into. They help them put together a plan to penetrate a particular country or even a particular city or region within that country, and they help them screen their distributor agent to make sure they get someone reliable. They also help with advertising and all the other aspects that go along with getting the product into the country.
Documentation is another major challenge because these companies have a way of growing rapidly and a lot of time they don’t even know how necessary it is to set up a management system to handle their exports. That can get them into a lot of trouble because it’s a little-known fact that exports are controlled. If you don’t have those systems set up, you can get fined heavily by the government.
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The Export Small Business Development Center is a private, not-for-profit organization funded by state and federal agencies and private donations. Contact the center at (310) 606-0166 or visit https://www.exportsbdc.org.
