Does a Hot Market Really Offer Opportunity?

As part of my work with the Small and medium businesses wishing to expand abroad, I contribute a series of primer articles to the New York Enterprise Report magazine. This is the latest article to appear in their December issue.  Hope you enjoy and as always look forward to your comments.

Clients’ financing impacts your decisions abroad

By: Alexander Gordin

December 12, 2011

China, Columbia, South Korea, India, Brazil, South Africa, Russia—these headline making countries appear to offer the greatest growth potential. Having experienced strong growth trajectory, these countries are busy developing their infrastructure. Middle-class consumption is on the rise. Yet, any U.S. business seeking to venture abroad should not simply be seduced by the glamour and promises of getting rich quick.

You should select target markets primarily on the basis of their fit to your business model, your ability to find a qualified reliable partner in the chosen country, and your ability to offer financing to buyers in order to grow sales. Without the ability to offer financing to your customers, your business will be limited to only those who can pay cash for the goods and services you offer, and that will severely limit the pool of potential buyers. Also, your business will be severely handicapped by the competitors from different countries who may be able to offer financing alternatives to your prospective customers.

Look Beyond What’s Hot

When we start personal relationships or even choose a spouse, we do so based on multiple factors, compatibility being toward the top of the list. Popularity is usually pretty low on the list of characteristics. Yet, in seeking to expand abroad, many business owners do just that and pursue hot markets. While these hot markets are attractive and definitely should be evaluated, business owners just starting out would be well advised to look at secondary and even tertiary markets in the regions of interest. For example, while they may not be talked about as much, Chile, Honduras, Panama, or Argentina may be a fantastic fit for your business. These countries offer good growth opportunities either because of significant economic initiatives (Panama—canal expansion, Chile—earthquake recovery), or economic development. Mature markets would be those countries with developed economies such as the U.S., EU block, Canada, and Australia. Emerging markets are those that have been experiencing rapid growth over the last two decades—China, Brazil, Russia, Poland, India, and Vietnam are good examples. Frontier markets are those countries with the riskiest investment profiles, but which are beginning to show signs of economic expansion. Included in the group are countries in Sub-Saharan Africa, as well as certain central Asian countries like Tajikistan or Kyrgyzstan. Next, narrow down the list by factoring in geographic locations, and political considerations (think Belarus, Taiwan, and Turkmenistan, which due to their authoritarian, non-US-friendly regimes may be more difficult to break into) and arrive at a top 10 list of candidate countries to study further. From this list, research the countries extensively based on those characteristics that would make them a fit with your company’s products or services. You can do this by scouring the web, as well as contacting the U.S. Commercial Service (http://trade.gov/cs/) in each country, local Chambers of Commerce, bilateral business councils, and international affairs organizations. After this research, select the top three markets and plan to visit them on a scouting trip, because nothing is as helpful in making a decision as making a personal trip.

 

 

Customer Financing–A Vital Factor

As you narrow down the search, your ability to offer viable financing to your potential customers will play a major factor in the decision to enter a particular market. Depending on the country you target, the type of product you offer, the service your company provides, and where it fits in the product or market life-cycle, a number of financing options may be available to you:

Export Trade Financing

Export credit agencies (ECAs) have been established in most nations to help businesses finance their international operations. The Export Import Bank of the United States (Ex-Im) is the official export credit agency of the United States (www.exim.gov). Ex-Im provides export financing for goods and services produced in the US, along with some local country costs.

Small Business Administration (SBA) Export Programs

The US Small Business Administration has a little-known program that lets qualified companies finance up to $ 5 million for as long as a year. The key  difference between financing through the SBA and the Ex-Im short-term financing programs is that, under SBA regulations, the credit risk and the responsible party is the exporter, while under EX-IM arrangements, risk and responsibility are borne by the buyer.

Overseas Private Investment Corporation (OPIC, www.opic.gov)

OPIC financing is available for a wide variety of industry sectors and projects, but it is a very complex and nuanced option for exporters.

International Financing Institutions (IFI, www.ifi.com)

There is an alphabet soup of IFIs, such as development banks EBRD, ABRD, IDB, and the IFC, that have even more stringent requirements than OPIC. They generally finance up to a third of a project’s cost, and syndicate the remainder among a group of banks.

Remember: When selecting markets for your international expansion, it is not what’s hot, but what fits you best and where the financing is.  To learn more about growing and financing your business, please feel free to email me at agordin@broadstreetcap.com

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Author Information:Alexander Gordin is the managing director of the Broad Street Capital Group, New York, a private international Merchant Bank, Trustee of the Princeton Council of World Affairs, and author of the recently released book, Fluent in Foreign Business.

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About Alexander Gordin
An international merchant banking professional with over twenty years of business operating and advisory experience in the areas of export finance, international project finance, risk mitigation and cross-border business development. Clients include foreign governments, municipalities and state enterprises as well as Fortune 500 and small/medium enterprises. Strong entrepreneurial instincts, combined with leadership and strategic skills. Transactional and negotiations experience in over thirty five countries. Author of the highly acclaimed "Fluent in Foreign Business" book and creator of the "Fluent in OPIC", "Fluent in EXIM","Fluent In Foreign Franchising", "Fluent in FCPA",and "Fluent in USTDA" seminar/webinar series. Currently developing "Fluent In ......" seminars and publications. Co-author of the Fi3 Country Business Appeal Indices. Extensive international business development and project finance transaction experience in healthcare, aerospace, ICT, conventional and alternative energy infrastructure, distribution and hospitality industries. Experience managing international public and private corporations. Co-Founded three companies abroad. Strong Emerging and Frontier Market expertise. Published and featured in numerous publications including: The Wall Street Journal, Knowledge@Wharton, NBC.com, The Chicago Tribune, Industry Week, Industry Today, Business Finance, Wharton Magazine Blog, NY Enterprise Report, Success magazine, Kyiv Post and on a number of radio and television programs including: Voice of America, CNBC, CNNfn, and Bloomberg. Frequent speaker on strategy, cross-border finance and international business development. Executive MBA from the Wharton School at the University of Pennsylvania. B.S. in Management of Information Systems from the Polytechnic Institute of NYU. Specialties Strategic Management Advisory, Export Finance, International Project Finance & Risk Management, Cross-border Negotiations, Structured Finance transactions, Senior Government and Corporate officials liason

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