Face The Dark Side

Can you handle the flip side of the coin when doing business abroad?

My last LinkedIn® post addressd issues of overt corruption. Here, I address issues of conduct and human behavior that can engulf you like quicksand and hamper your ability to do business in a foreign country. I am talking about malaise, self-interest, fear, greed and jealousy, to name just a few of the obstacles. Unless you thoroughly understand the issues and characters behind particular transactions, markets and business dealings, you will have an extremely tough time doing business abroad. Things that make perfect business and social sense on the surface will not get done. Your offers of lowering prices, increasing efficiency, bringing prosperity to the population in your chosen market will be enthusiastically received at the top, even announced to the world, and then fizzle in the execution and die a slow death.

Several years ago, a major international financial institution approved a sizeable ‎loan to partially ‎rehabilitate a badly deteriorated municipal water system in the Ukrainian city of Dnipropetrovsk. ‎Given the tremendous difficulties municipalities in emerging countries face in obtaining financing, an ‎announcement like this should have brought joy to the people everywhere in the city and in the water ‎utility authority itself. Instead it brought fear, intrigue, resistance and sabotage.‎

The Bank put out a tender for a project management company to implement the financing, for which ‎our firm co-bid with one of the world’s leading Dutch engineering consortiums. We were unsuccessful, ‎but in the process we uncovered a fascinating textbook case on how a dark flip side can seriously ‎interfere with what on its face appears to be a win-win situation.‎

As we started to interact with the officials from the water utility authority and the municipality, it ‎became clear that most of the senior officials and most of the 3,200 employees were opposed to the project. On the surface it made absolutely no ‎sense, as the project promised to improve the quality of the city’s drinking water, improve sewer ‎cleaning facilities, improve the water pressure of the residents, conserve water, and reduce water ‎main ruptures. Ostensibly, the reason for the resistance was a fear that the municipality would not be ‎able to repay its debt obligations without impacting its financial condition. Although a fairly valid ‎reason, it did not seem sufficiently compelling to justify all the intrigue and stall tactics that plagued the ‎project.

What was going on? Well, as part of the conditions for extending an economically viable loan, ‎the bank required that the debts be cleared from the balance sheet, the tariffs subsidies removed, ‎that international financial accounting standards be applied, and that periodic audits would take place. ‎This threatened to uncover a number of financial irregularities. Further, the accounting department would have to be reduced from 50 employees to ‎four and the entire staff would have to be pared down to 800 from 3,200 as part of transforming the utility from a bloated and inefficient Soviet-style organization ‎to a modern well functioning profitable enterprise.

‎But the project was still good and well-intentioned, right? Wrong! The municipal politicians did ‎not want to raise the water and sewer tariffs, because it would hurt them in the upcoming election. ‎Many workers were afraid of losing their jobs and illegal side businesses, and of having to work harder ‎in a leaner, high-pressure environment. And they were doing everything in their power to stall or ‎kill the deal. Their pay was low and the working conditions poor, but the workers in this case preferred the status quo. This is a very important lesson when working on the side of radical organizational change.‎

The Deputy Director who had championed the deal and was primarily ‎responsible for arranging the loan was now faced with significant and unexpected ‎resistance from a number of directions. As the financing process began, he eventually ‎lost his job and implementation of the loan sputtered.‎

Although our firm ended up not participating, we identified some critical concerns: (i) the need to communicate and win support of the key project ‎participants and constituents prior to commencing a project, (ii) the need to examine in advance the ‎organizational dynamics of the enterprise set to undergo significant changes, and (iii) the need to ‎extensively shape and counsel the organization to maximize the project’s chances for success.

LEARN WHAT TRULY STANDS BEHIND EVERY DEAL – from motivations of the parties, to ultimate beneficiaries, to whose interests will the deal cross to why are you being selected, or you will fail.

Here’s an example. A U.S. company proposed that a large bakery in Russia buy its baking mix for its products to simplify the production process and make it more cost effective. The U.S. executives were baffled when their offer was rejected. It turned out that the plant manager was systematically stealing eggs that were earmarked for baking from scratch. For her to switch to a ready-made mix would have meant the loss of side income (and it is hard to sell eggs as part of the bake mix on the black market).

Working on a large feasibility project, the project team initially encountered very strong resistance from local employees charged with providing assistance and information. We learned later that several other studies sponsored by various international financial institutions were performed earlier and none yielded in any measurable results, thus local employees had lost faith. But instead of open hostility the employees had adopted a passive-aggressive approach to solving what they saw as a major problem. Although on the surface they acted compliantly enough to appease their superiors, in reality they were not performing and were placing the entire project in jeopardy.

In some countries, politicians will often reject opportunities that would mean long-term prosperity for their constituents, such as infrastructure improvement or increased energy efficiency because the political system does not reward long-term decision making as much as it does short-term action that avoids unpopular measures against the electorate. Thus, short-term result harvesting behavior is rewarded instead of investment that can produce long-term benefits.

In every foreign country, every opportunity has a flip side. Of course, many situations back home are also complex and nuanced and have underlying currents and flip side issues. But in foreign countries, the political uncertainties, organizational dynamics, local culture, and socioeconomic standing of the country magnify the subtleties and intensify the consequences.

Effectively combating or sidestepping flip side issues requires a thorough understanding of the situation. You need to earn the respect of the folks whose help you will want to enlist in resolving the underlying issues. Credibility, clearly defined issues, and open and ongoing communication are essential. Both positive and negative information needs to be communicated promptly, overtly, and without any bias. And try to break down the problem into small incremental challenges so that you can work diligently to achieve defined milestones.

People in countries where difficult and tumultuous conditions are a way of life tend to be jaded when it comes to promises of a better life and are generally much more cynical than people in developed countries.

People in developed countries also have a completely different frame of reference and values set. For instance, no one in the U.S. would think of bringing burned-out light bulbs from home and replacing them for good light bulbs from the office. But this kind of thing used to happen all the time in the former Soviet Union. Not many people in the U.S. would think of stealing flowers placed on a grave and reselling them, but it happens to this day in countries like Moldova where, to prevent flower theft, people break stems in half before placing them on graves.

When a country is converting from a state run economy to a free market, there are always members of the working population that are pathologically afraid of losing their jobs. Very often, fundamental organizational dynamics and culture are overlooked and overshadowed by the commercial issues such as sales and financing. So it is critically important to address the organizational culture if you are trying to acquire, privatize, or rehabilitate an existing business that has its roots in state or municipal ownership.

When trying to sign contracts that were endorsed or approved by top government officials, don’t be surprised if you and your company find yourselves hitting the proverbial glass ceiling when you try to move the project towards its conclusion. Once again, it is important to really understand why.

An obvious answer is that bureaucrats may be looking for payoffs or favors, both serious no-nos, but more often than not these contracts are directly opposed to someone else’s interest and unless you figure out how to align the various interests, the project will not go anywhere because these forces and motivations are more potent than a simple corrupt payoff.

Other, sometimes less obvious, factors involve political, nationalistic and anti-U.S. sentiment. Here, you need to pay attention to external considerations, which may affect your business dealings and which, if not handled properly, may result in frustrating delays, wasted money, and lost opportunities.

Many emerging markets have created alliances with countries whose influence disproportionately affects the balance of economic power. For instance, China has successfully taken several African and Asian countries into its fold. Russia, in an attempt to regain some of the economic influence it lost in post-Soviet days, created a Customs Union with Belarus and Kazakhstan and renewed its Sevastopol naval base lease in Ukraine. These are alliances that provide natural advantages for their participants to the detriment of just about everyone else.

Nationalistic considerations are often of a protectionist nature and are designed to help emerging markets develop their internal manufacturing bases by favoring bids for products and services produced locally. Oftentimes, however, powerful local politicians or businessmen are behind the implementation of these tactics simply to keep out competition, gauge prices in the market, and enrich themselves through unfair procurement practices while wrapped in a national flag. China and India are both shining examples of strong nationalistic tendencies in some of the hottest manufacturing sectors. You can applaud their desire to advance their economies by creating their own technology and manufacturing bases, but to ignore the interests of the “darker” local forces behind such initiatives would be simply naïve.

Anti-U.S. sentiment also must be considered when doing business in a foreign country. Although it is not nearly as pervasive as the political or nationalistic sentiment, anti-U.S. sentiment is a dirty little secret in some very surprising places. Some multilateral financial organizations in which the U.S. is a prominent member have demonstrated clear anti-U.S. bias over the years by not awarding contracts and senior positions to Americans. I came face to face with it over years of representing Motorola in the former Soviet Union. And while this now global company has been identified as “born in the USA,” I have personally observed numerous cases of Russian decision makers and procurement officials handicapping the company’s offerings simply because of its American origins.

As you may infer, having reliable information gathering mechanisms in place is critical to understanding the flip side issues and the players involved. Make lots of friends and acquaintances in the rank and file, such as the clerical and administrative staff of the ministries and municipalities, hotel concierges, drivers, and middle managers of organizations with which your company intends to do business.

As discussed in Chapter 24 of my book “Fluent In Foreign Business”, treating people well, being polite, attentive and honest goes a long way everywhere. Write a thank you card to a secretary in a ministry, call a local department supervisor on his or her birthday, and remember the name of the janitor or security guard. You will be surprised at how much information will eventually start flowing your way. Always consider the source, but as you piece information together from various sources, an accurate picture will usually start to emerge and the dark flip side will slowly, but clearly, reveal itself.

Reprinted from Fluent In Foreign Business. Edited by the author. All rights reserved 

Export Champions!™ With help of cutting-edge financing, four small and mid-size US companies are poised to export over $525 million of goods and services!

With the help of cutting edge financing, four small and mid-size US companies are poised to export over $525 million in just three individual transactions! 

(April 23, 2015, Washington, DC) During US EXIM Bank’s Annual Conference, Export Champions!™, a new program, which allows small and mid-size US manufacturing companies to vastly boost their export sales by utilizing cutting-edge export credit and capital markets financing for international opportunities, was announced by the Broad Street Capital Group.

Using actual case studies of the three US companies, whose export revenues from just three projects total over $525 million, as the result of their foresight to deploy financing techniques traditionally reserved for large companies and mega projects,  Broad Street Capital Group and representatives of various US Government and private trade and project financing institutions, will empower other US small and midsize companies to successfully compete for large export business opportunities.

“Today, we are witnessing a paradigm shift in the way US small and mid-size companies are able take advantage of sales opportunities, which are two or three times their annual revenue.” said Alexander Gordin, Managing Director of the Broad Street Capital Group. “The key, is a carefully structured project, which is developed with specific long-term, low-cost financing solution in mind from the beginning” said Gordin.

The Export Champions! program will offer monthly half-day web based programs and live training events to help companies learn:

• which foreign markets and buyers to target,
• how to correctly develop a financeable transaction,
• which financing tools and programs to utilize,
• how to put together a correct team of advisers,
• utilizing external economic and political factors to gain an advantage,
• how to mitigate risks along the entire transaction life cycle

The first Export Champions! event to take place in New York on May 8th.  Companies seeking to boost their international sales opportunities should send their inquiries to info@broadstreetcap.com , or call  + 1 212 705 8765 ext 702

About Broad Street Capital Group

Based in the heart of the New York City, Broad Street Capital Group is an international private merchant bank with extensive experience in developing and financing exports and infrastructure projects in emerging markets. The firm works closely with a number of international Export Credit Agencies, as well as with all trade and development agencies of the U.S. Government.   For over 25 years, Broad Street Capital Group has successfully served a broad array of private and state-owned clients in multiple countries and has been involved in several high-profile cross-border transactions in energy, IT/telecom, aerospace, healthcare, hospitality and franchising sectors. The firm’s hallmark is its proprietary Develop, Finance, Supply and Insure™ approach to help clients achieve their international business goals For more information, please visit www.broadstreetcap.com

Tea Party Divided by Export-Import Bank

By JONATHAN WEISMAN, NYT.com

William Schubert, president of a small infrastructure export firm outside Houston, identifies himself as a Tea Party Republican. Credit Michael Stravato for The New York Times

WASHINGTON — Late last month, William Schubert, the president of a small infrastructure export firm outside Houston, led a group of Texas business leaders to meet with Senator Ted Cruz’s chief of staff.

Their mission: to rid the firebrand Republican senator of his ardent desire to kill the federal Export-Import Bank, which they said would greatly harm the export-driven small businesses that Mr. Cruz of Texas often extols.

The result: failure.

“At the end of the meeting, there were a lot of angry Texans there,” said Mr. Schubert, who identifies himself as a Tea Party Republican. “We didn’t come there to talk the talking points. We were there to talk the complexities of international trade.”

The Export-Import Bank guarantees loans to overseas customers of thousands of American companies. Without congressional reauthorization, it will cease to exist after June 30 — an 81-year-old institution felled by the passions of the Tea Party movement. Conservatives hold the bank up as the essence of crony capitalism, a market-distorting favor factory for huge companies like Boeing and Caterpillar. Its death, they argue, would herald a new era of free-market governance.

Senator Ted Cruz of Texas. CreditAlex Wong/Getty Images

In the last two weeks, the battle over whether to save it or let it die has begun in earnest.

For conservatives, frustrated by their failure to overturn the Affordable Care Act or stop President Obama’s immigration policies, killing the Export-Import Bank has taken on enormous importance. They do not have to overcome a presidential veto or beat a Democraticfilibuster. They simply have to refuse to bring it to a vote. Republicans have no excuse, warned Michael A. Needham, chief executive of Heritage Action for America, one of the groups demanding the bank’s demise. “All Congress has to do is nothing, which they have proven themselves to be pretty good at,” he said.

The business leaders who seek a reprieve, many of them Republicans, are in disbelief and are promising retribution.

“Crony capitalism, crony capitalism, that’s all they ever say, over and over again,” said Randy Barsalou, a Republican and an owner of BCH Trading Company, a small lumber exporter in Hot Springs, Ark. Mr. Barsalou is pressing his state’s congressional delegation to support the bank. “If my guys don’t get behind this, I can tell you I won’t be voting for them,” he said.

For Republican lawmakers, the calculation is that killing the bank is not likely to hurt them politically. Powerful business groups like the U.S. Chamber of Commerce and the National Association of Manufacturers might say they ardently support the Export-Import Bank, but other Republican positions on low taxation and light regulation will keep them from exacting a price on Republican lawmakers for the bank’s death. That is one reason Republican presidential hopefuls like Jeb Bush, the former governor of Florida, who once supported the bank, and Gov. Scott Walker of Wisconsin have recently joined Senators Cruz, Rand Paul of Kentucky and Marco Rubio of Florida in embracing its demise.

“It’s a top priority for the chamber, and we’ve made that very clear,” said Blair L. Holmes, a spokeswoman for the group. “But we are not a single-issue organization. Our ‘How They Voted’ scorecard is based on a cross section of congressional votes on issues important to the business community.”

Still, the chamber, the National Association of Manufacturers, the Aerospace Industries Association and 46 other business associations assembled the Exporters for Ex-Im Coalition. The coalition flew in more than 650 small-business leaders, suppliers and local chambers of commerce members for 400 meetings with representatives, senators, staff members and committee aides on Capitol Hill on Feb. 25.

On Jan. 28, Representative Stephen Fincher of Tennessee introduced legislation to reauthorize the bank for five years, gathering 57 Republican co-sponsors. Heritage Action responded last month with automated telephone calls in the districts of 31 of those Republicans, blasting them for supporting “a slush fund for corporate welfare.”

Business groups and the bank’s biggest beneficiaries, like Boeing, General Electric and Caterpillar, have hired lobbyists and consultants. Conservative groups like the Koch brothers’ Americans for Prosperity are rallying the Tea Party grass roots.

Starting this month, Americans for Prosperity has committed to spending “well into the six-figure range” to kill the bank, said Levi Russell, a spokesman for the group. That will go for television and digital advertising, phone banks, direct mail and activist visits to lawmakers’ Capitol Hill and district offices. The targets are 93 House Republicans who they see as willing to block action on the bank’s reauthorization, enough to commit a majority of the Republican majority to the bank’s demise.

“Before, there were two kinds of people: people who didn’t know it exists and people who love it because they use it,” Mr. Russell said of the bank. “This year, the education component is done. We’re now in position to ramp up the grass roots side.”

Randy Barsalou, an owner of a lumber exporting company, is pressing for support of the bank.Credi tJacob Slaton for The New York Times

So will Club for Growth, a well-financed conservative political action committee, which vowed on Wednesday to back any members of Congress who opposed the Ex-Im Bank if they were attacked by any establishment groups.

On the day of the pro-bank “fly-in,” Representative Jeb Hensarling of Texas, chairman of the House Financial Services Committee, which has jurisdiction over the bank, wrote a letter to all Republican members proclaiming his opposition to its reauthorization and, in effect, telling them not to listen to the business leaders at their doors. Less than 1 percent of 1 percent of small businesses benefit from Export-Import Bank, he wrote, while American taxpayers’ money goes “to help foreign corporations, including businesses that are owned by the governments of China, Russia, Saudi Arabia and the United Arab Emirates.”

“The best way to level the playing field for American exporters and manufacturers is not with taxpayer subsidies, guarantees and politically driven lending, but instead with more opportunity,” he wrote. “A pro-growth agenda — including fundamental tax reform, American energy independence, cutting burdensome red tape and reducing abusive lawsuits — will do more to help our exporters, manufacturers and small businesses than the Export-Import Bank ever could.”

The business leaders who use the bank say they are baffled at such vehemence. The bank operates on fees it charges its users and, so far, has made money for the government. More important, it has created jobs — many of them. The bank contends that through its export financing, it has helped maintain 1.2 million private sector jobs since 2009.

Acrow Corporation of America makes the modular, prefabricated bridges that helped win World War II and now proliferate in developing nations. But customers in countries like Cameroon and Zambia cannot readily get private bank loans for large infrastructure projects without backup. European and Chinese competitors have their own government-backed export credit agencies. Acrow, which is based in Parsippany, N.J., has the Export-Import Bank, said Paul Sullivan, the company’s director of international business development.

“We are already hearing from customers that our competitors are in their offices saying, ‘You cannot rely on an Acrow bridge deal because their financing mechanism is not likely to stay alive,’ ” Mr. Sullivan said. He suggested that the death of the bank would cost 200 jobs, many at Acrow’s manufacturing plant in Pennsylvania. “For us to pull another arrow out of our quiver, it’s irrational, it’s terrifying and it’s inappropriate when one considers the reality of the global marketplace today.”

Mr. Barsalou of BCH Trading uses the Export-Import Bank differently. To finance lumber exports, his company needs upfront cash that customers in Greece and Egypt will not provide, nor will his Wells Fargo Bank, without the Export-Import Bank’s guarantee.

“They say banks should do that,” he said, referring to opponents of the Export-Import Bank. “Well, banks don’t do that, and that’s the reality.”

To the bank’s opponents, such opinions are almost beside the point. Supporters might trot out small-business owners like Mr. Barsalou, but the bank’s big efforts are on behalf of big companies. It is, after all, derisively called the Bank of Boeing.

“I have no doubt Boeing, G.E. and Caterpillar will continue to thrive as great American companies if Ex-Im goes away,” Mr. Needham, of Heritage Action for America, said.

Mr. Hensarling, the chairman of the House Financial Services Committee, has taken to posting the “Egregious Ex-Im Bank Deal of the Day,” like one aiding mining projects in the Democratic Republic of Congo, which he said one human rights group had labeled the “rape capital of the world.”

Mr. Russell, of Americans for Prosperity, said, “Sometimes when you’re the beneficiary of something that’s helping your business, you personally, it’s hard to look at something objectively.”

Should Congress Reauthorize the Export-Import Bank?

Two Experts Square Off on Whether the Bank Really Helps Small Business

WSJ.com

PHOTO: BLOOMBERG NEWS

Over the past few months, one of the most heated debates in small-business politics has centered on the fate of a federal agency: the Export-Import Bank of the United States.

At issue is whether Congress should reauthorize the bank when its current authorization expires in June. The bank’s mission, it says, is to support U.S. jobs by making it easier for domestic firms to sell abroad. As such, the bank says, it provides competitive export financing and ensures a level playing field for U.S. companies.

For instance, the bank encourages lenders to make loans to U.S. exporters by providing working-capital guarantees on the loans. It also provides products like credit insurance so that companies are protected if foreign buyers fail to pay bills. And it makes and guarantees loans to foreign buyers so they source from U.S. companies.

During the debates about the bank, one of the big arguments the bank and its advocates have made is that the institution is particularly valuable to small companies. Nearly 90% of the bank’s deals last year, covering more than $5 billion in financing and insurance, directly served small companies. Overall, the bank authorized $20.5 billion in financing.

Yes: It’s a Lifeline for Small Businesses Looking to Export
By Todd McCracken

Small firms face a host of financing challenges when they try to export. If Congress kills the Export-Import Bank, the challenges will get steeper.

Imagine the situation a small company faces when it approaches a bank for a loan to start selling overseas. The company is starting off with less equity than a big firm, and processing loans for smaller amounts isn’t as profitable for banks.

Exporting is, usually, strike three: The business’s customers are foreign buyers, and most banks won’t consider foreign receivables as collateral.

National Small Business Association data show that over the past five years between one-fourth and one-third of small firms haven’t been able to access adequate financing. And that’s among all small businesses; the number would almost certainly be higher among small exporters.

In light of that, the Export-Import Bank is a critical tool. Because the bank shoulders some of the risk of international deals, more small businesses are able to export today. There’s a larger argument for the bank, as well. There are foreign-export credit agencies around the world that provide substantial support for their country’s exporters. Killing the bank is tantamount to unilateral disarmament and will damage our global competitiveness.

Critics, however, say the bank doesn’t do much for small firms—and mostly helps industrial giants.

Helping the Little Guy
Yes, the bank does a lot of business with large companies. But small-business deals account for more than 85% of its transactions. Small companies did amount to a smaller percentage of the total dollar amount of deals—but smaller firms do smaller deals and represent a smaller total dollar amount. In 2014, nearly half of the bank’s small-business authorizations involved amounts under $500,000.

Let’s run down some of the other arguments made by critics. And refute them.

—Small companies that are helped aren’t actually as small or needy as the bank claims. But the bank uses Small Business Administration size standards, based on industry. Where a restaurant with 1,500 workers would be anything but small, a manufacturer with the same number is considered small by the SBA, which routinely revisits these standards with a good deal of stakeholder input.

—A report found the bank miscategorized 200 small companies. But that was 200 errors out of 6,000 companies examined—a 97% accuracy rate.

—The bank helps only a tiny fraction of small businesses. Less than 1% of small firms export; the bank couldn’t possibly benefit 10%, 20% or more.

—The Export-Import Bank is risky and a drain on taxpayers. The bank doesn’t provide subsidies. Customers pay for its financing and loan guarantees, and 98% of its deals include partnering with a private bank. The bank is a self-sustaining agency that in each of the past two years transferred nearly $1 billion in revenue to the Treasury—and its borrowers have had a very low default rate.

—An NSBA survey showed two-thirds of small exporters had no more trouble landing export financing than regular loans. Those who said that were older, larger and more experienced. We can’t dismiss the concerns of over a third of small exporters.

—The bank’s track record is all thanks to its accounting methods. But it uses the same method all federal agencies do—not some tricky system they’ve cooked up.

—The bank distorts the export market. But the market is already distorted for small firms, whether through the challenges they face or an unfair tax code. The bank helps to level the playing field.

Ex-Im Bank isn’t crony capitalism, it isn’t a drain on taxpayers and it has no private-market alternative. It’s a lifeline to small firms looking to export that otherwise wouldn’t be able to do so.

Mr. McCracken is the president and CEO of the National Small Business Association, a nonpartisan small-business advocacy group. He can be reached at reports@wsj.com .

No: The Bank Is Mainly Welfare for Large Firms
By Diane Katz

The Export-Import Bank is pushing out a slew of misinformation crafted to convince Congress that it is worthy of a long-term renewal. One of its central themes is that the bank is a champion of the little guy.

But, in fact, the bank is a fount of corporate welfare—and its subsidies put other U.S. firms at a competitive disadvantage and distort export markets.

It is impossible to know precisely how many small businesses actually benefit from Export-Import financing. Officials claim 20% of annual authorizations, but that is a stretch given the bank’s expansive definition of “small,” which includes firms with as many as 1,500 workers or revenue of up to $21.5 million annually. A recent investigation by a news agency found that the bank improperly categorized hundreds of corporations and conglomerates as small businesses.

Also consider that the bank finances less than 2% of U.S. exports overall. Economist Veronique de Rugy of the Mercatus Center at George Mason University calculates that the bank benefits just one-half of 1% of small businesses in the country.

Just How Crucial?
Proponents claim that the Export-Import Bank provides export financing that is otherwise unavailable to small companies. But based on the bank’s own data, Ms. de Rugy has documented that only 10.9% of the bank’s loans and long-term loan guarantees were categorized as necessary because the risk was too great for an exporter or a financial institution to assume. In other words, 89.1% of those loans and guarantees had nothing to do with private financing being unavailable.

Record demand for U.S. exports indicates no shortage of private capital to finance the sale of American goods overseas. In a 2013 survey of small exporters by the National Small Business Association, some 63% reported that getting export financing was no more difficult than getting regular financing.

U.S. exports would remain very strong if the bank isn’t reauthorized—regardless of whether other nations have export credit agencies to subsidize native businesses. Reauthorization would not remedy actual barriers to export growth, such as high corporate tax rates and budget deficits that push hundreds of billions of dollars into Treasurys instead of business investment.

No Benefit at All
What’s more, the contention that the bank is a financial plus for the government is a mirage caused by the bank’s accounting. The Congressional Budget Office reported in May that Export-Import Bank programs, if subjected to the fair-value accounting methods required of private banks, actually operate at a deficit that will cost taxpayers some $2 billion over 10 years, in addition to the bank’s operating costs.

The same goes for the supposedly low default rate of bank clients. The bank’s true financial condition is obscured by its narrow definition of default, which does not cover a variety of loan violations designated as defaults by private banks.

The Export-Import Bank’s officials are spending millions of dollars attempting to convince Congress and the public that small businesses would disappear without export subsidies. They assume that the economic activity they subsidize would not occur absent bank financing—an absurd notion, but one prevalent among bureaucrats who cannot fathom that business actually functions without them.

All propaganda to the contrary, the vast majority of Ex-Im subsidies benefit America’s largest corporations. If Congress really wants to help the little guy, it will allow the Export-Import Bank to expire and eliminate the tax and regulatory barriers that cripple small business.

Ms. Katz is a research fellow in regulatory policy at the Heritage Foundation. She can be reached at reports@wsj.com .

 

SIA Deems Ex-Im Bank ‘Critical’ to US Satellite Industry

By Caleb Henry | Feature, Government, North America, Regional, Satellite TODAY News Feed

SSL workers assemble the ABS-2 satellite at the SS/L manufacturing facility in Palo Alto, Calif. Ex-Im Bank approved $461 million of credit to finance the export of three American-made satellites to Hong Kong. Photo: SSL [[Via Satellite 08-18-2014]

In less than two months the United States Congress must make a decision on the fate of the Export-Import Bank, an independent federal agency designed to provide export financing when private banks are not able. The satellite industry around the world stands out as the quickest-growing market the bank supports, which makes this decision pivotal for satellite as a whole. In one of her last interviews as president of the Satellite Industry Association (SIA), Patricia Cooper spoke to Via Satellite about the importance of the Ex-Im bank for the industry.

“We call it an increasingly critical element in U.S. companies winning satellite business, particularly given that there is such an increase in brand new satellite operators. More than 12 new countries in the last five years have become satellite operators, so while export credit financing may be helpful for traditional or fleet-based operators, there are a lot of new entrants to the business, and it’s a high upfront and fixed cost business. Securing the credit for such a costly up front project is a significant factor,” said Cooper.
Credit financing is one of many factors satellite operators consider when making a purchase. Without the Ex-Im bank, U.S. manufacturers would have to do their best to offer comparable terms to foreign competitors that have government-supported export credit agencies. According to the SIA’s “State of the Satellite Industry Report,” approximately 68 percent of the $15.7 billion global satellite manufacturing revenues in 2013 came from U.S. companies. Without the bank, satellite operator decision-making on new purchases is likely to change.

“The concern is it would distort decision making for buyers. They would no longer be looking at an even playing field where manufacturers from all of the global providers would have comparable [financing] packages. Instead they would be looking at financing as one of the lead items rather than one of the many factors they might consider,” said Cooper.

The Ex-Im bank has supported numerous satellite projects for SSL, Boeing, Lockheed Martin, Orbital Sciences and others. SpaceX too has received considerable support, including a 105.4 million loan to launch the Amos 6 satellite for Israeli satellite operator Spacecom. Without the bank, more deals may go to other foreign manufacturers and launch providers in the future.

“The bank is very important to Boeing, mostly for commercial airplane sales but also for satellite sales,report global or just within the U.S.?ext but I want to check with you that this is correct. is book.then see the headlines, I d” said Boeing spokesperson Tim Neale. “It is a significant competitive issue for us. Some 60 countries have export credit agencies, including all of the countries with aerospace industries. Airbus has the support of three export credit agencies (in France, Germany and the United Kingdom). Customers have been telling us for months that they are concerned about the future of the U.S. Export-Import Bank.”

Neale described the Ex-Im bank as a “critical competitive need.” Russia’s Export Insurance Agency of Russia (EXIAR) and France’s French Insurance Company for Foreign Trade (COFACE for its name in French) both support satellite projects in their respective economies. The decision to reauthorize the bank, should Congress do so, is seen as a move that would maintain a more level playing field for U.S. companies.

“The concern is that international buyers, particularly [with] private financing on their own, would either not be able to buy satellites or they’d be directed by the absence of credit financing in the U.S. to buy non-U.S. spacecraft,” said Cooper.

On July 15, governors from 31 states sent a signed letter to John Boehner, R-Ohio, Harry Reid, D-Nev., Nancy Pelosi, D-Calif., and Mitch McConnell, R-Ky., urging them to prevent the bank’s charter from expiring this year. Congress is currently on summer recess, pushing the decision even closer to the edge. Without authorization, the 80-year old bank’s charter will expire on Sept. 30.

The fate of US Ex-Im Bank

By  CC Solutions 

The Export-Import Bank of the United States (“EXIM”) is in the midst of a reauthorization battle. Whether or not EXIM gets reauthorized depends entirely on Congressional votes. Unfortunately, there are a significant number of vocal, powerful Congressional members who are seeking to shut the Bank. We ask readers to help reauthorize EXIM by engaging with elected officials and industry groups. Our collective voices need to be heard so Congress can be best informed as they prepare to vote on this critical issue.

Below are online petitions for the reauthorization EXIM. They take just a few moments to complete.

http://www.eximthoughtbank.com/?gclid=CIy2v-TzicACFYMF7AodnloADQ
http://www.secondtonone.org/site/PageNavigator/SecondToNone/Petitions/ExImBankPetition.html

Additionally, you can email your local Congressman/Congresswoman and Senators to let them know you support EXIM. We encourage you to write a short note asking for their vote to reauthorize EXIM. To find your Representative, click here and type your zip code. To find your Senator, click here, then navigate to their web page and write a quick note.

And here are some other organizations you can contact to voice your opinion in favor of EXIM:

National Association of Manufacturers (NAM)
Bankers Association for Foreign Trade (BAFT-IFSA)
Coalition for Employment through Exports (CEE)

Why is there such a challenge to EXIM’s existence? According to EXIM’s website, it has supported more than 1.2 million private sector jobs and has generated >USD 2 billion for US taxpayers since 2009. Nevertheless, many Congressional Conservatives and Tea Party activists consider EXIM to engage in corporate welfare due to loans supporting large exporters. While EXIM certainly finances the export of large capital goods, last year nearly 90% of transactions supported American small businesses.

And what if EXIM did not exist? American companies will be at a competitive exporting disadvantage to exporters in 59 other major exporting countries that have active export credit agencies. Republican Rep. Tom Reed states, “To unilaterally kill the Export-Import Bank would be a huge hit the the competitiveness of American companies.” Republican Rep. Chris Collins seconds the opinion, “This isn’t a government handout.” Jay Timmons, CEO of NAM articulates the competitive need for EXIM, “Our trading partners have larger export credit agencies and are growing them to boost their exports much more than the United States.” The closing of EXIM would negatively impact the US economy; lost sales, lost jobs, lost tax dollars. Please do your part and help save EXIM. Thank you.

Trade Gap Narrows Sharply as Imports Tumble

Economists Bump Up Second-Quarter GDP Forecasts

By ERIC MORATH , WSJ.com

WASHINGTON—The U.S. trade deficit narrowed more than expected in June amid a sharp decline in imports, a development that is likely to boost economic-growth readings but raises a concern about domestic demand.

The U.S. trade deficit shrank 7% to a seasonally adjusted $41.54 billion in June from May, the Commerce Department said Wednesday. That was the fastest contraction in the gap since November. Imports fell 1.2% in June, the steepest decline in a year, while exports increased 0.1% to reach a record high.

The smaller gap than projected has many economists expecting the government to upgrade its measure of second-quarter gross domestic product later this month. The trade deficit has shrunk about 6% since March; a narrower trade deficit generally supports economic growth.

Forecasting firm Macroeconomic Advisers now projects GDP, the broadest measure of goods and services produced across the economy, expanded at 4.2% rate in the quarter. Other economists project as high as a 4.5% gain. Last week, the Commerce Department said second-quarter GDP expanded at 4.0% annual pace.

The latest data also may support third-quarter growth. Imports, especially outside of oil, surged in April and May but fell back in June. “A further correction is likely over the next two months,” said IHS Global Insight economist Patrick Newport. “As a result, imports will be a much smaller drag on growth than they were in the second quarter.”

But the trend isn’t entirely positive. It suggests importers may not be confident that U.S. consumers will ramp up spending in the second half. That runs counter to the Commerce Department’s measure of consumer spending, which increased steadily during the second quarter.

The June decline in imports was led by decreased U.S. demand for consumer goods, cars and car parts, and foreign oil.

“The broad-based declines in import activity seem at odds with the narrative of improving domestic demand,” said TD Securities economist Millan Mulraine.

Growth in consumer spending eased in the first quarter and exports fell, contributing to the economy contracting at a 2.1% rate. Those factors reversed in the second quarter, supporting the rebound in growth.

Exports rose sharply in May and held those gains in June. The small June improvement was led by increased foreign demand for U.S. cars, consumer goods and services, which include travel and intellectual-property use.

The numbers coincide with improved growth in China this spring and a stabilizing European economy. However, unrest in the Mideast, Africa and Ukraine could pose headwinds to global trade.

The U.S. trade ledger with Russia fell in June amid an escalating sanctions battle over the conflict in Ukraine. Exports plummeted 34% on the month to the lowest level since January last year. Imports from Russia fell nearly 10%. Russia, however, accounts for a relatively small share of total U.S. trade.

Trade with China, the No. 2 U.S. partner, has expanded modestly this year. The U.S. trade gap for goods with China widened 4.9% through June, compared with the same period a year earlier. That is only slightly larger than the 4% overall growth in the goods-trade deficit.

The goods deficit with European Union expanded 15.2% in the first half. The gap with Canada, the largest U.S. trading partner, widened this year. But the gap with Mexico, Japan and Brazil narrowed during the first six months of 2014.

—Ian Talley contributed to this article.

Write to Eric Morath at eric.morath@wsj.com and Jonathan House atjonathan.house@wsj.com

In these trying times a “Do It Yourself” approach to export financing is fraught with peril

Financing large complex export projects and transactions through Export Credit Agencies, such as the US Ex-Im Bank, is difficult at best and impossible at worst.  Hundreds of moving parts, byzantine structures, political considerations, legal quagmire, shipping and logistics challenges, along with financial considerations, extensive due diligence, host country laws, licensing and public relations are just a few of the factors involved in this year-plus long process. Add to that geopolitical risks a la Ukraine, Russia, or Iraq and the process can befuddle even the most sophisticated practitioners. Thus it is vital to have a highly experienced team of financiers, lawyers, shippers, technical specialists and ECA compliance folks to work with committed exporters and buyers in order to develop and nurture such transactions to success.

Yet oftentimes in their desire to either save money, or driven by false sense of familiarity with the process, the exporter clients prefer to undertake what I call a “home depot” do-it-yourself approach to ECA financing.  During times of relative geopolitical normalcy this approach primarily works for those companies that have extensive experience dealing with ECAs in structuring complex export transactions. During times of political instability such approach is certainly doomed for all novices .

Although there are multiple players in the export finance industry and they range from the largest global banks, law firms and shipping companies, to small brokerage firms and advisors of different stripes; the world of export finance is fairly small with all players of substance knowing each other well and for many years.  For a newcomer exporter venturing into this world, the complexity of the process and the capabilities of the players are not well-known and oftentimes they are misled and misguided.  Thus after taking a hard look in the mirror and forgoing a do-it-yourself approach to complex export financing, the next step any company should take is to really understand the workings of the export finance industry, capabilities of the players, and the importance of an integrated approach of putting together a complete finance, legal, compliance and logistics team early on.

Selection of the financial advisor should not be based on the name alone, but on that advisor’s experience in the target market to be served by the exporter, his or her experience in handling complex transactions and the ability to add value to the process. Good advisors will oftentimes save the exporter such large sums during the structuring and implementation of the process, that their fees pale in comparison.  Once the advisor is selected, the exporter should let him or her invite the other team players into the process. There is a big difference between the exporter being totally committed to the process and working very hard to assist the advisors by supplying the needed information in the timely manner, helping to obtain necessary licenses, interfacing with the buyer etc and having the exporter venture into the process on his/her own. The first approach will lead to the successful financing and the latter will certainly lead to a painful and expensive failure.

“Fly Me To The Moon” UA-USA Air & Space Forum Program Announced

Alert! An International Business Development Opportunity

We are pleased to announce an all-star roster of speakers and panel participants for the upcoming “Fly Me To The Moon” UA-USA Air and Space Cooperation Forum. Do Not Miss one of the most anticipated Air and Space events of the year, as a high level delegation led by the Deputy Chief of the National Space Agency of Ukraine, presents Ukraine’s capabilities in the Air and space Arena and discusses cooperation options with US companies.  Register Today!

 

 

 

 

“FLY ME TO THE MOON” Ukraine-USA Air & Space Forum Invite

 

Alert! An International Business Development Opportunity

Do Not Miss one of the most anticipated Air and Space events of the year, as a high level delegation led by the Deputy Chief of the National Space Agency of Ukraine, presents Ukraine’s capabilities in the Air and space Arena and discusses cooperation options with US companies.  Register Today!