Hartford Business Journal

8 Hartford Business Journal • August 17, 2015 www.HartfordBusiness.com CT Commerce Dept. office launching export research arm By Matthew Broderick Special to the Hartford Business Journal M arc Nemeth, president of Meriden-based Jonal Labora- tories, is no stranger to exporting. His manufacturing company, which produces sealing parts for the aero- space industry, has been selling its wares in foreign markets for nearly 40 years. But even Nemeth, the second-generation in the family-owned business, was surprised to realize that exports last year accounted for nearly 15 percent of his company's $10 million in annual revenue. "The percent of our revenue coming from foreign markets [mostly Canada and Europe] has consistently increased over the last five years," he said. Jonal Laboratories isn't the only Connecticut company leveraging exports. About 6,000 Nutmeg State firms — most- ly small to mid-sized businesses — exported $15.9 billion in goods in 2014, down from $16.4 billion a year earlier. Despite the strong numbers — Connecticut ranked 27th for export- ing among all states in 2013 and 18th per capita — many state trade and industry experts believe more can be done to boost overseas sales. To achieve that end, the U.S. Department of Commerce office in Connecticut is developing and will begin to sell market research reports and consultation about for- eign market opportunities and risks. Anne Evans, district director of the U.S. Department of Com- merce in Connecticut, said the service — which will generate market-specific reports for businesses for $50 — will help com- panies address a primary impediment to international trade: lack of knowledge about foreign markets. That was rated as the No. 1 challenge to exporting by 18 percent of the 140 businesses that responded to a recent international trade survey conducted by the Connecticut Business & Industry Association. "We are uniquely positioned to help Connecticut busi- nesses grow their exports," Evans said, noting that her office not only has access to extensive market research, but more importantly — through the U.S. Department of Commerce — has experts around the globe who understand foreign markets and cultures at the ground level. About half of the Connecticut exporters surveyed in CBIA's 2015 trade survey said they used the services of trade representatives to establish new markets, up from 36 percent in 2013. Growing that number further, Evans said, will help more companies overcome the fears of the unknown. Jonal Laboratories' Nemeth said his company has relied upon the state's Department of Commerce to build foreign relationships that are, he argues, essential to success in the export business. "In foreign markets, it takes an extended time — as much as five years — to build relationships [with business partners]," Nemeth said, noting his company works as part of the supply chain for some of the world's largest aerospace companies. "Our Connecticut Department of Commerce has helped con- nect us through trade shows in Europe, set meetings with key partners and make recommendations." By her own conservative estimates, Evans says her depart- ment — working with more than 2,000 Connecticut businesses — helps generate approximately $125 million a year in revenue. Growing that number speaks to a strategic focus on competing in an increasingly global economy where nearly 95 percent of the world's consumers live outside of the United States, and foreign market opportunities are expected to grow significantly in the next 15 years. In fact, by 2030, more than 2 billion Asian consum- ers alone will join the global middle class, fueling strong demand for consumer goods and services. That's good news for Connecticut businesses like Jonal Lab- oratories, which this past May was one of 45 small-to-midsized companies nationwide to receive the President's E-Awards — now in its 53rd year — in recognition of the company's significant con- tribution to the expansion of U.S. exports. Nemeth continues to see a bright horizon for his company's foreign opportunities, which he expects will drive much future growth; they have projections of doubling revenue in the next three to five years. "We have nearly 40 new clients," Nemeth said. "And the majority of them are in foreign countries." n FOCUS TRADE Q&A Ex-Im Bank closure means exporters face financing hurdles Q&A talks about international trade financing with Chris Buchholz, senior vice president and commercial banking market manager at Santander Bank in Hartford. Q: What is the impact of the shut- down of the Export-Import Bank (Ex-Im) of the United States? A: The shutdown of the Ex-Im Bank will impact the ability of many compa- nies, especially small businesses, to grow their international sales. The Ex-Im Bank is an indepen- dent federal agency whose mis- sion is to bolster U.S. job growth by providing trade financing. The agency provides several programs to help exporters including export credit insurance, either directly or through brokers, which insures for- eign accounts receivable against a buyer's payment default. Another is through its working-capital, loan- guarantee program, which makes it easier for banks to lend against for- eign accounts receivable and issue standby letters of credit for bid and performance bonds. Without these credit enhancements, some compa- nies may not qualify for financing. Q: What can private lenders do to help exporters in light of Ex-Im Bank's shutdown? A: Private lenders are doing a lot to help exporters by providing letters of credit, work- ing-capital financing, foreign exchange services and documentary collections. Large interna- tional banks also have interna- tional trade portals with useful country specific information, an international desk and trade teams that help companies understand customs and trade barriers, make overseas connections and navigate programs like the Small Business Administration Export Express. Q: What are the biggest chal- lenges faced by exporters? A: According to the U.S. Department of Commerce, more than 70 percent of global purchas- ing power is located outside Amer- ica, and 95 percent of all global consumers reside in foreign coun- tries. This tells us that perhaps the best opportunity for economic growth in Connecticut is selling into foreign markets. A key advan- tage of international trade is that it opens up new and broader markets for U.S. companies and allows them to grow their businesses. There are many challenges facing compa- nies that are either currently exporting or inter- ested in exporting. In a recent international trade survey of Connecticut companies by the Connecticut Business & Industry Association, concerns included trade and regulatory barri- ers, insufficient knowledge of foreign markets, connecting with customers, managing foreign currency risk, difficulty managing payment risk, and linguistic and cultural barriers. Q: What types of financing do compa- nies that want to export need to consider? A: Companies need a broad range of finan- cial services, including letters of credit, docu- mentary collections, foreign currency exchange and working-capital financing. A company sell- ing on open account terms is at risk of payment default by the foreign importer. Requiring a letter of credit issued by the foreign importer's bank to the exporter's bank mitigates the pay- ment risk. Documentary collection services performed by banks facilitate the sale, shipment and transfer of title to the goods. Standby let- ters of credit are issued to support performance and bid bonds. Companies will need to convert foreign currency into U.S. dollars during the payment process — a service offered by com- mercial banks. Finally, a working-capital line of credit may be needed to finance the buildup of inventory and accounts receivable. Q: How does international financing differ from domestic financing? A: While payment default risk exists any time a company sells on open account, lenders will include domestic accounts receivable as col- lateral in its borrowing base for working capital lines of credit. Typically, a domestic bank will not include foreign accounts receivable in the borrowing base, and an exporter may need a credit enhancement such as export credit insur- ance and government-loan programs, including the Export-Import Bank's working capital loan program and the Small Business Administration Export Express program, which targets small and midsized companies. These loan products free up cash, which enables a company to grow more quickly and export more products into new markets. With domestic trade, the mobility of goods is easier across the U.S. in comparison to exporting overseas where there are international trade bar- riers, tariffs and customs procedures. In domes- tic trade, a single currency is used (the U.S. dol- lar) whereas, in international trade, there may be foreign exchange exposure and risks associated with fluctuations in a foreign currency. n Exporting Concerns The Connecticut Business & Industry Association recently asked 140 Connecticut companies what their biggest concerns were about exporting to foreign countries. Here's how they responded: Concern General lack of knowledge about foreign markets 18% Getting paid/financial problems 17% Cost competition 17% Trade/regulatory barriers 15% Loss of intellectual property 10% Unfair trade practices 6% Administrative costs 6% S O U R C E : C B I A In February, Jonal Laboratories President Marc Nemeth (sitting, right) signed a long-term supplier agreement with Dave Emmerling (sitting, left), Pratt & Whintey's vice president of strategic sourcing. As part of the deal, Jonal will supply the East Hartford jet engine maker with non-metallic, rubber-based elastomeric parts that will be used for Pratt & Whitney's PurePower engines. CHRIS BUCHHOLZ Senior vice president and commercial banking market manager, Santander Bank P H O T O | C O N T R I B U T E D

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