For many entrepreneurs and businesses, growth is the name of the game, but what many don’t realize is expanding into an international market is both accessible and rewarding with the help of some essential tools, methods and strategies.
Growing globally can present major opportunities for expansion and increased revenue, but it’s important to understand what steps to take, hurdles to overcome and pitfalls to avoid when doing business in another country. Alliance Bank of Arizona, a division of Phoenix-based Western Alliance Bancorporation, is the go-to business banking resource in Arizona, and has become a local authority on collaborating with local international trade experts to provide workshops and tools to help educate local companies on international finance, logistics and shipping, legal structures and tax planning as it relates to global business. Alliance Bank of Arizona is a delegated lender for EXIM guaranteed credit facilities.
“In 2016, expect to see many Arizona municipalities launch campaigns to encourage businesses to grow globally, especially the City of Phoenix,” said Mark Roberts, Vice President of Specialized Banking Services at Alliance Bank of Arizona. “Just a couple months ago, bank staff was instrumental in helping to form the Metro Phoenix Export Alliance along with the ‘who’s who’ in all business categories including finance, legal and government in order to establish a central resource for businesses to obtain information and assistance with global expansion. In collaboration with the Arizona Small Business Association, MPEXA will soon be a one-stop-shop for local small and medium sized businesses looking to obtain training and resources for expanding into global markets.”
Before delving into a new area, it’s important to consider the most crucial elements of international business, including:
Knowledge is King – Small and mid-size businesses have such a big local, regional or even national market that many of them haven’t considered exporting if it’s not a natural pull from the customer. When they do consider exporting, a lack of knowledge on how to facilitate regulations, shipping, payments, etc. can make it seem very challenging. Businesses should seek out trusted advisors, which may include a banker, CPA, attorney, existing business exporter and a representative from the U. S. Commerce Department or the Arizona Commerce Authority who knows the ins-and-outs of global business. A top reason Metro Phoenix Export Alliance (MPEXA) was created is to make these connections available to business owners.
Trusting People on the Ground – From far away through cultural filters, it’s hard to see who is really capable and trustworthy to help companies grow in new regions, whether as a partner, distributor, attorney or other service provider. Take the time to align with known and trusted providers that will assist with the day-to-day operations. A good place to start is with the U.S. Commercial Services Gold Key program.
Protecting Intellectual Property – It is important to protect intellectual property. But, for most companies it’s difficult to keep a secret sauce “secret” and protect the dissolution over time. Good legal advice goes a long way in protecting yourself and your business. Arizona is home to some very knowledgeable international intellectual property specialists.
Currency Volatility – Global economic conditions have caused major currency fluctuations, which can impact the viability or profitability of international business activity. Companies that accept payment in foreign currencies need a way to manage that risk. Knowledgeable foreign exchange bankers, like those at Alliance Bank, can provide consultation on how to utilize tools such as foreign exchange hedging instruments, including Forward contracts and Swaps to reduce currency volatility risk for your company.
Understanding How to Get Paid – Selling to a foreign buyer comes with payment risks that include commercial and political risk causing the buyer to default. Small business exporters often lack the knowledge of what tools are available to them to help mitigate payment risk. Cash in advance is the best way to get paid, but when that is not an option speak to a financial advisor that specializes in international payment solutions such as international letters of credit or the use of payment insurance products.
Regulatory Compliance Fallout – One of the unanticipated fall-outs of Anti-Money-Laundering (AML) requirements is that many of the global banks are now refusing to send Letters of Credit if they have no way of knowing the ultimate client. Therefore, credit and financing can be rejected. It’s essential to work with a bank, like Alliance, that establishes direct relationships with key banks in a specific international city on your behalf.
Working Capital to Grow – Getting the money needed for growth is always a priority, and with longer shipping and lead times, cash requirements for international growth can be higher and more difficult to obtain. To accommodate exporters need for capital to support international sales, Alliance Bank utilizes credit insurance provided by the Export-Import Bank of the United States (EXIM), as well as some private insurers, which enables the bank to make loan advances secured by foreign accounts receivable. For companies experiencing high volumes of international growth, Alliance Bank utilizes export working capital loan guarantees provided by the EXIM Bank and the U.S. Small Business Administration. Loan guarantees support higher loan advance rates that can free up working capital to enable exporters to grow at a faster pace.
Understanding Tax Benefits – Exporters can obtain beneficial tax treatment by creating Domestic International Sales Corporations, but most CPAs are not familiar with these entities and expertise on the subject is required. A qualified financial advisor will be able to discuss the tax benefits and find the ones that work best for your business and export needs.
With 11 offices in Greater Phoenix, Tucson, Sedona and Flagstaff, along with Western Alliance’s robust national platform of specialized financial services, Alliance Bank of Arizona is a valued partner for Arizona’s business, real estate, professional, municipal and nonprofit communities. Western Alliance Bank is the primary affiliate of Phoenix-based Western Alliance Bancorporation. With $14 billion in assets, Western Alliance Bancorporation (NYSE: WAL) is one of the fastest-growing bank holding companies in the U.S.