EDWARDSVILLE — Technology is making even the most remote points on the planet more accessible, and Illinois entrepreneurs are among those clamoring to ride the global trading wave.
The water can be difficult wading, though, especially during a slowdown in the global economy and particularly when you’re not sure where to start.
“As we cross global borders in terms of international transactions, risk becomes a major factor. I hear from many of our clients almost every day that they have to become more creative not to lose to competitors,” said Silvia Torres, director of the Illinois SBDC International Trade Center at Southern Illinois University Edwardsville, a part of the School of Business. The center provides free, detailed assistance to entrepreneurs — and a network that can connect them to worldwide markets.
Some of the biggest challenges also represent opportunities. Among them are advancing technologies, innovation and research strategies, finding supply chain partners and providers, the increased costs of shipping, rising wages in China and the Eurozone crisis. The list of regulations and documentation is a daunting one and prompted the center this past month to stage a seminar in which the many issues could be openly discussed.
A lot is at stake in understanding the export system. Some $65 billion in goods was sent out of Illinois last year. Some 75 percent of the value is from the state’s larger employers. But 90 percent of the state’s exporters are small- to medium-size businesses.
“We are a very active state; we shipped to 215 countries last year,” Torres said.
The most recent numbers show:
– Illinois is the fifth-largest exporter among states. The top three destinations are Canada, Mexico and China.
– A little over 64 percent of U.S. exports came from manufacturing in 2011.
– Some 632,800 jobs were supported by exports.
The SIUE trade center is part of a 12-center network in the state that jointly reported more than $800 million in export business that it assisted in 2012. This past year, the SIUE center reported more than $57 million in such business.
The Trade Center’s funding comes from two sources. Half comes from the U.S. Small Business Administration, channeled through the state’s Department of Economic Opportunity, and the other 50 percent comes from SIUE. The Trade Center is part of the school’s Small Business Development Center.
The Trade Center provides information at no cost on various aspects of exporting, from companies who are just starting out to more seasoned operations that need advice on business plans, distributors, agents, etc.
The local center works with SIUE faculty and students toward its goals, as well as 11 foreign offices through the State of Illinois Office of Trade and Investment. The newest office is in Sao Paulo, Brazil.
Torres underscores a program called ISTEP (Illinois State Trade and Promotion program), which started with the Small Business Jobs Act in 2010, as a three-year pilot program. Some states have already discontinued funding but Illinois is continuing it with internal funds. Basically, it’s designed to provide companies with financial and technical assistance in three categories — group trade missions, individual foreign market missions and achieving product compliance certification.
Funding is available on a first-come basis, she said.
Under group trade missions, ISTEP helps to reimburse 50 percent to 75 percent of travel costs, not to exceed $5,000 per company. Partial reimbursement is available for up to two company representatives.
Under individual foreign market sales missions, ISTEP helps to reimburse up to 75 percent of related travel costs, not to exceed $7,500 per company. Partial travel reimbursement is available for only one company representative.
Under product compliance certification, financial assistance of up to 50 percent reimbursement, not to exceed $5,000 per company, is available.
“I hear from clients who are trying to attain ISO certification (for international standards) or CE marking, if they are trying to penetrate the European market, or the CCC (certificate) if they are going after the Chinese market,” Torres said.
ISTEP eligibility is extended to businesses that have been in operation for at least one year, have fewer than 500 employees, have a minimum of $250,000 in annual revenue and can demonstrate an understanding of the costs associated with exporting.
“This is continuing in the state through June 30, and I tell my clients, who knows what’s going to happen starting July 1,” Torres said. “We have been able to help over 10 companies so far through various projects, one different than the next. We have been very creative in making these funds available whatever the objective is for the client.”
Al Li, vice president of Global Trade Finance at Regions Bank in St. Louis, which co-sponsored the recent seminar, has spent years on helping clients mitigate financial risks and obtain working capital.
“By 2020 we’re looking at world trade to be at 40 percent of the global GDP, two and a half times what it was in 2010,” Li said. “Global trade is not one of those things we can ignore any more. Your customers are not just domestic, and if they are, there is a world of opportunity out there.”
Not every state has the network that Illinois has, Li said.
Illinois’ top exporting sectors are industrial machinery, transportation equipment, chemicals, computers and parts, and petroleum and coal products. Agriculture, oddly, falls No. 8.
The United States’ reputation for quality manufacturing has evolved. Years ago, in such areas as auto making, it was much lower. Today, that industry sets the standard for the rest of the world, Li said.
Compared to China, he said, the perception of the rest of the world is this country is a much better goods maker.
“One of the trends we’re seeing from Asia is that those countries are trying to secure the food supply from the U.S., because they don’t trust their own food supply as much,” Li said.
The rise of the middle class in such places as India and China has had the effect of increasing interest in more reliable U.S. goods, he added.
The top concern of any fledgling business, of course, is money. Li said banks traditionally do not advance money for businesses that rely heavily on payments from overseas importers, because there is no way to recover those moneys should something happen.
But there are three main sources of such capital, two from the government (the U.S. Export-Import Bank and the U.S. Small Business Administration) and through credit insurance.
The programs offer a mix of loan guarantees and percentage advances on inventory, and they all have restrictions dealing with eligibility.
Regions is a top 10 Ex-Im Bank lender, Li said.
“We can advance up to 90 percent on the Ex-Im Bank guarantee,” he said. “As long as the exporter fits a certain grid in terms of financial ratios, and positive, tangible net worth of the company, as long as they qualify, we can establish an Ex-Im borrowing base line.”
Among financial services that Regions assists with are arranging letters of credit with foreign importers, basically a means of shifting the credit risk from the end client (the importer) to the bank that they use.