Safety Net
This story appears in the July 1996 issue of Entrepreneur. Subscribe »
Not long after partners Stephen Schultz and Timothy Burgess purchased export credit insurance to protect their electronics distribution business, they had to collect on it-to the tune of more than $250,000. A bankrupt subsidiary of a German company with whom the partners had been doing business was unable to pay their Leominster, Massachusetts, company, Kerotec Inc. But thanks to the new insurance policy, the partners got paid anyway.
In the past, if you wanted to sell to foreign customers, you had limited payment options: open credit terms (risky for the seller unless a long-standing business relationship existed), cash in advance (this is rare), or a letter of credit. Now, with export credit insurance, there's another option to protect the seller. According to Joe Grimes of American Credit Indemnity (ACI), a Baltimore-based subsidiary of Dun & Bradstreet, export credit insurance protects companies against nonpayment, slow payment and insolvency.
This can come in handy if you're trying your hand at exporting for the first time when you may be more vulnerable to payment problems. Grimes says ACI's export credit insurance is especially helpful to small companies because it frees them from the responsibility of collecting credit information on overseas buyers, as well as from much of the responsibility of managing receivables.
Kerotec, which has clients in South America and Europe, uses export credit insurance even after establishing a solid working relationship with customers because insurance allows the company to obtain financing on its international receivables. "Basically, by having this insurance, we know what our maximum [loss] would be [before the insurance takes effect]," says Schultz, who believes small businesses that don't purchase export credit insurance are asking for trouble: "For a small company to lose half a million dollars would hurt."
Common Ground
If you're involved in a trade dispute, your remedies are few. Lawsuits are expensive, and in recent years, arbitration has become almost as costly. That's why mediation is fast becoming the method of choice to resolve international business disputes.
To help businesses settle trade tiffs, the Greater Dallas Chamber of Commerce and the Dallas Bar Association got together to form the first-ever International Mediation Center, which opened earlier this year.
"Mediation is becoming extremely popular throughout this country," says Sid Stahl, a mediator in private practice and a member of the center's board of directors. It helps that NAFTA encourages mediation of business and commercial disputes.
Entrepreneurial disagreements often go unresolved, Stahl says, because agreeing on a settlement is so difficult, particularly when the parties are from different countries. To make things easier, the International Mediation Center handles all the arrangements for a face-to-face meeting, which Stahl believes is the best way to resolve a dispute. The meeting can be held either at the Dallas site or at a location convenient to both parties.
Stahl says small-business owners who use the center's services have the most to gain-more than owners of medium-sized or large companies. "Small businesses will reap a larger benefit," he explains, "because they need to get disputes resolved sooner and can least afford the expense of litigation."
State Of The Union
The United States is no stranger to exporting, but some states do more to boost the nation's export figures than others. According to the U.S. Department of Commerce, the top 10 exporting states in 1994 were:
1. California
2. Texas
3. New York
4. Michigan
5. Washington
6. Illinois
7. Ohio
8. New Jersey
9. Florida
10. Pennsylvania
What clinched the No. 1 spot for California? "It's tempting to say the reason is its geoeconomic location, but California [businesses] make very competitive products," says Dan McLaughlin, deputy assistant secretary with the U.S. International Trade Administration. McLaughlin lists environmental technology, high tech, engineering services, entertainment and health services as California's most noteworthy contributions to exporting.
