It’s hard to listen to anyone discuss world trade without hearing strains of “It’s a Small World.” International business accounts for 32 percent of our economy, and the greatest growth in export sales is coming from smaller to mid-sized companies, says Darin P. Narayana, president of Bank One International Corp.
“Some of those companies are experiencing 10, 12, 15 percent growth rates,” Narayana says. “The last two years were very interesting. [That is] when the so-called globalization concept was tested.”
More important, it was proven correct. “Client access is the greatest phenomenon of modern times — access to products. You can buy them anywhere, from anywhere and ship them anywhere,” he says. “That access gives you enormous marketing power and a bigger market.”
With so much opportunity, the question company executives are asking isn’t, “Should I export?” it’s “How?” or “Where?”
SBN sat down with Narayana to explore the fast and roughshod world of global business.
Many companies are content to fill their niche. Why should they get involved in export?
The march of globalization is a new phenomenon. American exporters from Ohio and other markets are coping with all the changes, plus Y2K. What we’re trying to do is to make sense out of this and tell them what some of the best practices are we’re seeing from companies that have been able to sustain export momentum. People have a yearning to separate news from information. There’s a lot of news out there, but very little information. For example, they hear that Brazil is going through problems. But what does it mean to me as an exporter?
One of the reasons to go overseas is to protect your product and be sharp. The competitor that is going to kill you is one you don’t know. If companies don’t go abroad, foreign companies may come here. And the next thing you know, you don’t know what hit you. There’s no place to hide anymore.
With so much opportunity, why are some companies reluctant to export?
In the last few years, we’ve been put through the wringer with emerging market crises. Countries we thought were tigers became tame in Asia. We thought Hong Kong was a pretty safe country, but it got hit hard by currency markets. And when Russia got into trouble, which was no surprise to any of us, it affected the real in Brazil, which has no relation to Russia.
So are there still opportunities for companies to develop or maintain exports?
More so than ever before. One of the lessons of the recent crises is that if countries don’t open up their economies, and if countries don’t follow sound economic policies, they will be hit very hard by market forces. Why should they be vulnerable? Very simply, the emerging markets of the world desperately need capital, because they have no more aid coming from either the United States or the Soviet Union. They need investments. That’s the only way they’re going to get competitive in the world markets and survive.
The only game left in town is the game of job creation through economic growth and international trade. For countries to get that kind of job growth, they need competitive industries. For them to have competitive industries, they need to invest in infrastructure. The only way to get that is through investments. But the only way to get investments is to show the world that they mean business, that they have sound economic policies, sound currency policies and a good banking system. That is what everybody is trying to do.
American exporters have an unbelievable opportunity to sell to countries product and equipment that enables those countries to get more productive and competitive. We have the equipment, and we have the infrastructure development capability.
You mentioned crises in different markets. How can business owners deal with the turmoil that may emerge while they’re trying to invest in foreign countries.?
For companies that are already exporting, we recommend five steps:
1. Examine the markets that offer you a sustained level of sales and make commitments to those markets.
2. Identify financial strategies that minimize risk to your company and maximize cash flow.
3. Identify risks, such as payment risks and currency risks, and align yourself with an institution that can help you manage those risks.
4. Establish a beachhead in each of the major economic zones of the world
5. Be open to investing in small countries. Most companies go through the following cycle: They export directly. Then they invest in that country, and they export even more.
What role does e-commerce play in exporting?
In the Internet economy today, distribution is more important than manufacturing. Distribution strategies are a lot more critical than manufacturing. So, be open to alternative channels of distribution and selling. Foreigners are using the Internet a lot more.
There’s no place to hide anymore in an Internet economy, so you may as well come right out, see the world and be prepared for it. The Internet will be the phenomenon that will change the way we buy, sell and live
What are some of the common pitfalls that companies just starting out with exporting experience?
The major mistake they make is not having a plan. It’s mostly reactive. Companies that are reactive to exporting are companies that are prone to problems. For example, you’ve got an order from Mexico and the guy says, “What is this letter of credit business? Just send it to me, I’ll pay you.” You say fine. You have essentially created bad debt. If you checked out the customer, maybe he is good; maybe he doesn’t need the letter. But there is no plan. You suddenly scramble because you want to sell; you’ve got an order. You start to scramble, that’s when you make dumb mistakes.
Some companies lack understanding of how markets work, like selling to Russia in rubles. The ruble is worthless, yet some countries sell to Russia in rubles thinking it’s still a sale. They think, “I can convert rubles.” Good luck.
They also go with the wrong people. Sometimes it’s better not to sell than to sell to the wrong people.
What does the future hold?
I think in 1999, Ohio will probably see a 3 to 5 percent export growth. What you’ll see is an incredible churning of industries. Across Europe, companies are buying each other. They’re coming over and buying companies here. We’re going and buying companies there. So you’ll see cross-border mergers going up. Walls of trade restrictions will rapidly be coming down, and you will also see greater currency alignment. I think that you’ll see much more rapid economic business cycle, and each cycle will be much steeper than the other ones. But the recovery will be much faster.
The changes are going to be so incredibly rapid that companies must have a context to understand them. There are some fundamentals that don’t change — you have to sell to your strength, you’ve got to have a good product, good high quality, competitively manufacture (and) have good value.
The world in a nutshell
Bank One International Corp. President Darin P. Narayana gives a thumbnail sketch of export opportunities in markets around the world.
“Emerging countries need capital, desperately need capital,” Narayana says. “The reason they need the capital is that they realize for them to survive and create jobs in their country, they need to have a strong infrastructure. They need to have competitive industry. They need to be able to transport.
“To do that, they need investment. They need tons of investment. To attract investment, these countries have got to pretty themselves. The countries that have not done those things were clobb
ered by investors in the last few years.
“These countries went through very rough times. When they did, there were two ways they could have gone. One way is to say it’s George Soros’ fault. It’s the American Jewish investors’ fault, which is what Malaysia said. It’s everybody’s fault, but our own. And therefore we’re not going to change.
All the other countries said, ‘You’re right, we have corrupt banking systems. Our foreign debt is too high. You’re right, we have a lousy currency policy. And you’re right, we need to clean up our act and get (with) the program. These countries have adopted the IMF program, and they have turned around very fast.”
Indonesia
“Indonesia is one of the countries that is rapidly disintegrating because basically the foundation of the country has fallen apart,” Narayana says. “And it has serious problems, with not a single Indonesian country being solvent today.”
Singapore
“Singapore is great, as always.”
Thailand
“Thailand is an interesting story,” says Narayana. “Thailand had a very corrupt economy, a lousy banking system and enormous external debt. Thailand said ‘OK, we give up. We made a mistake. What should we do?’ So Thailand is one of the best markets for American exporters and investors. It’s remarkable how much investment is going into Thailand today.”
Hong Kong
“Everything is good, except the neighborhood is lousy. It’s next to China. And it’s next to Thailand. So it got killed in the process, because people were testing Hong Kong to see if it would maintain the strength of their currency vis-À-vis the U.S. dollar. I don’t think anybody should worry about Hong Kong.”
China
“To me, it’s one of the biggest risk points we’ll look at. China is trying to globalize. Its billion people need the economy to grow about 12 percent per annum for China to be able to make people happy. The only way they can grow at 12 percent is to become an export machine. China is trying to introduce economic policies to make the (more than 200,000) government-owned companies go away.”
Japan
“Japan is an interesting problem in that it is a problem that won’t go away,” Narayana explains. “Japan’s economy has been in recession for too long. It doesn’t seem to get any better.
The reason Japan is in trouble, the fundamental reason is, Japan is a closed economy, a closed society. The banking system stinks. Twenty percent of bank assets are nonperforming assets. You and I’d get shut down in a second if we had that problem.”
Russia
“Russia is in a league by itself. I’ve never seen a more shallow economy in my life. Russia is a dysfunctional society. There’s nothing there. There’s no central bank. There’s no judicial system.”