Last May, Delta Brands Inc., a $15-million manufacturer of metal-cutting machines in Irving, Tex., received from the Marine Midland Bank a loan of $749,700, 90% of which was guaranteed by Eximbank. Delta obtained the funds to help build a steel-cutting machine ordered by China National Macbinery Import and Export Corp. in Beijing, Cbina. The benefit of the loan guarantee is a lower interest rate and access to funds required to manufacture the $1-million machine, explains Al Goldstein, vice-president of Crown International Trading Corp. in Melville, N.Y., which administers Delta's export financing.
Besides the guarantee program for working-capital loans, Eximbank recently announced that interest rates will be reduced 1% on its Medium-Term Credit Program and its Small Manufacturers' Discount Loan Program (for manufacturers with annual sales of less than $25 million). Both programs allow U.S. banks to extend fixed-rate export loans to foreign purchasers, with the assurance that Eximbank will cover the loans. Eximbank offers a standby commitment that, if the cost of money or interest rates rise, the U.S. bank can borrow from Eximbank at a discount rate. Another potential boost is legislation now before Congress that requires Eximbank to set aside 5% of its resources in 1984, and 10% in 1985, for small businesses.
Some critics complain that the Export Trading Company Act fell short and that U.S. companies need more financial incentives for exporting. "Certain people wanted handouts," notes Johnson. "Others wanted tax breaks. Neither was realistic." First, he explains, Congress wanted private industry to take the initiative and was against providing "programs and gifts." And second, tax benefits for exporters violate the General Agreement on Tariffs and Trade, a code of conduct for international trade.
While critics air complaints, a small but growing number of businesses, banks, trade associations, state governments, and even municipal port authorities are taking interesting steps to develop exporting:
* The State of Tennessee recently enacted legislation forming Tennessee Competitive Export Corp. (TCEC), which will help the state's small businesses take advantage of federal export finance programs offered by Eximbank, the Federal Credit Insurance Association, and the Small Business Administration. "Many companies either do not know about these programs or cannot face the monumental task of completing the applications in time," says John Walker, director of the Tennessee Export Office. TCEC has a nine-member board made up of business and government representatives. TCEC's first step will be to send people to Washington, D.C. to study government financing programs. Upon returning, they can identify good prospects and help companies prepare applications before visiting the bank.
* A regional bank holding company, State Street Boston Corp., has notified the Federal Reserve Board of its intention to form an ETC. If no action against the proposal is taken by the Federal Reserve for 60 days, State Street Trade Development Co. plans to offer export assistance to small and medium-size companies with sales of $10 million to $100 million -- "the same companies we want as our banking customers," notes Alfred S. Woodworth Jr., senior vice-president and chief financial officer of the new group. State Street's new subsidiary will work with companies to identify appropriate international distribution networks and will assist in their management.
* In Iowa, seven companies -- Ruan, Agri Industries, Iowa Beef Processors, Maytag, Townsend Engineering, Pioneer Hi-Bred International, and Winnebago Industries -- have formed lowa Export-Import Trading Co. Spearheaded by John Ruan, one of the state's most prominent businessmen, with interests in banking, insurance, and transportation, the trading company is designed to pool the exporting experience of its founders in serving small and medium-size companies in Iowa. While the seven founders enhance their public images by investing in a good cause for the state economy, small businesses see tangible, bottom-line results.
Prince Manufacturing Corp., in Sioux City, has exported hydraulic cylinders, pumps, and valves for over 20 years, but exports represented less than 2% of sales.
We just didn't have the manpower" to go after orders or work closely with foreign sales agents, confesses Roland D. Junck, president of the $25-million company. Last Spring, Junck signed an agreement to export through lowa Export-Import Trading Co. Now all inquiries and quotes art sent directly to the trading company. Prince's first order: 10 pumps to South Africa for an agricultural project.
* An increasing number of multinational companies, including Sears, Roebuck & Co. and General Electric Co., are forming their own trading companies. Although they are just getting rolling, these subsidiaries will look for products and services produced by small and medium-size businesses to expand their lines.
Last summer, when Sears World Trade offered its trading arm to Paybauler Corp., a recently incorporated manufacturer of off-road trucks, the company agreed to accept the deal. Like Prince Manufacturing, Payhauler had exported, but there were problems, "not the least of which was the complexity of domestic requirements and bureaucracy," says E. A. Domes, vice-president of technology for the Batavia, Ill., company. "We saw the opportunity of using Sears as a conduit to make things happen." Ronald Guerriero agrees that piggybacking with multinationals will be profitable at first, although he predicts that once the volume increases, companies will strike out on their own.
"All this activity is healthy and yeasty," says Charles Allen of Boles & Co., who predicts a "goldrush" in trading, particularly as more banks become involved in ETCs. In the wings, he says, stands a service industry of lawyers, accountants, and consultants ready to spring for a share of the business. At recent Department of Commerce conferences to promote export trading companies, more than half the audience consisted of a hodge-podge of bankers, lawyers, accountants, and consultants. Says Guerriero, "There was a lot of hustling going on during the coffee breaks."
