The minuses include false starts and fizzles. Many millions in state trade funds, for example, have gone to offices overseas -- most of which were founded to attract foreign investment, not encourage U.S. exports. And while plenty of states have authorized export-financing programs, only a handful have gotten around to funding them. Then too, there's the occasional initiative -- like shared foreign sales corporations, or FSCs -- that's just plain misguided.
The future? Let's hope, in this alphabet-soup world, that we'll see more CEFOs and fewer shared FSCs.
CEFO:
Loan guarantees for small exporters
Robert and Linda Bernstein don't look much like the owners of a multinational business. And they might not be, if they didn't have a sociable accountant.
Robert Bernstein has run SeaSpace, a small oceanographic research and consulting firm in San Diego, for the past seven years, with Linda joining him in 1987. At that time the company was ready to start marketing its first product, a $200,000 system that provides scientists with real-time data from weather satellites. The market -- government fisheries and university and government laboratories -- is small in size but global in scope: one of the Bernsteins' earliest orders came from a major lab in Taiwan.
Filling that order posed a problem. As a small business, SeaSpace couldn't finance the components it needed to build the system. Nor could the Bernsteins find a bank interested in a six-person company's first export deal. Until, that is, their accountant met somebody at a cocktail party who worked for CEFO.
With $2 million in initial funding and $131 million in export sales to its credit, CEFO is the largest and one of the most successful of state export-finance efforts. Although managed conservatively -- in four years it has had only 3 defaults on 163 loan guarantees -- its sole mandate is to help smaller companies get short-term financing for specific export transactions. As a result, CEFO is willing to offer guarantees of up to 85% to well-managed exporters whose financials scare off banks. The agency's specialty is preshipment guarantees, such as the money for the Bernsteins' system components. But it also does some postshipment guarantees -- situations in which payment is delayed, for example.
CEFO guarantees aren't unique: the Ex-Im Bank, in Washington, D.C., also offers working-capital guarantees. But the Ex-Im Bank uses a company's financials as the cornerstone for its decisions, and its average turnaround time is four to six weeks -- if an application has no problems. CEFO can be considerably more responsive, and it has the advantage of a network of bankers around the state to which it can steer customers. "They've got some good people over there," says Bruce Tower, a trade finance officer at Bank of Credit and Commerce International, which has taken several CEFO-guaranteed loans. "We respect their cautious approach."
That approach involves a good deal of due diligence -- and paperwork -- along with a fee that's usually about 1% of the guaranteed amount of the loan. And CEFO can ordinarily guarantee no more than $350,000. Still, its clients see the organization as professional, cooperative, and aggressive about financing growing exporters. "They're wonderful," Linda Bernstein insists. "It's just so different from working with any other government bureaucracy that it's amazing."
If CEFO is so wonderful, how come the Bernsteins hope they may soon stop using the organization? Well, thanks to
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CEFO, SeaSpace now has a working relationship with a bank, and even wonderful help is not as good as being self-sufficient.
Shared FSCs:
Poor idea, poor execution
Not so long ago, FSCs (pronounced fisks) were being hailed as "potentially the most effective export promotion tool ever." These days, that potential doesn't look so hot: only about 35 companies are involved in shared FSC programs.
Thanks to a 1984 law, U.S. companies can exempt 15% to 30% of their export profits from domestic taxes by setting up a paper corporation -- a FSC -- abroad. Since up to 25 exporters can share ownership of a FSC, the accounting firm of Price Waterhouse figured that a state could set one up on behalf of small local companies, thereby reducing each company's administrative costs. In 1986 Price convinced five states to pay in the neighborhood of $50,000 each to study shared FSCs.
What did these states get for their money? Not much. For one thing, the tax issues surrounding shared FSCs weren't cleared up until last October. In addition, Congress had already made it easier for small companies to operate FSCs than for big ones. When Price got into the act, its FSC didn't fit the small-company exemption -- and so it was no cheaper than a solely-owned FSC a small company could create on its own.
Since a tax break is a tax break, the few companies participating in the shared FSCs will still benefit. And Price Waterhouse soon hopes to provide shared FSCs that would qualify for the small-company break. Meanwhile, a competitor, Owens International Credit Inc., in Clearwater, Fla., wants the states to promote FSCs in general, shared or not.
