Businesses Learn ABCs of FTZs
SALEM, Ohio – Companies in northeastern Ohio looking to export products to markets overseas, or import components they need to manufacture products here, could reap the benefits from several government programs available to small businesses.
"Ohio does in the range of $42 billion to $43 billion worth of exports each year," reports John Senese, vice president of international operations for Global Trade Group. "A lot of companies are coming to us and asking for help, since many of these companies are now finding they can compete in new markets."
Senese was one of four speakers who made presentations at a seminar on exports and foreign trade zones hosted by the Northeast Ohio Trade and Economic Consortium, or Neotec, Wednesday at Kent State University Salem's City Center.
The Columbiana County Port Authority sponsored the event. About 30 attended.
Global Trade Group, a division of Neotec, was developed for the express purpose of helping small businesses break into foreign markets, Senese said.
In Ohio, the export market has since repaired itself from the Great Recession, he noted. In 2009, exports dropped 20%, but have risen close to pre-recession levels.
"The dollar is weak, so that helps drive exports," he said. China's economy has also weakened over the last several months, allowing U.S. companies to compete head-to-head in other countries. "Overall, it paints a much better picture for companies today than a number of years ago."
Global Trade Group helps companies develop their export capabilities by providing resources such as counseling from executives with international business experience, training personnel, and helping cut through tangled administrative issues such as certification and classifications, he said.
The group's executive on loan program, for example, offers counsel to companies from business leaders with a vast experience in international trade, Senese said. The program calls for this adviser to spend the equivalent of one business day per week with a company, usually over six months, to prepare that business for the world market.
While Senese says the cost -- $2,400 a month – may seem dear to some smaller companies, it breaks down to about $80 an hour, not much more than a mechanic would charge to repair a vehicle.
"The objective is to establish enough base business to expand the company and hire more people," Senese said. "Our goal is to fire ourselves."
The Global Trade Group also works closely with the International Trade Assistance Center, or ITAC, a nonprofit also housed in Neotec's offices at Kent State University's main campus in Kent.
Ryan Sansom, international trade adviser for the ITAC, said the purpose of his organization is to help manufacturing companies increase their business through exporting their products.
The most reliable foreign market for U.S. exporters is Canada, he said, while China and Brazil also present attractive opportunities.
"We meet with the company one-on-one, and then we help them with documentation and compliance regulations," he said. Logistics issues, and how a company classifies its products in foreign markets, are often the biggest stumbling blocks to a successful exporting program.
Failure to pay attention to proper documentation could lead to penalties such as heavy fines, or in some cases, banning that company from exporting their products. "A couple of very large companies recently got hammered because they weren't playing by the rules," he related.
The overwhelming majority of companies – 98% -- that engage in exporting aren’t behemoths such as Boeing, Sansom said, but businesses that employ fewer than 500 people. "The majority of exporting is done by small business," he said.
These small companies often require capital to help move their export programs forward, said Mark Klein, export finance manager for the Export-Import Bank of the United States.
Klein explained that U.S. banks often aren’t receptive to lending money to companies for projects dedicated to export intitatives. They’re more inclined to finance domestic expansion.
"The Ex-Im Bank can help," Klein said. Its export credit insurance program, for example, reduces a private lender's risk on irrevocable letters of credit. Another Ex-Im program, Global Credit Express, can provide a revolving line of credit of up to $500,000 to small companies looking for business abroad.
And, the U.S. Small Business Administration can help these companies secure needed capital.
The SBA's Export Working Capital program, for example, offers federal guarantees of up to 90% on short-term private bank loans up to $5 million, reported Pat Hayes, regional manager for the SBA's Export Solutions Group.
"We were able to help a company in Pittsburgh – a $2 million company – that landed a $16 million order" from an overseas client, Hayes said. The company needed working capital quickly to upgrade its production capacity to accommodate the order.
And, the SBA provides help through its International Trade Loan program, which awards loans toward the purchase of equipment and refinancing debt related to an export project, while the Export Express program can secure streamlined financing of up to $500,000, Hayes said.
"Seventy percent of all exporters in the United States employ 20 people or less," Hayes said.
Those companies that rely on imported components used in manufacturing or resale in the United States can also benefit from federal programs such as a Foreign Trade Zone designation, Neotec's Senese added.
Neotec administers Foreign Trade Zones 40 and 181 in northeast Ohio. These are designated areas in the United States that operate outside of traditional commerce laws of the country, Senese said.
"Companies that work within the zone are able to defer, delay, or sometimes eliminate, duties that are paid on imported products that are used to manufacture something else made in the zone," Senese said.
Should a company import components that it requires to build an engine, for example, import duties on those parts can be deferred, reduced, or sometimes waived, if that company is operating within an FTZ.
"It encourages companies to manufacture in the U.S.," Senese said. "An FTZ program is a job-creation tool that enables companies to be more competitive."
Activity in northeastern Ohio's FTZs are on the rise, Senese said.
A company that may not be able to compete by entirely manufacturing its product in the United States might import a few pieces of equipment and assemble it here, he said.
"They could come up with a product that can compete both domestically and internationally," Senese said. "So, a company that may have been faced with a situation that they had to outsource their entire production to remain competitive, can now simply buy a few parts and pieces of the product and then have the majority source and manufactured in the U.S."
Tracy Drake, CEO of the Columbiana County Port Authority, which holds three FTZs across the county, said the designation has helped companies locating in this region.
"A company called Cinbar brings in a product that has an import duty, but that duty is eliminated if you process it in a foreign trade zone," Drake said. The FTZ designation could save the company $2 million in the near future.
"That's the kind of benefit a company can get if they locate in a foreign trade zone," Drake noted.