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California Companies Hope Exporting Goods Will Expand Business - 2001-09-26


U.S. consumer confidence is at its lowest level in five years, and analysts say the current economic slowdown in the United States could have a global impact. However, some countries should weather the downturn better than others. California officials are telling companies to look overseas to expand their business during the slowdown.

Some countries like Mexico that rely on U.S. trade are already in recession. With the U.S. economy slowing, U.S.-Mexico trade is likely to decline in coming months.

In fact, most U.S. trading partners will experience the impact of a declining U.S. economy. Some analysts say world economic growth may drop by two percent. Some countries, however, will feel the impact less than others.

Analyst Jack Kyser of the Los Angeles Economic Development Corporation says the United States will continue to have substantial trade with China, most of it moving through California. China's economy grew eight percent last year. With the country's expected entry to the World Trade Organization, the growth should continue, if at a lower rate.

Mr. Kyser says California is home to many immigrant traders. Some are Chinese and are based in a part of suburban Los Angeles that is heavily Asian. "If you go out to the San Gabriel Valley, you're going to find a very active immigrant business community, and they are importing and exporting," he said.

Local trade officials say other companies should follow that example. The economy of Los Angeles is based on small and mid-sized companies, which have fewer than 50 employees. Most of the companies sell only in the domestic U.S. market. Karen Scuncio is a consultant for the Export Small Business Development Center, which helps small manufacturers ship their products overseas.

"We have a lot of the action sport companies that have been very successful overseas with skateboards, apparel, surfboards, all the things that the young people around the world look to California in particular," she said.

Ms. Scuncio's colleague, Ed Bretz, helps business owners get the financing they need to become exporters. And financing, he says, is the key to successful trading. The greatest risk is that a seller will ship his product overseas and not be paid by the buyer. That sometimes happens when payment is made under terms known as "open account."

"Open account, of course, is the best way for the buyer because he receives the shipment and promises to pay in 30, 60 or 90 days," he said. "We call it 'ship and pray.' But a letter of credit would be much better."

Much safer for the seller: Having a buyer obtain a letter of credit from a bank, which guarantees payment.

In times of global uncertainty, there are heightened risks in the import-export business. One executive of a financial services company says the Asian financial crisis of 1997 showed that letters of credit are useless in a broad financial failure. His company, the French firm Coface, analyzes trading risk and issues trade insurance covering losses from non-payment. The firm now sells those services to companies of any size over the Internet.

"A company that works in a country that experiences a shortage of currency, for instance, may prevent the company from paying and honoring its commercial debt," said Daniel Boccara, president of Coface North America. "So separating credit risk and political risk is becoming more and more difficult, and the Asian crisis has absolutely highlighted this issue."

The import-export market is not an easy one for U.S. firms accustomed to a stable domestic market. With international sales, there are pitfalls in the form of trade barriers, monopolies that dampen competition, and consumer tastes that vary from country to country.

But trade officials say that California companies, ranging from producers of entertainment to the makers of vitamins, are selling their products overseas, and in this economic downturn, other companies should also look to foreign markets.

They say China is one good prospect. India is another. That nation is a minor U.S. trading partner, but it may not feel the impact of a global financial downturn as much as other Asian countries, according to a report by the International Monetary Fund.

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