I thought some of you might be interested in (what has proven to be) a rather efficient approach to dealing with an international trade issue. This is a basic skeleton for a strategic approach to the issue, not purporting to be an exhaustive treatment.
Defining Intelligence Needs
Before formulating a strategy, intelligence must be gathered. Before gathering intelligence, the intelligence needs have to be well defined. Here are some examples of intelligence needs categories and scopes leading to proper definition of such needs:
Corporate structure
- Levels
- Leadership
- Functions
Financial
- Available credit
- Bank procedures
- Equity
Management
- Is client an intermediary at the mercy of his end-clients
- How does he handle quality claims issues
- Does he have enough and adequate resources for the business it’s doing
Leaders’ psychology
- Habits
- Hobbies
- Ideology
- Family
- Pets
Environment
- what is going on in the market in that region at that point in time
Gathering Intelligence
1. Secondary Research
a. Remote
- Web search starting with the company website, search words being the name not only of the company but of its shareholders and leaders
- Information especially about SMEs from underdeveloped countries is very hard to find on the net
b. Local
- ON the ground you might get tips on websites that don’t show up in the first pages of the google search
- Locally you might have access
2. Primary Research
a. Remote
- phone interviews with partners and sympathetic parties with direct knowledge of infringing party
b. Local
- Visit offices and production
- Interview staff
- Interview leader
- Take pictures of people, offices and merchandise
- Interview local partners
- Try to get on the Network in order to view valuable information
Establishing Risks beside the issue at hand
1. Financial
- Too tight on the finances, if one of his clients doesn’t pay, his suppliers are in trouble
- Bad investments draining cash flow
- Equity depleted, danger of bankruptcy
2. Operational
- Not enough or appropriate resources to handle transactions properly – leads to errors
- Does not insure his clients so if they don’t pay it will break him
- Frequent quality claims for the purpose of delay or non-payment
3. Market
- If market is going down, there is a risk that the customer will find reason to annul the contract
- Customer’s customers are annulling contracts and he is forced to cancel with you
- Difficult local import or banking bureaucracy
Gaining leverage in order to avoid risks
- If you represent 30% or more of his supply, you might have leverage with cutting off supply
- If you know that your shipment is going to a particular important client of your customer, threaten to hold off
- If you can, purchase merchandise from the infringing party and offset the invoices
- Have SGS inspection before sending off merchandise in order to avoid quality claims
Usually the issue will be one of delayed or refusal of payment for any reason outlined above in the risk section. Many responses are available, including legal action, however all the risks need to be taken into consideration because one action from you can trigger a response from the infringing party corresponding to one of the risks identified that could in turn trigger some of the other risks and ultimately lead to a failed enterprise. In fact, one has to identify a dominant strategy in the situation, a strategy that no matter what the response, it will lead to a satisfactory result for you.
Soon we will look at the tactics involved in the execution of a dominant strategy, because even though the perfect strategy might be outlined, execution can make it or break it.
Monday, February 22, 2010
Friday, February 12, 2010
Erratum
A small correction for those die-hard Bruce Lee fans: he was not born in Hong Kong but rather in San Francisco. However, he did grow up from his infancy in Hong Kong.
Tuesday, February 9, 2010
Birth place of Bruce Lee
For those of you who are fans of Chinese Kung-Fu cinema, I must let you know that I have made it (safely but painfully) to Hong Kong, the birthplace of the one and only, Bruce Lee. I believe Bruce Lee really represents the resilience of this people, who have not only survived, but thrived over centuries of colonization and oppression, in a little enclave, surrounded by super-powers. I would think Singapore is similar (and according to their history, it certainly seems so). Singapore has become the thriving, modern city that it is today in the past 40 years, right after its emancipation in 1965 (it had already its own government in 1959 but had a short affair with Malaysia). Of course, the same party, the PAP (People's Action Party) founded by Lee Kuan Yew has been in power ever since, but in this case the authoritative regime has proven itself to be beneficial to this mixed bowl of cultures and religions. I will be staying in Little India and the Muslim quarters, so it should not be too unfamiliar from my days in Africa.
Monday, February 8, 2010
Adventures in dairy trading...
So, speaking about financing international trade... it also comes a time when, after financing something and going overboard with confidence, we have to also make sure that the financing comes back. I am talking about clients paying late (or defaulting completely), of course, something that is extremely complex in international transactions that are not expensive enough to start legal proceedings in a foreign jurisdiction (cost-benefit analysis with the cost of legal counsel, trips and time value of money). The key phrase is "carrot and stick" - always make sure you have something to either attract with or hit with. But, most importantly, make sure that you always do business with partners with whom you want to build a relationship. In that case, getting over such issues becomes something positive, a hurdle that has to be overcome together, and once overcome, it will make the relationship stronger, it will make you understand each other's ways better and work better together.
Of course, the ideal would be not to get there, and the key word for this is business intelligence - the far reaching effects of good business intelligence in international trade and the role of technology in this. I am presently on my way to Singapore in order to collect, and I will try to use this experience in order to outline a bit the points mentioned here above. I hope y'all have some fun, 'cause I sure as hell am not!
Of course, the ideal would be not to get there, and the key word for this is business intelligence - the far reaching effects of good business intelligence in international trade and the role of technology in this. I am presently on my way to Singapore in order to collect, and I will try to use this experience in order to outline a bit the points mentioned here above. I hope y'all have some fun, 'cause I sure as hell am not!
Wednesday, February 3, 2010
Wishful thinking...
So I promised a new piece, but in the mean time life had caught up with me and my noble desires did not materialize; for that I apologize. However, I never default on my word...
Operating an international trading house in Canada, especially in Quebec, is not an easy thing to do. SMEs that provide export and import services to local manufacturers and distributors are very important agents of development, fighting Quebec's dependence on exports to the US, especially in times of crisis, like we have seen recently, and providing competitive sources of supply for local manufacturers and distributors. First of all, export service companies or trading houses, have been agents of economic development since the beginning of modern economy: the first chartered company ever to issue shares traded on a stock market was the Vereenigde Oost-Indische Compagnie (VOC) (literally "United East Indian Company") in 1606. This was a major trading company for Asian spice and its stock was traded on the Amsterdam Stock Exchange. It had the approval of the King and a monopoly to carry out its activities. This has allowed it to become one of the (at that time) world's richest companies and to spread the Dutch influence to the farthest reaches of the world. This legacy remains in the policies of the European governments toward international trading companies and the type of terms banks give to these companies, however we are quite far from that legacy, here in Canada, despite the fact that we are a nation built on trade!
I am not a banker, so I do not claim to have a perfect vocabulary with regards to the banks services and procedures. This however, is the case for most SME's, so at least I will try to paint the picture from their point of view. From what I understand, banks in Canada have two main types of financing models: asset based or equity based financing. This means that a service SME can't really use the first one (because it has not assets) and the second one is really dependent on its receivables. If things are properly done, the accounts receivable are already secured by credit insurance or by the way that ownership to the merchandise or service is passed (documents only sent if the payment is received, otherwise there is a retrade). So even if the receivables themselves are secured, and the accumulated equity of the company (we must specify "accumulated" because otherwise a banker will say that the equity is the receivables minus the payables). In fact it is receivable minus payables, but add the retained earnings and capital, then you have the real equity on the basis of which the bank finances. So, when you look at this equity, the banks in Canada only finance one-to-one or maximum two-to-one (1$ of loan for 1$ of equity). However, the European banks finance three or four-to-one, because they know that those receivables are already secured (see previous post for explanation), thus giving their European customers much greater power of trade. Moreover, us, Canadians, we are on the safe side, always. This the credit insurance we have from EDC is more conservative and solid, but also costs a lot more money, no mater who you are. In Europe, Coface routinely insures the customers of equivalent companies for a fraction of the cost.
When you add to the previous point the historical perspective that Canadian exporters are lazy because they have as their neighbor the biggest consumer in the world and therefore they don't have to force themselves to export to more challenging (but possibly rewarding) destinations, you have a recipe for international trade paraplegia. The lonely crusaders in this are the Canadian trading houses, especially the smaller ones. Of course, we are big grain and lumber exporters, and the Canadian Wheat Board could be considered as a very important and successful trader, but they, just like the United East Indian Company, have a monopoly. This is a privilege reserved to the rich and the shameless, but the Quebec economy runs on SMEs so we have to find more human-sized solutions for them. This is where the trade houses could help local manufacturers take their products farther into the world, help them get into deeper trading territory,because they would have the knowledge, the finance and the logistics to do so. This is indeed some wishful thinking...
Operating an international trading house in Canada, especially in Quebec, is not an easy thing to do. SMEs that provide export and import services to local manufacturers and distributors are very important agents of development, fighting Quebec's dependence on exports to the US, especially in times of crisis, like we have seen recently, and providing competitive sources of supply for local manufacturers and distributors. First of all, export service companies or trading houses, have been agents of economic development since the beginning of modern economy: the first chartered company ever to issue shares traded on a stock market was the Vereenigde Oost-Indische Compagnie (VOC) (literally "United East Indian Company") in 1606. This was a major trading company for Asian spice and its stock was traded on the Amsterdam Stock Exchange. It had the approval of the King and a monopoly to carry out its activities. This has allowed it to become one of the (at that time) world's richest companies and to spread the Dutch influence to the farthest reaches of the world. This legacy remains in the policies of the European governments toward international trading companies and the type of terms banks give to these companies, however we are quite far from that legacy, here in Canada, despite the fact that we are a nation built on trade!
I am not a banker, so I do not claim to have a perfect vocabulary with regards to the banks services and procedures. This however, is the case for most SME's, so at least I will try to paint the picture from their point of view. From what I understand, banks in Canada have two main types of financing models: asset based or equity based financing. This means that a service SME can't really use the first one (because it has not assets) and the second one is really dependent on its receivables. If things are properly done, the accounts receivable are already secured by credit insurance or by the way that ownership to the merchandise or service is passed (documents only sent if the payment is received, otherwise there is a retrade). So even if the receivables themselves are secured, and the accumulated equity of the company (we must specify "accumulated" because otherwise a banker will say that the equity is the receivables minus the payables). In fact it is receivable minus payables, but add the retained earnings and capital, then you have the real equity on the basis of which the bank finances. So, when you look at this equity, the banks in Canada only finance one-to-one or maximum two-to-one (1$ of loan for 1$ of equity). However, the European banks finance three or four-to-one, because they know that those receivables are already secured (see previous post for explanation), thus giving their European customers much greater power of trade. Moreover, us, Canadians, we are on the safe side, always. This the credit insurance we have from EDC is more conservative and solid, but also costs a lot more money, no mater who you are. In Europe, Coface routinely insures the customers of equivalent companies for a fraction of the cost.
When you add to the previous point the historical perspective that Canadian exporters are lazy because they have as their neighbor the biggest consumer in the world and therefore they don't have to force themselves to export to more challenging (but possibly rewarding) destinations, you have a recipe for international trade paraplegia. The lonely crusaders in this are the Canadian trading houses, especially the smaller ones. Of course, we are big grain and lumber exporters, and the Canadian Wheat Board could be considered as a very important and successful trader, but they, just like the United East Indian Company, have a monopoly. This is a privilege reserved to the rich and the shameless, but the Quebec economy runs on SMEs so we have to find more human-sized solutions for them. This is where the trade houses could help local manufacturers take their products farther into the world, help them get into deeper trading territory,because they would have the knowledge, the finance and the logistics to do so. This is indeed some wishful thinking...
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