Border grossing; Michigan companies going global find benefits can top barriers.(Company overview)

Byline: CHAD HALCOM

Believe some or none of what is heard about the roadblocks to entering foreign markets, as Michigan regains its export prominence and small business opportunities grow with it.

Michigan businesses sold $44.5 billion in products and services to overseas buyers in 2010, up 36.3 percent from 2009, according to the International Trade Administration and U.S. Census Bureau. That's enough to climb from No. 9 to No. 7 in state rankings.

If the manufacturing recovery continues, Michigan could regain its top-five rank this year, said John O'Gara, regional manager of the export solutions group for the U.S. Small Business Administration at the Export Assistance Center in Detroit.

Some 10,651 of Michigan's 11,796 exporter companies were small or midsize enterprises with fewer than 500 employees in 2008, the most recent year for which data are available, according to ITA. They maintained about a constant 32 percent share of export values nationally from 2008 to 2009, suggesting second-stage companies grow with the export market.

Local business owners are getting that message, and participation has increased again in trade missions, business-matching services and educational programs, according to O'Gara and Noel Nevshehir, director of international business programs at Troy-based Automation Alley.

Nevshehir said business participation in Alley-organized trade missions to other countries was up 15 percent in 2010 over the preceding year, and membership in the Alley's International Business Services Advisory Council has grown from 35 to 42 in recent years because of growing export interest.

But the prospect of going global can be intimidating, as myths and cautionary tales deter businesses from adding customers, supply chain agreements or overseas sales forces.

To shine light on some of the finer points of going global, Crain's spoke with locally based business owners experienced in the ways of international business, as well as people whose job it is to support them. Following are six common misperceptions about what it takes to pick up overseas business, and advice on addressing the underlying issues.

Myth: Thrive at home first

-- Small or growing businesses should have a sustainable domestic profit margin first, before looking at overseas markets. Not necessarily, said Bob Sullivan, founder and president of The Wireless Source Inc., which has about 45 employees in Bloomfield Hills and five in Canada.

The company collects secondhand mobile devices from consumers who trade in phones when changing or updating their call plans. He then sells the devices to other companies to refurbish for emerging markets. The company reported close to $20 million in global revenue for 2010.

The Wireless Source originally sold devices in Latin American markets through trade representatives in Miami, but international business accelerated drastically after the company participated in a 2003 Automation Alley trade mission to China and in the U.S. Department of Commerce's Gold Key business matching service.

Sullivan said not every business needs to build a large domestic market base before going global.

"Our business growth and the success of our model (are) directly attributable to what we've been able to add in overseas markets," he said. "After the trade missions, we had choices on who to sell to in other markets. That, along with the Internet, is what really started changing businesses. Now we can find anyone and they can find us."

Myth: Banks won't go for it

-- Banks are leery of financing expansion into foreign countries, where the assets are difficult to collateralize. This is definitely a manageable problem, O'Gara and Nevshehir said.

Banks are still reluctant to offer lines of credit based on foreign receivables, or to finance acquisition of foreign assets that are difficult to collateralize. But the government has several programs to make lending easier.

The SBA has the federal Export Working Capital Program, which offers a loan guaranty of up to 90 percent on export-related financing to facilitate private lending, but O'Gara said that program is mainly limited to financing for labor, materials and expenses directly related to an export production order.

Small-business borrowers who have been in business at least one year may be eligible for the more expedited Export Express program, which offers loan guarantees of up to 90 percent on working capital loans up to $350,000, or 75 percent on loans from $350,000 to $500,000. The program is generally faster than EWCP, with an SBA response in 36 hours or less, and allows greater borrower flexibility to follow its own business procedures.

The Export-Import Bank of the United States also provides insurance to companies and banks to reduce risk of non-collection from foreign buyers.

"It makes the exporter more competitive. And for lending purposes, it turns that foreign receivable into an asset that can be included in the exporter's borrowing base," O'Gara said. "If I'm the business owner, in that position I now have more potential lending capital available."

A U.S. company can also put its lenders at ease through the right wording in overseas supplier contracts, said Michael DiMichele, president of Farmington Hills-based Cinetic Automation Corp., an engineering, research and testing services company for automotive and defense customers. Cinetic is a subsidiary of French industrial conglomerate Fives Group.

Cinetic, which has 150 employees and about $70 million in global revenue, recently began work on engine testing cells to monitor engine performance in Pune, India, as a service supplier to General Motors Co.

"We've never really had trouble with the banks. The only thing we have to make sure of is that maybe the contracts have terms within them so that claims can be arbitrated in the U.S. or U.K. or similar markets," he said.

"You really want to secure your arbitration in the U.S., in a forum the bank can have access to, versus in emerging markets where they don't have access or legal representation."

Myth: Culture gaps are too wide

-- Executives or major stakeholders in certain Asian cultures are deferential and agreeable, leading you to believe you have reached a deal when you haven't. This concern has more merit, said DiMichele and Denise Yee Grim, executive director of the Asian Pacific American Chamber of Commerce. But bridging the cultural gap really comes down to patience or commitment.

"'Yes' doesn't always mean approval. 'Yes,' often just means, 'We understand your position' or 'we heard you.' You really have to focus on the details going overseas. Americans do things differently than Germans, other Europeans, Mexicans -- and in Asia some of the norms are very different," DiMichele said. "The key is trying to understand the culture and still getting the work done."

Yee Grim said Asian companies focus on building relationships over time, and this can clash with the American tendency to get deals done efficiently or to save on costs of repeated visits to court an Asian customer.

"You have to build the relationship first. ... The chairman may agree to dining with you. But then after dining, it's karaoke time and they're singing, and if you and the CEO get up and sing together, they remember that.

"It can take a lot of trips before suddenly the local executive says, 'OK, now let's talk (about a contract).' They may need a few months. But the conversation will continue."

Myth: Red tape is everywhere

-- Entering new foreign markets can be hopelessly bureaucratic. Regulatory hurdles and entry costs vary with the country or the latest trade agreements with the U.S., Yee Grim said. Like businesses, larger countries may be more intractable and small ones more flexible.

"China and India can be very bureaucratic. In China, you do have to remember it's still a communist country. And India has the largest democracy, but it's a different kind," she said.

"But in the smaller countries like Vietnam, Thailand and Korea, we're seeing heavy movement into the automotive industries, and with free trade agreements, some of these have been much easier to enter. Some of the markets are a little hungrier."

Nevshehir said entering any foreign market comes with its own cost-benefit analysis.

"With every country, you have your opportunities and your challenges. It's a question of whether the opportunities outweigh the challenges."

Myth: Poaching can't be stopped

-- Intellectual property is too hard to protect in foreign markets. The climate on I.P. in Asia is much better than it used to be, local business leaders said, but the perils of poaching remain.

"In many ways, China is finding religion when it comes to I.P., because with the growth of their markets they're building brands of their own that they need to protect," Nevshehir said.

"But people should still assume if they go to China that someone is going to try to poach the technology. Even if you have an airtight agreement in place, you've got to enforce it. And when you don't have home-field advantage, it can be an uphill battle in the courts."

Sara Coulter, director of the Detroit Export Assistance Center for the Commerce department, said the agency offers an overview of the I.P. legal climate of most countries as part of the Country Commercial Guides, available online at the U.S. Commercial Service's website.

"These are updated annually along with the whole political and economic background, as part of the primer on doing business there."

Myth: Small biz isn't up to task

-- Payment mechanisms or regulations on foreign companies can be too difficult for a small business to manage. Ramsey Sweis, founder and president of Aqaba Technologies Inc. in Sterling Heights, said his digital marketing and search optimization company can arrange payments online and even interact with most clients by Web conferencing to cut down on travel while developing its promotional products.

For the most part, the company relies on credit card transactions or automated clearing house debit payments.

"We have had to learn the hard way. But I have not had an issue lately, from a standpoint of collecting or billables," he said. "Our mode of billing is either ACH (automated clearing house debit) or credit. We take a deposit, like a retainer, and after a milestone a second payment is made, then a final payment upon the final release of software."

Aqaba has nine global employees and is on pace for revenue of about $1 million this year, Sweis said.

Coulter also said many companies need to overcome irrational fears about billing or licensing requirements. Export licenses are necessary only for some regulated commodities like high-tech goods or defense-related items, or when shipping to a country under a U.S. trade embargo or other restrictions.

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