By Jim Morehead,
Market Executive, Global Commercial Banking
Bank of America Merrill Lynch
In today’s robust global economy, Seattle-area businesses may want to consider sourcing and selling in foreign markets to grow their business. Whether your company is a recognized technology titan, a growing start-up or a local supplier – plenty of opportunity exists to expand your business overseas.
Washington State’s position in the global economy is strong. According to the Department of Commerce’s International Trade Administration there are 10,901 small and medium-sized goods exporters in Washington. Since 2007 the state’s exports to U.S. Free Trade Agreement partners have grown by 24 percent.
Doing business abroad can produce a terrific return on investment, but managing foreign financial transactions is no easy feat. Fluctuating currency values, foreign bank services, news of tariffs and trade wars, pricing and the differences in time zones may leave you feeling overwhelmed.
Before taking the plunge into overseas business deals, work with your local commercial banking expert to create a global cash management strategy. Below are answers to the six most common questions bankers hear from businesses that want to expand globally:
If I want to take my products or services global, where do I start? Choose a bank with a wide network of international offices that are supported by a local team. Work with them to create a financial strategy, establish global risk management policies and install the right global treasury platform at your office. Too often companies only concentrate on growth and sales, but don’t invest the time and resources in the finances and end up paying for it handsomely in the long run. Taking these steps early on can help create cost savings and lay a solid foundation for successfully doing business in the international market.
How often do I need to communicate with my banker or financial advisor? Set-up regular meetings or calls to leverage the knowledge of your bank. A leading financial institution will provide a relationship manager who is supported by a team of expert researchers and economists that are working to identify trends, daily market shifts and national and global economic forecasts. Put your banker to work. It is their job to help you make the best decision possible.
Do I use U.S. currency or the country’s currency for my transactions? Using foreign currency can often reduce costs, allow you to obtain competitive exchange rates and negotiate more favorable payment terms. Many companies believe they can eliminate foreign exchange (FX) risk by conducting international transactions in their own currency. However, FX volatility risk between two currenciesis always present. By transacting in their home currency, companies end up passing on the FX risk to their suppliers — many of which will charge a premium for assuming the risk or may fail to manage the risk appropriately.
If I am selling internationally, should I accept foreign currency payments? Accepting payment in foreign currency may open new markets with customers who do not have the ability to make payments in anything other than their local currency. Plus, selling internationally in U.S. dollars means your products and services can become more expensive in a stronger dollar environment, and you may run the risk of losing business to local competitors.
Should I open a foreign currency account? It can mitigate foreign exchange risk but is not necessary. If there are no offsetting expenses, companies may be introducing more currency risk because the funds will need to be converted to U.S. dollars at some point. If you do not have a need to hold foreign currency, the bank can often accept it on your behalf, converting it to U.S. dollars and crediting your U.S. dollar account.
Are there other global banking considerations? Yes. Discuss with your relationship manager the risks and rewards of a singular global treasury platform vs. multiple local banks; foreign lines of credit vs. a global credit facility; and moving funds across borders.
In summary, with guidance and planning, you can decide how best to manage your out-of-country assets from your Seattle headquarters.