Small Exporters Turn Their Size Into A Big Advantage

Agile exporters to Asia are quickly adopting survival strategies

Let the billion-dollar multinationals fret about the strong dollar, the bad loans made by Japanese banks, and the recession that holds Asia in its grip. Smaller U.S. "mininational" exporters--toolmakers, dredging companies, even companies peddling cheesecakes to restaurants in Thailand--are convinced that the surging dollar and the Asian economic crisis, though painful, won't derail their global growth.

True, like their larger brethren, small U.S. exporters are seeing their customer base--often companies with ties to big-ticket government infrastructure projects--dry up in Korea, Malaysia, Thailand, and across the Pacific Rim. And their products are getting too pricey compared with those of overseas rivals. But anecdotal evidence suggests that the mininationals are moving swiftly to offset the damage. "[Overall] manufacturing exports haven't slowed from plus 10% to minus 10%. Those exports are still growing a little bit," says Rosanne M. Cahn, chief economist in Credit Suisse First Boston's equity department. "We've had a global recession in the '90s, and this is nowhere near that."

Viewing Asia as a short-term problem, many companies with sales under $500 million are developing a variety of coping strategies--mostly aimed at avoiding Asia or restructuring relationships there to provide protection against potential bankruptcies of Asian partners. For example, Chicago's Aerotek International, which makes hydraulic hose repair systems used in industrial construction and mining, cut 50 of its Asian distributors, says President Larry J. Peterson. Aerotek, which gets 75% of revenues from international sales, then set up a company in Singapore to market its product. The switch lets it weed out financially weakened customers and avoid possibly unstable middlemen.

Besides developing their own distribution networks, mininationals are also insisting on bank-backed financing agreements to reduce losses on receivables. In effect, they are abandoning "open account" financing in which a business relies on its customers to pay up in good faith. These new requirements are aggravating already tight financing conditions in Asia but provide some protection for U.S. companies from losses when customers can't pay.

SHIFTING FOCUS. But most important, smaller companies are redirecting their efforts from Asia to healthier markets in Central and South America and Europe. "If your buyers are taking more time [to pay], then a small company has to find buyers elsewhere," says Eileen Cassidy, director of international trade for the Small Business Administration, which in 1997 saw 30% of its export capital go to companies trading in Asia. But owing to the Asian crisis, Cassidy expects Latin America to move up in the standings and Europe to take the No.1 slot by the end of 1998.

The switch began in October, 1997, when many small companies began looking to Mexico or Brazil rather than Thailand or Singapore for growth. One result: The construction industry reports sales to Mexico grew 143% in the first quarter over the same period a year ago.

Producers of everything from pollution control equipment to candy are shifting their focus. Take Marc Schulman, president of Eli's Cheesecake Co. in Chicago. He's been selling cakes to Asian restaurants and hotels, but demand has slipped. So he's fine-tuning his distribution system, while eyeing other regions to take up the slack. "The pace of opportunities [in Asia] is slowing down," he says. "But I wouldn't say we're walking away."

Who can afford to? "If Asia was a small market, you'd walk away. But it constitutes nine countries with 500 million people and a GDP of nearly $1 trillion," says Ernest Z. Bower, president of the U.S.-ASEAN Council.

Small manufacturers are also aware that while they can reduce their presence in Asia, they can't avoid competing with Asian rivals and their heavily discounted products. In Latin America, toolmakers are seeing 15% to 20% price cuts on Korean and Japanese products. "People who are optimistic about export opportunities seem to forget about the strength of the dollar," says Andrew B. Bernard, associate professor of economics at Yale University's School of Management.

And to be sure, scores of manufacturers are licking their wounds. Some of the most badly wounded are makers of electronic components, such as Interconnect Devices Inc. in Kansas City. President Edward Schifman says sales to Asia made up 35% of his revenues last year, but business in Korea alone is off 95%. "I don't see it getting any better. I'm very pessimistic," he says. While Asia's dependent electronics makers can't find a place to hide, other mininationals are keeping one step ahead of the crisis.

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