Trading companies a la Japan? Few US banks plunge in
For years executives of small and medium-size American companies have dreamed of US trading companies - something like those in Japan - which would take the hassle out of exporting.
The businessmen could sell their products to the trading company, collecting cash immediately instead of, perhaps, in six months. They would let trading company salespeople trot about the globe selling their products, dealing with customs and collection problems.
So, when President Reagan passed the Export Trading Company Act in October, permitting bank holding companies to establish export trading companies (ETCs), their hopes rose.
But there has been no rush by the banks to get into the business. In fact, not one has so far. It's considered risky.
''Trading and banking are very foreign to each other,'' and there are a lot of risks involved for a bank moving in the ETC direction, says an executive at a major US bank who prefers not to be named.
''We don't expect a flood'' of banks in ETCs says Guy Fiske, deputy secretary at the US Department of Commerce.
Right now, the general practice for small or medium-size businesses is to work with a middleman, wait for him to arrange financing and distribution of a product, give him a commission, and collect on the sale months later.
Under the new law, a bank's holding company can actually take title to goods meant for export. This means the manufacturer gets paid for the product right away. And there's another plus for the smaller business working with a bank - financing is no problem.
The risks for banks in setting up trading companies were pointed out this week by one Boston banker, Ogden White, senior vice-president of the First National Bank of Boston. Speaking before about 400 manufacturers, financiers, and accountants who gathered to learn about export trading companies, Mr. White said his bank had found the risks of owning products too great and preferred to stick to export servicing.
Product liability, product servicing, and marketing are unfamiliar to banks, he said. ''You must be a product specialist, you must have strong foreign sales and depth of management,'' he warned. ''And you have to be big to be successful. Big is ideal.''
Bigness may be one reason banks considering forming trade companies include such names as Security Pacific, Bank of America, Crocker National Bank, and Chase Manhattan.
''The key marketing ingredient is being able to move products overseas, and not many organizations can afford that,'' says Peter Nelson, who will be forming the export trading company for Bank of America. ''You need overseas infrastructure to build off of.''
Although Mr. Nelson agrees there are many risks involved - learning how to market products being the biggest - he thinks Bank of America has some major pluses in its favor: ''We have a large customer base in California in the middle market (medium-size businesses) and in agriculture. We are closer to the Pacific Basin, and trade between California and the Pacific is large and growing. We want to capitalize on this.''
Nelson added that because of the bank's many overseas branches, ''I've got access to all kinds of people who know products and customers well - and I can grow on that.'' He made it clear that the bank will not retrain its own workers, but will get experts from outside organizations. ''We will have to acquire people who are traders and not bankers.''
At Security Pacific National Bank, based in Los Angeles, a spokesman says the advantage in taking title to goods ''is that you have an equity participation. You accept the risks and set up procedures'' to get around them.
Of the few banks on their way to establishing export trading companies, Security Pacific has gotten the furthest. It is in the final stages of its application with the Federal Reserve Board. The trading company will be 100 percent owned by the bank's holding company, but ''is open to future joint-venture.''
Like its competitor, Bank of America, Security Pacific expects to capitalize on its vast network. It has 43 foreign bank locations in 23 countries and 624 branches in California. It owns the Bank of Canton in Hong Kong.
Will it serve small business?
''Absolutely,'' says Conrad Peterson, a senior vice-president at the bank. But it will also take on large-volume business. ''In the initial stage we will work from our existing base of agriculture, high-tech, and manufacturing customers,'' a spokesman says.
Although Bank of America's Mr. Nelson says small business is ''where we are going to end up starting off, . . . the economics of the business are high volume and low profit margin'' - something that can't always be achieved with a dribble of products collected from many small manufacturers.
This is where regional banks may come in. At Shawmut Bank of Boston, Harold Marsh, vice-president and manager of export financing services, says: ''Small companies - that's where the market is.'' He thinks regional banks with some overseas branches ''will get involved in (product and regional) niches.'' If the concept became reality at Shawmut, Mr. Marsh expects the bank would serve ''the traditional patterns of trade flow out of our area.''