ExIm Bank debate & your international sales growth - should you care?

Ed Marsh | Apr 6, 2015

export_finance_and_international_sales_growth

To reauthorize or not?

The Export-Import Bank of the United States (@ExImBankUS) is "the official export credit agency of the United States. Our mission is to ensure that U.S. companies — large and small — have access to the financing they need to turn export opportunities into sales. Ex-Im Bank does not compete with private institutions. We fill gaps in the trade finance market by working with lenders and brokers to ensure that U.S. businesses get what they need to sell abroad and be competitive in international markets."

The bank operates under a charter from the US government which periodically is reviewed by Congress for reauthorization.  Those reviews are becoming increasingly contentious, and last September the charter was simply extended temporarily (rather than reauthorized).  The volume and pitch of the public debate is rapidly rising as the June deadline nears.

The assertions and allegations are flying, and it's honestly hard for folks who are head-down hard at work growing revenue globally (domestically and internationally) to wade too deeply into a politically charged debate.

But what's the point?  Who's right?

As so often happens, the very reason that the debate is so shrill, and positions intransigent, is precisely because both sides are right.

Waste, fraud & abuse | risk | cronyism | trade barriers

Those who are exasperated with the bank cite reports by the GAO and IG which document a number of disturbing cases of misconduct.  Through congressional oversight, numerous regulatory remedies have been directed in the past, many of which the bank is accused of failing to implement.  (This article provides a very specific list of such issues.)  And in an oddly provocative move the bank recently reduced the statistics and data it provides - prompting some to suspect that the data contained information which the bank believed would bolster its opponents' arguments.

Boeing is also a lightning rod for the debate as a result of major protests by Delta Airlines which argued that Ex-Im's subsidized funding of Boeing aircraft to foreign flag carriers actually put Delta at a commercial disadvantage domestically. Related concerns are often raised around the bank's financing support of other large manufacturers (e.g. Caterpillar.)

And there's a fundamental question regarding the appropriate role of government in international trade.  Is it appropriate for the US government to "pick winners" commercially by subsidizing some manufacturers for global advantage.  Of course that's necessary, claim some, since other governments do the same.  We need a "level playing field."  It's important to note, though, that many of the same folks argue that the FCPA (Foreign Corrupt Practices Act) which substantially disadvantages many US companies in their global sales must be enforced vigorously nevertheless.

Common questions include - Shouldn't this function be left to banks that specialize in these functions?  Isn't that the way the market is supposed to work?

Finally there's a question of risk.  The bank actually has an enviable track record of profitability.  There's a lot of detail and nuance, but essentially it argues that it not only mitigates risk to the taxpayers, but is in fact revenue positive.  An unusual distinction among government agencies.  Many argue, though, that past performance is no guarantee and the bank represents enormous potential exposure for losses to taxpayers.  In other words, similar to the moral risk argument around bailing out "too big to fail banks" there's a possibility that Boeing, for instance, could foist it's commercial risk onto the US public with unpleasant consequences - not for Boeing, but for you.

...or...Small business savior

Loosely grouped, the other 'faction' in the debate are those who argue that while there are certainly shortcomings in the bank's operations, at the root of its existence is the critically important role it plays in supporting US manufacturing and small business success.  (Critics suggest that many of the bank's purported SMB deals are actually carefully characterized transactions with multinational subsidiaries.)

A large coalition of supporters has formed in ExportersForExIm, a group which has attracted diverse and heterogeneous individuals and organizations.

SMBs contend that the bank's role is critical in securing export sales opportunities.  Two key functions of the bank are often cited:

  • loan guarantees for foreign buyers (implied is the belief that they wouldn't obtain commercially viable financing otherwise) - it's important to note that these aren't direct loans (which are made through commercial banks) but rather guarantees
  • insurance against credit risk/default by foreign buyers - many sales would be lost if L/C or cash in advance terms were required 

The conflicting positions are actually creating some interesting political theater as illustrated in this recent article which describes the frustration of otherwise libertarian small business owners from Texas who are clashing with their Senator, Ted Cruz.  While some business owners describe deals which are already jeopardized simply because of uncertainty over reauthorization, Congressional staffers repeat talking points only tangentially relevant to the commercial case being made and assurances are offered that "Caterpillar and Boeing will thrive nevertheless."

It's hard to predict they'll thrive, but they'll certainly survive.  But what of SMBs?  There's the question of business risk - if, for instance, an SMB has invested in capital improvements to support export growth which is now jeopardized, that's a business risk (although rather curtly dismissed by Levi Russell, of Americans for Prosperity who's quoted as saying 'Sometimes when you’re the beneficiary of something that’s helping your business, you personally, it’s hard to look at something objectively.')

Aside from the question of whether Russell's perspective is similarly limited by never having run a business himself, or getting on an airplane to open a new international market, there's also an issue of "the greater good" of export growth.  

The fact is that many of the SMB export deals wouldn't be possible.  The buyers can't afford the pervasively high emerging market financing rates, and western banks won't finance without guarantees.  So the deals won't get done, and international sales growth will suffer.  And there's a widely (although not universally) accepted 360 degree range of benefits originating with successfully exporting SMBs.  From generally higher wages and enterprise viability, to more jobs and strategic security through greater economic integration globally, there are generally accepted benefits to broad export success.  And interestingly, many of the same "common good" arguments are used by Ex-Im's opponents when they're justifying tax and infrastructure inducements to bring manufacturers to their jurisdictions.

Marketing, the debate and successful global sales

There's another interesting angle to this whole debate.  As someone who spends a lot of time working with clients on growing export sales; working with other clients on improving their digital marketing; and working with some on the powerful intersection of both areas, I'm particularly attuned to application of inbound marketing in the export related universe.  So it caught my attention when late last year Ex-Im started to dabble in content marketing.

It hasn't been a rip-roaring start - a fact that could be attributed to the inertia which must be overcome by a government agency trying to dramatically evolve it's customer focus, or possibly to the sort of mediocre advisory often found when marketing agencies which know the technical steps wade into an unfamiliar domain.  Nevertheless it's a start - and one which Ex-Im appears to have undertaken after last fall's bruising debate which resulted in the short-term extension and postponed reauthorization decision.

In a perfect world they would have started several years ago - but like the Chinese proverb which suggests that the best time to plant a tree was 20 years ago, and the second best time is today, they have started.  And shifting their focus from a bureaucratic institution to an SMB growth resource is a great change to observe, and a great indicator of support for SMB international sales growth.

What's the verdict?

The bottom line is that it's a complicated question with legitimate arguments on both sides.  It's particularly interesting to see the intersection of party ideologies around the topic.  The polarized nature of the debate is evident in this article.

I strongly support the bank.  I've seen the difference it makes.

If you have an opinion, now would be a good time to share your perspective with your congressional representatives.

The next couple months will be interesting to watch!

In the meantime, thinking about international sales growth?  Wondering how to pick an export advisor?  Check out our free whitepaper.

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