I'm sure we've all read that the shrinking dollar will make our exports cheaper. Cheaper exports will increase sales in foreign markets, which in turn eventually will help reduce our trade deficit.
This all sounds good; the only thing wrong is that our trade deficit keeps going up. I think the experts have really oversimplified what's required to successfully trade in foreign markets.
It's naive to think that just because the shrinking dollar has made our products cheaper, U.S. companies now can easily expand their sales into foreign markets. When you get into new markets you have to build a customer base. This is done by developing relationships. When it comes to foreign markets, this means knowing the language, being knowledgeable about customs, government policies and regulations.
It seems like American companies contemplating expansion into overseas markets think all they have to do is to open up an office in a foreign country and they're in business. It's just not that simple.
If you want to find out what it takes to successfully operate in worldwide markets, take a look at countries such as Japan, Germany, South Korea, Singapore and Taiwan. Overseas markets represent a major portion of their economies, and they have learned over time what it takes to be successful.
Most business conducted by these countries in foreign markets is handled by large trading companies, which are in the business of trading goods in various world markets. They may buy something in Africa and trade for something in Singapore that they eventually could sell in America. At the same time, they may own, represent, or be affiliated with, a large group of diversified companies.
Trading companies operate all over the world. Their employees know the language and the rules and regulations. They have connections with local businesses and banks. They know about foreign exchange, and the best way to move goods in and out of the country. In other words, they're experts in what it takes to conduct business in that particular country.
Companies in Japan, Korea and the rest of these countries wouldn't think of going into a foreign market without using a trading company. For example, Mitsui, a large Japanese trading company, represents Toyota Motor Corp. in the United States. At the same time, Mitsui represents many smaller companies that may supply components to Toyota and other larger companies. Mitsui will help these smaller companies establish a foothold in this country, but may line them up with potential customers, assist them with their financing, transporting their products, customs regulations or whatever else they need to conduct their business.
Businesses within a trading company are loosely affiliated but are in no way obligated to buy, sell or trade with each other. Thyssen AG is a large German trading company. Within Thyssen are many manufacturing companies, including a company that produces steel. If Thyssen is in the process of trading steel it may choose, depending on the economies, to buy steel from Brazil instead of within its group. In another example, The Budd Co., a Thyssen company, is not obligated to buy material or components from other Thyssen companies. They buy, sell or trade with the company from which they can get the best deal.
Sure, there are American companies that do a lot of business in overseas markets, like Caterpillar, Boeing and other aircraft companies, to name a few. These companies are in a class by themselves. However, there are many other American companies preparing to expand their businesses into foreign markets, and we should encourage them if we want to reduce our trade deficit. They will, however, be playing on an uneven playing field if they compete against the Japanese, Germans and others armed only with a cheap dollar.
American companies with an eye on international trade must level the playing field by either aligning with an existing trading company or coming up with an equivalent arrangement.
