With trade finance, a small company can accept export orders

Business America, Oct, 1997 by Jay Field

In the highly competitive international garment market, small U.S. apparel designers and manufacturers frequently depend on the competitive advantage of the "Made in the USA" label, which is associated with quality, functionality, and style. Kitzbuhel Inc., a small Seattle manufacturer specializing in high-tech fleece outerwear and skiwear, has found a receptive audience for its products in Japan, where the firm's quality, manufacture, and cutting-edge designs are appreciated by consumers. Kam Fong Li, Kitzbuhel's president and founder, explains: "The Japanese people still like anything made in America. We want our customers to see the pride we have in our product and associate it with American quality, so the label of every garment leaving our factory includes the U.S. flag, right above the Made in USA.'"

Building on 30 years in the garment industry, Li founded Kitzbuhel in 1993 and booked his first export order a year later. "I always intended to sell my high-tech fleece garments internationally," Kam Fong Li explains, "because I knew foreign distributors would like that I don't use any imported materials, demonstrating my commitment to always having top-quality products. If I were to use imported materials, I would open myself to competing with lesser quality manufacturers." In highlighting the advantages of a small company, he notes, "The smaller size of my company means that I am more convenient for international buyers, because I accept small orders and offer faster and more flexible production, without sacrificing the Made in USA quality."

Kitzbuhel's strategy of flexibility, quality, and reputation began to pay dividends in 1995 in the form of a boom in export orders, doubling the company's employment. That year, orders from Japanese distributors and other international customers increased to nearly 50 percent of total sales, an expansion from only 10 percent of total sales the year before. Total export sales could have been double what they were, but a lack of working capital forced Kitzbuhel to turn down an extremely large order from Japan. "I would have had to purchase materials up-front, and then wait up to six months to get paid from my Japanese customer. The order was too big for me to purchase the material, so I had to turn it down," Li commented.

Kitzbuhel's situation is not terribly uncommon. The "one big order" situation is often "one big problem" for small businesses. Many times the cost of purchasing the inputs to production (materials, labor, and other inventory) exceeds a small business' cash on hand or existing lines of credit, precluding internal financing of the order. Finding external finance through a lending institution also can be difficult because the foreign receivable increases the risk to the lending institution since the secondary source of loan repayment is on foreign soil.

In the summer of 1996, 1 visited Kitzbuhel's facilities to discuss expansion of export sales into Europe. The Seattle USEAC, where I work, also houses the SBA's international programs, the Small Business Development Center of North Seattle Community College, and the Export Finance Assistance Center of Washington. During this meeting, Li mentioned his inability to meet the Japanese distributor's large 1995 order. I recommended the Export Working Capital Program (EWCP) revolving loan guarantee offered by a USEAC partner, the Small Business Administration. The EWCP program provides banks with a 90 percent guarantee of loans made for export working capital, greatly reducing the lending bank's foreign receivable risk and increasing the likelihood that small firms would accept international orders. Working with Trade Finance Officer Pru Balatero of the SBA, Kitzbuhel was introduced to a small local community bank, Washington First International Bank, and one of its officers, Michael Lum. The bank approved Kitzbuhel's export revolving line of credit application with an SBA loan guarantee.

This summer Kitzbuhel used its revolving EWCP line for the first time to purchase materials to fill an order from Japan. "Without the assistance of the Seattle USEAC and this export working capital, I couldn't have filled this order. We plan on using it again in a few weeks, when we expect another large order from Japan." Li added that "The service I have received from the USEAC, Jay Field, and Pru Balatero has been outstanding. They worked so hard for me! I would recommend their services to any small business."