Let me share a bit more of my meager knowledge:
Crain's New York Business, October 12, 1992
LENGTH: 1327 words
HEADLINE: Depressed dollar buoys middlemen;
Trading firms exploit opportunities
BYLINE: JUDY TEMES, SPECIAL CRAIN'S NEW YORK BUSINESS
BODY:
The depressed dollar kept many New Yorkers home this summer. But not Steven
E. Dreyfus.
The managing director of Dreyfus & Associates Ltd. was busy traveling to
trade shows in Europe and the Pacific Rim countries, scouting for buyers of
American-made industrial tools. With the dollar at an all-time low, he found
plenty of takers.
Favorable exchange rates may not cure this country's $ 45 billion trade
deficit alone, but the low dollar is breathing new life into battered export
trading and management companies like Dreyfus. After a decade of decline that
was marked by the failure of some of the largest players in the business, export
trading and management is a growing business again.
''There is a huge demand for what we have to offer,'' says Amos Aharoni,
financial executive of Manhattan-based Actrade International Ltd. In four years,
the publicly owned trading company has raised its trading volume to $ 8 million
from $ 200,000. Mr. Aharoni expects shipments to exceed $ 12 million this
year.
Servicing small companies
Both trading companies and export managers arrange the export of goods.
Trading companies take title to the goods they trade and export managers take a
commission. They have remained small businesses largely because they service
small to mid-sized manufacturers. Large American corporations export their own
goods.
Even with improved prospects, however, these companies remain squeezed by
high operating costs, thin margins and very limited access to capital.
''This is a small-margin, high-cost business fraught with a great deal of
risk,'' says Leslie Stroh, publisher of The EXPORTER, a Manhattan-based industry
trade magazine. ''It's still tough to make money.''
At the heart of the problem is the size of most of the operators in the
business and the size of the transactions they process.
Some 70% of the country's 2,500 trading intermediaries are companies with
gross revenues of $ 5 million or less. Mr. Stroh estimates three-fourths of the
shipments from the United States are worth $ 20,000 or less.
With gross margins on these running at an average of 10% to 15%, and
transaction fees eating up as much as one-third of the net, there is little
profit in the business.
Also hurting these companies has been limited credit to finance transactions.
Banks, who themselves exited the export-trading business after a failed attempt
to capture it in the early 1980s, view this lending as too risky.
Even so, after a strong dollar in the mid-1980s almost decimated this
industry, the weak dollar is an important opportunity. The currency crisis in
Europe notwithstanding, those that survived that shakeout are now moving quickly
into new markets.
Mr. Dreyfus knows that. He is finding new and growing demand for his line of
high-quality industrial tools like wrenches in countries like Taiwan, China
and South Korea. These countries make and export more of these tools than the
United States, but because of the low dollar, high-quality car repair shops in
the Pacific are buying American tools, Mr. Dreyfus says.
''There is an advantage in the dollar, but first and foremost you need a
quality product and good service,'' says Mr Dreyfus.
Company shifts to manufacturing side
Other export management companies are finding new opportunities. Isaac
Savitt, whose graphic arts and printing related trading company grosses $ 2.5
million in volume, is moving into the manufacturing end of the business. Through
a joint venture, he is exploring the possibility of opening a printing operation
in Kiev in Ukraine.
''Printing itself is an export commodity,'' says Mr. Savitt. ''Printing jobs
are expensive in Europe.''
Ferrex International Inc., which a year ago swallowed up bankrupt Ad. Auriema
and trades more than $ 20 million worth of goods, is moving into the former
Soviet republics. It is negotiating for the rights to rehabilitate a chain of
hotels in the republics, a project that would be financed by a New York
investment banking firm. Ferrex would be paid a brokers' fee for putting
together the deal.
''It's the kind of entrepreneurship we can do,'' says Land Grant, vice
president for marketing at Ad. Auriema. ''The future of this industry is in the
hands of people who see these kinds of opportunities and can jump on a plane and
do it.''
Mr. Grant says Ad. Auriema's trade with Western Europe and Canada is off from
last year because of the recession in those countries. Trading in smaller and
developing countries is up an average of 8% to 12%. ''What saves us is our
trading in obscure countries,'' he says.
But that's not the right strategy for everyone. Smaller export intermediaries
say the risk of selling to the former Soviet republics and Eastern Europe is too
great. No hard currency is available, and bartering goods has huge risks all its
own.
But that's not the right strategy for everyone. Smaller export intermediaries
say the risk of selling to the former Soviet republics and Eastern Europe is too
great. No hard currency is available, and bartering goods has huge risks all its
own.
''Bartering is very different from export management,'' says Leonard Becker,
a partner at American Industrial Exports Ltd. in Valley Stream, L.I. ''If I get
paid in cotton, what do I know about its quality? It's not my thing.''
Mr. Becker is instead cultivating domestic manufacturing sources that are
making new and interesting products. Although his overall trade volume in France
and Japan fell by 30% this past year, Mr. Becker says he is gaining from the low
dollar. Just this summer he sold $ 6,000 worth of flashlights to police
departments in Great Britain, a solid sale for a company that's trading only $ 1
million a year.
Mr. Becker may be pleased with that deal, which he says he would not have
landed if not for the low dollar. However, experts say that such small
transactions are precisely the problem haunting the export trade and management
business.
A negligible return
It can take three years of traveling to and from a country to develop a
relationship with an interested buyer, notes Kathy Gilbert, president of AmWorld
Commerce Inc., a subsidiary of Actrade. ''It can take six months to hunt down
financing for the product. In the end, the return on a small sale like this is
not worth the time. It is why many small trading companies are not able to make
it.''
At AmWorld, Ms. Gilbert adds, a typical shipment is worth $ 700,000 to $ 1
million. A 2% net return on the shipment can mean a $ 16,000 profit. The same
net margin on a $ 6,000 transaction is $ 120.
The more successful trading and management companies are finding that cutting
the enormous cost of a single transaction somehow is the key to a company's
profitability.
That is exactly how John Dorian is reviving White Plains-based Drake America
Corp. Once one of the largest trading companies with more than $ 80 million in
volume and offices around the world, Drake had shrunk drastically by 1984.
That was when Dorian International Inc., then a $ 4 million company, was able
to buy Drake. Mr. Dorian eliminated all of Drake's overseas offices. He
installed an elaborate computer system and 40 facsimile machines which, at the
push of a button, can spit out purchase orders, invoices and acknowledgments all
over the world.
Employment up 62%
Sales volume will reach $ 37 million this year from $ 12 million in 1987, Mr.
Dorian says. Employment is up 62% to a sales force of 52 people, but the
increase is way below the rise in trading volume.
Mr. Dorian says such efficiencies are key to survival in the business. Mr.
Stroh of The EXPORTER agrees, adding that it is surprising that trading
companies and export managers are not more computerized. Software already
available can cut transaction costs significantly, he says.
The low dollar, trade experts say, will open new markets to trade
intermediaries. But ultimately the dollar will strengthen as the recession
eases.
That's still at least a year or two away -- time for export trade and
management companies to find new markets and improve margins.
Advises Mr. Grant of Ad. Auriema: ''Make hay while the sun shines because it
won't shine forever.''
GRAPHIC: Photo, Steven E. Dreyfus, managing director of Dreyfus & Associates
Ltd., is finding growing demand for a line of high-quality industrial tools in
Asia because of the low dollar. SHERRIE NICKOL
Crain's New York Business, October 12, 1992 |
