Why Cross-Border Trade Is All About The Connections

In business, success can often rely on who you know. For small and medium-sized businesses looking to expand export operations across borders, launching in unfamiliar territory means a sudden lack of business connections, and a lot of confusion about how (and where) to start.

While the cross-border B2B trade market has worked to address some major points of friction, from a $1.5 trillion trade credit gap to the continued reliance on paper trade documents and invoices, often the first hurdle that must be tackled is how to find the right corporate customers. Robert Pelletier, who is the chief representative, U.S. at Export Development Canada (EDC), said that before products like trade finance, bank capital and trade credit insurance come into play, supporting SMBs’ ability to find and choose the right customers and markets across borders is key.

In other words, it’s connection to information that can be most important.

“It’s not all about finance and insurance,” he told PYMNTS in a recent interview. “Sometimes, it’s knowledge.”

For Canadian small and medium-sized businesses, the first step across the border into the U.S. often lands in a neighboring state. But EDC has found some of the largest opportunity in the southeast region of the country, leading the organization to open its first U.S. office in Atlanta, where it will have a physical presence and be able to provide the connections to Canadian SMBs to potential corporate customers in the area.

It’s a region Pelletier said has some of the hallmarks of an emerging, high-growth market, which can help Canadian SMBs capture a larger portion of the $353.6 billion that the Office of the United States Trade Representative says was imported from Canada by U.S. companies last year.

The strength of economic growth in the Southeastern U.S. means a plethora of opportunity and potential for cross-border exporters, but can make it even more difficult to develop a sales strategy.

“It really is about connecting to the right people,” noted Pelletier. “It can be overwhelming, the size of the U.S. market and the amount of opportunities that exist. Often times, a company’s biggest challenge is, ‘I have interest in selling to this company, but I have no inroad of starting that conversation.’ There’s almost too much opportunity.”

Connecting SMB exporters with resources, information and potential customers is essential in finding success across borders, particularly in the U.S., where various industries have unique regulations and requirements in each state. And once that strategy has evolved, traders continue to face a range of hurdles.

Financial Connections

On both sides of a transaction, Pelletier said, organizations can often feel most comfortable working with business partners that are geographically close. And connecting buyers with financing can be the incentive they need to consider working with a faraway supplier.

For smaller Canadian exporters, securing a contract with a large U.S. customer can be a game-changer. But for that client, a one-off deal may not be worth the hassle. Connecting those customers to financing and collaborating on their business needs is an important way to foster the new relationships formed across borders, and to make the decision to do business with Canada a bit easier.

Of course, suppliers often need to be connected with financing, too. Collaborating with large corporate customers can mean long payment terms, late payments and the risk of non-payment, a risk exposure that has brought renewed attention to the trade credit insurance market.

But according to Pelletier, trade credit insurance isn’t only about protecting against the risk of non-payment. For small exporters, securing a large order from a customer across borders may be good for business, but can actually hamper their connection to bank financing. That’s where connecting banks with key trade information comes into play, he said.

Many banks won’t take into account a large receivable from a cross-border customer when providing capital to an exporter, an issue Pelletier said not many businesses are always aware of. Whether it be the threat of non-payment, foreign exchange volatility or other factors, that foreign receivable is often considered to be higher-risk than a domestic one, resulting in FIs limiting the size of a credit facility offered to that business.

For a company like EDC, facilitating connections to support small businesses’ cross-border exporting ambitions means a high degree of collaboration with those SMBs, their corporate customers and the domestic and foreign financial institutions that can unlock the capital necessary for all players to conduct business.

But before organizations can connect with their banks for financing or mitigate against trade credit risk, exporters – particularly small and medium-sized companies – need guidance to make the on-the-ground connections that will open up new doors of revenue.

“Pretty much every company we work with is on a journey,” Pelletier said. “Either they’ve exported before, or they never have, or they’re thinking about it. It’s important that we put a lot of effort in the knowledge piece, versus specific finance or insurance requirements.”