Finding the Right International Partner for Small Businesses

Continued rapid export growth should be welcome news for small companies in light of lackluster prospects for the domestic economy. Real gross national product grew only 2.5% in 1989 and a miniscule 1% in 1990. Consumer spending, which fuels a large segment of small business, was virtually flat, with a 1.9% real gain in 1989 and a .9% rise in 1990. Little, if any, significant improvement is expected in either category for 1991. However, President Bush's state of small business report to Congress estimated small businesses accounted for about 20% of all U.S. exports in 1989, up 2% from 1988. Because total exports grew 14% during that period, the estimated dollar value of small business exports rose by 25%. With more small businesses entering the export market, Small Business Administration officials expect similar gains in the dollar value of small business exports for 1990 and 1991. Even though exporting is unfamiliar territory and somewhat frightening to small business a\managers, internationalization is becoming a reality for more small companies. The SBA estimates 25% of all U.S. exporters in 1991 had 100 or fewer employees. John Miller, an international trade officer for the SBA, expects that percentage to increase because most larger companies are already operating in the export market. Those coming on board now are generally smaller and more specialized. CPAs are traditionally the chief financial advisers to small companies and often the only counselors with broad business experience. CPAs in public practice can guide their clients, and management accountants their companies, into exporting by showing them how to identify and locate a suitable international joint venture partner and how to minimize the costs and complications. WHY INTERNATIONAL JOINT VENTURES WORK Tony O'Reilly, chairman and chief executive officer of H.J. Heinz, once said, By and large, joint ventures should be the vehicles of choice for a small American company entering an overseas market. Joint ventures spread the costs and provide needed expertise. Central to international joint ventures' appeal is their flexibility. Under proper market opportunities, ventures cana be organized to operate on a continuing basis. For example, a U.S. electronics company forms a joint venture with a Spanish company to manufacture and market electronic components in the European Community (EC). Such a joint venture may be a candidate for local tax advantages. The use of less expensive local labor can also lead to a pricing advantage, and the arrangement will satisfy EC local content requirements. International joint ventures also can be structured to handle a specific project, where the partners have no particular interest in establishing a long-term relationship. Often, one partner contributes technical expertise or raw materials and the other provides financing for the project. They share the rewards. Joint ventures of this type are common in motion picture film distribution and in the mining industry. OVERCOMING CLIENT EXPORT OBJECTIONS Before a search for a joint venture partner can begin, the CPA will, in all likelihood, need to resolve one or more concerns expressed by the company or client. Small business owners are almost always wary of a move into the export market, even if they believe the move is justified. One small business owner recalled, knew my company needed the boost overseas sales could provide, but I was afraid to take the first step. Then I found an overseas partner, and the rest was easy. The reasons for the hesitancy vary, but they usually can be grouped into one of three broad categories. Notice how a joint venture arrangement with a suitable international partner can reduce the potential problems in each area. * Preoccupation with domestic problems. Competition in the domestic market may be intense, requiring most of the owners' time and energy and limiting their ability to concentrate on developing new markets. …