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SMALL BUSINESS | JANE APPLEGATE

Unfamiliar Ground

Doing Business Overseas? Many Underestimate the Risks

April 14, 1998|JANE APPLEGATE | Jane Applegate, a syndicated columnist and author of "201 Great Ideas for Your Small Business," will be on a small-business panel April 25 at the Los Angeles Times Festival of Books. For more information, call (213) 237-2665 or visit www.latimes.com/festival

In the rush to go global, many entrepreneurs fail to understand just how risky it is to do business on foreign soil.

"It's a very tough environment; it's not like doing business in the United States," said Michael Koulouroudis, president of Koudis International in New York. "You have to learn by losing, in many cases."

Koulouroudis, who exports fish-farming equipment to Greece, Italy, Tunisia, Spain and France, spent two years learning how to be an exporter at the World Trade Institute. His business has grown to about $1 million in sales since 1992. The institute, located on the 55th floor of the World Trade Center, was acquired in July by Pace University, which has been expanding its training programs for entrepreneurs.

"We have lots of programs on importing, exporting, freight-forwarding and international transportation," said Lorrie Foster, senior director of programs at the institute. "In the spring, we'll be putting many of these courses on the Internet so people around the world can take advantage of them."

About 1,000 people a year sign up for World Trade Institute classes, which cost about $400 for 10 sessions. The online classes will be able to serve thousands more, Foster said. (For course information, call [888] 722-3984 or write to the World Trade Institute, 1 World Trade Center, 55th Floor, New York, NY 10048.)

While making deals overseas may seem like the most daunting challenge for a small-business owner, it's not.

"It all comes back to the risk you face of not getting paid," said George Henderson, president and chief operating officer of Chadwick International Inc. in Fairfax, Va.

Henderson learned all about the financial risks of international trade by working for the Export-Import Bank for 20 years. The government-run bank provides a variety of financial services and loan guarantees to U.S. businesses doing business overseas.

"I got involved in every project that ran into a snag," said Henderson, who served as deputy vice president of the claims division.

In 1991, he and Chadwick Chairman Ronald Nocera began selling prefabricated housing to Algeria and other developing nations. Chadwick designs the housing to meet local needs, builds modules in Florida and ships them in pieces on specially designed cargo ships.

"There's no country that doesn't need some form of housing, so we're received with open arms," Henderson said. The company, which Henderson said has projects worth $130 million, not only builds affordable housing, but provides attractive financing packages for foreign clients and governments. Chadwick packages the loans in $10-million increments and sells them to financial institutions.

Henderson's solid experience in export financing provides a comfort level to the banks and financial institutions that purchase the loans. Bankers familiar with Chadwick say the company's track record in dealing with foreign governments and its ability to obtain loan guarantees from the Ex-Im Bank increase their confidence.

Chadwick is popular with foreign governments because it provides hundreds of construction jobs for local workers, who are initially supervised by American managers.

"It's as hard as it can be," Henderson said. "But the opportunities are in the difficult places. That's where the business is."

One good way to minimize your risks when doing business abroad is to purchase the right kind of business insurance.

"It's difficult enough to run a business in the U.S.; it's virtually impossible to keep up with the worldwide rules and regulations," said Jeff Brown, national manager for general insurance for Chubb Corp. in Warren, N.J. Chubb and other major insurers offer a variety of policies designed to protect U.S. businesses overseas. In addition to insurance that protects your cargo at sea, you can buy international product liability insurance. This protects you if an overseas customer files suit against your company based on problems with your product or service. International auto liability insurance is useful because in many countries, passengers in a car aren't covered for bodily injuries, Brown said.

If you are doing business in Vietnam, Pakistan or Africa, you might want to add political risk coverage to your list.

"Political risk coverage covers financial loss if your assets are extorted, confiscated or destroyed," Brown said. This is helpful if you're doing business in countries where you're not sure your goods will get through customs safely.

You might also want to buy insurance to cover you if you are kidnapped and held for ransom.

"You don't really have to be a high-profile executive to be kidnapped," Brown said. "You just have to be an American."

Because employees working overseas are more likely to suffer an injury or get into an accident, because of jet lag or disorientation, foreign voluntary workers' compensation insurance might also be a good idea. You can also buy an insurance policy that pays to fly your family or employees back to the U.S. if they are seriously injured or fall ill overseas.

If you are not sure where to find foreign business opportunities, check with your local Small Business Administration office and the Commerce Department. The department has specialists familiar with hundreds of countries. I also recommend reading "How to Negotiate Anything With Anyone Anywhere Around the World," by Frank Acuff. The new, expanded paperback edition, published by Amacom, costs $21.95.

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