YOUNGSTOWN, Ohio -- Like it or not, "business is global" and, ready or not, "within five years, everyone's business will be affected by the global economy -- except your kid's corner lemonade stand," an international business consultant says.
That means Americans will have to become more familiar with how business is done abroad, learn who their foreign suppliers and customers are, and deal with the impact of international terrorism.
Harry Brandon and Gene Smith are partners in their own business consulting firm, Smith Brandon International Inc., Washington, D.C., and they provide international investigative services.
As the last speakers in this year's Williamson Symposium at Youngstown State University, they addressed students, faculty, and invited businessmen this week on managing the risks of overseas business. Smith is a former Foreign Service officer who served throughout Latin America. Brandon is a former deputy assistant director of the Federal Bureau of Investigation with responsibility for national security and counter-terrorism programs.
In the next decade, the most attractive business opportunities "will be found not in the United States or western Europe, but Iraq, China and southeast Asia, areas not so comfortable, not so familiar," Smith said.
That means business owners, purchasing managers and credit managers will have to know who they're dealing with abroad, and the cultures and legal systems in the countries their suppliers and customers are based. It means performing due diligence, which Smith and Brandon noted, means different things to different professions -- one thing to an accountant, something else to a lawyer, and yet something else to a government contractor.
Unfortunately, too many U.S. businesses proceed without performing due diligence, as Smith and Brandon related in a small number of horror stories. One involved a client who, with a contract signing two days away, asked them to perform a background check on the other party. "I don't have their full name but phonetically it looks like this," Brandon was told. As serendipity would have it, he was familiar with the individual and quickly checked him out.
The first concern that all U.S. businesses doing business abroad face is this: Is the person they're talking to the person he says he is? Moreover, is the name given the other party's legal name and will it stand up in that country's legal system? The second concern, once the name checks out, is: Does that person represent the company he says he represents?
"Fraud is often committed by people who say they represent the company you're trying to contract with," Smith warned. Next, make sure that company is not a shell company. Find out their address, she advised. Is it a post office box or a real building? Is it a business office or a warehouse? How long has the company been in business?
If you find out that the other company is less than a year old, Smith cautioned, be wary. If two to five years, proceed slowly. Those with six and more years are safer to transact business with, she said.
On issues related to addresses, she continued, where is the business registered? In the Grand Cayman Islands, the Channel Islands off southeastern England, in nations that offer flags of convenience or secrecy laws?
What do public records say about the company you're getting ready to sign a contract with, Smith asked. How many lawsuits has it been involved in? Did it ever file for bankruptcy?
It can be tough learning these answers in other countries where records can be harder to find. The prudent U.S. business may need the help of firms such as theirs, Smith said, and some answers may not be found in the public records, such as a foreign's firm's reputation for on-time delivery, having adequate physical assets, and their connections with the ruling government.
As in this country, Smith said, "it comes down to knowing your partner's strengths and vulnerabilities." Where businesses, or at least their lawyers, know where to look in this country, it can be quite another story abroad.
Regarding terror, the civilized world will have to deal with it for some time to come, Brandon said. He predicted another Madrid-type attack in Europe before U.S. elections this fall, and said there's "a very high risk factor the summer Olympics in Greece will be a target of terrorists," despite the likelihood of NATO sending troops to help Greece's security forces. Athens "is almost too good a target," he said, and it's so close to terrorists in the Middle East.
The conditions that nurture and foster terrorism will continue for some time, Brandon said. "We must have patience. America is the only country I know with attention deficit disorder."
The global economy and the spread of democracy will improve living conditions, he continued, and raise standards of living. "So I'm optimistic about doing business around the world." Hindering U.S. business ventures aboard, he said, is the perception "in the corrupt regimes throughout the Middle East that America is propping up these regimes. The United States is No. 1 and Saudi Arabia is No. 1-A."
Despite this week's news from Iraq, most Iraqis are willing to give the United States a chance. Having visited Iraq last month (it was his third visit), Brandon found that much of the damage he saw in Baghdad did not result from U.S. arms and bombs.
"Saddam pillaged the country," he reported. "He stole everything and so there is no effective infrastructure.The small things are encouraging, parents walking their kids to school in uniforms, traffic jams. There didn't used to be traffic jams under Saddam Hussein. I came away with the opinion that the vast majority of Iraqis are very optimistic about their future."
Highlights of the Article:
(...) Although the economy is doing well, companies that want to conduct business in the global market should not throw caution to the wind, said Gene Smith, founding partner of Smith Brandon
International, specializing in international investigative services. A significant sale can go sour after the product is delivered due to a lack of background knowledge and business intelligence, she told delegates. (...)
"Some business gurus advise Western-based businesses to set foreign sales targets of 40 percent of all business revenues. But any global ventures must take into consideration the potential risks as well as rewards," she said. (...)
The Internet enables companies to do business around the world by connecting them, but global connections also "create serious security concerns," said Harry Brandon, founding partner of Smith Brandon
International. The "Love Bug" virus was created in the Philippines but quickly swamped computer networks around the world, he reminded delegates. "Is the credit information you have on file secure from hackers?" he asked the delegates. (...)
Even with the risks associated with the Internet, Brandon says companies have "no choice" but to embrace electronic commerce. "The goal is to do it right, in a safe, secure, protected environment." (...)
For the full article see below.
If credit managers felt they were somehow immune to the business effects of the digital revolution, electronic commerce innovation and global economic transformation, they discovered differently at "Exploring the New Frontier", NACM-Canada's second annual Credit Conference and Expo held in Toronto, Ontario on October 11 and 12.
The Internet brings disparate cultures together for social and commercial interactions. Global communication at Web speed changes both the nature of societies and the culture of business, conference speakers told the NACM delegates. In a world where almost every new business venture begins with an "E", geographic boundaries are disappearing, and companies are open 24 hours a day.
Instant digital connectivity creates a host of business opportunities and challenges, delegates were told. Credit managers need to protect corporate financial interests while supporting the development of new opportunities. Armed with new digital tools, they can process information faster and make decisions quicker. At the same time, they are dealing with more information from more sources than ever before. That's life on the new frontier.
When it comes to overall financial matters, "the global outlook for the next 18 months or so continues to be upbeat, not withstanding the sharp increases in oil and natural gas prices," Dr. Lloyd Atkinson, chief investment officer for Perigee Investment Counsel Inc., an investment and money management solutions firm, told conference delegates.
Growth is driven by the technology revolution, and the pre-emptive action taken by central banks, most notably the US Federal Reserve, to keep inflation in check. The result: US productivity has increased significantly at inflation-safe speeds. Inflationary pressures have been contained and there have been real gains in wages, salaries and corporate earnings.
While there will be economic slow downs, "they will be much more muted than in the past, and there is no recession in the five year forecast... Barring economic accidents, such as occurred in Asia in 1997, we continue to be very optimistic about the longer term," Atkinson said.
While business-to-consumer e-commerce ventures such as Amazon.com have received a great deal of media play, Atkinson called them "small potatoes" compared to business-to-business e-commerce. The old economy--automotive, financial services and other traditional sectors--are using the tools of the new economy to change the way they do business. For instance, General Motors will use the Internet to reduce distribution costs by 30 percent over three years. This is a direct benefit to General Motors and suppliers who adapt to the news ways of doing business in the digital age will also benefit.
Although the economy is doing well, companies that want to conduct business in the global market should not throw caution to the wind, said Gene Smith, founding partner of Smith Brandon
International, specializing in international investigative services. A significant sale can go sour after the product is delivered due to a lack of background knowledge and business intelligence, she told delegates.
Even though there are risks, "there is no option to sit out e-commerce." Forecasters indicate that e-commerce will generate $ 1.3 trillion dollars in global sales in 2003. "Some business gurus advise Western-based businesses to set foreign sales targets of 40 percent of all business revenues. But any global ventures must take into consideration the potential risks as well as rewards," she said.
To successfully tap global markets, companies require strategic plans that integrate e-commerce into their overall business strategies before they build secure, transactional-based Web sites. And they cannot afford to overlook due diligence. "A classic case of 'it's too good to be true' is often accompanied by an online request--or even demand--to evaluate a proposal quickly and sign the necessary papers at once," she said. "If the prospect is so compelling, it can wait until it is given adequate review."
If a new client places an order from your web site, how do you determine who they are, if they have the authority to place such an order and if their company has the ability to pay? A company can "proceed on faith," or it can sort out all potential transactional dilemmas before hanging its shingle in cyberspace. The Internet is making it easier for companies to conduct business in foreign countries, and it is making it easier for companies to conduct credit checks on foreign companies, said Julie Gage, business project manager, Dun & Bradstreet Canada, a NACM-Canada Credit Conference sponsor. Companies like Dun & Bradstreet can help credit managers adopt to the new global reach of the Internet by providing them with background and credit information online or by e-mail, she said. Scott Blakeley, partner with Blakeley & Blakeley LLP, concurred. The most dramatic effect on the Internet "is the shortening of the credit cycle," he said. Vendors are using the Internet to conduct background and credit checks on com panies, cutting dramatically into the time required to approve credit.
SECURITY A CONCERN
The Internet enables companies to do business around the world by connecting them, but global connections also "create serious security concerns," said Harry Brandon, founding partner of Smith Brandon
International. The "Love Bug" virus was created in the Philippines but quickly swamped computer networks around the world, he reminded delegates. "Is the credit information you have on file secure from hackers?" he asked the delegates.
Companies are even posting order acknowledgement forms and invoices on secure web sites that customers can access. While clients enjoy the freedom of accessing information any time, they want to be assured their credit and purchasing history is secure, or they will look for other vendors.
"Computers are efficient, and they empower employees, but there are downsides," Brandon said. Fraud cost North American businesses $ 350 billion in 1990 and $ 400 billion in 1999. Computer fraud grew exponentially over this same time. Damages pegged at $ 300 million in 1990 hit $ 50 billion in 1999. Over 25 percent of Fortune 500 companies are computer crime victims, and employees have perpetrated many of the crimes.
Risk avoidance is obligatory. Firewalls and virus protection are required to keep hackers out. ID, passwords and other internal measures, including forensic audits, are required to prevent or track down illegal activity by employees.
Even with the risks associated with the Internet, Brandon says companies have "no choice" but to embrace electronic commerce. "The goal is to do it right, in a safe, secure, protected environment."
STREAMLINING THE CREDIT DEPARTMENT
Using technology to do it right also includes employing information technology systems to make the credit department more efficient, says Brian Cheney, vice president technology, IHS Solutions Limited, an information management solutions technology company. Companies can increase collection efficiency without increasing operational collection costs using technology, he said.
Companies moved from paper-based document management to microfiche and then to CD-ROM. Now they are moving to Web-based data that puts information in the hands of clients. For example, if a vendor establishes a secure e-business web site, clients can search for the status of orders or for lost invoices based on purchase order number, product code or other criteria. Centralized credit databases and computer networks allow credit managers to fax or e-mail "lost" invoices from their desktop to overdue accounts while on the phone. This gives the credit manager the opportunity to say: "It's there now, so let's talk about the bill."
Information management automation is not a process than can be implemented overnight. Companies must review existing business practices and define ideal practices and then build systems that meet defined needs. Staff input is important if they are to buy into, rather than resist, automation, Clients also have to be kept in the loop and reassured that credit and payment information is secure.
Automating the credit department and integrating back office databases with web sites can be expensive propositions. The results, however, can include streamlined business practices, improved productivity and a higher rate of closure on outstanding accounts, Cheney said. "But why stop there?" asked Mark Visic, vice-president sales, Kubra Data Transfer Ltd., a document fulfillment, management and e-commerce company. Although companies have automated many aspects of traditional "print and mail" bill presentment, they still spend time and money printing invoices, stuffing and stamping envelopes and mailing bills. The post office then takes time delivering bills, which customers lose or claim they did not receive. Some companies have outsourced the entire print and mail process, which means a third party has to spend time doing what internal staff once did. And the post office is still involved in the equation. An automated electronic bill presentment and payment (EBPP) can reduce the time it takes to get invoice s in the hands of customers and payment in the bank, Visic said.
EBPP is an emerging technology that will eventually replace mail, fax and electronic data interchange (EDI). "EBPP offers corporations the ability to send invoices or statements to consumers via the Internet and process an electronic payment. Companies employing EBPP can post bills on their web site, with a financial institution or a third party clearinghouse. The client receives a secure notification and can view and pay bills online using credit cards, debit cards or other forms of electronic payment, trimming time off the invoice-to-payment cycle. The electronic bill is traceable from the moment the client receives notification, Visic said.
While 7 in 10 companies indicate that billing cost reductions are key to EBPP, the process can also be used to bring clients to a vendor's web site, allowing the vendor to market its brand and continue to sell to the client. "Now bill payment can be used to increase brand awareness, loyalty and sales," Visic said. "This represents a new opportunity for businesses to strategically use billing to sharpen their competitive edge in the new electronic economy."
EBPP is not yet simple or inexpensive to implement. "There is considerable sticker shock," said Visic. The return on investment is not there for every company considering it. Even so, the future holds some form of EBPP for most companies.
If you are still skeptical, look back over the last five years and review how the digital revolution has influenced the way your company does business, and the way you work. "When it comes to advances in technology, we haven't seen anything yet," said Dr. Atkinson. "In five to ten years, we'll look back at the technology we are using today the way we look back at dinosaurs." In other words, companies and credit departments will continue to evolve with the digital world and global economy, or face extinction.
Paul Lima is a freelance journalist and workshop leader based in Toronto, Ontario.
As companies begin to conduct e-commerce in the global market place and move to online billing and payment systems, they must tackle the issue of international law head- on, speakers at NACM-Canada's second annual Credit Conference and Expo told delegates in Toronto.
"In the virtual world, as in the paper world, commerce is based on contracts," said Marie-Pierre Simard, copyright lawyer with the law firm Brouillette Charpentier Fortin. Before a dispute over a virtual contract arises, credit managers need to know what makes virtual contracts acceptable to the courts. "Sometimes it seems as if the law cannot keep up with the information age. Yet, people involved in e-commerce must be able to identify the laws upon which e-commerce relies so that [virtual contracts] may be seen as a valid, enforceable, credible way to do business."
The federal governments in Canada and the US are developing national standards to govern e-commerce transactions, but many provinces and states have different laws, as do different jurisdiction around the world.
In some countries, only contracts with handwritten signatures are allowed in court. In other countries, an electronic signature (fax, scanned document, use of a PIN or password) is acceptable. Other jurisdictions--particularly in North America and Western Europe--will accept digital or encrypted signatures to prove a client ordered a product, and the vendor shipped in good faith.
In the US, electronic signatures cannot be "denied legal effect, validity or enforcement solely because it is in electronic form", said Scott Blakeley of Blakeley & Blakeley LLR. However, an electronic signature does not mean a company will win its case. All other laws for commerce come into play.
Blakeley also warned credit managers to be careful about what they write in email, especially if discussing a client's credit information with a third party. E-mail is easy to send, receive and forward, and sometimes people forget slander and conspiracy laws that cover the printed word, he said.
There are risks and opportunities associated with doing business in the global economy. When dealing with new clients in foreign countries, companies can protect themselves by insuring receivables, explained Angela Boston, business development manager, Export Development Corporation, which is a Canadian crown corporation that helps credit managers mitigate risk in 160 countries.
Her thoughts were echoed by Mark Hall, associate broker and credit insurance specialist with Dan Lawrie Insurance Brokers Ltd. Hall, which offers credit insurance for both domestic and global markets. "This is not a replacement for due diligence or a well-managed credit department," he said. "But it adds another layer of security."
If companies are having difficulty collecting uninsured payables, they can use training or technology to improve their ability to collect, or outsource collectables.
"Effective training can show people how to be assertive, not aggressive and collect more while retaining customers they want to keep," said Tim Paulsen of T. R. Paulsen & Associates, a company specializing in "creative receivables management."
Automating the collection process can boost the rate of return, says David Phillips, Guthrie Phillips Group (GPG) president and CEO. GPG's CAT2000 recovery system puts complete customer history in the hands of each staff member and schedules follow-up correspondence and calls. It can be connected to the company accounting system and updated the moment an invoice has been paid, so collectors are working from current information.
If collectables get out of hand and hiring more staff is not an option, then companies might look to outsourcing some or all the responsibility, says Robert Ingold, president of The Commercial Collection Corp. He admits some companies resent having bills turned over to collection agencies. However, his company can "work as an extension of the credit department" so the overdue client doesn't know the account has been turned over to a collection agency.
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