There is no single magical factor for a global import-export business. In the HSBC news article shared below AST's Managing Director discusses the combination of ingredients that need to work together.
An import-export business navigates risks of war, political unrest, natural disasters and currency fluctuations. Operations must be scalable too, to respond to fluctuations and ensure a diversity of suppliers. “So we never put all our eggs in one basket,” says Laurence McDougall, who founded All Steels Trading eight years ago, after two decades’ experience in the steel industry. He participated as a panellist at the GREAT Festival in Istanbul in May, at an HSBC session entitled “Turkey: An Economic Overview.” The dynamic event, principally sponsored by HSBC, serves as a forum for celebrating UK creativity in business and establishing a dialogue among global enterprises.
Advantages in Turkey
McDougall’s trove of knowledge helps his firm differentiate. He knows, for instance, where products are in short supply, so he can sell at higher prices. His global perspective has led him to suppliers in Spain, Italy, Egypt, Korea, China and Germany. But the primary engine, comprising about 35% of his trading, is Turkey, where he has developed strong relationships with six mills, each providing complementary products. All Steels still likes to do business the old fashioned way.”We believe in meeting face-to-face, learning our customers’ requirements or what our mistakes are or how we can improve,” says McDougall.
Growth acceleration in Turkey caught McDougall’s eye in 2006, who notes that steel production there vaulted from 14 million tons in 2000 to 35 million tons in 2013, and still represents a 7% compound annual growth rate. That country offered multiple advantages, as a crossroad between east and west, with robust local demand and neighbouring export markets. Labour costs can be five times lower than the US equivalent, with a young, educated demographic. Moreover, modern plants are generally less than five years old, and fitted with the latest in added technology, compared with much older US or UK mills. As another plus, the Turkish mills work flat out, every spare hour of the day, versus typical 65% utilisation in mature markets.
Old Fashioned Partnerships
Success derives from a combination of factors, but McDougall describes exceptional relationships with Turkish suppliers. In the firm’s early days, McDougall took a novel approach when he went to call on Turkish suppliers. A typical UK trader might visit those mills, to learn what products were available and at what prices. “We turned the meetings around, by asking them to manufacture a specific range of products, and we offered to pay more,” McDougall recalls. “We educated them to added value markets, in terms of different shapes, grades of material rolled to special chemistry, or dimensional tolerances.” The competitors were trying to chisel down the price, whereas he was suggesting a premium.
Most emerging markets produce basic steel for construction. Teaching his Turkish supply partners means developing their capabilities for sophisticated machinery, automotive, heavy goods and engineering products. “We’d sit around the table, recommend how their production units could manufacture new products, and how we could help commercialise those, as a trading partner.” As a trader, he also conveyed the importance of quality, reliability and realistic delivery dates – rather than optimistic projections. Logistics are another key element. Instead of older inland warehouses, which duplicate transport costs, All Steels benefits from a dockside location. Finally, the bill must be settled. Mature markets tend to pay, say, 60 or 30 days after receiving material. In emerging markets, like Turkey, a letter of credit is issued after documents are produced: packing list, invoice, certificate of quality and bill of lading. Payment terms are always LC at sight or cash with documents, so All Steels uses a combination of LC lines, trade loans on stock and confidential invoice discounting.
Steel is bought and sold in dollars. Although they seize exchange rate opportunities, they always buy forward at a fixed rate, at the time of the transaction, and diversify suppliers where other currencies affect prices. McDougall explains, “We know where the margin is, because we’re not speculators and never gamble on currency.”