World Trade - September 2008 - (Page 34) COVER STORY Trade Finance Case Study Another way to source overseas. BY JOSEPH INGRASSIA AND JOHN RICE W Whaling’s portfolio of outerwear includes uniforms for various law enforcement agencies throughout the U.S., including the NYPD, NYFD, Houston Fire Department, Chicago PD, U.S. Border Patrol, U.S. Forest Service, and U.S. Coast Guard. haling Manufacturing, Inc. has been in the outerwear business for nearly forty years operating from a 120,000 square-foot manufacturing and warehouse facility in Falls River, Massachusetts. During its apogee, Whaling employed 400 workers manufacturing private label raincoats and outerwear for the leading department stores of the era, as well as labels such as Bill Blass. By the mid-1990s many of Whaling’s competitors began outsourcing their manufacturing to lower cost emerging market economies in Asia, but owner Jim Pavao continued to believe that producing a higher quality garment was more important than offering lower priced imported goods to his customers. What Mr. Pavao failed to recognize at that time was the significant shift occurring in U.S. retail as consumers (and the retailers catering to them) became more interested in lower price rather than higher quality (at higher price points). In August of 2005, after having expended all of its equity trying to compete as a domestic manufacturer against imports, Whaling needed to revise its business strategy and funding. Through a financial intermediary, Whaling was directed to Capstone Business Credit, LLC, a New York City-based venture merchant bank. “We’re experienced in an broad range of situations that require a business strategy makeover from offshore manufacturing to new distribution channels and overall management support,” says founding partner Joe Ingrassia. “In terms of the international business environment, the current credit crisis is forcing the market to look at viable, alternative financing and business options that not only provide funding, but strategic business advice enabling companies to improve their operations on an international basis and grow in a sustainable manner,” continues co-founding partner J John Rice. Prior to working with Capstone, Whaling relied on a factoring relationship that provided a small inventory advance. “Our system is different in that we will finance pre-sold goods,” explains Rice. “Under our scenario, Whaling was able to increase its sales because they could purchase sufficient goods to satisfy demand created by their sales people. In addition to purchasing the pre-sold goods, the firm provided a factoring facility.” Capstone began working with Whaling to structure and fund its offshore manufacturing. Whaling was in a situation not uncommon with being late to offshore manufacturing and forced to pay a premium for goods. For example, when a borrower is perceived to be an uncertain risk, the foreign supplier increases the cost of goods to take into account his cost of capital, the length of time he feels it will take to get paid by the offshore buyer and a risk premium based on historical payments. When Capstone entered the picture, the borrower instantly becomes a cash buyer, enabling the client to renegotiate the cost of goods sold to strip out the risk premium, cost of capital and the time value of money. 34 WORLD TRADE SEPTEMBER 2008
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