Banking on Relationship Technon International is a Canadian high-technology development firm, focused on emerging techno

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Banking on Relationship Technon International is a Canadian
high-technology development firm, focused on emerging technologies
in wireless communications. Technon sources components from China
and has offshore programming activities in India covering certain
functionality. The company is excited about a recent breakthrough
in wearable tech, a new 5G enabled wristband. Technon has several
Canadian and international patents to protect its proprietary
technology, and has developed some strong non-disclosure agreements
for use with its various suppliers and business partners. A small
company established in Saskatchewan, Canada, Technon has been doing
most of its commercial banking through a local credit union (small,
local, membership-based bank); however, the company recently
received several interesting inquiries about exporting its latest
innovation, and realizes it needs to develop a relationship with a
financial services provider with international banking and export
finance expertise. Technon has narrowed its options to three
possible providers: a Canadian bank with solid credentials in trade
finance, a leading U.K.-based global trade bank and a mid-tier U.S.
regional bank that has expressed interest in supporting the
company’s expansion to the United States. Technon is incorporated
in Canada, and has quickly achieved annual sales in the USD 500,000
range, with strong margins and conservative growth projections of
about 10 percent per year. If export sales are factored into the
projections, Technon believes that growth rates in the 15 to 20
percent range are achievable, depending on the markets targeted.
Asia is especially promising, given its level of investment in
wireless technology and the high rate of adoption of wearable
wireless technology among some consumer segments. The Options
Technon recognizes the need to take its banking relationship to a
new level in terms of international capabilities. It continues to
be loyal to the credit union which helped it to grow and expand,
and does not wish to completely cut ties; however, it is clearly
time to seek an institution with proven international capabilities.
International Trade Finance © FITT 2 Canadian Trade Finance Bank
(CTFB) Canadian Trade Finance Bank is a large financial institution
and one of the top two providers in Canada. The bank has solid
trade finance credentials and maintains a high level of expertise
as well as a full set of product and service offerings, which make
it a viable player in the trade finance space. Preliminary
discussions suggest to Technon that its business might be too small
for CTFB to give it the type of advisory attention it currently
requires. On the other hand, CTFB pricing was clear and
competitive, and Technon derived some comfort from dealing with a
local financial institution. CTFB did indicate that it would expect
to become Technon’s primary banker. UK International Bank (UKIB) UK
International Bank is a globally-recognized leader in international
finance, global banking and trade finance. The UKIB account
representative in Canada indicated that the bank could offer any
variation of trade finance available in the market, had extensive
correspondent relationships (including large country and bank lines
of credit) and could likely cover any transaction that Technon
would pursue in the foreseeable future. UKIB also offers a unique
solution to open account and supply chain finance. UKIB is
recognized as having several world-class specialist teams in
various areas, including high technology, and has unrivalled
contacts in Asia, which could prove interesting to Technon in terms
of future expansion. UKIB is a premier financial institution, with
pricing to match. Technon executives wonder about the dynamics of a
small-town company dealing with a global financial institution.
UKIB recognizes that it is a foreign institution operating in
Canada and does not expect Technon to terminate its existing
banking relationship. First Trade Bank USA (FTB) First Trade Bank
USA is a regional financial institution and mid-tier U.S. bank with
trade finance operations and capabilities centred around the U.S.
Midwest, and no Canadian presence to date. FTB has had good success
as a niche provider of trade services and has strong relationships
with several Canadian businesses seeking to establish operations in
the U.S. It offers an adequate range of trade products, though
Technon perceives that its advisory capabilities are limited. The
Need Technon has identified several major needs and expectations in
terms of international and trade finance banking products and
services. In addition to extending additional credit in support of
planned international expansion, it seeks to establish a
relationship with a financial institution that understands the
challenges of an SME expanding its international reach. The company
expects to deal in both import and export transactions, in a
combination of documentary letter of credit and open account
transactions. Its primary markets will be the United States, China,
India and possibly a foray into the European Union through Ireland.
Technon requires significant support in terms of advisory services
and transactional guidance. The company also wishes to control
overall banking costs, while ensuring access to adequate financing
(including pre-export financing), as well as the option to offer
competitive financing options to its overseas buyers. International
Trade Finance © FITT 3 The Challenge You are a consultant retained
to advise the CFO of Technon on the financial aspects of the
company’s international activities. Consider the company and its
business, probable nature of its international activities over the
medium term, specific transactional needs, as well as the three
candidate banks and their respective offerings. Learning Outcomes
This case study relates to the following learning outcome from the
course International Trade Finance: • Explain the range of products
and services provided by various models of export credit agencies
and how they can support organizations in their international trade
transactions. International Trade Finance © FITT 4 1. There are two
major schools of thought relative to the establishment and
management of international banking (trade finance) relationships
with financial institutions. One approach suggests that domestic
banking and international banking ought to be kept distinct and
separate, to minimize risk to the company and to ensure that no
single financial institution has excessive leverage against a
company. The second approach suggests that an integrated and
holistic approach be taken, where a company establishes a one-stop
shop relationship with its bankers. Which approach is best suited
to Technon? 2. What should the primary decision drivers be for
Technon at this stage of its evolution? 3. Articulate the case in
favour of each bank as a potential service provider to Technon.
Note one negative characteristic. 4. Select the recommended
solution for Technon. Explain your selection