Chad Grismer says his business, The Wheat Group, is having a fine year, but next year will be even better thanks in part to a federal program aimed at boosting exported goods.
The Rancho Bernardo-based company is a manufacturer of sportswear accessories such as bags and backpacks for some of the biggest brands in the industry including Hurley, Puma and Skull Candy.
Buoyed by increased consumer spending on such items, The Wheat Group is on track to do about $70 million in sales this year, nearly double the $45 million it did last year.
Grismer estimates next year Wheat should break $110 million in sales, with a big chunk of the increase coming from sales to retailers outside the United States.
The company’s recent activation as a participant in the Foreign Trade Zone is a big reason Grismer is so bullish on future export revenue.
The program allows companies that obtain material from outside the country as The Wheat Group does, to defer or waive duties on those products until they are shipped. Ordinarily, companies importing goods from outside the country have to pay duties or taxes on the products when they take ownership of them, usually when the cargo is unloaded at a local port.
Yet, in many instances, the imported materials and products aren’t being sold right away and can end up languishing in some warehouse for months, said Grismer.
Under the FTZ program, Wheat’s duties on the materials it gets primarily from China are waived until they are shipped within the United States. If the products are shipped outside the country, the duties are waived entirely.
“This is the single most important initiative that was made available to our company,” Grismer said.
This year, about $10 million of Wheat’s revenue comes from sales to retailers outside the U.S., but within the next 18 to 24 months, export sales should increase to $30 million to $40 million, he said.
Wheat’s exceptional sales growth this year resulted in the company nearly doubling its workforce. As of last week it had 160 employees, nearly all of whom work at its headquarters office, up from 79 employees about a year earlier, Grismer said.
More Jobs Next Year
The additional jobs include customer service, production, design, order fulfillment, and administrative functions, said Jeffrey Schmidt, Wheat’s director of operations. The company should add another 15 jobs next year in the areas of customer service, production, sales and workers for its distribution center in Otay Mesa, he added.
Adrianne Turner, the administrator to San Diego’s Foreign Trade Zone, said participation in the program is especially beneficial to manufacturers using multiple components to assemble finished products, such as electronic goods.
The FTZ program, which was launched here in 1988, is operated by the U.S. Customs and Border Protection Agency, but administered by the City of San Diego. As of the end of 2011, 79 companies were using it. Those companies employed about 4,100 workers, and received about $330 million in merchandise, according to a FTZ report.
This year, the FTZ implemented a slew of regulation changes intended to boost participation, and reduce the approval time for companies.
Turner said previously there was a lot of overlap in requirements by both the FTZ and Customs that caused approvals to take as long as two years. Because of the changes, the application form was shrunk to a single page, and approval now takes 30 to 60 days, she said.
Exports of $17.4 Billion
In 2011, the region ranked 17th largest in the nation with export shipments of $17.4 billion, up by $900 million over the merchandise shipped outside the nation in 2010, according to a report from the U.S. Department of Commerce’s International Trade Administration.
Matt Anderson, director of the local ITA office, said that annual figure (the latest available) didn’t include any sales covering services from local businesses such as engineering, accounting and legal firms.
One of the industries showing particular export traction in recent years is classified as “marine technology,” which covers everything related to water management, shipping, and “any technology that connects to water or the ocean,” Anderson said.
CMF Global Inc., a distributor of all types of pipes, valves and fittings for water transmission, is a prime example of a firm assisted by the ITA.
Launched in 2002 by Ramon Castillo and his nephew Joseph Fernandez, the business got off to a slow start, but has been seeing greater sales this year, mainly due to finding new customers in the Far East and the Middle East.
From only one employee and $1.3 million in sales in 2005, today CMF has 10 workers. It generated $10 million in sales through the end of the third quarter, Castillo said.
About 80 percent of CMF’s sales are exports. Originally the business focused on supplying pipes and fixtures to golf courses, but it’s recently moving towards customers that are building large water and gas transmission systems.
“This year we saw about a 25 to 30 percent increase in exporting,” Castillo said. “We now ship to about 35 countries.”
Among some of the areas where CMF is picking up new contracts are Southeast Asia, including the Philippines, China, Thailand and Singapore; Russia and India.
“They’re building a lot of golf courses in India,” he said.
Castillo, who in a former life was a tax lawyer, said doing business in foreign lands is much different from the way it’s practiced here.
It’s not just because you’re dealing with different languages and customs. So much of forging partnerships with companies depends on them getting to know who you are, Castillo said.
“You have to go visit your customers. People in Southeast Asia won’t do business with you unless they see you and go out to dinner with you,” he said.
“And you can’t just go there once. You have to go again and again and again,” he said.
Castillo traveled overseas four times this year, the longest being a month and a half he spent in the Philippines.
Even when contracts are struck, there were complications that Castillo had to overcome concerning differences in the way the partners work and interact.
“One of the toughest parts was explaining to them the way we do business here, and how we may see a problem and figuring out a way we could prevent it,” he said. “But they were interpreting that as just putting obstacles in the path. It was a learning curve for both of us.”