As Trade Slows Around World, Our Exports either can Fizzle, or Shed the Fat and Sizzle

Couple of days ago, I read a comprehensive article in the Wall Street Journal titled “Trade Slows Around World” (see reprint below), which talked about slowing global economies and how declining exports dim U.S. economic recovery prospects.  After reading this very sobering, fact filled, front page article,  I  couldn’t help but think that this is one of those defining moments that can either put our economy deeper into the proverbial hole, or force it to become more competitive and seize on the weaknesses of other global players who are also having trouble coping with the global economic slowdown.

As someone who has been involved in international business for more than 22-years as an exporter, business developer and merchant banker here is what I see:

  • Our export machine, although vastly improved in the last three years, is working at a fraction of its capacity and efficiency.
  • When he took office, President Obama called for the doubling of exports in 5 years, his one successful initiative I applaud and one that had a decent effect in real life. But in three years our nation’s  export infrastructure has not been expanded, nor was it restructured to accommodate the increase and stimulate significant additional export transactions. Yes, a fair amount of work has been done in making exporters aware of the available financing and insurance programs. The signing of the Free Trade Agreements, increasing information dissemination on exporting basics, available transactions and reverse trade missions have not fundamentally changed the way buyers and sellers approach cross-border business.
  • There is a tremendous disconnect between the understanding of foreign buyers as to what being bankable means in the eyes of American financial institutions and government agencies and the ability of our exporters, bankers and those same agencies to effectively bridge that gap to a greater degree then the current “low hanging fruit” transactions, which do get done, but represent a small portion of the potential deal flow.  In our small firm we know of hundreds of millions of dollars in deals that could get done, but won’t because of this disconnect. Our colleagues know of billions more.  At any given time I could recite 10-15 serious transactions which could easily become bankable if both sides were better prepared and underwriting standards were adjusted to be more reflective of the current business environment.

At our Firm, we found the problem to be so pervasive that we created an entire company – Fluent In Foreign Business (the Publisher of this blog),  to help companies seeking to do business cross-border to bridge their knowledge gap, mitigate risks and enable effective business development activities. To us it is that serious and that important.  We see massive untapped international business potential for the American small and midsize companies and we firmly believe that for our country to survive through these challenging global economic times, we need to seriously re-examine our current national exporting efforts.  Now that we warmed up by raising awareness and increasing the exports under the President Obama’s National Export Initiative, we need to start working the subject by bringing in international business professionals to help the politicians, non-profits and educational institutions to address the 3Rs of export improvement: Redesign, Rebuild and Recharge the process of exports.

One analogy I can make, as someone who can certainly stand to lose a few pounds himself, when an overweight couch potato decides to start walking and doing light exercise, it is certainly an improvement and some weight will come off.  However, with this type of mild exertion it is light years for that couch potato to become a serious athlete.  Yet, that is certainly possible with proper training, discipline and coaching.  What we have done in the last three years in the export arena was to take a couch potato of a nation and introduce it to light exercise and rather than shedding a few pounds, we benefited by increasing exports.  Nevertheless, we are still a huge distance from becoming a nation of serious athlete exporters.

Below are couple of articles – one very recent and which details the issues we are facing now and one I wrote about a year ago, which offers comprehensive solutions and recommendations to what needs to be done for our country to shed the fat of bureaucracy, malaise of the cultural misunderstandings, fear of the unknown markets and lack of preparation to dig deeper in order to perform like the export champion nation we clearly could be.

Declining Growth in Exports Dims Prospects for U.S. Economy; Europe Cuts Imports

By SUDEEP REDDY and ALEX FRANGOS

Global trade is stalling, dimming prospects that exports will buoy the U.S. economy in the coming months.Trade rebounded after its collapse in the recession. Now several indicators of export activity are flashing red as Europe’s recession, anemic U.S. growth and the slowing Chinese economy damp exports world-wide.The World Trade Organization just projected the global volume of trade in goods would expand only 2.5% this year, down from 5% last year and nearly 14% growth in 2010. A Dutch government agency, the CPB Netherlands Bureau for Economic Policy Analysis, estimates it fell outright in June and July. “The problems of the advanced economies, particularly the euro zone, are being spread around the world,” said Andrew Kenningham, senior global economist at Capital Economics, a London-based consulting group. “Everybody is being dragged down.”

imageThe trade shift could take a particularly big toll on the U.S. economy. Exports had been, until recently, “a stunningly strong driver of growth,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets. Exports have accounted for almost half of U.S. growth during this recovery, compared with an average of 12% of growth in economic cycles over the past four decades, he said.

Global growth has been slowing but financial markets have remained optimistic that politicians will come riding to the rescue. Now, though, hopes of political leadership are fading fast. Dow Jones’s Martin Essex reports. More U.S. companies may downgrade their global growth estimates in the coming weeks as they prepare to report earnings from the third quarter, which ended Sunday. FedEx Corp.FDX +1.03% and Caterpillar Inc.CAT -0.88% already have downgraded their global outlooks.

The slowdown also could thwart the Obama administration goal of doubling U.S. exports in the five years following the end of the recession in 2009. President Barack Obama has held up the goal as key in his effort to boost U.S. manufacturing and create more jobs. The trade slowdown could worsen as momentum slips across the global economy. The International Monetary Fund is lowering its forecast for global economic growth to just over 3% this year, according to projections to be released at its annual meeting in Tokyo next week.

Europe is the epicenter of the weakness radiating through the global economy. Chinese exports to the European Union—until last year its largest export market—have fallen 5% so far this year through August. Weak exports have exacerbated a slowdown in China’s domestic economy, which economists project will grow around 7.5% this year, which would be the weakest annual expansion since 1990. China’s manufacturing sector contracted for the second straight month in September, the government reported Monday, underscoring the troubles in the world’s second-largest economy. A separate HSBC/Markit survey of China’s manufacturers released Saturday found orders for new exports in September hit a 42-month low.  This slowdown is curbing exports to China from other Asian countries, such as Singapore and Thailand, which provide components for goods that end up in the hands of European consumers. Japanese exports to Europe also are tumbling.

U.S. exports to the European Union fell in July after largely holding up for two years, while overall export growth slowed to a trickle this summer. The Port of Los Angeles, the nation’s largest, said the volume of loaded outbound containers fell 10.5% in August from a year earlier. U.S. manufacturers’ new export orders declined for three straight months through August, ending three straight years of expansion, according to a survey from the Institute for Supply Management. The purchasing managers’ group’s latest report, due out on Monday, is expected to show continued weakness. At Aquathin Corp., a Pompano Beach, Fla., manufacturer of water-purification systems, exports to the struggling nations in Europe are down “significantly,” said company President Alfred Lipshultz. The closely held company exports to three dozen countries, accounting for three-fourths of its business. Mr. Lipshultz said he didn’t expect a return to faster growth until at least 2014, but he noted other markets are still holding up despite Europe’s troubles. “It’s more uncomfortable than it is bad,” he said.

While Europe is the main problem, demand also is slowing elsewhere. China is struggling to boost domestic demand while preventing broader economic damage from an overheated real-estate sector. The U.S. remains under strain as households cut debt and limit their spending, while concerns about U.S. budget policy hang over businesses. Japan’s sluggish economy is being weighed down by a climbing currency that makes its exports more expensive overseas.

The latest slowdown could bury the theory, embraced by many investors in recent years, that big developing economies such as China and India could break from the trends of their advanced counterparts. “If you had decoupling, you’d have growth rates holding up in the emerging markets despite the decline in Europe,” said William Cline, a senior fellow at the Peterson Institute for International Economics.Global trade had grown an average of 6% a year over the past two decades, faster than the overall global economy, as globalization opened markets and led to integrated global supply chains.Outright declines in world trade volumes are rare. Apart from the severe 12% drop in 2009, total world trade declined only three other times in the past half century.

Unlike 2009, when trade seized up globally, there are pockets of strength today. “We haven’t dropped a lot because what we lost in market share in Europe, in places like Spain and Portugal, we made up for in Latin America,” said Eddie Wong, deputy chief executive of Silverlit Toys. Silverlit employs around 4,000 workers in Dongguang, in China’s southern Guangdong province.Silverlit is set to make about five million remote-controlled helicopters this year, similar to last year’s volume, Mr. Wong said. He is counting on his latest helicopter model with a live web camera to boost sales and has only seen “some minor cancellations” in orders recently from European clients.The U.S. market has been a relative bright spot for China. Exports from China to the U.S. are up 10% so far this year. While that is slower than in past years, it is enough to make the U.S. China’s biggest export destination so far this year, beating out the EU for the first time since 2006. Still, at China’s biggest ports, volumes are falling. Shanghai, the world’s largest port by volume, saw a 6% decline in shipping containers passing its quays in August compared with the year earlier. “Exports continue to be a challenge,” said Ming Mei, chief executive of Global Logistic Properties, which owns warehouses in China and Japan. Similar pressures can be seen elsewhere in Asia. Sri Lanka had been experiencing strong export growth since the end of the civil war in 2009 and a shift of production away from China where wages are rising quickly. But now it appears the island nation’s apparel exports will drop this year, said A. Sukurman, head of Sri Lanka’s Joint Apparel Association Forum, a trade group, and owner of Star Garments Ltd., a supplier to brands such as Abercrombie & Fitch, Ann Taylor and Lands’ End.

A version of this article appeared October 1, 2012, on page A1 in the U.S. edition of The Wall Street Journal, with the headline: Trade Slows Around World.

U.S. Must Focus on Exports

As seen in the June, 2011 issue of Industry Today magazine http://www.industrytoday.com/

My underlying premise is to provoke thoughts and actions needed  to keep our nation’s present export momentum going for years and to develop the foundation, which would convert U.S. from the haphazard to the hard core export nation.  As always I hope you enjoy and welcome your comments.  (full color reprints of this article are available from the Princeton Council On World Affairs, to receive a free copy, please email Ruth at rsigalus@princetoncouncil.org)

Alexander Gordin’s admonition (“The U.S. must think all exports, all the time”) may sound like a tag line for a marketing campaign. But it’s far more than that. It relates to the economic survival of the United States. Gordin – explains why.

Tsunami and earthquake in Japan, armed rebellion in Libya, civil unrest in Egypt, Yemen and Tunisia – these calamities impact millions and occur just as the United States struggles to overcome the most severe economic contraction in recent memory.

For U.S. businesses to rebuild and thrive, they must take advantages of new opportunities often found under their noses. Opportunities for growth of export of services and manufactured goods have been woefully neglected, yet they are a well-established and effective way of rejuvenating economic health.

About a year ago, President Obama unveiled an export initiative that called for the doubling of our country’s exports in five years. This initiative has already shown early signs of resounding success despite a disturbing figure from the Small Business Administration: only one percent of all U.S. companies currently export.

CRUNCHING THE NUMBERS
Let’s look at some figures.

In 2010 the total American exports of goods and services was $1.834 trillion – $1.289 trillion in products, $545 billion in services. Those numbers represent an impressive growth of 21 percent and 8.6 percent respectively over the previous 12-month period.

Financing of exports also grew significantly, with the Export-Import Bank of the United States (U.S. Exim), the Federal agency charged with financing U.S. made goods and services exported out of the country, having completed a record fiscal year. The U.S. Exim financed $24.5 billion, an 11.7-percent increase over 2009, which had been a record year. Those numbers are on track to hit the President’s goal of doubling U.S. exports by 2014. But more must be done.

Although the recovery is projected to continue for the next several years and the U.S. dollar is likely to remain low for some time – which is a stimulus for others to buy our goods and services – our country will not be among the global export leaders, as measured by the percentage of total exports to GDP. Instead, we will need to fight for a greater market share among the world’s exporters. The way I see it, the United States must make cardinal changes, not only to how we think about exporting but also to our basic approach. We must make exports a strategic priority to our nation’s businesses, learning to approach exports more strategically and cultivating exporters as a recognized part of our economic landscape.

FOUR FUTURE CORNERSTONES
I believe that our next wave of national export expansion must be built on four cornerstones:

  • Comprehensive education of exporters
  • Enhanced export infrastructure
  • Increased national focus on exports
  • “Securities” market approach to exports

Let’s consider each.

Education – The United States must establish an educational system where exports and international business are taught not as a byproduct, but as a core economic discipline at all levels starting with middle school. In our country talented people who shape industries and professions such as science, sports, music, law, art and architecture are allowed to develop their skills, starting early in childhood.

Existing infrastructure helps weed out both promising and weak candidates. In sports, farm team systems exist and thousands of hours are invested in training and practice. Commitment by families, coaches and teachers to produce a travel team athlete or a budding marching band member often borders on fanatical. Debate teams exist to shape lawyers, and terrific science camps and competitions exist to spur innovation and identify our best and brightest scientific minds. We identify stars in these fields by training and preparing millions of students who are better prepared to succeed in certain aspects of life. Yet, when it comes to exporters with potential to create long-term financially rewarding benefits that will produce for decades, we simply leave things to chance. We offer our support late in the game, after mistakes have been made. As a nation, we do offer export advice and some training, but we don’t cultivate exporters through intensive training or formal education. Also, we have no system for measuring and standardizing the quality of export organizations.

If we are to succeed in exports, education is key.

Enhanced Export Infrastructure – To stand a chance at reaffirming our global position, we must refine and enhance our export infrastructure to better focus our formidable resources on assisting and preparing promising companies to export effectively. We must seriously consider expanding the reach of small federal agencies such as the U.S. Trade and Development Agency (USTDA), which delivers $47 in exports for every dollar it spends in funding project feasibility studies and reverse trade missions. We should explore leveraging government resources with Private Public Partnerships, wherein selected private non-profits are charged by U.S. government agencies with developing and funding nothing but export-related projects, transactions and initiatives. We must involve more banks and private finance companies in funding exports. Currently, only a handful of large banks finance export transactions guaranteed by the U.S. government through the U.S. Exim Bank.

Increased National Focus on Exports – Exports must become an important part of our national focus, on par with issues such as healthcare, housing, real estate and education. Media reporting and advertising, direct outreach by the U.S. Government and NGOs, grass roots outreach, union outreach – in short, every possible opportunity – should be utilized to preach the economic benefits and need for exports. This should be done not only during bad economic times when our domestic output shrinks, but at all times, on a consistent and sustainable basis.

If asked to name the top three initiatives that are going to improve our economy, the majority of Americans should be able to name exports as one of them.

“Securities” Market Approach to Exports – To attain the next level of economic growth, the U.S. export machine might have to borrow some pointers from the way the securities industry is structured. Specifically, I refer to information and analysis, which provide almost real-time updates as to how changes in the world affect given securities, alter opportunities and highlight changing risks.

Think about how well our export industry could be served if, for example, in the wake of Japan’s nuclear crisis, an export analyst covering the nuclear sector could highlight new opportunities to U.S. exporters for the sudden need of containment materials. Export opportunities opened up, as Japan called on Ukraine nuclear specialists after the devastating tsunami. But these specialists in Ukraine did not have the necessary equipment, worth tens or hundreds of millions of dollars, to effectively provide services to the Japanese. American providers of these required goods needed a way to quickly be apprised of the opportunities.

Another example of coverage would be a broader dissemination of pending project opportunities, which have export potential, such as those developed with USTDA’s funding. Overseas Private Investment Corporation or private developers could reveal export opportunities to U.S. providers of goods and services early, thereby allowing them the chance to respond quicker.

Having an actionable analytical/informational platform for the industry vs. the current platform for reporting past deals and transactions will provide a strong forward-looking base of transaction flows for U.S. exporters. Such a “securities type” platform can be developed on the basis of information from banks and insurance companies currently financing exports, EMCs (export management companies) and independent private analytical services. Self-policing and self-regulation should probably be the model for such a platform. Yet regardless of the model, the need for immediate and current information and analysis is critical to help exporters in their decision-making and business development.

MOVING FORWARD
As a nation trying to combat economic conundrum and to rebuild its prosperity, the United States has started on the correct path to growing its exports. With improved education of exporters, enhanced export infrastructure, increased focus on exports as a national priority, and the addition of a forward-looking information and analytical platform to aid exporters in growing their business, the country is certain to secure its rightful place among the leading exporter nations in the world.

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About Alexander Gordin
An international merchant banking professional with over twenty years of business operating and advisory experience in the areas of export finance, international project finance, risk mitigation and cross-border business development. Clients include foreign governments, municipalities and state enterprises as well as Fortune 500 and small/medium enterprises. Strong entrepreneurial instincts, combined with leadership and strategic skills. Transactional and negotiations experience in over thirty five countries. Author of the highly acclaimed "Fluent in Foreign Business" book and creator of the "Fluent in OPIC", "Fluent in EXIM","Fluent In Foreign Franchising", "Fluent in FCPA",and "Fluent in USTDA" seminar/webinar series. Currently developing "Fluent In ......" seminars and publications. Co-author of the Fi3 Country Business Appeal Indices. Extensive international business development and project finance transaction experience in healthcare, aerospace, ICT, conventional and alternative energy infrastructure, distribution and hospitality industries. Experience managing international public and private corporations. Co-Founded three companies abroad. Strong Emerging and Frontier Market expertise. Published and featured in numerous publications including: The Wall Street Journal, Knowledge@Wharton, NBC.com, The Chicago Tribune, Industry Week, Industry Today, Business Finance, Wharton Magazine Blog, NY Enterprise Report, Success magazine, Kyiv Post and on a number of radio and television programs including: Voice of America, CNBC, CNNfn, and Bloomberg. Frequent speaker on strategy, cross-border finance and international business development. Executive MBA from the Wharton School at the University of Pennsylvania. B.S. in Management of Information Systems from the Polytechnic Institute of NYU. Specialties Strategic Management Advisory, Export Finance, International Project Finance & Risk Management, Cross-border Negotiations, Structured Finance transactions, Senior Government and Corporate officials liason

One Response to As Trade Slows Around World, Our Exports either can Fizzle, or Shed the Fat and Sizzle

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