Lost Opportunities: Why US Export Culture Needs to Change

11/17/2012  The GPRA Group Blog

Picture

In 2011 the US led the world in exports selling close to $2.2 trillion in goods and services.   Yet, measured as a percent of GDP, the US ranks fourth from last resulting in substantial opportunity losses for SME’s. US firms can do much better, benefitting both themselves and the US economy, but to get there they will need to overcome a history of resistance to cross-border trade. 
– – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –
In real terms the 2011 US export numbers look impressive.  Exports of goods and services grew year over year by more than 14.5 percent reaching a record $2.2 trillion – a far cry from the negative growth experienced in 2009 when exports totaled just $1.06 trillion.However, measured as a percent of GDP, the US ranks 189 out of 193 nations.  According to the World Bank, US exports for 2011 were about 13% of GDP approximately on par with Pakistan, Ethiopia and Brazil.  By comparison, China’s exports were 31% and Germany’s were 50%.

These GDP numbers underscore the magnitude of a lost opportunity.  If the US export ratio only matched the world average of 28%, annual revenues would increase by $300 billion.  In raw terms, that amount would underwrite about 1.2 million new jobs (less those lost by companies shifting operations offshore for cheaper labor).

Unfortunately persuading more US firms to take advantage of international markets remains an uphill battle.  Like exercise, everyone knows it’s a good idea, but it’s still hard to get off the couch.

A distorted perspective

There is a deeply held but flawed belief among a majority of US firms that exporting is simply not worth the trouble.  According to a recent study by Deloitte and the Economist Intelligence Unit that measured sentiment of mid-market executives from across the US, only one-third of the companies contacted had opted to expand beyond US borders.  Resistance comes in a couple of flavors:   (1) there are more than enough opportunities for growth within the US and (2) the returns are too small to justify the risks particularly in emerging markets.

The first point might be valid if US companies could count on a stable domestic economy.  However when that is lacking, as it has been over the past four years, failure to diversify into multiple markets leaves companies more vulnerable to economic instability and restricts growth.

As to the argument that it’s more trouble than it’s worth, emerging markets have never been as attractive to US marketers as they are now.  Since 1990, growth in purchasing power (per capita income) has reached 17% surpassing per capita development in wealthier nations by nearly 7%.   Although there is evidence that the rate of growth in these economies is decelerating (partly intentionally), GDPgrowth in developing markets over the next four years is expected to be 2.5 times greater than in developed markets.

Numerous studies have shown that for both multinationals and SME’s the benefits of cross-border operations substantially outweigh the drawbacks.   One survey of 202 non-financial members of the S&P 500 found that for the majority of companies international growth was a “value accelerator”.

Among the companies where non-US revenue growth was highest, the study showed

  • They grew faster (6% per year),
  • They showed greater revenue diversification enabling 20% of the companies to not only offset declines in their US businesses but also increase overall revenues.
  • They had greater returns particularly among companies that focused on emerging and frontier markets where growth is currently averaging 6-8% per year.
  • They were able to improve their return on capital and increase their reinvestment rates.

What can be done to encourage US firms to take greater advantage of global market opportunities?

Rethink the US educational system

US schools place so little emphasis on teaching geography and history that it is hardly a wonder that college graduates have less interest and understanding of the world today than their peers did in 1989.  A study by the Pew Research Center showed that despite the vast amount of foreign news available on the web, only 17% of Americans are tracking European economic news closely and just 12% track the political violence in Syria.  If the US does not restructure its educational system to instill an interest in the world from a very young age, all other efforts to increase US exports are unlikely to have much of an effect.

Expand government support programs

In 2011, the China Ex-Im Bank provided some $300 billion in export financing.  Canada’s equivalent backed up over $90 billion in export loans. The US Ex-Im Bank supported just $32 billion in loans (1.5% of total exports) of which 44% went to three major corporations.  To its credit, the administration launched the National Export Initiative (NEI) in 2010 with the goal of doubling exports by the end of 2014 but trade officials will need to reconsider the scale of these support programs if US SME’s are to compete on a world scale.

Focus on risk mitigation

Global trade will always carry some risks, but there are ways that US companies can mitigate them.

  • Think macro when it comes to leveraging regional opportunities.   Establishing a foothold in one country can lead to far more opportunity in neighboring countries than doing so from US-based headquarters.
  • Think micro when it comes to identifying niche opportunities, product innovation, marketing and support requirements.  Ride the perception that US- manufactured products are still much admired for their quality.
  • Think not just economics but also politics.  Careful macro and micro political planning and data modeling can help anticipate and lessen the likelihood of regulatory change, increase access to free economic zones, manage incidents of forced corruption, ensure supply chain continuity and counter social causes of conflict.
  • Hire locally as much as possible from management to labor to consultants.  Advanced training and technology around the world has reduced the need for companies to transplant US nationals to new markets.
  • Acquire political and trade risk insurance, but recognize that most political risk is not contractible.  Conducting independent due diligence can offset the chance of confusion or conflict in the event a claim is filed.
  • Explore all financing options provided by US agencies.  Incentives have increased and bureaucracy has decreased as the US government has determined to make exporting a central part of the country’s economic growth strategy.

According to the Bureau of Economic Analysis, American manufacturers produced 16 times more in 2010 than in 2000 largely due to the utilization of advanced technologies. When productivity savings are reinvested in new facilities and equipment, US companies can compete effectively with foreign rivals particularly in sectors where the country has a comparative advantage (electronics, information technology, medical equipment, and chemicals, for example).  But more SME’s will have to jettison certain outdated ideas about the challenges of exporting if the potential benefits are to accrue to US workers.

Advertisements

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

2 Responses to Lost Opportunities: Why US Export Culture Needs to Change

  1. Pingback: Export Finance | FINANCE

  2. Thank you. Best Tip is publish regularly and often and stay focused on the issues you are covering

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Site Title

“Love recognizes no barriers. It jumps hurdles, leaps fences, penetrates walls to arrive at its destination full of hope.” — Maya Angelou

Museum of International Trade & Merchant Banking (MoMBIT)

chronicling the importance of international trade and merchant banking in the global development

Fluent In Foreign Business

Helping To Grow Your Business Abroad

Emerging Market Insights

How to make a killing in Emerging Markets without losing your shirt?

Ideas That Work @ GIDASPOV.COM

Strategy | Creativity | Innovation | Fundraising | Marketing

Nu Leadership Revolution Blog

“Helping Emerging Leaders Gain the Competitive Advantage in the Future"

Mike Z's Blog

Exploring the causes of cancer throughout the world

Bucket List Publications

Indulge- Travel, Adventure, & New Experiences

FranchisEssentials

Sharing Information, Insight and Perspective about Franchising, Small Business and Entrepreneurship

bizrisk.wordpress.com/

We Help Insurance Agencies Stand Out

The WordPress.com Blog

The latest news on WordPress.com and the WordPress community.

%d bloggers like this: