President Obama has announced the goal of doubling US exports within the next five years. This is an important goal for the U.S. economy, which is only slowly beginning to grow at a modest rate of about 3 percent. U.S. unemployment is stubbornly mired at just below 10 percent, not counting the underemployment of skilled U.S. workers. Given the debt leverage of the typical American household, one can no longer just rely on the U.S. consumer for growth. If we are to avoid legislated import substitution with all its inefficiencies and risks, U.S. businesses must look to other countries for added demand. Emerging markets, particularly in Asia will be the ones with likely robust economic growth.
Exports need to be a high priority. Overall, in the ten years from 2000-2009, U.S. exports grew by about 50 percent. Falling demand, increased competition, and a shortage of trade finance took the wind out of the global U.S. sales. Doubling exports in five years indicates a task four times as large as the past decade. Yet its achievement can greatly improve the economy and benefit American workers. A recent U.S. Department of Commerce report identified that 10.3 million American jobs were export-supported in 2008.
More exports are achievable if the right combination of government policy and private sector international marketing activity come together. But, what is that combination? What activities need to be rebalanced or restructured to set us on the right path? How can, with prudent use of government resources, U.S. firms, be enticed to export more?
To start, U.S. companies need to embrace international markets. Many U.S. businesses see only the risks of exporting rather than the opportunities of reaching customers beyond our borders. The psychological distance of foreign markets – which is the geographic and cultural gap perceived by managers – and uncertainties about international business practices are key barriers to many U.S. marketers. As a result, the United States under exports when compared to other nations. On a per capita basis, German exports in 2009 were $ 13,670 for every man, woman, and child. The figure for Japan was $ 4,063; for the United States, it was only $ 3,238.
When a firm starts to export, management’s perception of risk exposure grows. There are entirely new factors such as currency exchange rates, greater distances, new modes of transportation, new government regulations, new legal and financial systems, new languages, and often substantial cultural diversity. At the same time, due to needed investment into the exporting effort the immediate profit performance may deteriorate. Our research indicates that export procedural expertise is crucial for successful performance. Such expertise and managerial ability falls short even for experienced large exporters.
During the first two years of exporting, managers may face the unusual condition of rising risk accompanied by decreasing rewards. In light of this reality, and not knowing whether there will be a pot of gold at the end of the rainbow, many executives either do not initiate export activities, fail to expand them to additional countries, or discontinue them. There is a short-term gap in the working of market forces.
Here is where Government can play an important role. Export assistance can help firms over this rough patch to the point where profits increase again and risk heads downward. Bridging this short-term market gap may well be the key role of export assistance, and the major justification for the involvement of the public sector.
Export assistance can target the organizational characteristics and capabilities of the firm and improve them. It can also work on the managerial characteristics and contribute to knowledge and competence. Government also needs to continually monitor the environment and opportunities, as well as barriers, for U.S. companies and, in its international negotiations, do something about reducing the existing obstacles. At the same time, firms need to be enabled to take advantage of new opportunities, in order to avoid government’s opening of markets which are then supplied by free riders.
With continued substantial economic growth in emerging markets like China and India, there exists enormous potential for American goods and services. Hundreds of millions of global consumers are realizing their dreams for a middle class life and have new disposable income. Many have a preference for U.S. brands as evidenced by the success of General Motors in China. Dramatic investments in infrastructure projects worldwide offer U.S. manufacturing companies and service providers tangible opportunity to expand sales.
On the Government side, the Obama Administration has announced it National Export Initiative. The plan is to increase export assistance to U.S. businesses in the form of export promotion and education activities, trade finance, and policy actions such as the successful completion of free trade agreements with Colombia, Panama, and Korea. Export assistance will be most effective when it reduces the risk to the firm and increases its rewards from export operations. For example, providing information on market potential abroad is likely to decrease the risk (both real and perceived) to the firm. Offering low-cost credit is likely to increase the rewards.
Export promotion is vital for a strong U.S. economy. Small and medium-sized businesses can benefit enormously from the wealth of research and services available through the U.S. Department of Commerce. Successfully getting information to U.S. businesses remains a key challenge for government. A smart program in this regard has been Commerce partnerships with key businesses like banks, e-commerce companies, and express delivery firms to provide good information on exporting to business end customers. This year, Commerce and Small Business Administration officials are conducting training with FedEx and UPS employees to help them better educate their customers on doing business overseas.
Here are some other suggestions for a smart Government role: Since exporting competence is crucial, the Department of Commerce could sponsor a Professional Certification in Exporting. The necessary knowledge and skills could be taught in Business Schools and Community Colleges, proving firms with assurance that help is at hand. Liberal arts students should incorporate some international business education in their programs. Exporting must become of the national game plan, just as it has been for decades in Japanese and German society and is now in China. The time is right for such an initiative.
States could rally annual competitions for the best case study written on an export entry success. Such studies should present an export problem which was solved. Just like the peer reference power of adolescents, companies need concrete success stories they can read about to convince them that exporting is worth pursuing. Such case work should involve support from the U.S. Commercial Service, Export Assistance Centers and Chambers of Commerce. Hundreds of short cases a year could be added to national resource centers. Available on‑line, these cases could help in training swaths of interested people.
Congress might consider the development and implementation of an “Export Impact Statement” in connection with major policy decisions. Export trade considerations should also become an integral part of foreign policy negotiations instead of just an afterthought. It must be recognized that successful international trade leads to a strong U.S. economy, which in turn is the necessary prerequisite for this country to remain the guarantor of its political achievements.
Finally, budget issues need to be considered. The National Export Initiative calls for a modest increase in funding for export promotion. We support this and more of it. After all, government promotion should be intended to jump start activity that will continue over time. To be first class in international trade cannot be done on a shoe string. We need to invest in our export knowledge, processes and capabilities. A native American proverb says: “When storms come about, little birds seek to shelter, while eagles soar. “ We should help our exporters to become eagles.
– This Article was written by Michael R. Czinkota and Charles Skuba of Georgetown University for Marketing Management Magazine