U.S. President Barack Obama has announced the goal of doubling U.S. exports within the next five years. Since the end of 2008, export growth has halted on a global level. U.S. exports in 2009 were below those in 2007. Overall, in the 10 years from 2000-2010, U.S. exports grew only by about 50%. Doubling exports in five years indicates a task four times as large, yet its achievement can greatly improve the economy and benefit American workers.
How can the U.S. achieve such a goal? 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? With these kinds of questions in mind, we recently prepared testimony for the House Small Business Committee based on our extensive research on international business activity of U.S. companies.
Many U.S. businesses see only the risks of exporting rather than the opportunities of the international market. The psychological distance of foreign markets and uncertainties about international business practices are key barriers to many U.S. managers. As a result, the United States underexports 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 investment needs 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 or discontinue them. There is a short-term gap in the working of market forces. Government 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.
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 necessary. Here are some suggestions: Since exporting competence is crucial, the Department of Commerce could sponsor a Professional Certification in Exporting to be taught in Business Schools and Community Colleges. 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. 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. The native American proverb says: “When storms come about, little birds seek to shelter, while eagles soar. “ We should help our exporters to become eagles.
_Michael Czinkota researches international marketing issues at Georgetown University and the University of Birmingham in the UK. He served in trade policy positions in the Bush and Reagan Administrations. He can be reached at email@example.com.
Charles Skuba teaches international business and marketing at Georgetown University. He served in the George W Bush Administration in trade policy positions in the U.S. Department of Commerce. He can be reached at firstname.lastname@example.org._© Japan Today