When President Obama announced in his State of the Union address ambitious plans to double U.S. exports within the next five years, he portrayed his initiative as a boon for small companies. The plan, the president said, would jump-start the economy by helping “farmers and small businesses increase their exports … Through sheer grit and determination, these companies have weathered the recession, and they’re ready to grow.”
Unfortunately, the gap between political rhetoric and real-world reality is wide. A mere 4 percent of U.S. small businesses export, according to the Small Business Administration. Indeed, Fortune 500 firms dominate exports, even though they comprise a small percentage of U.S. businesses.
Among small companies that do engage in foreign trade, exports tend to be a sideline. A recent study by the National Small Business Association, a Washington, D.C.-based membership and advocacy organization, found that more than half of small exporters made less than 10 percent of their sales from exports. Overall, roughly half of small companies believe they don’t have goods or services they could sell overseas, according to the NSBA. “This doesn’t necessarily mean they don’t have goods to sell -- it’s just a perception. They think they can’t export, so they wind up not exporting,” says Molly Brogan, vice president of the NSBA.
Creating Opportunities in Export
Given this limited export activity, how does the president plan to achieve his goal? In March, he vowed to boost credit for entrepreneurs by $2 billion, delivered through the Export-Import Bank, which helps support exporters by providing credit, loans, and other services. Obama also launched a new Cabinet panel dedicated to exports and pledged to increase the number of trade experts posted in U.S. embassies overseas, among other new initiatives. Meanwhile, the U.S. Trade Representative’s office, which develops trade policy and conducts trade negotiations, created a position to promote trade issues for small companies, and the SBA pledged to extend its Export Express pilot program, which provides rapid credit for exporters.
“What we are trying to do is find these companies [with export potential], take them one by one ... and connect them to business opportunities,” says SBA director Karen Mills. In testimony to Congress, she noted that the SBA is taking a ground-level approach, tutoring small companies in exporting. “We counseled 17,000 small businesses specifically in how to export [last year],” she said.
The Obama initiative also aims to push exporters to large developing markets like China, India, and Brazil. The Department of Commerce is hiring new trade experts knowledgeable about these countries. This strategy makes sense. If entrepreneurs are going to expand their exports, they’ll have to break in to these high-growth markets. Currently, China ranks eighth among top export destinations for small U.S. companies, and India doesn’t even make the list.
“Canada can be a good place for someone just starting to export because it’s familiar and you can go knock on someone’s door for payment. But for someone who’s a more experienced exporter, they need to find a place where there’s more room for growth,” says Laurel Delaney, founder of Global TradeSource Ltd., a consulting firm that assists small business exporters.
Many export specialists think Obama’s plan has much to offer. “Since part of small companies’ problem in exporting is perception, a high-profile export initiative will show small companies that exporting is possible,” says Brogan. The credit provided through Ex-Im Bank is critical, she says, since in this economic downturn many small exporters find it difficult to raise any capital.
Still, other experts worry the plan focuses too much on large companies. “The United States Trade Representative is supposed to be in the middle of this export push. [When they] came here to Chicago, they didn’t sit down with small companies,” says Delaney. She adds that most U.S. government Web sites don't collate information on exporting well, which confuses entrepreneurs.
Can Obama’s ambitious proposal actually work? Despite the small number of entrepreneurs exporting now, the potential demand is there: The NSBA study showed that more than 40 percent of small companies not currently exporting would consider doing so if their concerns -- about credit, making sure buyers pay them, and understanding foreign markets -- were addressed. Brogan notes that in the month since the Obama administration rolled out its exports initiative, many NSBA members have contacted the organization to find out more about new export promotion programs.
What’s more, she says, history suggests small companies respond to these initiatives: As the Commerce Department has expanded its Gold Key program, which helps exporters connect with potential buyers overseas, demand for Gold Key has increased steadily among small companies. And once these entrepreneurs stick their toes into exporting, they learn that they can manage some of the risks. Besides Gold Key, entrepreneurs who work with the Export-Import Bank can get credit insurance that steps in and pays exporters when customers don’t. “Once you have that security,” says Delaney, “exporting doesn’t seem so scary.”
Joshua Kurlantzick is the author of Charm Offensive: How China’s Soft Power Is Transforming the World.