First of three parts
When President Obama announced his ambitious plan to double U.S. exports in five years, small businesses were once again cited as a critical part of his plan. But how realistic is that goal and are small businesses getting their hopes up – only to have them dashed again?
The idea of selling abroad has always been enticing to small business owners as a way to boost sales and grow their companies. In the current economic climate, their appetites have been whetted even more. After all, most small firms say a lack of sales is their biggest problem.
Today, the top 500 U.S. exporters account for roughly 60 percent of the $1.2 trillion in annual exported goods. Companies with fewer than 500 employees – the SBA’s threshold for a small business — account for only 30 percent of exported goods, even though small firms make up the vast majority of employers.
The reasons why are varied.
The National Small Business Association and the Small Business Exporting Association, two small business trade associations, recently polled 500 of their members for their thoughts on exporting. The results are very telling of the efforts by past administrations to encourage exports. Today, many small firms that could be exporting aren’t.
Of the non-exporters polled:
- 38 percent said their two biggest concerns were a lack of information about the subject and where to start.
- 28 percent cited concerns over getting paid from a foreign customer.
- 43 percent said they would export if their concerns could be met.
Current exporters, interestingly enough, share many of the same concerns, such as their ability to get paid and the complexity associated with exporting, according to the survey.
But even among exporters, overseas sales only account for 19 percent of overall sales. Even more surprising, the majority of small exporters rely on earnings and savings from their businesses to finance exporting—not bank loans or government-backed programs. Also surprising is how most companies go it alone, despite a vast array of government programs designed to foster exports.
Of those firms with only domestic sales, two-thirds did not know the government conducted overseas trade missions. Even fewer business owners, just over one-fifth of those surveyed, knew that the Small Business Administration even operates export programs. Meanwhile, less than a fifth knew about the Export-Import bank’s financing programs.
Awareness was even lower about such things as U.S. Export Assistance Centers, Department of Commerce programs, state export promotion programs, commercial services available in U.S. embassies and assistance from the Overseas Private Investment Corp.
Given the results, it’s safe to say the government has failed to get the message out.
With the economy dogged by persistent high unemployment, increasing exports can be a significant catalyst to help bring that number down. Every $1 billion boost in exports roughly translates into 6,100 domestic jobs, according to government estimates. But is the president’s effort enough to get the job done?
Last month, the president outlined his National Export Initiative in a sweeping executive order. His broad goals call for removing trade barriers abroad and “helping firms — especially small businesses — overcome the hurdles to entering new export markets, by assisting with financing, and in general by pursuing a Government-wide approach to export advocacy abroad,” according to the executive order.
To oversee the effort, he created an Export Promotion Cabinet that includes the secretaries of State, Treasury, Agriculture, Commerce and Labor, in addition to the U.S. Trade Representative, SBA Administrator, the President of the Ex-Im Bank and several other key administrators.
Of the eight broad initiatives assigned to the group, the president put exports by small and medium-sized enterprises at the top of the list. The goal is to enhance export assistance to SMEs, “including programs that improve information and other technical assistance to first-time exporters and assist current exporters in identifying new export opportunities in international markets,” according to the order.
On top of the administrative reorganization, the president has promised an additional $2 billion of lending authority to the Export-Import Bank, and the Commerce Department. So far reactions to his initiatives have been mixed.
“These are useful steps, but they are small steps,” Gary Hufbauer, the a senior fellow at the Peterson Institute for International Economics, told the House Small Business Committee during a recent hearing.
“The very high fixed costs of exporting go a long way to explain why an exceptionally high share of US merchandise exports are shipped by large firms that can spread the necessary costs over a large volume of foreign sales,” he said.
The solution would be a “very dramatic” boost in export financing for small firms. He suggested creating a significant tax incentive for private banks to support the export financing needs of small business, both on a pre-shipment basis and once the goods or services are sold.