Large companies are those with 500 or more employees; midsized companies employ between and 50 and 500 people. Small companies are those with fewer than 50 employees. In March 2011, large companies in the United States hired 17,000 new employees. By comparison, midsized businesses hired 82,000 workers and small companies hired 102,000 workers. These figures are consistent with studies that have shown that it is smaller-sized businesses rather than Fortune 500 ones that are the major source of new jobs during an economic recovery. Only about 1 percent of America's businesses-300,000 out of 30 million total firms-export. And, nearly two-thirds of those companies export to just one country.
For many of these firms, exporting represents a major untapped market opportunity. Recent trends have been encouraging: In the 15-year period between 1992 and 2007, U.S. small business exports quadrupled to $400 billion. Even so, the U.S. Small Business Administration (SBA) estimates that there are tens of thousands of small companies that could export but do not. As SBA Administrator Steve Preston notes, "Exports are the under-recognized opportunity for many American small businesses." A number of explanations have been offered for the low level of U.S. exports relative to other countries.
In a recent interview, Fred B. Hochman, president of the U.S. Export-Import Bank, explained: For many years, there was no reason to export because our market was large enough, and it's easier. But, the world is changing. With 95 percent of the world's customers living outside the United States, it doesn't make sense for any business to limit itself to only talking to 5 percent of the world's population. Why do so many business owners consider marketing to homecountry customers to be easier than exporting? Luz Hopewell, director of the Office of International Trade at the SBA, points out that export documentation is one key issue. She notes, "You have to understand all the nuances of exporting to other countries.
Sometimes if a firm doesn't get the right license or doesn't have the right paperwork, the product can be returned from the shipping docks." Other reasons have also been offered. One is the limited ambition exhibited by many American business owners; this may result in complacency and a lack of export consciousness. A second barrier is lack of knowledge of market opportunities abroad or misperceptions about those markets. The perceived lack of necessary resources- managerial skill, time, financing, and production capacity-is a third barrier that prevents companies from pursuing export opportunities. Unrealistic fears are a fourth barrier.
When weighing export expansion opportunities, managers may express concerns about operating difficulties, environmental differences, and credit risks. Rounding out the list is management inertia-the simple inability of company personnel to overcome export myopia. Despite these barriers, the current business environment is prompting many small business owners to look into exporting. For example, a weak U.S. dollar translates into more affordable prices in export markets. The trend toward free and open trade is another driving force.
According to the SBA, Colombia, South Korea, and Panama account for about $16 billion in annual exports for small businesses. The recent ratification of free trade agreements (FTAs) with these three countries is expected to give exports a boost. Steve Preston, an administrator with the SBA, sums up the advantages of free trade agreements this way: "Tariffs come down dramatically, rules become simpler, and (intellectual property) protections become greater. That opens the door for small businesses." One company that stands to benefit from ratification of the U.S.-South Korea FTA is Blue Diamond, the California-based cooperative that exports almonds. South Korea's almond market is currently worth $25 million each year, despite a 45 percent tariff on processed almonds and a 21 percent tariff on shelled almonds.
Blue Diamond projects that its exports to South Korea will triple within 5 years of the FTA being implemented. One competitive threat to Blue Diamond comes from Australian almond producers who do not face trade barriers with South Korea. The changing face of entrepreneurship in America is also contributing to the small business export trend. Researchers at Duke University and the University of California at Berkeley studied technology and engineering startups that were founded between 1995 and 2005. The researchers found that 25 percent of these firms had at least one founder who was not a U.S. national. Entrepreneurs with cultural ties to Asia, Latin America, Europe, and the Middle East are seizing the opportunity to market to customers in their respective homelands. Of course, the Internet is another factor driving international sales.
These factors help explain the success of companies such as online cosmetics retailer www.beautyencounter.com. The company was started by Jacquelyn Tran, the daughter of Vietnamese immigrants. In less than 10 years, annual sales increased from $150,000 to $20 million; today, many orders originate in Europe, Latin America, and Japan. Meanwhile, three key agencies-the U.S. Commerce Department, the SBA, and the Export-Import Bank-are committing significant resources to the export initiative. Small businesses can now get loan guarantees of $5 million from the SBA; previously, the loan ceiling was $2 million. The Export-Import Bank increased its loan budget 20 percent for fiscal 2011, to $6 billion. For its part, the Commerce Department is working to reduce trade barriers and to identify potential buyers for American exports.
Discussion Questions
1. A potential American exporter is worried that he'll "have to learn to speak German or French" if he wants to market to customers in Europe. Is this a realistic concern?
2. Why is it the case that many small business owners in the United States traditionally gave little thought to exporting?
3. How has the current economic environment impacted growth opportunities for small and medium-sized businesses?
4. Assess the prospects for achieving President Obama's goal of doubling U.S. exports by 2015.