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Why Johnny Can’t Export

You’d think that with U.S deficit in goods and services hitting $725 billion in 2005 that a great debate would …

You’d think that with U.S deficit in goods and services hitting $725 billion in 2005 that a great debate would be taking place about how to spur American exports.

But hardly a word is spoken, whether out of disinterest or sheer ignorance, it’s hard to tell. But it’s a tragedy because there is so much that needs to be done.

The heart of the issue is small and medium-sized companies, which is precisely the sector of the economy feeling the greatest pinch from global competition. Major multinationals already have achieved global presences and are in much stronger positions.

To be sure, there are some smaller companies that have figured out the international game, but the vast majority have not.

The CEOs of these companies are sitting ducks. Part of it is their own fault–they haven’t learned how to absorb foreign nationals onto their boards or into their senior managements to give them the insight and connections they need. Some haven’t been willing to devote the time or money to explore markets outside the U.S. Or perhaps they haven’t invested in adapting their goods or services to the tastes and needs of foreign markets. These CEOs need a good swift kick in the backside to start taking those steps.

But part of the blame can be placed on the doorstep of governments and banks, which have created a nearly impenetrable thicket of complexity. They have created disincentives to export, meaning the U.S. system actually discourages would-be exporters. Here’s a sampling of how:

–The U.S. Department of Commerce has become a dumping ground for political appointees. It is hobbled by layers of bureaucracy, and the department is woefully aloof from the local and regional level where real companies are located. Commerce’s representatives are spread so thinly as to be nearly invisible.

–Getting an export license for any technologically sensitive item is still a nightmare, particularly to a market such as China. The Pentagon, which plays a role in these licenses, believes American technology can be controlled. But the genie is clearly out of the bottle.

–Other U.S. government programs like OPIC and the Export-Import Bank are oriented toward major companies that don’t really need their help. The Small Business Administration also isn’t effective because it doesn’t understand the issues involved in exporting.

–State governors have created economic development offices, but they tend to be staffed by political pals. Some cities and regions also have economic development arms. All these shops may be effective in luring inward-bound foreign investment, but they know next to nothing about exporting. CEOs looking for help get the old run-around.

–The American banking system also has a confusing thicket of procedures and paperwork surrounding letters of credit, which are a necessary step for exporters to actually get their money. Nobody is going to put a product on a ship or an airplane if they aren’t assured of payment.

There is no one single magic bullet solution, of course. But steps need to be taken to improve the American export infrastructure.

Other countries offer tantalizing clues. German companies organize themselves in industry associations and chambers of commerce that are effective in gathering information about export opportunities and getting it into the hands of members. Japanese companies are organized into keiretsu, or industrial groups. Americans are never going to do that but they could study the Japanese model for more insight on how smaller exporters could “piggyback” on larger multinationals. The Japanese External Trade Organization (JETRO) is also an effective organization for gathering information for Japanese companies.

And of course, U.S. governments could greatly streamline their competing bureaucracies and staff them with experts, not political hacks.

None of this is breathtakingly new. In fact, David J. Richardson once wrote a book entitled, “Sizing up U.S. Export Disincentives.” Year published? 1991. And very little has changed since then.

So American companies are going to continue to get blown away. What do you think? Respond to me at bholstein@chiefexecutive.net. Maybe we can help start the debate.


Response To: Why Johnny Can’t Export

Blah, Blah, Blah€¦

What is the issue? Which way do you want it; our country safe from terrorists or to freely export restricted, sensitive or classified technology?

While I cannot comment on the statements you made about the quality of the people at Commerce, I find it difficult to believe that such a generic “profile” is accurate; which reminds me of another point. We cannot profile at airport screening centers nor in general law enforcement; but you can create a generic profile of everyone in Commerce. So we continue to screen and “wand” every grandma and grandpa of non-middle eastern heritage in case there is a baby-boom version of Timothy McVeigh? Amazing how you can eloquently ride both sides when it is convenient for your argument. Rather hypocritical I think€¦

Why did you fail to mention the foreign exchange issues? A good portion of our trade imbalance with China is due to a country that still essentially believes in indentured servitude and pegs its currency to the US$ at an artificially low level. Despite the US worker’s superior level of productivity, we cannot compensate for a wage rate that is 1/20th (my off-the-cuff estimate) of our average wage rate and an artificial exchange rate.

The vast majority of the systems we make are Sensitive, Restricted or Classified. We export all around the world; Middle East, Former Soviet Union, Central and South America and we have never found State and/or Munitions Control to be anything but cooperative. Government contracting is full of rules and regulations. Dealing in these kinds of technologies is wrought by even more rules and regulations. I believe it’s for good reason; you tell me. If you can’t take the heat, stay out of the kitchen.

I’ll acquiesce to your point on EXIM. They are no help to small business and the SBA’s charter does not apply here, to my knowledge. Any good bank can help with the LOC issues as well. These have never been an issue for us, even though we deal in the regions of the world we do.

I suggest you contain your commentary to those topics you are truly versed in€¦perhaps reporting on survey results of others. Sell widgets to the masses; you’ll find fewer government restrictions.

Respectfully,

Donald A. DiFrisco, President & CEO, Innovative Surveillance Technology, National Intelligence Academy, Vizion Surveillance Systems


Response To: Why Johnny Can’t Export

Couldn’t agree with you more. But I would add the schools to the list of dummies. How many MBAs, business or accounting grads come out with any knowledge of LCs, licenses or even simple things like using chamber of commerce’s to make contacts overseas.

I have had foreign investors since start-up in ’83, have manufactured overseas, ship about 30% of our products offshore and import about 70% of our product content. All this in a $25m company. I’m appalled how ignorant owner/CEOs I meet socially are in this area.

I think it’s too late for most who are already in business. We need to start with younger people and make sure they have a “global” model of business in their heads when they enter the marketplace. To make this happen some curriculum changes need to be institued.

Best regards,

Joe Eichberger, President and CEO, Amt Datasouth


Response To: Why Johnny Can’t Export

You were right on with your Dept Of Commerce comments.  I was the president of a Fortune 800 Co. until 1995 and all they did for us was provide statistics.  It was another “post office”.

I am now Chairman of a $65 Million company that supplies cable and accessories to the Wind Power industry.  We import 70% of our products because U.S. manufacturers have not invested in modern equipment and can’t be competitive in the World marketplace.  Therein lies our greatest export problem. We bring product in from Mexico, Korea and Israel, with very little labor content, and domestic manufacturers can’t compete.

 

Gene Tonkovich, WTEC


Response To: Why Johnny Can’t Export

 

 

We manufacture blenders for both the commercial and the household markets.  Our products are uniquely better and more expensive than the other blenders available anywhere in the world.  When we first started seriously exporting beyond Canada was about 1995.  That is when we managed to get our machines to meet the 220/240 volt electrical standards.  With our first major (at that time) order from Japan we used a letter of credit.  Unfortunately, the individual in our local bank who was handling it died, and the letter of credit was not found among his stuff until after the letter had expired.  Luckily our customer in Japan was honest, in fact we still give them credit today, making letters of credit unnecessary.

 

From this we learned to choose our dealers very carefully.  We were helped greatly by a gentleman consultant from the US who had a great deal of previous experience with many dealers from the Pacific Rim Countries.  We have subsequently given credit to all of our carefully chosen dealers with no major issues.  We avoided currency problems by selling in US dollars and letting our dealers worry about the exchange rates.  We have since learned to find and pick the dealers who share our high standards, have someone who speaks English, and are worthy of credit.  Our early shipments were mostly small and by air.  Now we have several containers going every month to about 70 different countries around the world.  Although our international business grows significantly every year, our US business has also been growing, keeping our international business at about 15%.  We are constantly challenged by countries adding new standards agencies and keeping up with changing requirements.  The new Weee and RohS requirements in Europe will be a major challenge to meet without shutting done some of our products for a while, but we will get it done.  We spend a small fortune on international patents trying to slow done the 7 or so companies in the Pacific who are making copies which look exactly like our products, fortunately they do not perform or hold up like ours, so we are still able to compete in countries without any legal protection like Taiwan and Korea.  We have had tremendous hurdles to jump in getting world wide registration of our name, with a couple of problem countries still remaining.

 

We are in the process of starting a direct sales program in Europe for our household products, so we now have to deal directly with foreign currency, credit cards, etc.  Again the banks and regulations do not make this at all easy.  The complexities which have resulted from this international marketing/exporting have been very great.  However, the rewards including profits have been great.  Our international training of dealers have been extremely rewarding.  We bring such great people together from vastly different cultures and they all end up as one family.

 

From all of this we have not asked for much from the government agencies and do not expect much.  We have learned how to do what we need to do and keep moving.  We are in a very unique business where we have superb engineering and manage to stay ahead in the technology area.  I’m sure that a commodity product could never accomplish what we have done in the ways we have done it.

 

I don’t know if any of this is useful to you, but somehow your article and it’s emphasis on government help inspired me to think about how we have succeeded to export profitably, in spite of every hurdle thrown in our way.  Rather than providing direct aid to us, I think we would benefit more, if the red tape and trade barriers in the form of agencies and laws could be simplified.  Europe made things simpler by standardizing on the CE Mark.  The Euro also makes travel easier and will make selling direct on the continent easier.  It would be a lot easier if we could process all credit cards and debit cards through US banks.  We have had to have foreign accounts even in Canada to process cards there.  World wide standardization on many issues would make things simpler and more profitable.  Common patents and trade marks would reduce costs and simplify things tremendously.  Also better defenses against copies and prating would help a lot.  While Europe made things easier by standardizing on the CE mark other countries started adding their own standard agencies such as Taiwan and Argentina requiring more cost and red tape to export into those countries.  Additional agencies do not make product safer, but they do provide trade barriers.

 

John K. Barnard, Vita-Mix Corporation, President/CEO 

Response To: Why Johnny Can’t Export

Who are you and what gives you the right to trash all the organizations that are so vital to helping entrepreneurs and small businesses do business with the world? You are the person who needs a good swift kick in the backside to understand and appreciate what’s really going on in the realm of small business and globalization.

First though, let me tell you who I am and why I have the privilege to respond to you and your Chief Executive readers to set the record straight.

I run Global TradeSource, Ltd. (online arm: GlobeTrade.com), a Chicago-IL based global small business that helps entrepreneurs and small businesses expand internationally. In addition, I am the recipient of SBA’s “Exporter of the Year” award and author of “Start

and Run a Profitable Exporting Business.” I not only know how to export but I also enable countless other small businesses the opportunity to compete-and thrive-in the global marketplace.

According to the U.S. Census Bureau, Department of Commerce, in 2003 there were 215,190 identified U.S. exporters accounting for nearly $630 billion in exports or almost 87 percent of the total export value. These fearless business owners – a new breed of born global entrepreneurs – recognize that by ignoring globalization, that a business just might be on the verge of extinction. They’re ‘on it’ and making things happen on a BIG, bold, global scale.

But reverting back to your comments. You state that the blame, if any, on the lack thereof of small business exports, can be placed on the doorsteps of governments and banks. I disagree. The U.S. Department of Commerce, through their U.S. Commercial Service has an effective, low-cost export assistance program, helps small businesses through an

entire export process including finding qualified buyers. The whole point of its service offering is geared toward helping small businesses crack overseas markets and to make it easier to gain ground on exports.

Further, for years, SBA’s Office of International Trade (http://www.sbaonline.sba.gov/OIT/) has offered invaluable tools and resources to enable small businesses to expand internationally. Because they are so dedicated to fostering exports, they even provide an entire guide to exporting online (http://www.sba.gov/gopher/Business-Development/International-Trade/ Guide-To-Exporting/trad6.txt).

As for OPIC and the Export-Import Bank, if they are so oriented toward BIG companies, why have top executives from both respective organizations agreed to give talks at small business conferences? For example, The Women Presidents’ Organization (http://www.womenpresidentsorganizationchicago.blogspot.com), where I serve as Chicago chapter facilitator, is hosting an annual conference in Chicago this year. One of six planned workshops is on globalization and one of the panelists is a top executive from OPIC. I find it hard to believe that if these organizations are so out-of-the-loop on helping small businesses by only focusing on large corporations that they would be willing to commit their valuable time and resources to this type of event.

You mention JETRO, but when it comes to gathering export information on behalf of American small businesses, there is no better governmental resource than our very own U.S. Commercial Service’s BUYUSA.com program. If you want a ticket to doing business with the world, you’ve got it here: http://www.buyusa.gov/home/export.html where you can access market information on just about every country in the world and,

at the same time, locate key industry contact (email) information. Want to know how to get a license to export to China? Go here: http://www.buyusa.gov/china/en/

And ever hear of the Small Business Exporters Association of the United States (http://www.sbea.org/)? It is the largest and oldest nonprofit association dedicated exclusively to serving small business exporters – some 150,000 of them.

On Letters of Credit, let’s get with the program here too. A good international banker can help you with the process but there are so many other new, equally viable alternatives to LOC’s. For example, PayPal is safe for payment in advance on transactions less than U.S.

$10,000. Beyond PayPal, there are other online collection methods that may even work better such as VeriSign’s CyberCash or Worldpay. On larger transactions, Ec-Finance.com or AVG Letter of Credit Management LLC (www.avgtsg.com) are two reputable online companies offering Letters of Credit that guarantee payment. Choices are unlimited.

So next time when you set out to spur another debate, do your homework, get the facts straight and maybe we’ll see a more appropriately titled article: “Why Johnny and Jane Can Export.”

Sincerely,

Ms. Laurel Delaney, President and CEO, GlobeTrade.com


Response To: Why Johnny Can’t Export

Great article and right on. I think we have two problems at present. One, by and large, the American consummer does not care. All they seem to care about is price, price and price. If Chinese goods are cheaper than American made goods, they will take the cheaper product.

Secondly, we have an administration and governing body in Washington that just doesn’t get it. They don’t seem to be concerned with the numbers about our growing trade imbalance with China, in particular. They are too beauracratic and inept to do anything and too stupid to see the handwriting on the wall.

All this does not bode well for American manufacturing, particularly the smaller manufacturers. No wonder our children are staying away from manufacturing, engineering and the sciences. They would rather go to law school where they can come out and make $300 + an hour………………..

Thanks for your comments,

Lex Reynolds / The Reynolds Company / Greenville, SC


 Response: To Why Johnny Can’t Export

This is a multi-faceted question because our exports fall in to groups such as raw materials, agriculture and technology. For the most part, Americans are rather myopic about the export market and globalization in general. Producers have been spoiled having had access to the world’s largest market right on their door step.

If one would approach a coal mining company and explain to management the risks of foreign exchange, Letters of Credit, insurance and transportation as opposed to simply selling safe, the latter is usually the choice. In spite of potentially enhanced profits, a large portion of America’s exportable raw materials are sold at mine site, or FOB rail and less often FOB port of loading. This is due to lack of logistical sophistication, and the often to financial constraints. The cost of rail, truck, ocean freight, storage and terminal can easily exceed the cost of the product. Banks in American have the least experienced personnel to assist small and medium size companies with this type of financing.

As one walks through America’s crumbling infrastructure, it is no wonder our products are becoming less competitive on the world market. Although we are sitting on a 200 year supply of low sulphur in the Wyoming Basin, the cost of transporting it to other States is so excessive, that we import the same product from Indonesia, Venezuela and Colombia. I selected the example of coal but this is true for most exportable raw materials and agricultural products.

In the case of agricultural exports, our rail and barge system brings cargo to port at a significantly higher price than our competitors through-out the world. It has only been our general proximity to export markets that has kept our products competitive. This year Brazil will surpass the United States as the largest soy bean exporter and they have made significant inroads in to our traditional markets particularly in the far east.

The failure of American’s to navigate the labyrinth of export trade has lead to a blossoming in profits for logistic companies, freight forwarders and third party expeditors. Some of these companies are now providing financing or up front payments. They are taking the role that many think government should be doing. Overall, the system will eventually find the right efficiencies and the inability of government to fully understand world trade may be a blessing in disguise.

Sincerely,

L. Kravitz, president, Paragon Lines, Inc.


 Response: To Why Johnny Can’t Export

I read the story with great interest, as I also feel that this is a huge crisis. (Second only to the booming federal deficit.)

However, the story skipped the main issue – the product competitiveness. I am not talking just costs, but product suitability for the local markets. Companies like Dell, Boeing, and (in a small manner) my company ISP have demonstrated success in spite of the factors enumerated in the story. Half of our $1.4 Billion in sales are exports. Two of our largest customers are French. Simply, because our products meet their needs.

Sunil Kumar, CEO, International Speciality Products


 Response: To Why Johnny Can’t Export

I gave up and stoped trying about 8 years ago. It is impossible for anyone below the Fortune 500 to get the necessary business credit lines to effectively compete. For example, the last I checked the S

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