Governments from the United States to Nepal are pinning their hopes on exports to lift their foundering economies out of the global recession and create new jobs at home. A World Bank study on export promotion found that each dollar increase on export promotion brought a 40-fold increase in exports.
With a 9% worldwide drop in exports in 2009, even a modest increase could translate into big gains for economies.
In his 2010 State of the Union Address, President Obama pledged to double U.S. exports of goods and services during the next five years—a mission, he said, which will “boost economic growth and support millions of American jobs.”
U.S. exports account for nearly 7% of the nation’s total employment, or 10.3 million jobs, and more than one in four manufacturing jobs. Yet only 1% of U.S. companies export. Despite its vast industry, the U.S. is not an exporting nation. It has relied heavily on local consumption for growth, but the new economic reality calls for a change in direction.
Beyond U.S. borders lies 73% of the world’s purchasing power, 87% of its economic growth and 95% of its consumers. The untapped potential of exports, particularly to China and India, is simply tremendous. Government investment in export promotion can help tap into that potential.
There’s a lot of buzz around SMEs—no, not those cute, blue, French cartoon-book characters the Smurfs, but “small and medium enterprises.” U.S. SMEs derive 12% of their revenue from exports, according to a CompTIA study. Exports are growing faster than domestic sales.
So why are only 1% of U.S. businesses exporting? Some SMEs just don’t have products that are a good fit for export. The other top reasons include lack of resources, lack of expertise, distribution channel challenges, poor return on investment, and cost to export.
With a lot riding on the president’s promise to double exports, the administration has launched an ambitious new program aimed at addressing the reasons why companies shy away from the exporting game.
The National Export Initiative (NEI) is designed to help U.S. firms, particularly SMEs, expand sales of their goods and services abroad. The NEI has a five-pronged strategy: Create a cabinet-level focus on exports, expand export financing, prioritize government advocacy on behalf of U.S. companies, provide new resources to businesses seeking to export, and ensure a level playing field for U.S. exporters in global markets.
Among the key initiatives:
- Financing is key for any business looking to expand. The Export-Import Bank is expanding its small-business program and has created a new facility to provide up to $2 billion a year in trade and finance to SMEs. Ex-Im is also upping its financing by 50% to help support exporting.
- Launching a new public-private partnership will engage private service companies along the export supply chain. They will work together with the government to provide education and networking opportunities for small- and medium-sized businesses on all aspects of exporting. These service businesses (e.g., insurance and express delivery firms), understand that, if their clients’ exports grow, their business will grow.
- Increasing trade missions will bring firms in direct contact with export opportunities. U.S. embassies are creating business liaisons and a travel program, sending ambassadors around the country talking about export opportunities in their assigned countries.
- Expanding resources provides money for businesses that want to expand exports but don’t have the knowledge, experience or finances to do it. President Obama has proposed increasing funding for export promotion programs by $134 million for FY2011. The money would pay for the hiring of more than 325 trade experts to advise potential exporters.
- Creating a one-stop source will promote exports. Government agencies will collaborate to provide a comprehensive toolkit of services ranging from financing options to export counseling to market access information through export assistance centers in the U.S. and abroad.
- Opening new markets will broaden sales. The U.S. will continue to push for new market access in the WTO Doha round and free trade agreements.
The insurance industry can benefit from these exports initiatives. At a time when worldwide demand for insurance has dropped, an increase in exports could boost demand for insurance products.
Brokers are in a unique position to encourage clients to grow their exports. You can start by directing your clients to government and private resources. Many countries offer programs for SMEs. In the U.S., companies can find a wealth of free information at www.export.gov, which is the government’s export promotion and finance portal. The one-stop shopping site provides information on financing, regulations and the nuts and bolts of how to start and expand exports.
By familiarizing yourself with the resources available, brokers can provide clients with one more valuable service.