The good news: There is a lot of room for small-to-midsize companies to run.
The coronavirus outbreak in combination with the souring of U.S.-China trade relations and national security concerns about protecting our nation’s key technologies from smash-and-grab poachers have sped up an ongoing trend in insourcing production back to the U.S. This— on top of increased populism, nationalism, rapid advancements in technology (which enables companies to move production closer to home) and second thoughts about globalization among business and industry leaders— will dramatically reverse and change the complexion of the supply chains that we have come to know today.
According to U.S. Secretary of Commerce Wilbur Ross, this would “accelerate the return of jobs to North America.” Maybe so. But a recent article in The Economist aptly entitled Goodbye Globalization argued that the “way to make supply chains more resilient is not to domesticate them, which concentrates risk and forfeits economies of scale, but to diversify them.” But this view understates the impact of natural disasters, diseases and trade wars resulting in major supply disruptions in the last decade. Either way, the business outlook for international trade and foreign direct investment flows are difficult to gauge with growing protectionist sentiment and a world slowly emerging not just from the most catastrophic pandemic in more than 100 years, but the worst global recession (some would say depression) since last century.
For their part, the World Bank forecasts that the world economy will contract by 5.2% this year. The U.S., which suffered more coronavirus-related deaths than any other nation, will see its GDP drop to -5.6%. The consensus among economic experts is that things may not fully recover for another 2-4 years. So, what can companies do to dig their way out the current mess? For starters, the volatility and thrashing of the world economy has in fact created opportunities for American companies to claw back and even capitalize on lost sales from earlier this year. For starters, there is a pent-up consumer demand for U.S.-made products, services and technologies as countries begin to recover from these twin crises. Among sectors leading the charge are defense, healthcare, IT/ICT and all things related to advanced manufacturing and Industry 4.0 (think AI, big data, IoT, 3-D printing and automation and robotics).
This is good news especially for small-to-midsize companies interested in expanding their markets overseas. And there is a lot of room for them to run. Ironically, as the world’s leading exporter ($1.643 trillion in 2019), largest economy ($21.43 trillion annual GDP last year year) and a traditional champion of free trade (somewhat open to question as of late), the U.S. actually underperforms in terms of the percentage amount of exports destined overseas when related to other nations. Setting aside for a moment the pandemic, U.S. exports compared to overall GDP (pre-coronavirus, mind you) is an anemic 7.76% given that less than 1% of American 30,000 million companies export. On the other hand, other nations around the world export on average 29% of their GDP. It gets worse. Of U.S. companies that do export, only 58% sell to more than one country. Yet two-thirds of world purchasing power and 95.75% of the world’s total population of 7.8 billion consumers reside outside our nation’s borders.
Although the U.S. has not taken full advantage of other countries appetite for our goods, exports remain an integral part of our economy. According to the International Trade Administration of the U.S. Department of Commerce, one direct or indirect job is created for every $185,000 in U.S. sales overseas. Translated, Michigan exports of $55,315 billion in 2019 supported 299,000 jobs in our state. Nationwide, exports have created an estimated 11 million jobs (mostly in manufacturing) that pay 14% more than jobs reliant solely on domestic sales. Companies involved in international trade are also more globally competitive and innovative than non-exporting industries because they have firsthand insights on new opportunities that crop up overseas.
It is critical to note here that U.S. companies have an often-overlooked advantage over their foreign rivals. Namely, American-made products and technologies are universally viewed as being of superior quality, technologically advanced, extremely innovative and backed by responsive after-market service. Also, exporters intuitively have higher sales and profits by virtue of having a much broader customer portfolio worldwide. This diversification (much like your 401(k)) provides them with a hedge and mitigates risk in the event of an economic downturn in the U.S. It smooths out the ebb and flow of domestic seasonal demands for their products and services. Selling overseas is an important strategy to move excess production capacity to other countries while extending your product’s lifecycle. International trade helps companies achieve economies of scale, improve efficiency and productivity while lowering their per-unit costs.
Exporters also have the advantage of pivoting themselves into non-traditional sectors where their products and technologies have cross-industry applications. Witness how previously disparate industries have learned from each other and become more innovative as a result. Take how the automotive industry now views itself as, first and foremost, purveyors of technologies that, incidentally, make cars while supplying their technological and manufacturing know-how to the aerospace, defense, energy, IT/ICT and medical industries. The cross pollination of ideas from all corners of the globe cannot be underestimated and doing business overseas is the best way to open your eyes to these types of opportunities. It can yield invaluable insights about your foreign competitors, marketing strategies, local consumer tastes, distribution channels and new product developments.
To be sure, exporting is not without its challenge. Hence, companies need to manage expectations accordingly. Going overseas involves extra costs such as market research, finding reputable partners, obtaining trade finance, translating your promotional materials and website into local languages and travel expenses. The payback period may also be longer and will require extra patience, too. Companies must be prepared to modify their products to comply with foreign rules and regulations (e.g., packaging and labeling). There is also a risk of nonpayment. Export licensing is required if your product or technology serves a dual purpose (i.e., commercial and military applications) that would threaten our national security. Other potential hurdles include access to trade finance, intellectual property protection, rule of law, cultural idiosyncrasies, business practices and fear of the unknown.
Yet the challenges of doing business overseas are far outweighed by the opportunities once the process has been demystified. Initially would-be exporters think that they are too small, lack brand recognition, short on internal global expertise or that only large firms have the financial wherewithal and resources to go overseas. Yet there are many low-costs ways and resources available that can help companies seamlessly ease their way into the world market while finding buyers for their goods and services. They include Automation Alley, the Michigan Economic Development Corporation (MEDC) of the State of Michigan and the U.S. Department of Commerce. The MEDC’s State Trade Expansion Program (MI-STEP) offers funding designed to help companies defray the costs of doing business overseas. This includes participating in trade missions and tradeshows where exporters can meet directly with buyers and end users.
In partnership with the MEDC, Michigan State University offers an Export Readiness Initial Assessment to determine your company’s international sales potential and what you need to do to become export ready. These organizations will help you overcome some of the common hurdles faced by first-time exporters—namely custom rules and regulations, identifying optimum market-entry strategies and distribution channels, supply chain management, and trade finance options to ensure that you get paid. These and other resources and support available to potential exporters will help them to see that the opportunities to export are far outweighed challenges. In the end, the only regret that seasoned exporters have when taking advantage of these services is that they did not do it sooner.