International Trade
Background
A Focus on Manufacturers
Foreign Sales
a. Destination of Exports
b. Attracting Business
Non-Exporters
Barriers to Trade
Trade Assistance
Imports
Final Comments
Background
More business is transacted across international boundaries than at any time in recorded history. Its volume, and its percent as a portion of all commerce, is certain to increase. The change induced by these transactions and the speed with which they occur often destabilize, when not displacing, incumbent businesses and their employees. Policy- makers feel compelled to respond to these changes. One universal government response is to encourage largely hesitant small-business owners to institute or expand foreign sales. Importing, effectively outsourcing, is often discouraged. This issue of the National Small Business Poll, therefore, focuses on International Trade, both exporting and importing.
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A Focus on Manufacturers
However, the survey sample on which this issue of the Poll is based differs notably from prior Polls. Comparatively few American small businesses are involved in international trade, political hyperbole to the contrary. Thus, a small sample from all industries was selected for the survey to obtain population estimates. This all industry sample was supplemented by a much larger sample of manufacturers. Only small manufacturers and small wholesalers have noticeable direct sales outside the United States. Since no parallel information about direct imports, the flip side of exports, was readily available, the profile of importing firms was assumed to be similar to that of exporting firms. In order to obtain meaningful information about the international trade activities of American small business, this volume principally examines a single industry, manufacturing.
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Foreign Sales
Small-business sales to customers outside the United States are limited. Just thirteen (13) percent of all small-business owners report foreign sales (not shown). Of those, 71 percent has foreign sales comprising 5 percent or less of their total sales. Thus, only about 4 percent of small businesses have more than 5 percent of total sales outside the United States.
The percentage of small exporters triples when the sample is comprised solely of manufacturers. Thirty-nine (39) percent of small manufacturers report sales to customers outside the country in the last three years (Q#1). Of this group, 61 percent made 5 percent or less of their total sales to non- U.S. customers. Nineteen (19) percent of exporting manufacturers claim 11 to 50 percent of total sales are non-U.S. and fewer than 3 percent exports over 50 percent.
The number of years small manufacturing exporters have been selling to non-U.S. customers varies widely. Eleven (11) percent has been exporting two years or less, 21 percent 3-5 years, and 22 percent 6-10 years (Q#7). However, 26 percent has been selling internationally for 11-20 years, while 11 percent has exported for 21-30 years. Eight (8) percent has been selling outside the U.S. for more than 30 years.
Most who are not now exporting never have. Ninety-four (94) percent of those without foreign sales in the past three years have never sold outside the United States (Q#2). Eighty-five (85) percent of manufacturers without recent non-U.S. sales have never had any. The survey asked those who once did but no longer have foreign sales why they ceased overseas operations. Twenty-five (25) percent of small manufacturers state that their foreign sales were negligible in the first place (Q#2a). Twenty-three (23) percent claims the market dried up while another 21 percent found foreign sales were not sufficiently profitable to continue. Nearly four-fifths (78%) of former exporters report chances are low that they will re-start foreign operations (Q#2b). Twenty- three (23) percent state there is a possibility that they may enter foreign markets again. The survey did not ask what would make an opportunity ripe for these owners to renew interest in foreign sales.
The share of small-business sales to customers outside the U.S. has held steady over the past three years for nearly half of manufacturing exporters. Forty-nine (49) percent says the percentage of their foreign sales is the same today as it was three years ago (Q#3). Among those who have experienced a change, more owners have been increasing sales to customers outside the U.S. than decreasing them. Twenty-four (24) percent reports foreign sales have been growing a little and 9 percent reports sales have been growing a lot. Nine (9) percent has reduced their sales outside the U.S. a little and 7 percent has reduced them a lot.
There are only two reasons to export: greater relative profitability in export sales and saturation of the American market. Most (67%) exporting manufacturers report domestic and foreign sales equally profitable (Q#10). But, 21 percent reports higher profits for their efforts abroad. Few exporters report their sales to other countries are less profitable than their domestic sales. Thus, it would appear that profitable opportunities for American small manufacturers abroad remain.
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a. Destination of Exports
Responding manufacturers who export were asked where they made most sales (Q#4). A large percentage export to English-speaking countries. A plurality went North of the border. Nearly one-third (32%) exports most frequently to Canada. Fourteen (14) percent of manufacturers exports primarily to Asia, while 13 percent exports primarily to Mexico, and 12 percent to the British Isles. Eight percent of manufacturers export primarily to parts of Europe other than the British Isles; 5 percent primarily to Latin America; and 3 percent primarily to Australia and New Zealand. These percentages vary little by firm size. However, small manufacturers are twice as likely to export to the British Isles as larger manufacturers. Sixteen (16) percent of smaller manufacturers have made sales in the British Isles while just 8 percent of larger ones have done so.
The number of countries that each exporting firm sells to varies widely. Nearly half (48%) limit sales to fewer than four countries (Q#4a). Nineteen (19) percent sells to one country; 14 percent to two countries; 15 percent to three countries; and 12 percent to either four or five countries. Seventeen (17) percent sells to between six and 10 countries, while 8 percent sells to over 10 countries.
Firm size creates variations in the number of countries reached by exporters. Larger manufacturers export to somewhat more countries than smaller ones, though the differences are not great. A possible reason for the unexpectedly small difference is the large share of exports that result from unsolicited orders from abroad.
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b. Attracting Business
Most small manufacturing exporters are passive in their non-U.S. marketing activities. Over two-thirds (67%) of exporters’ primary exporting activity involves merely taking unsolicited orders from outside the U.S. (Q#5). Twenty-three (23) percent of exporting manufacturers with 20 or more employees regularly market and sell abroad. This figure drops to 11 percent for manufacturers with 10 to 19 employees and to 5 percent for the smallest firms. Some respondents make limited efforts to attract foreign customers. Eighteen (18) percent of all exporting manufacturers periodically market and sell outside the U.S.
Few manufacturers handle the majority of their sales to customers outside the U.S. via a Web site. Just twenty-one (21) percent uses the Internet to conduct the majority of their export business. The smallest firms are nearly three times as likely as the largest firms to use a Web site for non- U.S. orders. Twenty-eight (28) percent of firms with fewer than 10 employees take a majority of their export orders over the Internet, while just 10 percent of firms with more than 20 employees do so. Twenty (20) percent of firms with 10-19 employees take Web orders.
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Non-Exporters
Respondents who have not participated recently in exporting or who have never participated were asked if they would consider making non-U.S. sales in the future. Few among those who are not selling outside the U.S. have actually spent time investigating the possibility (Q#11). Just 8 percent has spent at least eight hours in the past three years investigating the potential for selling their products or services outside the U.S. or have engaged someone to do it for them. One quarter of those who have not investigated the possibility of exporting for at least eight hours have at least considered it (Q#11a).
Small manufacturers cite various reasons for keeping their businesses domestic. Among the greatest considerations is their belief that opportunities in the United States are better than they are abroad (Q#13C). Forty (40) percent responds that better domestic opportunities is an important reason for their decision not to export and another 28 percent states it is at least a consideration.
Small manufacturers are looking for new business, however. Satisfaction with current sales levels is not a constraining factor for most. More than 64 percent says satisfaction with current sales is not a factor in its decision not to export.
Non-exporting small manufacturers perceive selling abroad to be complicated. This perception influences owners’ decisions to shun exporting. Fifty-nine (59) percent claims there is too much regulation and red tape selling abroad (Q#13H). Fifty-eight (58) percent feels they lack the expertise to locate and develop markets outside the U.S (Q#13F). Forty-three (43) percent worries that they could not provide the necessary follow-up or service for foreign customers (Q#13G). Costs, risks and comfort level are also issues. The high cost of start-up is a consideration for 41 percent of manufacturers (Q#13D). Thirty-seven (37) percent believes that it is too risky to sell outside the United States (Q#13B). Twenty-three (23) percent just does not feel comfortable with selling abroad (Q#13J).
Some small manufacturers do not think they are competitive overseas, while others claim they do not have an exportable product. Over half (51%) of owners do not think that they can be competitive internationally (Q#13I). One quarter (25%) reports that their products or services are not really exportable (Q#13A).
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Barriers to Trade
The most important problem limiting increased sales among small manufacturing exporters is difficulty locating prospects. Slightly over half (51%) of exporters claim it limits their sales (Q#8D). Nearly as many, 50 percent, reports identifying reliable foreign representatives as a problem (Q#8I). Another large group (47%) believes their lack of management expertise in exporting hampers sales (Q#8H).
Costs and profitability play an important role. Forty-seven (47) percent of respondents are concerned with the up-front costs to develop foreign markets (Q#8F). Forty (40) percent does not believe increased foreign sales would be profitable (Q#8E).
Tariff and non-tariff barriers are also problems. Non-tariff barriers such as regulations and red tape are cited by 40 percent of manufacturers as hampering their ability to increase sales (Q#8B). Tariffs limit sales for 37 percent of respondents (Q#8A).
Shifting currency values are a problem for 42 percent (Q#8G). Twenty-three (23) percent of exporters claim their sales could be higher if they did not have to obtain American export licenses (Q#8J).
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Trade Assistance
Few exporting manufacturers have relied upon government programs for export assistance in the past three years. Nine percent has turned to the International Trade Administration (ITA) at the U.S. Department of Commerce for help (Q#9A). Just 4 percent has relied upon the Small Business Administration (SBA) (Q#9B). Ten (10) percent has looked to another public source designed to promote exports (Q#9C). Use of these sources is not mutually exclusive.
Non-exporters are slightly more likely to turn to a government program for advice than their exporting counterparts. The survey asked non-exporters who have either spent time researching or at least considering the possibility of exporting if they have turned to a publicly-funded program for help. Six (6) percent of non-exporters contacted the ITA (Q#12A); 12 percent the SBA (Q#12B); and 15 percent another public organization for help in making a decision about becoming an exporter (Q#12C).
The results of this poll suggest small-business owners are even less likely to contact the government for help regarding trade than they are for other reasons. Fewer than 10 percent of small manufacturers – with or without foreign sales – have made contact with any public entity regarding exporting. A previous NFIB Poll indicated that a higher number – 20 percent – has contacted government for some other reason, such as financial or management assistance or basic compliance information (NFIB, Contacting Government).
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Imports
Less than 13 percent of all small-business owners have purchased goods or services directly from vendors outside the United States in the last three years (Q#14). Less than one-quarter (24%) of manufacturers have done so. Of those manufacturers who have, imports made up a small percentage of their total purchases. About 45 percent bought 5 percent or less of their total purchases directly from foreign sources (Q#14a). Another 19 percent purchased between 6 and 10 percent of their goods or services outside the U.S. Just under 10 percent brought in over half of their goods or services directly from a foreign supplier.
Imports were most likely to come from Asia (36%) or Canada (28%). Small manufacturers also found suppliers in parts of Europe other than the British Isles (17%), the British Isles (7%), and Mexico (5%) (Q#15).
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Final Comments
Small firm involvement in exporting is limited. Few small businesses export and foreign sales constitute a modest part of total sales for those who do. The percentage of sales to non-U.S. customers has been holding steady over the last three years, although those who have seen a change in sales noticed some increases.
Exporters’ marketing efforts are passive; two-thirds waits for sales to come to them. Exporters are likely to conduct business with traditional trading partners like Canada, but are unlikely to ship to many countries. Despite 10 years under the North American Free Trade Agreement, Mexico lags behind Asia as a recipient of small-firm exports.
Small-firm owners see many impediments to increased exporting. Exporters rank high costs and an inability to find foreign customers as top problems. They lack the expertise or reliable foreign representation to service an increased customer base. In addition, foreign sales involve other complications such as tariff and non-tariff barriers and licenses. Non-exporters stay domestic because they claim sales opportunities are better in the U.S. than abroad. Some do not have exportable products while others are not competitive. For many, foreign sales are too complicated to make it worth their while. It is the difficulties surrounding exporting that explains why larger firms export more than smaller firms. The resources of larger businesses help to overcome obstacles.
The percentage of small firms that import and the percentage of small firms that export are equal. Thirteen (13) percent sold to foreign customers and 13 percent purchased imports directly. Manufacturing firms are more likely to export than they are to import. Thirty-nine (39) percent of manufacturers shipped goods to non-U.S. customers, while just 24 percent purchased directly from non-U.S. vendors.
Finally, very few exporters rely on government programs for exporting resources. Considering the resources spent on these programs, policy-makers may want to explore the reasons why small-business owners do not use them.