Export Trading Company Legislation: U.S. Response to Japanese Foreign Market Penetration

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EXPORT TRADING COMPANY LEGISLATION: U.S. RESPONSE TO JAPANESE FOREIGN MARKET PENETRATION

The great industrial might of the U.S. went unchallenged for many years, but as a result of changing priorities and spheres of influence, other countries, most notably Japan, have become world leaders in production and profits. Until recently, the great internal market, raw materials, and sheer enormity of the U.S. made it virtually unnecessary to seek profits from external markets. Many companies have been "too preoccupied with domestic markets to respond to solicitations from foreign buyers." This lack of interest or ability in developing export capacity has put the U.S. in the unfavorable position of having to catch up. In 1983 the U.S. trade deficit came to about $70 billion dollars. The trade deficit could reach $130 billion dollars for 1984.

Over the past five years (1979-1983), the United States has accumulated a merchandise trade deficit of more than $180 billion, while Japan has garnered a huge surplus. In many successful examples over the last three decades--cars, trucks, optics, solid-state electronics--Japanese industry has capitalized on the high level of output which trade surplus promotes in order to create and maintain deep market penetration.

The foreign market entry strategy developed so successfully by the Japanese auto and consumer electronics industries is now being used by Japan all over the world. Enter a market with the low end of the product line, build up and entrench with a good reputation, then offer higher quality products at higher prices. The Japanese are targeting LDCs (lesser developed countries) and smaller markets that have high growth potential. As a country grows and the market expands, the Japanese will have a solid presence and will, in turn capture much of the new business.

Japan's Ministry of International Trade and Industry (MITI) fosters competition within the domestic market, and also does everything financially and politically feasible to ecourage exports. For the most part, Japanese computer makers try to avoid international competition among themselves. In the U.S., this could be considered trade restriction and a violation of the antitrust laws which prohibit "carving out" markets. In Japan, business is much less fettered by regulations, and the government is a "general partner" that helps companies pentrate foreign markets.

A crucial difference between the U.S. and Japan in the international sales arena is the structure of the export distribution mechanism. The bulk of U.S. exporting is currently done by a few large, multinational companies. However, according to statistics published by the Department of Commerce, some thirty thousand small-and medium-sized domestic U.S. businesses manufacture products with good export potential. Many firms have not ventured into foreign markets because of their unfamiliarity with foreign customs, languages, and laws, and because of the tremendous costs and risks involved in developing overseas markets.

Only 1 percent of American companies account for more than 80 percent of the nation's exports. On the other hand, three hundred trading firms are responsible for 80 percent of Japanese trade. Sales generated by the big ten export trading companies in Japan account for 30 percent of the GNP in that country. The two leading firms, Mitsui and Mitsubishi, have sales exceeding $20 billion in goods and commodities to and out of the U.S. annually. Mitsubishi, Mitsui and other Japanese trading companies are large because that island nation traditionally has had to trade in order to survive.

Since U.S. industry, by and large, had been able to grow and profit by sticking close to home, and since foreign markets have usually bought U.S. goods when they lacked their own supplies, there has been little need for a domestic mechanism that would facilitate international trade, i.e., an integrated trading company. …