Exports: A Necessary Ingredient in the Growth of Small Business Firms

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EXPORTS: A NECESSARY INGREDIENT IN THE GROWTH OF SMALL BUSINESS FIRMS

U.S. businesses, and small firms in particular, play a much smaller role in international trade than the size and competitive stature of the nation warrants. The United States have five percent of the world's population, produces 24 percent of the world's gross product, and does 12 percent of world exporting. But of the 12 percent, one-fourth is in agricultural and extractive products, leaving only eight percent of GNP as merchandise exports. By contrast, the export ratio to GNP of Canada is 24 percent, of Japan, 13 percent; and of the European Community (OECD), 26 percent.

Until the early 1970s, the United States usually had a net export balance in its merchandise trade. Then, the shift in competitive advantage from the U.S. to other countries brought higher U.S. imports in oil, automobiles, and consumer durables. These rising imports, along with higher interest rates in the United States, resulted in a balance of trade deficit in the range of -$24 to -$32 billion from 1979 to 1982. The U.S. trade deficit for 1984 was $123 billion.

Attempts to fight inflation, along with a huge ($200 billion) federal deficit, have caused the U.S. balance of trade to deteriorate further. Thus far, capital inflows into the United States have more than compensated for the deficit in the trade balance. This remedy is only temporary, however. The disproportionately high real interest rates in the U.S., compared to the rest of the world, caused the value of the dollar to rise and resulted in a flow of foreign capital into the U.S. The high value of the dollar give foreign imports a price advantage in U.S. markets and made U.S. exports more expensive abroad.

The balance of trade deficit has many adverse effects. First, many jobs have been lost in the U.S. domestic economy, and second, U.S. firms have lost both domestic and foreign sales. Third, the U.S. is now a debtor nation, a status which could impair our solvency and/or economic freedom of action in the future. Finally, foreign nations are losing capital they need at home because it is being used to finance U.S. deficits and consumption of imports. This hampers their ability to reach competitive, technological stature in world markets.

The most obvious action which can be taken to reduce the serious consequences of the present large trade deficit is to increase U.S. exports, particularly among small firms, which are now greatly under-represented in export markets. Other actions, such as reducing the federal deficit, cutting interest rates, and stabilizing the value of the dollar, will also help to cut down the deficit in the balance of trade, but these measures are contingent on political decisions. An increase in the exports of small firms however, is an individual initiative that can generate lasting broad benefits for both small business and the general U.S. economy. This article examines ways for smaller firms to play a greater role in exporting and considers the recent experience of several small firms in the export market.

THE SMALL BUSINESS ROLE IN EXPORTS

Very small business firms (under ten employees) are unlikely to export due to cost and managerial constraints. However, small-to medium-sized firms (ten to 999 employees) now account for only 16 percent of exports, when potentially they could sell 51 percent of U.S. exports, according to a U.S. Department of Commernce study (see table 1).

Table 1 demonstrates that although exporting has been dominated by large firms (over 999 employees), there is great export potential for small- and mind-sized firms (ten to 999 employees). These facts do not appear to have changed substantially in the last decade, although hard, recent data is impossible to find.

TO EXPORT OR NOT?

The fundamental objective of the business firm is profit maximization. A survey of the empirical evidence regarding motives behind corporate multinationalism (a generic term covering much more than exports) by Guy V. …