Fundamentally, I believe that the U.S. can improve its international standing and its national security by expanding trade and strengthening its relationships…
––Richard Neal, U.S. Representative for Massachusetts’s 2nd congressional district
America cannot grow its economy, foster entrepreneurship, or lift the wages and incomes of its workforce unless small- and medium-sized businesses reach beyond U.S. borders and sell products and services to the vast marketplace that lives outside the United States. Despite complaints about trade imbalances, effects on domestic economies, currency upheavals, and loss of jobs, the reality of goods and services continually crossing borders will not go away. International trade will continue to be the engine that runs most nations.
Just as it always has during earlier cycles of growth and recession, exporting of goods and services is a vital contributor to the U.S. economy. In March 2017, export of goods and services totaled $191 billion, a $71.2 billion increase over the 2006 total of $119.8 billion—a great improvement over the last 11 years.i March 2017 figures reported by the U.S. Department of Commerce Bureau of Economic Analysis (BEA) show export good surpluses with selected countries, in billions of dollars, with Hong Kong ($2.9), South and Central America ($2.6), Singapore ($0.5), United Kingdom ($0.5), and Brazil ($0.2). Goods export deficits were recorded, in billions of dollars, with China ($31.4), European Union ($10.0), Mexico ($6.5), Japan ($6.5), Germany ($5.0), South Korea ($2.5), Italy ($2.1), Canada ($1.9), India ($1.7), OPEC ($1.6), Taiwan ($1.1), Saudi Arabia ($0.8), and France ($0.1).
In 2015, jobs supported by exports totaled an estimated 9.8 million with goods exports supporting an estimated 6.7 million jobs and services exports supporting 3.1 million jobs.ii Goods exports to Canada supported the greatest number of U.S. jobs followed by Mexico, China, Japan, and the United Kingdom (UK). The 15 destinations for U.S. goods exports that supported the greatest number of jobs supported almost 4.9 million jobs in the aggregate. The 15 goods export destinations that supported the greatest number of jobs are presented in Figure 1-1.
Figure 1-1. Top 15 Destinations, Jobs Supported by U.S. Goods Export in 2015
In April 2016,iii the International Trade Administration reported an estimated 11.5 million jobs were supported by exports.
The Bureau of Economic Analysis’s (BEA) most recent data indicates the United States exported services to over 70 countries in 2015 with exports to the United Kingdom outnumbering those to Canada, China, Japan, and Ireland. BEA 2015 data indicates these top 15 destinations supported 3.1 million American jobs or 65% of the total as presented in Figure 1-2.iv
Figure 1-2. Top 15 Destinations, Jobs Supported by U.S. Services Exports in 2015
Clearly, on the basis of this government data, American exporting is important and demonstrates a need to improve. As our economy recovers from the Great Recession, U.S. businesses can rely on exporting to realize their growth potential. The U.S. Department of Commerce International Trade Administration (ITA) has many programs supporting small- and medium-sized enterprises in developing that potential. Its programs include business counseling offered at home through a network of over 100 U.S. Export Assistance Centers and overseas through commercial officers based in more than 50 U.S. embassies. The ITA also has offices that campaign for U.S. commercial policy interests in bilateral and multilateral settings. These offices handle business regulation and product standards in addition to protecting and enforcing intellectual property rights and issues that affect U.S. exports.
The challenges that now lie ahead for U.S. businesses selling in the world market—from slowing markets to regulatory and other barriers—make international trade (i.e., growing our global markets) more crucial than ever to ensure future international business success.
The Benefits of Global Market Growth
Now more than ever it is time to grow our global markets, drive economic growth, and improve our standard of living. So what is economic growth? Long ago a country’s natural resources determined the level of economic development it would meet. Today national economic growth is not as dependent on natural resources. It’s more dependent on a country’s use of its productive resources—physical, human, and natural capital. Theoretically, then, economists use gross national product (GNP) per capita or gross domestic product (GDP) per capita as statistical indicators of how well a country uses its resources. GNP/GDP takes into account all goods and services produced for sale, whether they are sold domestically or sold overseas.
The Benefits of Economic Growth
Should a country grow its economy extensively using more resources or intensively using the same amount of resources more productively? Specifically, higher output and positive economic growth enable a country and its economy to accomplish the following:
Provide consumers and workers with more goods and services, thus a higher standard of living.
Increase rates of employment.
Reduce government borrowing and debt.
Invest in clean technologies.
Reduce rates of poverty.
Increase government income and expenditures to fund superior public services, public transportation, critical research and projects with the potential to further economic development.
Increase and sustain capital investment.
Enhance business confidence of those running their own businesses.
Devote more resources to promote recycling and the use of renewable resources.
For these reasons, all countries strive for positive economic growth. This is equally true of the people that inhabit them - the extreme poor, the vulnerable, the middle class, and the rich. The extreme poor, earning about $1.90 per day per person,v are those that strive to provide themselves with most basic of human needs - food, safe drinking water, sanitation facilities, health, shelter, education, and information. A society’s vulnerable are those unable to anticipate, cope with, resist and recover from the impacts of natural hazards - children, pregnant women, elderly people, the malnourished and the sick.vi The middle class, however, is another matter entirely, especially from the standpoint of any business marketing to consumers across the globe. For the small- to medium-sized business seeking new customers, the people comprising the global middle class, by the standards used by any country, includes those earning between US $10 and US $100 per day in purchasing power parity (PPP) terms,vii the kind of disposable income that has made cars, televisions and other consumer goods affordable in the West and today is expanding in the East. This income group, forecast to increase rapidly over the next 20 years,viii includes business people, managers, doctors, lawyers, and teachers. Lastly, the rich are that small social group earning more than US $110 per day that can afford any standard consumer good.
Environmental Forces That Make International Business Different
As a small- to mid-sized business owner/person competing in a domestic marketplace you are accustomed to managing internal forces—capital, raw material, and people that you manage and face many uncontrollable forces that include, among other things:
Your competition – their numbers, activities, and locations—both domestic and foreign.
Distributive forces – agencies for distributing goods and services.
Economic forces – Gross National Product, Gross Domestic Product, unit labor costs, and the personal and industrial consumption variables that impact your ability to do business.
Socioeconomic forces – characteristics and distribution of populations inhabiting your home marketplace.
Financial forces – interest and inflation rates, taxation, income, and expenses, etc.
Legal forces – laws governing how and with whom you do business.
Physical forces – topography, climate, natural resources.
Political forces – local, state and federal political climate, and government structure.
Sociocultural forces – attitudes, values, and beliefs of the local, state, and national culture.
Workforce issues – composition, skills, and attitudes.
Technological forces – skills and equipment that convert resources into the product.
Should you expand your business to foreign markets, you subject your firm to still another set of uncontrollable forces that are the same in all environments, both foreign and international. Shockingly, these occur and operate differently, are driven by different values, and can be difficult to assess. By operating in foreign markets your firm will meet new issues requiring a change of your business strategies and practices to adapt to the new environmental realities that emerge. These include the following:
Cultural forces – According to Hofstede,ix culture is “the collective programming of the mind which distinguishes the members of one human group from another.” Given that culture affects consumers’ behavior, understanding cultural dissimilarities is crucial for the success of international marketing.x No two cultures are the same and understanding both the social and business cultures of a target market are essential to success.
Level of competition will likely be more intense and complex than what you experience in your domestic marketplace.
Technological forces aiming to make continual cost reductions and improvements in products and services can vary substantially in foreign markets. If your product or service requires a high degree of technological sophistication to use or carry out, then markets with low levels of technology will not be suitable for your business.
Logistics – Like technology, availability, and quality of local—transportation, communication, and energy networks—and business infrastructures in foreign markets will be at different levels of development. This may well have an impact on your ability to deliver your products. It is important to research the target market and understand how goods are moved around the country before you commit to expanding your business in that market.
Media – Advertising your product/service will be subject to the types and quality of media available in your target market(s). Not everyone is connected to the Internet, let alone is able to read and write, requiring you to select the most appropriate media.
Political and governmental forces of the host country and the general international environment affect foreign firms and their products. The key is to understand that once you are in a foreign market you must abide by the rules and laws of that country, not the ones in your own market. It is also important to note that relations between countries and governments have important effects on the operations of international companies.
International legal forces – Countries determine their laws based on the needs of their citizens, not the concerns of foreign companies. International law is a gentleman’s agreement that is honored, but not always.
Important tax considerations – The United States has a worldwide income tax system that taxes a U.S. firm on its worldwide income as opposed to only taxing income from U.S. sources. In contrast, many foreign countries only tax their multinational firms’ domestic income and not foreign sourced income. In addition, a U.S. firm will face additional income taxation when it repatriates to the United States income accumulated in a foreign subsidiary.xi
As one can see from this list, the small- to mid-sized business owner/person and senior management marketing to a foreign market must face multiple hurdles to be successful. Expanding one’s business into foreign markets can be done by mastering these forces and monitoring environmental change by trusted in-country representation and/or regular marketing visits, in addition to consultation with qualified legal counselxii and tax specialists.