Entrepreneurship and Trade: Recommendations for Policymakers

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Around the globe, policymakers have no higher priority than job creation. In the Middle East, where a desire for economic inclusion sparked uprisings across the region, progress is contingent upon people finding means to support their families. Even the United States is a case in point: More than 7 percent of the U.S. workforce is unemployed — a figure that soars to 15 percent when one includes those who have stopped looking for jobs and the millions of part-time workers who want to work full time. Stubborn indices of joblessness plague both developed and developing countries worldwide.

For policymakers in search of solutions, a focus on entrepreneurship and small business makes excellent sense. Small and medium-sized enterprises (SMEs) are the principal drivers of U.S. job growth, generating about two thirds of net new jobs, according to the U.S. Small Business Administration. Similar dynamics hold true in many other countries.

A focus on trade is a second obvious ingredient for job-creation success. The opportunity to tap dynamic foreign markets has magnetic appeal. Even for a large economy like the United States, foreign markets represent 80 percent of the world’s purchasing power, 92 percent of its economic growth, and 95 percent of its consumers.

But too often, policymakers fail to make the connection between entrepreneurship and international trade. In the United States, entrepreneurs and their firms have played a big role in the boom in trade over the past few years. SMEs continued to expand their share of U.S. merchandise exports to a 33 percent in 2011. Still, this is just the tip of the iceberg. A record 302,000 U.S. companies exported in 2011, and 97 percent of them were small and medium-sized companies — but that’s just one in every 100 U.S. SMEs.

Opening International Markets

While many believe free-trade agreements and other trade liberalization initiatives principally benefit large multinationals, the truth could hardly be more different. Faced with steep tariffs or licensing requirements in a promising foreign market, a multinational corporation can often establish a local affiliate to get past trade barriers or hire lawyers to navigate regulatory red tape. Small businesses have no such luxury. In the view of the U.S. Chamber, eliminating foreign barriers to U.S. exports should be the principal focus of the U.S. government’s efforts to harness trade in the creation of jobs — for both large firms and entrepreneurial startups.

Consider how the kinds of barriers addressed by free-trade agreements impact entrepreneurs and smaller firms — and how these agreements can open the door to success:

  • Non-tariff barriers are especially harmful to smaller companies because they add to the fixed costs of doing business. A $10,000 permit is a nuisance for a big firm; it can be a show-stopper for a smaller one.
  • With the establishment of clear intellectual property rules, trade agreements protect the innovation and creative content captured in many exports; without them, entrepreneurs run the risk of seeing their innovations ripped off, with no redress available.
  • By opening government procurement markets and ensuring transparency in bidding, trade agreements give international entrepreneurs expanded access to lucrative opportunities. These contracts for roads, schools, and clinics are often too small for multinationals to perform profitably, but they are just the kinds of contracts that smaller construction companies, distance learning companies, and medical equipment companies can fulfill beautifully.

Seizing Trade Opportunities

Market-opening trade agreements are vital to the long-term success of companies both large and small. However, export promotion also plays a useful role — particularly in the case of SMEs.

In a sign that SMEs may just need a little help, a World Bank study (Exports Promotion Agencies: What Works and What Doesn’t) found that each one dollar increase in export promotion expenditures brought a 40-fold increase in exports among smaller firms. The gains were especially large for countries that spend less than the average. As it happens, the United States spends just onesixth of the international average helping its small businesses to export.

Given the limited resources available to support small and medium-sized exporters, some U.S. states and even private companies have created innovative and effective programs. It’s worth taking a careful look at these programs, some of which could be replicated elsewhere with good results.

For example, the Massachusetts Export Center has created a program entitled “Compliance Alliance” in an effort to encourage additional international business. This program helps companies learn to export through seminars and networking events, and ensures they are complying with regulations. Between 2010 and 2011, Massachusetts Export Center clients increased their export sales by over 27 percent, compared to an increase of just 5 percent for Massachusetts’ export performance during the same time period. In 2011, its clients reported $240 million in export sales as a direct result of its assistance.

The Nevada Commission on Economic Development has created a no-cost program for the state called the International Trade Representatives Program. Under this program, independent voluntary representatives are selected to run international offices on behalf of the state. They receive payments from clients who are interested in these markets and work as salesmen on commission. To date, this program is now functioning in six countries, and this has been the first time that any U.S. state has created an international representative at no cost to the state. Several other states that have had their funding cut or eliminated are emulating this concept with some success.

One successful manufacturing exporter, York Wire and Cable in York, Pennsylvania, has touted the positive impact of Market Access Grants (MAGs) in Pennsylvania. These grants are designed to help small and mid-sized Pennsylvania companies increase export sales. Export-ready companies in good standing are eligible for up to $5,000 to explore new markets through trade shows, trade missions, and by internationalizing web sites. York Wire and Cable has taken advantage of three MAGs, boosting the contribution of its exports to total sales to 17 percent.

Similarly, Enterprise Florida, a division of the Florida Governor’s office, is promoting state exports through funding, programming, and partnerships. For example, its Target Sector Trade Grants are reimbursement grants given to companies to participate in trade shows and exhibitions in key sectors.

Florida has also created a “Train the Trainer” series that teaches business executives how to navigate the international marketplace in order to feel comfortable exporting. It also offers export counseling to Florida manufacturers, export intermediaries, and services companies. Under this program, international marketing professionals evaluate the market readiness of current and potential exporters and help select target markets for a company’s particular products and services, as well as identify baseline legal, tax, and logistics requirements.

Leveraging Scarce Resources

Successful entrepreneurs understand the value of networking, and this holds true in international trade as well. Many successful small business exporters are members of the Department of Commerce’s District Export Councils (DECs). The DECs are organizations of leaders from the local business community whose knowledge of international business provides a source of professional advice for local firms. For more than 30 years, DECs have served the U.S. business community by helping companies in their local communities export, thus promoting economic growth and creating new and higher-paying jobs for their communities.

Closely affiliated with the U.S. Commercial Service’s U.S. Export Assistance Centers, the 56 DECs combine the energies of more than 1,500 exporters and private and public export service providers throughout the United States. DEC members volunteer their time to sponsor and participate in numerous trade promotion activities and to supply specialized expertise to SMEs that are interested in exporting.

In sum, policymakers should think globally as they consider how to foster a business environment in which entrepreneurship and small business can flourish. Tearing down the barriers that shut out exports is vital for firms of all sizes, but so are the export promotion programs that build bridges for small businesses to reach new markets.

John Murphy is Vice President for International Affairs at the U.S. Chamber of Commerce.

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