Trade partners: Export assistance can help budding exporters and states themselves

Stateline Midwest Volume 20, No 6: June 2011

When officials at the Wisconsin manufacturing company Spee-Dee Packaging Machinery began seeking ways to expand the business, it became clear that one of their best options was to export.

The 30-year-old firm — which makes automated machines used to measure and dispense dry foods such as coffee and cereal — primarily sells its equipment to large businesses (many of them are Fortune 500 companies) and, as a result, has a limited U.S. customer market.

“We needed to find other customers, so it was important for us to look globally,” says Timm Johnson, vice president for sales and manufacturing at Spee-Dee, which employs 45 people and is based in the southeast Wisconsin town of Sturtevant.

But just as is the case for many other small- and medium-sized firms, exporting was not an easy step for Spee-Dee.

How would the staff at a small company find the time — and gain the expertise — to understand different global markets, overcome language barriers, find buyers and develop an overseas presence?

The decision to move ahead with an export plan was not taken lightly, Johnson says, and he credits the assistance provided by the state with helping the company through the process.

Spee-Dee is an early success story: In less than a year, exports have helped increase the company’s sales figures by $300,000.

And as states in the Midwest look to rebound from the Great Recession, these stories of exporting success will be one barometer of the health of the region’s economy.

“Ninety-five percent of the world’s customers live outside of the United States,” notes Laura Baughman, an economist with Trade Partnership Worldwide, a trade and economics research firm.

She adds that the U.S. does not have the world’s fastest-growing economy, so growing and emerging markets are good targets for American companies.

Room for growth: Exports lag compared to other countries
In the Midwest, with its rich tradition as a global leader in the manufacturing and agricultural sectors, states have long relied on their export economies.

Today, exports account for a significant portion of total state gross domestic product in all 11 Midwestern states — from 11.8 percent in Michigan to 4.5 percent in South Dakota, according to 2008 data compiled by Baughman for the Business Roundtable, an association of CEOs at leading U.S. companies.

Yet these figures are much smaller than those of many key U.S. trading partners and competitors, note the authors of a fall 2010 report by the Brookings Institution. For example, exports account for 35.8 percent of GDP in China and 35.1 percent in Canada.

Though exporting is still vitally important to the Midwest, the region has lost some of its dominance in recent years.

“The region can no longer take it for granted that it will be an export powerhouse,” says Jennifer Bradley, a co-author of the report and co-director of Brookings’ Great Lakes Economic Initiative.

“Other places [other regions and offshore locations] have come up to speed in manufacturing, and metropolitan areas [in the Midwest] have not done a good job of replacing what has left with new, more innovative, high value-added products,” she adds.

TABLE: Profile of Midwest's Export Economies: Leading Markets and Products

 

In the 2010 study, Bradley and her co-authors argue that the prosperity of the Great Lakes region will depend on a shift toward a more export-oriented economy and away from a consumption-based economy.

Niche for states is helping small and medium-sized firms sell goods overseas
When it comes to export assistance, Baughman says, large firms mostly need help from the federal government in breaking down trade barriers.

States are best suited to help small and mid-sized firms, which often require the type of personalized assistance that the Wisconsin Bureau of Export Development gave to Spee-Dee.

Unlike larger companies, smaller firms often don’t have the staff needed to develop and execute an export strategy, which, to be successful, must address how to overcome language barriers, regulatory hurdles, and various banking and legal issues.

States’ no- or low-cost assistance to these smaller operations generally cover four broad areas.

  • Education — Counseling firms about the value of exporting;
  • Training — Helping firms get ready to export;
  • Market development — Assisting firms with market research and development and helping locate sales agents and distributors; and
  • Market access — Aiding firms in entering markets and selling their products through trade missions, participation in trade shows and other targeted assistance.

Recent federal data indicate there is significant room for export growth among small- and medium-sized enterprises (SMEs): Of the nation’s approximately 6 million firms with 500 or fewer employees, only about 270,000 export. Over a 10-year time frame, SMEs accounted for approximately 30 percent of total U.S. export activity.

In Wisconsin, assistance to these firms is provided in several ways, says Mary Regel, director of the Wisconsin Bureau of Export Development.

The bureau first serves as a facilitator, reaching out to companies that have not sold goods in foreign markets and encouraging them to explore the possibility. The bureau partners with 25 organizations around the state — including community colleges, chambers of commerce, local economic development corporations and university business schools — to conduct outreach and offer seminars to prospective exporters.

The next step is to provide technical assistance: for example, information on financing, customs regulations, legal requirements and regulatory compliance. Bureau staff also works with the company to explore the best global markets for the firm’s products. Spee-Dee used the state of Wisconsin’s low-cost, fee-based service to do research about potential customers.

Another common approach used by states is to help companies connect with local overseas sales agents and distributors. In Wisconsin, this work is done with the assistance of the state’s four trade offices, located in Canada, China, Brazil and Mexico. (Some of these overseas offices are shared with other states.)

Wisconsin also helps companies develop an overseas presence through participation in foreign trade shows. The state offers $5,000 grants to companies to participate in these events; the grant covers the direct costs of participating in a show, such as registration fees, but cannot be used for travel costs.

Similarly, Iowa provides up to $3,000 for a company to travel overseas to meet with potential customers. Companies can receive these grants up to two times in a year, and the money can be used for participation in trade shows or trade missions.

Companies that export lead way on innovation, pay higher wages
Most states in the Midwest provide some level of export assistance to small and medium-sized companies.

Exactly what type of assistance proves to be most beneficial varies from firm to firm.

For Spee-Dee, Johnson says, the state of Wisconsin’s ExporTech program is what gave the company the final push to begin selling its products overseas. Companies pay $1,000 to enroll in the program, which runs for three months, includes experts on everything from shipping to banking, and results in a customized export plan for every participating firm.

In the case of Spee-Dee, the plan called for the company to enter three new markets (Canada, Mexico and the United Kingdom), as well as to build on relationships it already had with international companies in order to get its products in overseas plants.

The company’s exporting plan has quickly expanded to include India, where Spee-Dee’s machines are well adapted to dispensing raw rice.

Along the way, the Bureau of Export Development helped Spee-Dee locate overseas distributors and sales agents and assisted the firm in understanding the different safety standards in overseas markets. And when Johnson made a recent sales trip to Mexico, he was able to use Wisconsin’s trade office.

States offer most of their export services at reduced costs, and sometimes at no costs.

As result, there is a fiscal commitment to exporting — a commitment that, as in all areas of state government, is being tested due to today’s difficult budget conditions.

Though the recruitment of companies from other states or countries often gets more public attention, Bradley says, helping existing firms export and expand is an investment that pays off for states.

Kathy Hill, team leader in the Iowa Department of Economic Development’s International Trade Office, says companies that export tend to be more innovative, and often spend more on research and development. These are characteristics seen as vital not only for individual firms, but for overall state economies to be able to compete in the global economy.

Regel says exporting companies bring many benefits to Wisconsin’s economy. For example, they grow faster than non-exporters and pay higher wages to employees — between 10 and 14 percent more, according to state of Wisconsin data.

According to Bradley, Hill’s and Regel’s findings and observations about exporters in their states hold true across the country: These companies tend to innovate more and pay higher salaries.

Federal data show that jobs at exporting companies pay 15 percent more than the average U.S. salary. (In 2008, exports accounted for nearly 7 percent of total U.S. employment and one in three manufacturing jobs.)

Regel adds that as Wisconsin struggled through the national recession, exporting companies helped maintain the state’s manufacturing base.

Companies that exported were more likely to be able to hold on their employees, Regel says, because of their ability to trade in markets whose economies were growing while the U.S. economy was contracting.

Now, as states in the Midwest position themselves for positive future growth, they will rely at least in part on having a thriving export economy. In turn, small- and medium-sized firms will continue to rely on states for assistance.