International trade the way to achieve growth in challenging times | submitted by Ken Wasylik
Daily economic news confirms that recession recovery in the U.S. continues to be slow, and many sectors report no growth at all. So where does this leave an ambitious American business manager who wants to achieve growth that matches past accomplishments? Answer: Outside of the United States.
Numbers tell the story
According to the U.S. Department of Commerce:
Much of the world has recovered from the 2008-2009 financial crisis, with emerging markets leading the way and growing faster than those in developed countries. According to the IMF, emerging countries are expected to grow GDP by over 6.5% in 2011 vs. a current U.S. economic growth rate of around 2%. Notable are the BRIC countries of Brazil, Russia, India, and China, as well as members of the Association of Southeast Asian Nations, known as ASEAN, which includes the Pacific Rim nations of Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam, among others.
Developing countries are not the only ones with healthy growth rates. Germany and Canada, which is the United States’ most significant trading partner, also are experiencing economic expansion.
Focus on the middle class
There are 1.3 billion people in the China. If 10% are considered the middle class, that’s 130 million people. Even if only 10% of the members of China’s middle class are interested in your product, that is 13 million people. And if only 10% of the people interested in your product purchase it, that is 1.3 million products sold @ $x apiece = $y in revenue.
An emerging middle class tends to have higher savings rates, its members are younger, and those people’s wants increase with their wealth: cars, better food, health care, appliances, high-tech equipment, clothing, and so on.
Combined, the middle class is growing faster in emerging countries than in developed countries. According to writer Mike Hogan in his April 18, 2011, edition of Electronic Investor, “The number of U.S. and European middle-class consumers is projected to fall to 558,000,000 by 2025 while Asia’s jumps to 3,600,000,000.” This increase applies only to Asia; it does not include the growing middle classes in other emerging countries such as South America.
Conditions are right
Historically, the U.S. dollar is weak compared to other global currencies such as the euro, yen, and pound. The current U.S. trade imbalance will continue to diminish the strength of the U.S. dollar. Many American-produced products will be more competitive than European and Japanese products. The strengthening of the Chinese currency, the renminbi (RMB), and Chinese inflation in general are making U.S. products more affordable to Chinese and world consumers.
The United States has free-trade agreements with 17 countries, providing a multitude of exporting opportunities for stateside businesses that involve either low or no import duties.
American-made goods, services, and agricultural products are still recognized throughout the world for their high quality and for coming from companies that are innovative, that provide excellent customer service, and that operate with sound business practices.
In 2010, President Barack Obama launched the National Export Initiative to double U.S. exports in five years. Federal departments including Commerce, Agriculture, Treasury, Labor, and State have been directed to assist U.S. businesses in promoting overseas expansion.
Reach a diverse customer base
Business owners know that diversification mitigates risk. Relying on one or two customers or suppliers exposes a company to a possible precipitous fall should a key customer take its business elsewhere, or should a supplier close its doors. Experience has shown that U.S. companies having a diversified customer base that includes international customers are weathering the financial crisis and post-recession period much better than are counterparts who depend solely on domestic sales.
A review of today’s corporate America confirms that the more international a firm’s reach, the stronger its profits, balance sheet, and prospects. Even smaller, internationally minded entities are realizing the benefits of a diversified customer base. In 2009, 34.5% of total exports to China worth $22.6 billion originated with U.S. small- and medium-size enterprises.
Internet a boon to small exporters
Twenty-first century economic growth has been propelled not only by the expansion of global trade; technological developments such as the Internet and its spawning of e-commerce have been a boon to smaller exporters. If your company has a website, you are global! Anyone can connect to the Internet. There are now more than 2.1 billion Internet users worldwide, and the number grows exponentially every day. Of those, 85% shop online in one way or another.
Opportunities are also available in smaller niche markets. Even countries with populations less dense than China’s and India’s can prove to be a stable source of ongoing business. In many cases, all it takes is a little time and personal attention to establish relationships that reliably produce income.
While it’s true that cultivating business on an international scale can take more effort and planning than doing business in your backyard, it can be highly rewarding. A study by the U.S. Commercial Service and the National Manufacturing Extension Partnership shows that companies that create an export strategy grow 2.4 times faster than companies that only dabble in exports.
Now is the time
Whether your company has never exported or is an experienced exporter, there are abundant opportunities and resources to grow international revenues and profits. Taking the initiative is the first step toward reaping the benefits.
Ken Wasylik is the managing partner of E.M. Wasylik Associates, LLP, and sponsorship director of the Madison International Trade Association.