Small Business Labs

Exports Driving US Economic Growth

The revised 2nd quarter GDP numbers are in for the US economy and they are quite positive.  The Commerce Department reported that Q2 GDP growth was revised to 3.3% versus the initial estimate of 1.9%.  The major driver of this group was exports, which grew a revised 13.2% in Q2 versus an original estimate of 9.2%.  This, coupled with a decline in imports, resulted in almost all the quarter's GDP growth.

While weakness in the dollar has helped, longer term trends are driving the growth of exports.  These include:

• falling global trade barriers - both hard and soft
• the global growth of connective technologies and the Internet
• the strong growth of emerging market economies
• growing US company focus on exports

These long term trends will continue to drive US export opportunities over the next decade for both large and small businesses.

Reefer Update

I posted earlier today on the shipping industry referring to containers as reefers.  APL (a big shipping company) reefer expert Mike Zampa has informed me that only refrigerated containers are called reefers.  It is an industry term that comes from shortening the word refrigerated.  Non-refrigerated containers are called dry containers. 

While he didn't say this, his tone indicated he gets this question a lot. 

Shipping Costs, Globalization and Small Manufacturing

The NY Times has an article on the impact of rising transportation costs on globalization.  Key quote on rising container shipping costs:

"The cost of shipping a 40-foot container from Shanghai to the United States has risen to $8,000, compared with $3,000 early in the decade, according to a recent study of transportation costs. Big container ships, the pack mules of the 21st-century economy, have shaved their top speed by nearly 20 percent to save on fuel costs, substantially slowing shipping times."

The article goes on to talk about increased transportation costs and carbon footprint concerns forcing companies to rethink supply chains and move production closer to consumption.  This is a topic we've posted on often in the past and one reason why we are forecasting a resurgence in small US manufacturing. 

Totally unrelated, the APL shipping container shown above is called a "muffler grade stainless steel reefer."  I have no idea why, but it makes me wonder how the APL marketing and PR folks spend their spare time. 

NDE on Borderless Business

The National Dialog on Entrepreneurship's weekly newsletter points to two studies on the growth of borderless business.  One is a Manpower study called The Borderless Workforce.  Key quote on the study from the NDE newsletter:

"Manpower researchers surveyed more than 31,000 workers in 27 countries to assess their views about work and relocation. The survey found that 78% of workers were willing to relocate for work, and 37% of workers were willing to move anywhere in the world for a good job and career. Forty percent of respondents would consider a permanent move."

The second study is on the growth of global venture capital and is from the National Venture Capital Association and Deloitte.  Key quote on the study from the NDE newsletter:

"As the borderless workforce becomes a reality, the venture capital (VC) industry is likely to follow suit and become similarly borderless."

We certainly agree that business is increasingly borderless.  We even have a section in our most recent research report on the future of small business called "Borderless Business."   

Emerging Markets and the Global Economy

Interesting piece by the Economist Intelligence Unit covering the increasing importance of the developing world on the global economy.  Key quote:

"Emerging markets, with their fast growth and hunger for imports, are sustaining the developed economies. If this continues, the global economy will achieve a soft landing. Yet many of these markets are showing signs of overheating: monetary tightening, or indeed the maintenance of high global commodity prices, could depress them and take the developed economies down too."

The EIU predicts a soft landing and positive global economic growth in 2009.  They also point the risks to this forecast due to rising commodity and energy prices and inflation in general.

Also interesting is how they describe different countries growth rates for the first quarter of 08.  According to the article, the eurozone showed "perky" growth of 0.7%, Japan managed "blistering" growth of 0.8% while the "sickly US chalked up a respectable annualized rate of 0.9%." 

U.S. Services Exports and Small Business

The Dallas Federal Reserve Bank has an essay called "Opportunity Knocks - Selling our Services to the World" in their annual report.  Lots of good data, insights and case studies on U.S. services exports.  Key quote:

"We export more services than any other nation—by a long shot. Better still, most of what we sell abroad are highly valued services—industrial engineering, entertainment, health care, and the work of architects, lawyers and other professionals. Our growing services trade supports many well-paying jobs."

According the report, U.S. services exports have grown substantially over the last few decades and should continue to grow.  From the report:

"Goods still account for the bulk of U.S exports, but services have gained ground, rising from 19.6 percent of total exports in 1980to 29.8 percent in 2007."

The report is much more positive about service jobs than the popular press, stating:

"Services are often dismissed as the provence of dead-end jobs and low wages.  Nothing could be more wrong.  Many of our services workers and well educated, commanding high pay because of their ability to add value to what they produce."

This is good news since services make up 4/5ths of the U.S economy.

Small service businesses are increasingly exporters.  For example our mom and pop small business, Emergent Research, is a services exporter.  As the report points out, the Internet and other technologies greatly enable service exports.  And strong overseas economic growth provides growing markets.  Add in a weak dollar it is a good time to be a small services exporter.   

The Rise of Brazil

For many years Brazil has jokingly been referred to as  "a country that will always have great potential."  But over the last decade, and in particular the last 3 years, Brazil has experienced strong economic growth.  Key quote from a recent Wall Street Journal article:

"A recent study by the local office of the French research firm Ipsos found that since 2005 more than 20 million people had entered the middle class, defined here as families with monthly income of around $635. The percentage of middle-class Brazilians has grown to 46% from 34%.

The new middle class has propelled a doubling in the domestic market for cosmetics, home electrical appliances and computers since 2002, according to Euromonitor International. In the computer sector, middle-class buyers are accounting for about 40% of sales, according to market analysts. Brazil now ranks fourth globally in computer sales behind the U.S., China and Japan."

Brazil has always had enormous natural resources and has benefited from the run up in soybean, iron ore,timber and other commodity prices.  While many remain skeptical and major problems like crime and corruption exist, the future looks increasingly bright for Brazil.   

Fear the French

Foreign Policy magazine's article The Coming Euroinvasion is on the weak dollar leading to European firms aggressively buying U.S. companies.  From the article:

""I am not worried about rich Arabs; it’s the French who worry me.” This was the response from a businessman in Clovis, California, reacting to my comment that the U.S. government was concerned about the influence of foreign-owned sovereign wealth funds."

The article goes on to talk about how the falling dollar has made the U.S. a much cheaper place to do business than Europe.  From the article:

"For many companies, moving across the Atlantic is the fastest and cheapest way to cut costs and become more competitive. The average hourly manufacturing wage in Europe is 16 percent higher than in the United States. Social insurance and payroll taxes are far steeper in Europe. As are energy costs: the average price of a kilowatt-hour for industrial usage in Europe is roughly 60 percent more than in the United States. Transportation costs are higher, too. And the cost advantages of operating in the United States don’t stop there. Land is still far cheaper in the United States."

But the appeal of locating in the U.S is not limited to costs.  Many foreign companies want a U.S. presence because of the large market and to access U.S. skills and talent.  Quote from an Italian manufacturing firm choosing to set up in the U.S.:

"It will not only be cheaper, but it will also place me and my engineers in the middle of a large cluster of leading-edge technology companies and in the largest market in the world."

The shifts in cost structures, aided by the falling dollar, is making U.S. businesses much more cost competitive.  In addition to leading to more U.S. exports and export opportunities, it is also resulting in more foreign direct investment in the U.S.  It is also increasing small business globalization - both in terms of driving small U.S. companies export more and by increasing the number of small foreign firms that set up operations here. 

We cover this topic in more detail in our most recent forecast report.

A Rising Wave of Small Business Exports

USA Today has an in-depth look at the growth of small business exports.  Key quote on the substantial rise in exports:

"From 1992 through 2007, exports by U.S. small businesses have soared nearly fourfold to $400 billion, according to a preliminary estimate by economist Harvey Bronstein of the U.S. Small Business Administration."

The article covers the major trends driving this increase and includes several small business export case studies.  Also not to be missed is the list of tips for small business exporters from global trade expert Laurel Delaney, CEO of Globe Trade.

Related to this, the International Herald Tribune has an article on the inflationary pressures that are impacting the developing world, especially in Asia.  From the article:

"First, developing countries now produce nearly half of all American imports. Second, inflation in these countries is coming at the same time that many of their currencies are rising against the dollar. That puts American consumers in a double bind, paying at least some of producers' higher costs for making their goods, and higher prices on top of that because the dollar buys less in those countries."

These inflationary pressures are not good for developing economies or the U.S. consumer.  However, they make U.S. produced goods and services more competitive and help drive the growth of U.S. small business exports. 

US News and World Report on Tips for Small Businesses Looking Abroad

US News and World Report has some tips for small businesses looking to sell overseas.  One tip I think is very important is to "budget for the barriers".  Quote from the article:

"...one of the most common mistakes businesses make is getting into a foreign market too quickly before working around all the rules and regulations...recommends that small businesses plan to set aside 5 percent of their expected revenue to pay for these costs."

While exporting has gotten a lot easier and cheaper over the last decade, it is not free.  There are still rules, regulations and expenses associated with exporting.  Small businesses need to be aware of these.

These tips are a sidebar to their "Small Businesses Go Global" article.