District exports key to economy

Small and mid-size firms help drive recent export growth

David Fettig | Editor

Published October 1, 1993  | October 1993 issue

Somewhat overlooked during the hype of negotiations for the various trade agreements in recent years is that U.S. exports are increasing, more manufacturing jobs have grown dependent on exports and more small and mid-size firms are beginning to export.

About 7.2 million U.S. jobs were supported by merchandise exports in 1990, up from 5 million in 1986, according to the U.S. Commerce Department. In the Ninth District, over 16 percent of Minnesota's manufacturing jobs are dependent on exports—the highest ratio in the district.

And state officials expect the economy's reliance on exports to grow. Political changes in the former Soviet Union and Eastern Europe, as well as in Mexico and Latin America, and market reform in China have opened new markets that just a few years ago were largely closed.

The emergence of this brave new trading world has coincided with another recent phenomenon—small and mid-size companies are entering the fray at a greater rate than before. Offering largely anecdotal evidence, officials from across the Ninth District usually have the same response regarding small business and trade: More are exporting and still more should be.

"Everything's hot," says Tami Lanning, Pacific Rim trade officer for the Montana Department of Commerce. "It's a global market for every state to every country. If small and medium-size businesses don't get involved they're going to miss out."

While large Ninth District firms like General Mills, Honeywell and Melroe have the experience and expertise to engage in foreign trade, smaller businesses considering a move to foreign markets are often daunted by the task. Exchange rates, trade rules, tariffs, foreign trade representatives, cultural customs and acronyms like CUSTA, NAFTA and GATT can swamp an export novice, according to many business owners interviewed for this issue of the fedgazette.

The market is far, but help is near

"Very, very overwhelming," is how one Wisconsin small business owner describes the feeling of entering foreign markets for the first time. But that same business owner quickly realized what is likely true for most states in the district—help is close by. State economic development offices, departments of commerce, libraries, consultants, universities and colleges, trade shows, seminars and mentor programs all offer advice on entering foreign markets.

What is really overwhelming, according to Ronald E. Kramer, director of the Minneapolis district office of the U.S. Department of Commerce, is the amount of information available to the interested exporter. "Those companies that have made a decision to pursue foreign markets know what's out there," he says.

Offices like Kramer's, as well as state economic development offices, do more than offer advice; in recent years they have also encouraged smaller companies to export. For good reason, according to Ronald M. Bosrock, president and CEO of Bosrock & Co., a St. Paul-based international management and market service company. "Where are all the new jobs coming from?" he asks rhetorically. "Small and medium-size businesses have to grow if we want jobs, and they have to export to grow."

Concerns about financing

Aside from acquiring information on exports, another hurdle faced by small to mid-size businesses is the need for export financing, according to Bosrock. He says smaller financial institutions aren't always able to make such loans, and many large institutions are reluctant to take the risk. "So many major financial institutions have gotten out of international lending," he says, citing banks on the West Coast.

A 1992 survey of North Dakota manufacturers conducted by North Dakota State University found that "firms selling in international markets had significantly more difficulty obtaining financing than did those selling only in domestic markets." Economics professor Larry Leistritz, one of the authors of the study, says that while the survey indicated a concern among manufacturers about the amount of financing available, it is not clear that there is a shortfall of financing.

John Hoeven, president of the state-owned Bank of North Dakota in Bismarck, says export financing is a "tougher proposition" than domestic financing because export deals are usually more risky. Banks and federal agencies (such as the Small Business Administration) that assist in such loans often require domestic companies to have a finished product and an established sale before they will offer export financing. "When you don't have established sales, that's when it's tougher to find financing," Hoeven says.

The Bank of North Dakota has received more inquiries and more loan requests in recent years for export financing, and so has Norwest Banks, a bank holding company with headquarters in Minneapolis and 83 banks in 13 states. "The answer is strong and clear—yes," says Douglas R. Stucky of Norwest when asked whether businesses are more interested in exporting. "And we're expecting even more growth," says Stucky, vice president of worldwide correspondent banking and export finance.

Norwest itself plans to expand its international market, according to Stucky. For example, the bank had three correspondent relationships with Mexican banks three years ago; next year that number will be 10. Also by next year, Norwest hopes to have more than 15 offices in Brazil, up from three in recent years.

Stucky, who calls Norwest a "pretty good mirror of export activity," especially in what he terms the "middle market," says that U.S. companies are exporting more in recent years because they may have saturated domestic markets, because they are simply getting smarter about opportunities outside the United States, and because many of those companies have reached a level of stability that allows them to look outside their borders.