Volume 35, Number 1, January 2000

GoingGlobal

Does Size Matter?

smaller firms have traditionally done a better job exploiting market opportunities than larger ones

by Rene Bergero

 

Would it surprise you to learn that most exporters are small businesses? It’s true. Although large multinationals like IBM generate more than 70 percent of this country’s export sales, for every Exxon there are ten companies with less than 20 employees exporting their products and services (see chart below for a
summary of recent export statistics).

Interestingly, the latest data also shows that the largest increase in exporting companies has occurred among those firms with less than one hundred employees. Clearly, size does not seem to be a major impediment to one’s exporting potential given the number of firms involved. What impact, if any, does size have?

Well, we’ve all heard and read about all types of international trade agreements, such as the North American Free Trade Agreement (NAFTA), trading partner status (like Most Preferred Nation), the G7, the European Economic Community (EEC) and other high-level government-to-government agreements and groups. If we know anything for a fact, it’s that politics and money are inseparable. Since most of this country’s export dollars are generated by the big boys, it would stand to reason that trade agreements, trade missions and other such governmental efforts would be of greatest benefit to these big firms.

Suppose you’re General Motors, and you own a factory manufacturing, say, instrument clusters in Mexico. Thanks to NAFTA, you probably won’t have to pay taxes or duties as the parts flow from Mexico to your final assembly plant, which may be in Canada. In a general sense, these companies do not have to add any special “international trade” factor to their calculations when analyzing their cost structure. Size probably does matter, but only if you’re sizable, at least as far as trade agreements are concerned.

Now does this mean the little guys should stay out of the export game? Of course not. Most trade agreements are neither beneficial nor detrimental to smaller firms that want to get into the export game, and should be viewed as neither a panacea nor a hindrance. For example, a medium-sized company such as Wood’s Powr Grip, that sells through distributors, has been very successful in the international arena.

Does Market Size Matter?

Maybe there’s a more relevant question to ask. Does market size matter? This is a much more relevant indicator of your company’s export potential. Smaller firms traditionally have done a better job of exploiting market opportunities than larger ones. The real key to success is to identify markets that are both large enough to accommodate new players and where the particular product or service offered has a realistic chance of selling.

There’s an old saying which summarizes these concepts: “you can’t ship coal to Newcastle” (in reference to England’s coal producing region). Your success in the North American marketplace will not be a truthful indicator of what you can achieve outside our borders. In some cases, you will grossly underestimate what you can sell, and in others you will be completely perplexed by your lack of success. Just look at the success of Guardian Industries—a company that does not take a one-size-fits-all approach.

How can you gain this much needed market knowledge? This will be addressed in future columns, but don’t overlook an important fact. Our government spends a lot of our tax dollars on international trade development and has a very large array of information available to help, even the smallest firm, get into the export game.

Eye on the Numbers A Look at Recent Export Statistics

Size Number % of total $ Value (millions) % of total value

1-19 51,186 45.4 29,397 8.4

20-49 18,501 16.4 17,005 4.9

50-99 10,505 9.3 13,840 4.0

100-249 8,679 7.7 18,371 5.3

250-499 3,621 3.2 15,055 4.3

500+ 4,828 4.3 246,114 70.0+

 Source: 1992-1993 export statistics from the 1999 edition of the U.S. Statistical Handbook

Rene Bergero serves as export sales manager for Sommer & Maca Industries in Cicero, IL. His column appears bimonthly.

USG

Copyright 2000 Key Communications, Inc. All rights reserved. No reproduction of any type without expressed written permission.