U.S. exports: The "1-percent" problem

A global marketplace with potentially hundreds of millions of people entering the middle class should mean unprecedented opportunities for U.S. exporters.

Yet only 1 percent of the nation's 30 million businesses engage in exporting, according to the U.S. Commerce Department. Of those companies that do, about 58 percent export to just one destination, the agency said. Those data points have not budged for years.

Based on U.S. Census Bureau data through 2010, small and mid-sized companies—firms with 500 or fewer employees—accounted for 98 percent of the 293,100 U.S. companies that exported that year. Still, many smaller companies that might like to jump in the global pool remain reluctant to do so. Nearly 70 percent of 500 small to mid-size U.S. exporters surveyed in April by Livingston International, a Chicago-based customs broker and international compliance firm, said the complexities of international trade make it difficult for them to consider entering new markets.

The Livingston survey showed that those smaller businesses that are exporting have trouble fully understanding both the rules and the costs of the game. More than 30 percent of the survey's respondents said they simply ignore a nation's regulations, thus risking hefty fines and sanctions for noncompliance, just to continue exporting. About 28 percent said they had little or no idea of the cost associated with their goods clearing international borders.

Returns Nightmares
Eugene L. Laney, vice president, international trade affairs for delivery giant DHL Express, said that for many U.S. exporters the complexity of regulatory compliance is felt most keenly in the area of product returns. Businesses already struggling with the confusing labyrinth of government regulations on the "forward" move then face another swath of compliance issues if the product needs to be returned, Laney said.

The baffling regulations governing international product returns often compel many active exporters to withdraw from international markets, Laney said. The same issue also keeps prospective exporters from dipping their toe in the water, he said.

Another problem, said Laney, is that many countries outside the U.S. require documentation on import shipments valued as low as $50. Because the cost and administrative burdens of compliance may exceed the shipment's value, a foreign exporter may walk away from a market even if it identifies strong potential demand for products, he said.

While small to mid-sized businesses dominate U.S. exporting, the situation is different abroad. A World Bank study conducted between 2003 and 2009 and released in late May found that big companies dominate the export landscape. The Bank surveyed companies from 45 developed and developing countries and found that the top 1 percent of businesses—a group essentially comprised of a handful of very large firms—controlled between half to 80 percent of all exports.

Based on the Bank's data, the problem seems to be less about getting into the game than just staying in it. During the study's time frame, about 57 percent of newcomers to exporting quit within one year of starting up.

A Little Help
Some in private industry are working with U.S. government officials to make export and import regulations less complex. Laney said DHL Express is part of an industry consortium that has lobbied Congress to persuade foreign governments to harmonize, at higher levels, the value of goods that can enter a country without paperwork. In Australia, for example, a product valued at up to $1,000 can clear that country's customs without any paperwork requirements.

To further help move the export needle, the Commerce Department has partnered with various companies, including those in the transportation field. These companies supply the agency with customers whom they think would benefit from its services. Commerce then offers to provide these potential exporters with market research that will match businesses with specific opportunities. The agency will also connect businesses with officials at U.S. embassies and consulates, as well as the Export-Import Bank, to arrange contacts and financing.

DHL Express was the latest company to partner with Commerce under a joint announcement made in early May. Rival UPS Inc. has been involved with the agency in a similar project for several years.

The program, which UPS terms its "Beyond One" initiative, has been a boon to UPS' customers and to the company, according to Susan L. Rosenberg, a company spokeswoman. Rosenberg said UPS customers that had been exporting to just one market when they joined the program tendered nearly three times more exports to UPS once they expanded into multiple countries.