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Smaller Exporters Play Large Role in Trade

Exports by Small- and Medium-Sized Enterprises Support Four Million U.S. Jobs

Washington, D.C. – Today the U.S. International Trade Commission (USITC) released a new report requested by United States Trade Representative Ron Kirk. The report, “Small and Medium- Sized Enterprises: Characteristics and Performance,” shows that by exporting indirectly through wholesalers and as producers of intermediate inputs, U.S. small- and medium-sized enterprises (SMEs) play a larger role in the export economy than is suggested by traditional trade statistics.

“America’s small- and medium-sized businesses support four million jobs by directly and indirectly exporting goods and services. Small- and medium-sized businesses account for approximately 40 percent of all export-supported jobs in the United States,” said Ambassador Kirk. “This USITC report provides us with a deeper understanding of the performance and importance of SME exporters in the U.S. economy. The report also identifies the trade barriers and other impediments that disproportionately affect SMEs.”

The USITC’s third report about SMEs examines the export performance of U.S. companies engaged in manufacturing, distribution, and services, and identifies trade barriers that disproportionately affect SME export performance. The report also analyzes new data sets for the first time to examine the performance of U.S. SME services firms. The USITC found that SME exporters of services generated more revenue per firm and grew faster than non-exporting services firms.

Ambassador Kirk requested this study from the USITC to help guide the Obama Administration’s trade policy in a way that boosts U.S. SME exports and creates American jobs. This is the third of three reports that Ambassador Kirk commissioned to inform and focus SME-related trade policy initiatives. It describes the role of SMEs as indirect exporters, thereby highlighting more fully their contribution to the foreign trade sector of the U.S. economy. The findings draw upon information gathered from three public hearings held in St. Louis, Portland, and Washington, D.C., in addition to testimony and comments from over 250 companies and organizations, and research and analysis of data from the U.S. Census Bureau, the U.S. Bureau of Economic Analysis, and surveys of thousands of U.S. SMEs in manufacturing, services, and agriculture. The full text of the third report can be found here.

Ambassador Kirk noted, “USTR is focused on making trade work to benefit small businesses. Under the Obama Administration, we are committed to helping small businesses increase their sales to foreign customers. In turn, that leads to the creation of new jobs here at home. We will use our enhanced understanding of SME challenges and opportunities, while negotiating with foreign governments to open their markets and reduce trade barriers, to benefit American workers and businesses of all sizes.”

The analysis and insights provided by the three USITC reports support the goals of President Obama’s National Export Initiative to double exports within five years and create two million new, well-paying American jobs. The first report, released in January 2010, described the characteristics of U.S. SMEs and the role they play in U.S. exports that support jobs for American workers. The second report, published in July 2010, analyzed impediments to trade by comparing U.S. SMEs with those in the European Union and other major trading partners.

Key findings:

SME Performance

  • U.S. manufacturing and services SMEs that export outperform their non-exporting SME counterparts according to several key measures, including greater revenue growth and labor productivity between 2005 and 2009.
  • While large multinational firms sell primarily to foreign customers through foreign affiliates, SMEs tend to export directly to foreign customers. An estimated 73 percent of foreign sales by SMEs were conducted through direct exports, while an estimated 85 percent of foreign sales by large firms were conducted through foreign affiliates.
  • In addition to their role as direct exporters, U.S. SMEs export indirectly through wholesalers and other intermediaries by selling intermediate goods and services to large and small firms that produce exports with these intermediate inputs.
    • In 2007, direct exports of goods and services by U.S. SMEs totaled $382 billion, or approximately 28 percent of total U.S. exports. However, if the value of intermediate inputs is considered, SME's total contribution to exports would have been $480 billion, or 41 percent of the total value of U.S. exports of goods and services.
    • SMEs that exported goods and services directly supported an estimated 1.9 million U.S. jobs in 2007. However, when employment by SMEs supplying intermediate inputs to exporters is considered, an additional estimated 2.1 million U.S. jobs are supported, bringing the total to 4 million jobs supported by SME exports.

Services SME exporters

  • SME exporters of services generated 1.4 to 8.1 times more revenue per firm than SME services firms that do not export, according to U.S. Census Bureau data.
  • Between 2002 and 2007, SME services exporters grew 15 to 64 percent faster than services firms that did not export.
  • The smallest SMEs are the most export-oriented. While a small share of SMEs are engaged in exporting, services SME exporters are more export- oriented than large exporting services firms. Services SME exporters derived, on average, 22 percent of their total revenue from exports, versus only 15 percent for large services exporters.
  • During 2002-07, services SME exporters’ export revenues, total revenues, and employment increased by more than that of large services exporting firms.

Trade Barriers That Disproportionately Affect SME Export Performance

  • Burdensome or discriminatory government regulations in many foreign markets disproportionately affect SMEs. U.S. SMEs may lack the staff, expertise, or financial resources to dedicate to foreign compliance.
  • SMEs are more likely than large firms to identify high tariffs as a substantial impediment to exporting. SMEs account for a high share of exports in apparel and certain processed food industries that face generally higher foreign applied tariffs.
  • Standards and certification are important non-tariff hurdles for SME manufactured goods exporters. In particular, licensing, residency requirements, and commercial presence requirements present challenges for SME services providers that export.
  • Services SMEs reported the greatest disproportionate burdens relative to large firms in areas such as “insufficient intellectual property protection,” “foreign taxation,” and “difficulty establishing affiliates in foreign markets.”
  • Manufacturing SMEs reported greater burdens relative to large firms in most areas, including “customs procedures,” “high tariffs,” and “preference for local goods in foreign market.”
  • For SME manufacturing exporters, the most frequently cited impediment to exporting was “obtaining financing,” “high tariffs,” or “transportation and shipping costs.” In contrast, large manufacturing firms identified either “foreign regulations,” or “preference for local goods or services in a foreign market” as their most frequently cited impediment.
  • For SME services exporters, the most frequently cited impediment to exporting was “language or cultural barriers,” or “foreign sales not sufficiently profitable.” In contrast, large service providers identified either “difficulty locating foreign sales prospects,” or “foreign regulations” as their most frequently cited impediment.