USA EXPORT BLOG

Will the G8 meeting have any effect on USA Export numbers?  Eight of the industrialized nations of the world are meeting in l’Aquila, Italy this week.  Other nations will participate as well.  Italy’s Prime Minister, Silvio Berlusconi had decided to change the venue to l’Aquila to draw attention to the need of the region.  Indeed the meeting was originally planned to take place on the beautiful Italian Island of Sardenia.  After a strong earthquake with many afterschocks hit l’Aquila earlier this year, it seemed like a good idea to move the venue there.  But what does that have to do with USA Export numbers?

China and India hold many of the US Dollar reserves and will be in l’Aquila.  Russia is a G8 member and also wants to see changes in the world’s currency systems.  China has been suggesting to start working on a global currency.  It too is seeing what the rest of the world is seeing.  The huge amount of new money that went into circulation for the American stimulus adds to an already weak US Dollar.  All the countries with heavy investments in US Dollars have a double edged sword:
- Their Treasury Departments cannot afford for the Dollar to weaken much more. 
- Nevertheless, any slump in the US Dollar makes it less competitive to export their products into the US. 
However, American manufacturers would have it easier to export their wares overseas.

China will be attending the G8 meeting this week.  It has a great interest into finding ways to start moving away from the Dollar, while at the same time trying to keep its value.  A big decline in its value would have catastrophic consequences on these emerging markets where the global recession has also hit hard.  For the past 45 days one Dollar has been worth about 0.70 Euros. It has been sliding from a year high in February at 0.79 Euros.  US Manufacturers would not mind to see an exchange rate of 0.64 Euros as it was a year ago so that they can increase their USA Export numbers.  But, what about the rest of the world?

The USA Export number for April was at a 35 month low. The Imports number for April dropped also, however, slightly. The reports from the Census Bureau show a larger deficit when combining both the imports and the exports. Oil is a big part of why it is now wider.  There are 2 reasons:

1) The US imported almost 3 million barrels more oil than in March.
2) The cost of oil went up from $41.36/barrel in March to 46.60/barrel in April.

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Unless you already have USA Export customers or have giant companies purchasing your products, your typical terms of payment will be Net 30 days or shorter.  Most companies operate with money borrowed from the bank in the form of loans or lines of credit.  Any day that a payment comes in after the 30 days, it costs real money and slices into the bottom line.  Once international customers are being approached, there are other issues to consider before pricing is even brought up:

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There is a lack of demand for our USA export products!

That was the headline of an article in the Dallas Morning News.  It is true that the trade deficit has been getting smaller since the peak in July 2008.  That is the result of the decreasing amount of exports and an even more decreasing amount of imports.  The global recession has placed a great pressure on sales everywhere.  However, according to the CIA world factbook, the US ranks No. 41 in the world for exports per capita.  We are right after Gabon at $4482!  Some European countries are exporting more than they produce for their own consumption.

It is a fact that US manufacturers have been very busy taking care of their own backyard.  And they have taken extremely good care of their backyard.  The US has the largest economy in the world.  Nevertheless, they have gained little experience looking outside of the US borders and especially outside of North America for USA export products.  It is the result of not having offered their products to foreign buyers in a concerted effort.  The world economy has been global for several years.  Do all US manufacturers understand that in order to survive, exporting is an absolute necessity? Continue Reading »

“A weak dollar makes USA export products more attractive to buyers in foreign countries, which helps U.S. companies sell more stuff.” comes from the article “What’s behind the dollar’s gyrations? – U.S. Money was strongest when economic crisis was worsening, the seesawing dollar from the Associated press published amongst others by the Dallas Morning News on June 2. In short, the reason for the dollar recent weakness (see http://www.xl-group.us/files/Currency_Exchange_Matrix_Table5.pdf ) is the increased amount of debt the United States has amassed in recent months.

The weakness of the Dollar helped the US getting out of the great depression of the 1930’s and so the similarity may be strong between both recessions. USA export products helped American companies grow and put more people to work.

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Recent trade balance improvements make USA export distributor wholesalers more important than ever.

Our trade imbalance has improved tremendously in recent months. Why, then, is an export distributor so important? If, as a country, we’re now exporting more, we’re obviously moving products overseas.

However, before US manufacturing declares victory, we must also look at an overall manufacturing index, such as the one published by the Institute for Supply Management. http://www.ism.ws/ISMReport/MfgROB.cfm The ISM reports that, although the index is showing signs of improvement, “economic activity in the manufacturing sector failed to grow in April for the 15th consecutive month, and the overall economy contracted for the seventh consecutive month.”

While I hate to rain on our parade, with this data, it can then be argued that the improvement in our trade imbalance is the function of lower demand and production, versus an overall economic improvement. Further support of this is seen in the March FT900 Report (issued May 12, 2009), showing a gap that slightly widened.

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In tough economic times, one of the ways that may seem economical to export your products to Europe is to go it alone without a USA export master distributor, start in the UK, and work your way out from there.  It’s a tempting argument; it seems like since the language barrier is small and it’s on a separate island, this would provide the best entry to Europe.

USA Export: US Dollar Compared to British Pound

However, things are not always as they seem, and this argument has fatal flaws.  Speaking the same language doesn’t mean conducting business the same way.  First, as different as it is to do business in two regions of the US, it is far less than the difference in doing business in the UK.  Second, as seen in the 8 year chart, there is far less play in terms of price advantage between the Pound Sterling and the US Dollar.  This is absolutely critical, as your products have become far more expensive there than they were just two, three, or five years ago.  Lastly, economic conditions are tied closer together between the US and the UK than between the US and the European Union.   Simply put, the reason you export is to diversify; selecting a UK-only strategy minimizes your portfolio diversity, yet exposes you to the same level of market entry risk.

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Many people involved in USA export have read Thomas Friedman’s book, “The World is Flat.”  Before the world became “flat” in the USA, it was already flat in Europe.  Fifty years ago, European manufacturers were already looking to get their wares produced in Portugal, Greece, North Africa and Turkey.  They discovered that in order to compete in the international market, it was becoming necessary to use cheaper labor.  Then, they found they could generally export their products as well. So they started learning about cultures, languages, customs and business differences.

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If your USA export goal is to eventually penetrate the European market, I suggest you start with the 5 largest markets in Europe:

• United Kingdom
• Germany
• Italy
• Spain
• France

Far too many international business neophytes think their exporting efforts to Europe will begin in the United Kingdom and automatically flow onto the continent. But, Europe is not one big market. Hoping that your UK business will lead you onto the European continent is a mistake. Europe is a fragmented market, separated not only by borders into countries, but also by regions within those countries.

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Your USA export product requires initial market research to get off to a profitable start. It’s very important to find out as much as possible about the market(s) you intend to enter, because you want to make sure your time and effort to export your product provides you with the quickest return on your investment. In the US, almost all the information you need is available online.  In fact, the US Government provides a wealth of information through the Census bureau, US Department of Agriculture and so many other sources.

Unfortunately, the international markets do not provide as much information as in the US.  And when they do, not everything is available in English.  The US Government provides information on USA export markets at:

https://www.cia.gov/library/publications/the-world-factbook/
http://www.export.gov/
http://www.foreign-trade.com/
http://www.worldmapper.org/

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