Business Beyond the Reef

Yes. The U.S. International Trade Commission has a new report about the export performance of small and medium-sized U.S. businesses.  The report examines exports by SMEs (i.e., firms having fewer than 500 employees) between 1997 and 2007.  So, what’s the verdict?

SMEs accounted for about 30% of U.S. merchandise exports in 2007 (that’s roughly $306 billion), a comeback from a low of about 26% in 2003.  And they weren’t selling the t-shirts and kitsch that many people associate with small business.  The bulk of SME exports were computers and other high tech equipment (roughly $47 billion), machinery (about $37 billion), chemicals ($35 billion) and transportation equipment ($29 billion).  Pretty substantial stuff.

Where was it going? Canada and Mexico (about $45 billion and $35 billion, respectively) were the top destinations, naturally, given proximity and NAFTA.  Next up were the big Asian markets, led by China ($22 billion) and Japan ($18 billion).  Germany was the largest European market, buying about $12 billion from America’s SMEs.

Ambassador Bridge: Taking Small Exporters to Canada

That’s the overall picture on the merchandise side, but we need to get into the details.  SME exports of the big ticket items (high tech, chemicals and machinery) overwhelmingly went to Canada and Mexico, and then often to only a single customer.  Given that, it isn’t surprising that most of the growth in SME exports came from new entrants, firms that had never exported before, but starting out with a single customer, usually in Canada or Mexico.  This may tell us how important NAFTA is to small business development in the United States, something that populist politicians need to know before they re-open trade agreements.

Intriguingly, buyers in Hong Kong, Switzerland and Israel seem the most relaxed about dealing with smaller suppliers, since these were the markets for which SMEs recorded the highest percentage of U.S. exports.

Exports of services by small companies show a different pattern. Their largest markets are Canada (no surprise) and the United Kingdom.  The ITC speculates that sales to overseas affiliates of larger U.S. companies may play a role, hinting that SMEs may be piggy-backing on existing domestic business with these companies.  Services exports are concentrated on professional services, such as architecture and engineering services.

Entrepreneurial North Korea and Vietnam are striding into capitalist ventures.  Never thought of North Korea as entrepreneurial?  Think again.

Come and Get It! (photo: Shih-Tung)

Admittedly, they started out in Cambodia, that hotbed of free enterprise.  The North Korean government opened the Pyongyang restaurant chain – with the first two “franchises” in Phnom Penh and Siem Riep – back in 2002.  And they are expanding across Asia, reports the South China Morning Post (subscription), featuring North Korean food, waitresses, decor and entertainment.  The SCMP correspondent raved about the food, but expats sampling the fare in the Phnom Penh restaurant have a few complaints.  Following their success in Cambodia, the Pyongyang chain moved into Bangkok in 2006, quickly followed by Vientiane and Kuala Lumpur.  They have had restaurants in China for years, but I don’t know if they are officially part of the chain.  That said, one store manager in China complains that their owners in North Korea (the infamous Bureau 39) exact an “annual franchise fee” of $10,000 to $30,000 per restaurant.

Those franchise fees are what this all about.  North Korea needs foreign exchange and has been trying to earn it legitimately through restaurants and other enterprises since the 1990s.  Unfortunately, they have also tried illicit trading ventures.   There is a report of a Pyongyang Restaurant in Vienna, but I haven’t confirmed that Austrians are now eating kim chee.  Chinese restaurants in Vienna are generally pretty poor, and their prime business has often been money-laundering.  I recall a gangland style killing at one near my house in the late 1990s.

The recession may be catching up to these new capitalists; there is a report from last summer that many of the restaurants are closing.  They depended on South Korean tourists for cash flow.

In a similar vein, says Asia Times, former Vietnamese Army officers who fought in Laos are back on the battlefield.  This time their mission is to build a luxury resort and golf course where they fought so many years ago.  The Long Thanh Golf Trading & Investment Joint Stock Company (snappy name) is developing their resort just outside of Vientiane, amid charges that the Laotian government has given them a sweetheart deal to obtain the land and get rid of the farmers now living there.  It’s curious that, just before the $1 billion golf resort project was announced, the Vietnamese Army gave significant quantities of “armaments” to their counterparts in the Laotian Army.  Coincidence, of course.

$35 billion in export sales. That’s how much we are hurting ourselves.

Seems Like There's Business

The U.S.-Korea Free Trade Agreement is still waiting for implementation by the Obama Administration and the Congress, a refusal to act that I have posted about several times.  Trade Partnership Worldwide has released a study for the U.S. Chamber of Commerce that quantifies how much Washington’s inaction hurts the United States when faced with competition from Korea’s new FTA with the European Union and the prospect that there will soon be a Korea-Canada FTA.  The study was done by Laura Baughman of Trade Partnership and Joseph Francois of the University of Linz.

The bottom line, say Baughman and Francois, is that America’s failure to implement the U.S.-Korea FTA will cost the United States $35.1 billion in exports, which will reduce GDP by $40.4 billion and cause a net reduction in the welfare of U.S. citizens of $25.2 billion.  What’s that mean in jobs?  More than 345,000 jobs lost.  Any way you look at it, we are losing big money.

For an administration and a Congress that claim they are concerned about jobs, failure to put this agreement in place reveals a curious lack of interest in putting Americans to work.  It must be more important to put Europeans and Canadians to work.  Am I missing something here?