EXPORT TRADING CONCEPT USEFUL

Sears, Roebuck & Co.'s decision last fall to close the domestic operations of its Sears World Trade unit led to allegations that the Export Trading Company Act of 1982 is unsuccessful and of little use in encouraging U.S. exports. Yet, a close examination of the record clearly refutes this assertion.

The purpose of the act was "to increase U.S. exports of products and services by encouraging more efficient provision of export trade services to the U.S. producers and suppliers." Bank participation in trading companies improved the financing of exports; a reduction of the antitrust threat encouraged businesses to join together in their export activities.The act placed emphasis on collaboration to achieve economies of scale in marketing, improved export financing and to offer foreign buyers a one-stop buying center. The capability for such joint international efforts is vital to many of our firms. Consider the following examples:

A U.S. concern wants to enter the Japanese market. Management has done its homework on doing business in Japan, and knows all about closeness to the customer, rapid delivery of orders and substantial service follow-up. The company therefore needs a sales representative and a service technician in Japan and has to make frequent small shipments. An analysis of the investment required shows that the cost of personnel and shipping is very high. A realistic projection of gradual market penetration and a reasonable return on investment force the firm to abandon the idea of entering the Japanese market.

A foreign buyer wants to purchase a broad line of products. His options are to approach one major manufacturer who carries the entire line and offers good financial terms or to hassle with a multitude of smaller firms, all of which have a better individual product but little financing capability. The envisioned complexity of multiple transactions and substantial differences in financing terms make the buyer choose the second-best products.

Joint efforts under the Export Trading Company Act remedy both of these problem situations for the smaller firms. In the first instance, a company can band together with like-minded firms and share the expense of personnel and negotiate joint shipping rates. The ability to enter the Japanese market by paying only a fraction of total cost propels a firm abroad that otherwise would have stayed at home. In the latter case, a consortium of firms can present the entire product line to the foreign buyer, and with the help of a participating bank, can offer one export financing package.

These examples demonstrate that the concept of export trading companies remains a useful and necessary one. Now that one large firm (which, incidentally, was not even a company formed in response to the act) has withdrawn from the field does not disprove the validity of this fact. True, at this time, the act has not been used as much as was originally hoped for. This can be attributed to the cautious attitude of many U.S. firms toward foreign markets, as well as some regulatory problems, the reluctance of many banks to participate in anything international, and the dismal world trade environment our exporters have had to face in many of the past years.

But the situation is changing. Companies increasingly recognize that competitiveness is not achieved by taking a laid-back approach, but rather requires an advantage-seeking, aggressive grasping of opportunities. Regulations are being reconsidered by a variety of government agencies. Banks are beginning to reorient their attitude toward international commercial transactions and are discovering that, with their already substantial international information-gathering capabilities in place, they have the potential of becoming the leading export intermediaries of the next decade.

The decline of the dollar, the better enforcement of trade laws, the adamant push for the opening of foreign markets and the successful conclusion of the September Punta del Este GATT meeting are useful steps in the direction of a better world trade environment.

It would be a mistake to abandon the export trading company mechanism just now, when its prospects for success have markedly improved. Our research shows that it can improve U.S. export performance and that large numbers of firms plan to use the act. It has all the right ingredients of a major international sales tool for our companies and is already working for 243 companies and 41 banks. It provides the private sector with an opportunity to make money abroad and improves U.S. trade performance through greater competitiveness rather than through tariffs, quotas or other forms of market distortion.

The privilege to fail is part of the privilege to succeed. Using the Sears withdrawal to damn ETCs demonstrates myopia on the part of the act's critics. Regaining international competitiveness is not a short-term task, and should not be measured by individual corporate events. Quarterly statistics alone will not tell the story either. Only long-term and long-lasting improvements will do so.

Michael R. Czinkota is chairman of the National Center for Export-Import Studies, a non-profit, non-partisan international trade research center at Georgetown University, Washington, D.C.

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