Exporting Practices and Problems of Illinois Firms

Since 1970, U.S. exports have doubled and now constitute almost 12 percent of the GNP. U.S. reliance on exports is at a historic high in combating inflation, reducing trade deficit, supporting the value of the dollar, and creating new employment. The U.S. has reached a watershed in its economic history: the nation must either export more or accept a lower standard of living. Currently, the U.S. export market is dominated by large companies and multinational corporations. Only 10 percent2 of the total U.S. export business is conducted by small businesses, despite the fact that foreign markets offer many small firms better opportunities for long-term growth and profitability. For the small- and medium-sized U.S. companies that engage in export activities, only 6 to 7 percent of their total sales are from foreign markets; however, their counterparts in West Germany and Japan sell approximately 15 to 20 percent of their products abroad. According to a General Accounting Office study, the total value of attainable sales by small U.S. businesses with 250 or fewer employees is $4.2 billion annually.6 A recent study by the Illinois Department of Commerce and Community Affairs concluded that, with proper export assistance programs, some 500 Illinois firms with annual sales of less than $50 million could export additional goods and services worth $600 million. Furthermore, Illinois could see the creation of an additional 20,000 jobs. The study reported in this article sought to discover the reasons why small businesses in Illinois fail to reach their export potential. More specifically, the study was designed to describe the demographic characteristics, practices, and problems of small businesses in Illinois with respect to export activities. A number of policy recommendations are made which may help small businesses penetrate foreign markets more effectively. PREVIOUS RESEARCH A number of studies have dealt with various aspects of export activity by small businesses. O'Rourke found that foreign promotion and sales by small and large corporations differ in several important aspects.7 In comparison to larger firms, small businesses have attempted to penetrate foreign markets only recently; they export a small share of their total output; they tend to rely more on the initiatives of their foreign clients than on their own efforts to seek out foreign markets and customers. Similarly, Malekzadeh and Nahavandi identified certain significant differences between businesses that as non-exporters have never exported and businesses that export. Non-exporters considered tax advantages to be an initial incentive toward making the decision to export, but exporters sought to penetrate foreign markets regardless of potential tax benefits. For non-exporters, proximity of the foreign market was important; exporters did not consider distance a problem. For non-exporters, third-party assistance was critical; exporters preferred to rely on their own resources. Based on a 1985 survey of small businesses, Hester identified three principal reasons why small businesses failed to export.9 These are: (1) lack of knowledge of foreign markets (67 percent); (2) limited financial resources (50 percent); and (3) the current strength of the U.S. dollar (33 percent). Kedia and Chhoker evaluated the small firms' knowledge and use of export assistance programs conducted by various governmental agencies. Their study indicated that a large number of small- and medium-sized firms are eager to export their products and services, but are unsure of the methods for reaching their goals. These firms are unfamiliar with the various incentives and programs offered by both federal and state governments. However, among the small minority of firms which are aware of the programs, the level of participation is fairly high. METHOD A survey was conducted of 869 Illinois small businesses that export. …