Export Trading Companies: A Marketing Vehicle for Small Textile and Apparel Firms?

EXPORT TRADING COMPANIES: A MARKETING VEHICLE FOR SMALL TEXTILE AND APPAREL FIRMS? * The Export Trading Company act of 1982 laid the foundation for new U.S. trade incentives by promoting the export of U.S. goods and services in an effort to expand opportunities for American business in the world market. The legislation encourages the formation of export trading companies (ETCs), particularly for the benefit of small- to medium-sized companies. The U.S. Department of Commerce estimates that some 20,000 small- to medium-sized, non-exporting firms produce goods and services that would be competitive in the world market. Several factors have been identified which preclude exporting by these smaller firms: * Lack of knowledge and expertise about selling overseas; * Belief that exporting is too difficult, risky, and unproductive to attempt; * Difficulties in financing both the production and transactional costs involved in foreign sales; and * Uncertainty of the application of antitrust laws. An ETC is defined as a company doing business in the U.S. with the main purpose of exporting American-made goods and services and aiding unrelated companies in exporting their products abroad. Only one primary function can be performed by an ETC: either exporting goods and services, or providing facilitating services for unrelated exporters. However, an ETC principally engaged in exporting may engage in importing and third-nation trade to facilitate export activity. Industries dominated by small- to medium-sized business can benefit from the services provided by export trading companies. Such industries tend to have poor export performance due to the lack of resources needed to research and develop foreign markets. Exporting in the textile and apparel industries has been reserved for giant verticals which have the necessary means to set up successful export operations. However, these industries are dominated by smaller firms which may have export potential. A study in 1978 concluded that 915 out of 5,611 textile firms (16 percent) were engaged in exporting, while 1,405 out of 21,949 apparel firms (6 percent) were similarly involved. A problem facing the textile industry in particular is that the U.S. market is no longer large enough to absorb the U.S. textile manufacturing capacity; therefore, exporting is essential for many firms' survival. "To a large degree, the future viability of the U.S. apparel industry will be determined by the ability of individual firms to successfully compete in a world market environment. " Domestic manufacturers generally are unaware of their export potential. The size of the U.S. market and the influx of imports have led domestic producers to believe that overseas markets are not worth pursuing. However, foreign markets, rather than the U.S. market, are showing growth and represent potential profits. It has been suggested that smaller firms often have unique capabilities to exploit opportunities to meet the needs of small niches in foreign markets. These strengths are related to the flexibility and adaptability possessed by smaller firms. Managers of these enterprises should remember that: "The need to export is increased, not decreased, by the lack of significant growth in the domestic market, and by growing imports in the U.S." Many exporting impediments faced by smaller firms could be overcome through the use of an ETC. For the textile and apparel industries, an export trading company theoretically represents a promising vehicle for export expansion. PURPOSE OF THE STUDY The purpose of this research was to relate the Export Trading Company Act of 1982 to the activities of the textile and apparel sector, and assess its present and potential applicability. The study focused primarily on small-and medium-sized businesses in the textile and apparel industries and attempted to determine the impact of the combination of federal legislation and a government program designed to facilitate the marketing and selling of U. …