The Impact of International Competition on Small-Firm Exit in 

U.S. Manufacturing

Robert Feinberg, American University, Washington, D.C., 20016

2008. [23] pages. Under contract SBAHQ-07-M-0404

This report was developed under a contract with the Small Business Administration, Office of Advocacy, and contains information 

and analysis that was reviewed and edited by officials of the Office of Advocacy. However, the final conclusions of the report do not 

necessarily reflect the views of the Office of Advocacy.

This econometric study uses Statistics of U.S. 

Businesses (SUSB) data to examine the impact 

of trade on small manufacturers. As global trade 

increases and currency exchange rates fluctuate, concerns about their impact on small U.S. manufacturers 

increase. Small manufacturers, by the nature of their 

scale of operations, are less able to insulate themselves from foreign competition than large manufacturers. Although not without costs, large manufacturers have greater leeway in managing the effects of 

international competition: they can move production 

offshore, sign long-term commodity contracts in foreign currencies, or use other tactics to weather global 

shifts.

Overall Findings

Increased international pressures in the form of currency exchange rates lead to increased exit rates 

among very small manufacturers (those with fewer 

than 20 employees). Slightly bigger manufacturers 

(20-499 employees) are less sensitive to changing 

conditions in the international marketplace. Hightech industries are more insulated from international 

pressures than low-tech industries are.

Highlights

• At the national level, exit rates among overall small manufacturers showed little fluctuation 

between 1990 and 2004. They had large variations 

across firm sizes and industries, however. Exit rates 

of firms with fewer than 10 employees hovered 

around 14 percent from 1990 to 2004, around 7 

percent for firms with 10-19 employees, and around 

5 percent for firms with 20-99 employees and 100-

499 employees. Apparel firms with fewer than 10 

employees had the highest exit rate, at 22.3 percent; 

while the exit rate was lowest for firms in the beverage/tobacco industry with 100-499 employees, at 2.9 

percent.

• The determinants of exit generally differed by 

firm size category between 1990 and 2004, but there 

were some consistent factors. Mirroring conventional 

wisdom, growth in the overall economy reduced exit, 

while increases in labor costs increased firm exits.

• Consumer goods industries had higher rates of 

exit among small manufacturers.

• In low-tech industries where import penetration is significant, a strong dollar leads to an 

increased likelihood of exit for small manufacturing 

firms with fewer than 20 employees.

• For the smallest size class of manufacturers 

studied (firms with 1-9 employees), the impact of 

exchange rate effects were greater in the 1990s than 

in the 2000s.

• Changes in an industry’s import share were 

not statistically significant for firms with 20-499 

employees; it was negative but not consistently statistically significant for firms with 1-19 employees 

across the two time periods of analysis, the 1990s 

and 2000s.

• With the results showing some differences 

between the decades of the 1990s and 2000s, effects 

of international competition seem to be changing 

over time. More disaggregated data would be necessary to evaluate this properly, however. 

March 2008 No. 320
Scope and Methodology

This study determines international competition 

impacts from 1990 to 2004 on the survival of small 

manufacturers by industry using econometric models. Firm size categories of 1-9, 10-19, 20-99, and 

100-499 employees were evaluated. Establishment 

exits (or business location exits) by employment 

size of firm were used as a proxy for firm exits 

(which includes all business locations). This is very 

accurate for small size categories (which are largely 

one-location firms), but breaks down as the firm size 

increases.1

Dependent variables included exchange rates, 

imports as a share of an industry’s goods, research 

and development intensity by industry, large firm 

expansions, wage growth (to proxy input cost 

trends), and a dummy variable on whether the industry sells primarily consumer goods or durable goods. 

Some dependent variables were lagged one year to 

indicate causation of exit rates instead of correlation 

with them. The U.S. Census Bureau’s Statistics of 

U.S. Businesses (SUSB), which is partially funded 

by the Office of Advocacy, was a primary source. 

In addition, sources included the New York Federal 

Reserve Board and the National Science Foundation. 

SUSB switched industry codes from SIC to NAICS 

in 1998, forcing an analysis of two separate time 

periods.

This report was peer reviewed consistent with 

the Office of Advocacy’s data quality guidelines. 

More information on this process can be obtained by 

contacting the director of economic research at advocacy@sba.gov or (202) 205-6533.

1 Almost all (99.9 percent) of establishment exits in manufacturing firms with fewer than 10 employees are firm 

exits. (Essentially, these are one-establishment firms.) This 

figure was 98.3 percent for firms with 10-19 employees, 

85.3 percent for firms with 20-99 employees and 29.8 percent for firms with 100-499 employees.

Ordering Information

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studies performed under contract with the U.S. Small 

Business Administration’s Office of Advocacy are 

available on the Internet at www.sba.gov/advo/research. 

Copies are available for purchase from:

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