National Export Initiative: U.S. and Foreign Commercial Service Should Improve Performance and Resource Allocation Management
Published: 2011-09-29T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Recognizing the potential of increased exports to drive economic growth and create jobs, President Obama in 2010 launched the National Export Initiative (NEI), aimed at doubling the dollar value of U.S. exports by the end of 2014. As requested, GAO examined the extent to which (1) the goals and activities of the U.S. and Foreign Commercial Service (CS) support the NEI, (2) CS performance measures accurately reflect its activities and align with the NEI, and (3) CS incorporates relevant data in allocating resources to help achieve its strategic goals. GAO interviewed Department of Commerce (Commerce) officials, particularly from CS, and CS staff and officials at six overseas posts. GAO analyzed the NEI's priorities, and documents and data related to CS activities and performance.
section_title: What GAO Found
paragraphs: CS's goals and activities generally support NEI priorities by, for example, arranging trade missions, assisting U.S. exporters with trade problems, and advocating on behalf of U.S. firms competing for foreign government contracts. The NEI has not required CS to undertake new activities; however, it has prompted CS to direct more of its efforts toward certain markets, activities, and sectors and to shift its focus from firms that are new to exporting to firms already exporting, as firms exporting to new markets or increasing exports to markets in which they are already active produce the greatest share of export successes. In fiscal year 2012, CS will implement revised performance measures that align more closely with the NEI. Although CS did not meet four of its six performance targets in 2010, it achieved increases in most of its measures as it shifted to address NEI priorities. CS's revised performance measures for fiscal year 2012 address some past weaknesses; however, some weaknesses will remain--for example, the lack of a measure for customer-service satisfaction and the clients' underreporting of export successes, especially with regard to dollar value. CS's new measures necessitate that export success data be complete and accurate; otherwise, CS's efforts to support the NEI goal will be undervalued and policymakers will not have an accurate picture of CS's performance. CS's resource allocation management process does not make full use of relevant information to guide its decisions. CS is using a data-driven process to prioritize foreign markets (and domestic locations) and to help it allocate staff and other resources to meet its performance goals and support NEI objectives. GAO's analysis of the quantitative parts of the process, however, found that there may be opportunities to reallocate overseas resources to better reflect NEI priorities and better achieve CS's new performance goals. The overseas model, designed to reflect export potential of partner countries, currently gives greater weight to historical variables that have a high degree of overlap with the other historical inputs in the resource allocation process. Also, the process does not systematically consider important available data on commercial diplomacy and advocacy, which are related to CS performance goals, and program activity data on how CS staff divide their time. Including such data in the process would help Commerce managers make decisions informed by the best available information.
section_title: What GAO Recommends
paragraphs: GAO recommends that the Department of Commerce (1) take steps to improve the CS customer-service survey response rate and include customer-service-related data in its performance measures, (2) take further steps to achieve greater cooperation by CS clients in reporting the dollar value of export successes, (3) review CS's Overseas Resource Allocation Model to determine whether its variables and structure best incorporate available indicators of potential U.S. exports, (4) include commercial diplomacy and advocacy data in evaluating cost-benefit ratios of CS locations, and (5) systematically include activity data in making resource allocation decisions. Commerce welcomed and generally agreed with the overall findings and recommendations in the report.

section_title: Letter
paragraphs: In the wake of the recent global recession, high unemployment rates in  the United States have persisted, motivating U.S. policymakers to  intensify efforts to grow the economy and create jobs. With 95 percent of  the world’s consumers living outside U.S. borders, a crucial focus of these  efforts is to increase exports. At present, less than 1 percent of all U.S.  companies export, largely due to the challenges of international trade,  particularly for small and medium-sized businesses. Recognizing the  potential of exports to help the United States solidify the recovery and  accelerate job growth, on March 11, 2010, President Obama signed an  executive order creating the National Export Initiative (NEI), which  established the Export Promotion Cabinet to oversee U.S. trade  promotion activities and set a goal of doubling the dollar value of exports  in the next 5 years. The Secretary of Commerce committed to supporting  the NEI’s goal by directing the department’s U.S. and Foreign  Commercial Service (CS) to focus on key elements of the initiative,  including advocating on behalf of U.S. exporters to help U.S. companies  competing for international contracts and increasing the number of trade  missions and other matchmaking efforts that bring U.S. sellers and  foreign buyers together.
As requested, in this report we examined the extent to which (1) the goals  and activities of the U.S. and Foreign Commercial Service support the  NEI, (2) CS performance measures accurately reflect its activities and  align with the NEI, and (3) CS incorporates relevant data in allocating  resources to help achieve its strategic goals.
To determine CS’s export promotion role and the extent to which its goals  and activities support the NEI’s priorities, we reviewed CS’s statutory  mission, CS services and activity information, and the Report to the  President on the National Export Initiative. We also met with CS officials  in Washington, D.C., who are responsible for managing CS. We also  traveled to six overseas posts (Brazil, Chile, China, El Salvador, Thailand,  and Vietnam) and interviewed CS commercial officers and locally  employed staff who carry out CS’s mission. The posts we visited differed  in staff size (small, medium, and large) and included posts considered to  be key markets (Brazil and China) or designated as an NEI priority market  (Vietnam). Information from the six posts is not generalizable but was  used to understand how activity data are collected, input, and used at  posts and in headquarters, as well as to identify any potential problems  with the data—topics also discussed in interviews with CS officials in  Washington, D.C.
To determine how CS measures progress toward its goals and the extent  to which its performance measures accurately reflect its activities and  align with the NEI, we reviewed CS’s performance measures as  documented in Department of Commerce (Commerce) annual  performance and accountability reports for fiscal years 2008 through  2010, as well as Commerce’s congressional budget submissions for fiscal  years 2011 and 2012. Additionally, we reviewed CS’s annual reports for  fiscal years 2009 and 2010 to determine what performance measures CS  reported publicly, and interviewed CS officials responsible for developing  and tracking CS’s performance measures to learn about the development  of the fiscal year 2010 and 2012 measures. Additionally, we reviewed  data CS provided us on performance measures it tracks for its own use  and that are not reported in the performance and accountability reports.
To determine the extent to which CS uses relevant data in allocating its  resources to help achieve its strategic goals, we interviewed CS officials  about its resource allocation process, including the use of the Overseas  Resource Allocation Model, cost-benefit analysis, and other factors CS  considers when making resource allocation decisions. We also analyzed  CS activity data in conjunction with its domestic and foreign office staffing  and budgets from 2008 through 2010. We analyzed the fiscal year 2011  Overseas Resource Allocation Model, examining the impact of market  size and market structure weighting, as well as the weighting of the 20  individual variables used in the model to determine country ranking. In  addition, we analyzed CS’s cost-benefit model in conjunction with staffing  and activity data. We determined that the CS data on activities (including  fee for service), events, budget and staffing, and performance measures  were sufficiently reliable for the purposes of this engagement.
We conducted this performance audit from September 2010 to  September 2011, in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives. Appendix I  contains additional details about our scope and methodology.
subsections: section_title: Background
paragraphs: The Department of Commerce chairs the coordinating committee of  federal trade promotion and finance agencies charged with implementing  the NEI. CS is one of four business units within Commerce’s International  Trade Administration. The other units are Market Access and  Compliance, Manufacturing and Services, and Import Administration. CS  is the largest unit in terms of budget and staff, and about two-thirds of its  staff work at posts outside the United States. CS’s statutory purpose is to  promote the export of goods and services from the United States,  particularly by small and medium-sized enterprises (SME), and to  advance and protect United States business interests abroad. While  CS’s mission specifically identifies SMEs, CS assists companies of all  sizes. According to the U.S. Census Bureau, in calendar year 2009, the  total number of identified U.S. export firms was about 276,000, of which  over 97 percent were SMEs. The dollar value of exports associated with  the efforts of SMEs that year amounted to about $308 billion, which  represented approximately one-third of the $939 billion in exports.
subsections: section_title: CS Has a Global Network That Includes Domestic and Overseas Posts
paragraphs: CS employs a variety of staff in its global network. Domestically, CS had  about 500 staff working in Washington, D.C., and throughout the United  States in 2010. Overseas, CS mainly employs Foreign Service officers  and locally employed staff. In 2010, CS had over 900 staff overseas,  including both Foreign Service officers and locally employed staff.    CS operates 108 domestic offices referred to as U.S. Export  Assistance Centers. Staffed by trade specialists, and Foreign Service  officers on domestic tours, the centers deliver the full range of export  promotion services to U.S. companies and connect to CS’s global  network of overseas offices. The centers work cooperatively with key  partner agencies and organizations, especially the Export-Import  Bank, the Small Business Administration, and state trade offices. (See  app. II for the allocation of domestic CS staff in fiscal year 2010, by  state.)    CS’s 125 offices in more than 75 countries promote U.S. exports and  defend U.S. commercial interests, implementing the full range of  Department of Commerce overseas commercial services. Foreign  Service officers, referred to as commercial officers, manage the  overseas offices and engage in activities requiring a U.S. official.  Locally engaged staff, consisting of commercial specialists and  commercial assistants, provide export promotion services to U.S.  companies and support the commercial officers in other activities.  (See app. III for a table of country groupings and allocation of  overseas CS staff in fiscal year 2010.)
In 45 countries where the CS has no presence, it engages in a  Partnership Program with the State Department (State) under which  State Foreign Service officers and locally employed staff provide  some export promotion assistance. In September 2011, the  Departments of Commerce and State agreed to expand the program  to an additional 11 countries. The formal Partnership Program began  in January 2009; however, CS and State have a long history of  working together because, for many years, commercial officers were  part of State until the Commercial Service was established as a  separate entity under Commerce in 1980. (See app. IV for the  locations of State Department partnership posts providing export  promotion services.)    CS also operates a Trade Information Center, which serves as a  central point of contact for U.S. exporters seeking export advice such  as how to begin exporting; complying with trade documentation  requirements, standards, and regulations; and accessing other U.S.  government trade programs and resources. Additionally, CS’s  Advocacy Center, in Washington, D.C., with support from CS offices  abroad, assists individual firms in various industry sectors competing  for foreign government contracts.
section_title: Commercial Service’s Goals and Activities Support the National Export Initiative
subsections: section_title: CS Provides Services to U.S. Exporters, Particularly to SMEs
paragraphs: The goals and activities of the U.S. and Foreign Commercial Service  contribute to the National Export Initiative (NEI) goal of doubling the dollar  value of U.S. exports from $1.57 trillion in 2009 to $3.14 trillion by the end  of 2014. CS’s strategic goals include expanding the exports of U.S. goods  and services, removing obstacles to exporting, particularly for small and  medium-sized companies, and advancing U.S. business interests abroad  by advocating on their behalf and helping to remove foreign trade barriers.  CS conducts a variety of activities to advance these goals, generally falling  into four broad categories: (1) trade counseling, (2) fee-for-service  activities, (3) commercial diplomacy, and (4) advocacy. In addition to these  core activities, CS assists other U.S. agencies overseas involved in trade- related activities, mainly at overseas posts. Our interviews with Foreign  Service officers and locally employed staff at the six posts we visited  indicate that counseling and fee-for-service activities are the primary focus  of their day-to-day activities and take most of their time. However, CS also  promotes the export success of U.S. firms and advances U.S. business  interests abroad by helping firms overcome obstacles in specific markets  through commercial diplomacy and by advocating on their behalf for foreign  government contracts. When any CS trade-promotion activity successfully  assists a U.S. company to export a product or service, CS staff document  an “export success” that is verified by CS management. An export success  is defined as a CS service, rendered by locally employed staff, Foreign  Service officers, or U.S. Export Assistance Centers, that facilitates (1) a  sale of a product or service; (2) a commercial agreement (distribution,  wholesale, or joint venture); or (3) an overseas activity resulting in revenue  for a U.S. company or its affiliate or subsidiary.
Trade counseling involves assisting U.S. businesses in understanding  foreign markets and developing export marketing plans, as well as  providing information about export finance and public and private export  promotion assistance. CS counsels thousands of firms each year,  particularly SMEs. CS counsels firms that have never exported, as well as  firms already exporting that want to expand their efforts to one or more  new markets or to increase their exports to one or more markets where  they already have a presence. (CS categorizes these types of firms,  respectively, as new-to-export, new-to-market, and increase-to-market.)  From 2008 through 2010, according to CS, it had approximately 68,000  clients, and counseling activities were the primary service provided in  over 18,000 export successes during that period.
CS’s fee-for-service activities include standardized services such as  matchmaking, which CS generally refers to as a Gold Key—introducing  U.S. businesses to qualified buyers overseas—and providing market  intelligence such as reports on a specific foreign company, which CS  refers to as International Company Profiles. CS also provides customized  services such as Business Facilitation Services, Single Company  Promotions, Customized Market Research, Trade Missions, and  Webinars, among others. CS is authorized to charge a user fee for its  export promotion services. Since May 2008, its standardized fees have  been based on full-cost recovery for large companies and a lower amount  for new-to-export SMEs. Fees for customized services also vary based on  company size, with large companies paying more than SMEs. Large  companies pay 100 percent of both direct and indirect costs, whereas  SMEs pay 100 percent of direct costs but 35 percent of indirect costs.  From fiscal year 2008 through 2010, U.S. firms purchased a total of  27,076 services from CS, of which approximately 68 percent were  purchased by SMEs. CS collected approximately $19 million in fees for  these services.
CS addresses a wide variety of obstacles that U.S. companies may face  in specific markets by conducting commercial diplomacy on their behalf,  as well as by assisting with formal efforts by the International Trade  Administration’s Market Access and Compliance unit to remove  government-imposed barriers such as standards or technical barriers and  subsidies. Overall, from fiscal year 2008 through 2010, CS successfully  assisted 486 companies through commercial diplomacy efforts, resulting  in at least $17 billion in exports. Commercial diplomacy occurs when  CS’s interactions with foreign governments contribute to achieve one or  more of the following outcomes:  reduce, eliminate, or prevent a foreign trade barrier;  comply with a bilateral or multilateral trade agreement;    eliminate or reduce a threat to U.S. business interests; and  create market opportunities.
For example, if a company comes to CS indicating that a shipment of  mackerel valued at $100,000 is being held by customs in a particular  European country due to a regulation that is inconsistent with its  international trade obligations, CS may assist the company by engaging  the foreign government to advocate that the regulation—in this case  requiring a European Union health certificate—is inconsistent with a  bilateral trade agreement. If CS’s diplomacy efforts are successful in this  case, the European Union member would rescind the regulation and  release the shipment from customs. CS could then count this case as a  commercial diplomacy success.
CS also assists Market Access and Compliance led teams in overcoming  existing or potential trade barriers facing U.S. companies or exporters.  Because of their overseas presence, CS commercial officers on these  teams generally represent U.S. interests in interactions with foreign  governments. In addition, these teams may work to ensure that U.S.  exporters receive benefits of a trade agreement or avoid potential  inconsistencies in the implementation of an agreement. For example, CS,  in collaboration with Market Access and Compliance, might help a U.S.  firm that is stymied by a country’s arbitrary customs valuations that would  lead to excessive tariffs on the firm’s products. The Market Access and  Compliance team, with CS playing a key role, would advocate on behalf  of such a company in a concerted effort to get the country to honor its  commitments under the World Trade Organization’s Customs Valuation  Agreement. From fiscal year 2008 through 2010, Market Access and  Compliance initiated 664 such cases and reported that it successfully  resolved 248 cases with CS assistance. The average annual percentage  of cases undertaken on behalf of SMEs during that period was 36  percent, and the total export value of the successfully closed cases was  about $59 billion, according to Market Access and Compliance.
CS also advocates on behalf of U.S. companies interested in competing  for government contracts in foreign countries. This type of activity  involves educating U.S. companies about major overseas projects and  procurements and advocating with the foreign government on behalf of  U.S. companies wanting to bid on such projects. As of February 2011, CS  had a 20-person Advocacy Center in Washington, D.C., but much of the  work takes place in the field. Advocacy activities are often joint efforts  with the State Department because CS regularly engages U.S.  ambassadors and other U.S government officials in efforts to win foreign  government contracts. CS data indicate that advocacy efforts resulted in  108 successful outcomes out of 1,239 cases, and the total value of the  U.S. export content of those “advocacy wins” was about $44 billion from  fiscal year 2008 through fiscal year 2010.
While CS advocates on behalf of companies of all sizes, advocacy results  are mainly from large companies. For example, in fiscal year 2010, CS  advocated successfully on behalf of 50 U.S. firms, of which 6 were SMEs.  The total U.S. export content value of the 50 advocacy wins was about  $17.1 billion, of which approximately $274 million (less than 1 percent of  the total) reflected exports by SMEs. According to CS officials, SMEs  generally do not seek out advocacy because the large government  contracts are beyond their capabilities; however, many SMEs benefit from  advocacy wins because they provide goods and services required by the  large companies that win the contracts.
In addition to its export promotion and advocacy efforts, CS also supports  other trade-related agencies’ efforts—for example, assisting the U.S.  Trade and Development Agency, the U.S. Trade Representative, and the  Export-Import Bank at overseas posts. CS overseas posts also host  important delegations, including high-level federal agency officials, state  trade offices and associations, and congressional delegations, and help  host other official visits. CS overseas posts assisted a total of 1,203  important delegations for fiscal years 2008 through 2010.
Important delegations of U.S. and foreign officials also visit sites within  the United States, supported by CS’s domestic staff. The U.S. Export  Assistance Centers supported 53 visits by foreign government officials  and 208 visits by U.S. officials from 2008 through 2010. The centers  also direct potential exporters to other U.S. government assistance, such  as loans provided by the Small Business Administration and the U.S.  Export-Import Bank. In addition, the centers work with District Export  Councils throughout the United States—organizations of volunteer  leaders from the local business community, appointed by the Secretary of  Commerce, including exporters and export service providers, who assist  the centers in export outreach and counseling to U.S. businesses and  promote numerous trade-related activities.
section_title: CS Goals and Activities Align with NEI Priorities, but NEI Prompted New Areas of Emphasis
paragraphs: We found that CS activities align with six of the NEI’s eight trade  promotion priorities, as shown in table 1. (Two other NEI priorities are not  directly related to export promotion: increasing export credit and  macroeconomic rebalancing, areas in which CS has no direct role.)
Supporting the NEI has not required CS to undertake any new activities;  however, it has prompted CS to direct more of its efforts toward certain  markets, specific kinds of activities, NEI-priority sectors such as services  and clean-energy technology, and firms currently exporting to one or two  markets but capable of expanding into additional markets.    The NEI highlighted a desire to focus more U.S. export promotion  efforts in high-growth markets in Brazil, China, and India, and next-tier  emerging markets in Colombia, Indonesia, Saudi Arabia, South Africa,  Turkey, and Vietnam. These were markets where CS already had a  presence. Nevertheless, in response to the NEI, CS arranged trade  missions to several of these markets and indicated that it would also  increase its staff in these markets.    CS has also given increased attention to certain of its routine activities  that the NEI identified as priorities; for example, CS increased trade  missions abroad and expanded its International Buyer Program, which  recruits qualified foreign buyers, sales representatives, and  distributors to attend U.S. trade shows each year. For example, U.S.  companies participating in CS trade missions increased from 210 in  2008 to 292 in 2010, and the number of International Buyer Program  participants increased from 959 in 2008 to 1,005 in 2010. CS also  provided additional funds in support of these activities. For example, a  CS official stated that Brazil—an NEI priority country—received  additional funds to support the International Buyer Program.    The NEI also prioritized the services sector and clean-energy  technology. In response, CS led several trade missions focused  specifically on clean energy to China, India, Indonesia, and Mexico in  2010. While CS has always assisted the services sector, including  companies exporting services in information and communication  technology, banking and finance, and logistics, the International Trade  Administration developed an export expansion plan focusing on  service exports to high-growth countries such as Brazil, China, and  India and targeting the top services sectors in terms of export dollar  value, such as construction and travel and tourism services.    The NEI prompted CS to shift its focus from helping first-time  exporters to encouraging firms already exporting, which supports  NEI’s goal of doubling the dollar value of exports in 5 years. On  average, according to CS, achieving an export success takes longer  when it assists new-to-export firms than when it helps new-to-market  or increase-to-market companies expand their exporting. (See fig. 1  for the different time frames CS estimates for achieving export  success depending on the experience level of the exporter.) As a  result, CS has placed more emphasis on its New Market Exporter  Initiative, which it began in 2008.
Through the New Market Exporter Initiative, CS obtains information from  partner firms that provide exporting services, such as FedEx, United  Parcel Service, the U.S Postal Service, and the National Association of  Manufacturers. Partner firms refer SMEs that are already exporting in one  market to CS. CS then works with those SMEs to expand exporting to a  second or additional market. CS has indicated that there are opportunity  costs associated with shifting its focus in this way, including (1) loss of  new-to-export activity in the short term and (2) a reduced pipeline of  export-ready companies. However, to address these opportunity costs,  CS is leveraging the resources of the Small Business Administration and  District Export Councils by having them work with and support companies  that are new-to-export. CS data indicate that the greatest number of CS  export successes have come from firms that were increasing exports into  markets where the firms were already exporting (increase-to-market  firms). For fiscal years 2008 through 2010, increase-to-market firms  accounted for 22,372 export successes, 60 percent of the total (see fig.  2). During the same period, new-to-market firms produced 13,246 export  successes (35 percent), and firms that were new to exporting produced  1,732 export successes (5 percent).
section_title: Commercial Service Is Modifying Performance Measures to Align More Closely with the NEI
paragraphs: In fiscal year 2012, CS will implement revised performance measures that  align more closely with the NEI. Although CS did not meet four of six  performance targets in fiscal year 2010, its efforts resulted in increases  for most of its measures as it shifted to address NEI priorities. CS’s new  revised set of performance measures for fiscal year 2012 addresses  some past weaknesses; however, some weaknesses will remain—for  example, underreporting of export successes, especially with regard to  their dollar value. Accurately measuring performance is crucial to results- oriented management. Performance measures enable an organization to  track progress toward its goals and give managers key information that  can be used, among other things, to identify problems and take corrective  action, develop strategy and allocate resources, recognize and reward  performance, and identify and share effective approaches. In short,  performance measures provide powerful incentives to influence  organizational and individual behavior. The Government Performance  and Results Act (GPRA) of 1993 laid the foundation for results-oriented  agency planning, measurement, and reporting in the federal government,  highlighting the important role performance information plays in improving  the efficiency and effectiveness of an agency. The GPRA Modernization  Act of 2010 reinforces these principles.
subsections: section_title: CS Exceeded Past Performance for Effectiveness but Did Not Meet Most Targets in Fiscal Year 2010
paragraphs: CS tracked six performance measures to report on progress toward its  goals in the Department of Commerce’s Fiscal Year 2010 Performance  and Accountability Report, as required by GPRA. CS reported that it  exceeded targets for two of its six performance measures, including the  measure for overall effectiveness, while it failed to meet targets for the  other four measures (see table 2 for CS’s fiscal year 2010 performance  targets versus actual performance). Although CS did not meet most of  its 2010 performance targets, its efforts still resulted in increases in the  dollar value of some types of export successes, in the number of  successes, or both. For example, CS reported that while it did not reach  the target increase for the number of commercial diplomacy successes in  2010, the overall dollar value of those successes increased from $974  million in fiscal year 2009 to $4.56 billion in fiscal year 2010. Likewise,  although CS did not meet its target for advocacy wins, the number of wins  increased from 26 in fiscal year 2009 to 50 in fiscal year 2010. CS  reported that it missed the new-to-export target due to its shift in focus  toward new-to-market exporters in support of the NEI’s goal of doubling  exports. Commerce noted that new exporters remain a priority of CS and  the U.S. government. CS reported it is now referring these clients to the  Small Business Administration and other partners so that CS can focus its  efforts where it can best contribute to the goals of the NEI.
For fiscal year 2012, CS reconfigured its 2010 GPRA measures, reducing  the total from six to five by eliminating two measures and adding one. In  addition to dropping the growth rate of SME exporters as determined by  Census data, CS dropped its sole measure related to tracking new-to- export firms, as the organization shifted its focus to new-to-market firms.  CS also eliminated reliance on Census data for the 2012 measure related  to new-to-market firms and modified two other measures from 2010. One  retained measure remained unchanged—the number of commercial  diplomacy cases resolved. Finally, CS added a performance measure it  had previously only tracked for internal reporting purposes: the ratio of CS  export value to CS costs. (See table 3 for a summary of changes to CS’s  performance measures for 2012.)
NEI’s overarching goal is to double the total value of U.S. exports in 5  years. The baseline against which the NEI’s success is being measured  is $1.57 trillion, which was the level of goods and services exported by  U.S. companies in 2009; the NEI goal is to reach $3.14 trillion in U.S.  exports by the end of 2014. In February 2011, the Secretary of  Commerce reported that exports in 2010 had increased 16.6 percent over  2009 levels, putting the U.S. on track to achieve the NEI’s goal. CS export  promotion activities alone cannot achieve the NEI goal of doubling U.S.  exports by the end of 2014. In 2010 CS export promotion activities (which  do not include agriculture or export financing) resulted in $18.7 billion in  export value. However, this represents about 1 percent of the $1.8 trillion  in U.S. exports that year. Advocacy activities in which CS participated  resulted in $17.1 billion in export value or about another 1 percent of U.S.  exports. Commercial diplomacy contributes another $4.6 billion in  exports. Other CS statistics show that they support about 18,000 clients  annually, which is about 7 percent of the approximately 276,000 firms that  export, and about 1 percent of the approximately 27.5 million businesses  in the United States.
Compared with its 2010 performance measures, CS’s 2012 measures  shift its emphasis in two ways that are consistent with the overarching  NEI goal of doubling the total value of U.S. exports: First, the 2012  measures put new focus on the dollar value generated by CS’s export  promotion activities and on helping firms already exporting to expand to  new markets rather than on helping new-to-export clients. Second, by  tracking the number of clients assisted, CS reported that it will capture  data reflecting its total export counseling and assistance efforts. These  counseling and assistance efforts are a significant CS activity, but they  may not produce an immediate export success or have a dollar amount  attributed to them, though they often lead to CS-assisted export  successes. (See table 4 for CS’s 2012 performance measures with  targets.)
In giving greater emphasis to the dollar value of export sales attributable  to its assistance, CS’s new measures may motivate staff to prioritize  activities that are more likely to produce significant dollar value of exports.
Two of CS’s fiscal year 2012 measures are based on dollar values,  whereas none of its six measures for fiscal year 2010 reflected dollar  values. In addition, we believe the fiscal year 2012 measures may lessen  CS’s emphasis on helping SMEs. Whereas three out of six of CS’s fiscal  year 2010 measures focused primarily on helping SMEs, which is one  piece of CS’s broad statutory mission, only one of CS’s five measures for  fiscal year 2012 focuses on SMEs. Moreover, because advocacy and the  activities of large firms generate a much higher dollar value of exports  than export promotion activities of SMEs, the focus on export value also  means less focus on SMEs. For example, in fiscal year 2010, CS data  indicate that 50 advocacy wins generated $17.1 billion in exports and 86  percent of the wins were for large companies. Additionally, of the  approximately 12,300 export successes that generated $18.7 billion in  exports in 2010, about 88 percent of the overall dollar value of those  successes was for large companies.
The new emphasis in CS’s fiscal year 2012 performance measures  necessitates that CS obtain the dollar value of the export successes that  it claims. While seeking this information is not new for CS, previously it  was not used to measure the organization’s performance. The accuracy  of this information thus takes on greater importance because it is now  being used as a performance measure and helps measure CS’s  contribution toward the NEI’s goal of doubling the value of U.S. exports.
section_title: Performance Measures for Fiscal Year 2012 Partially Address Some Weaknesses
paragraphs: CS has implemented key elements of good performance management  systems, including defining measures that reflect its goals, ensuring the  accuracy of the data used in its performance reporting, and refining or  changing performance measures in response to recognized weaknesses  with them or because of changing priorities. For example, export  successes, a fundamental measure of CS’s performance, go through a  multistage internal review process: Initial reviews are conducted in the  domestic and international offices, respectively, and CS headquarters  conducts a second review of all export successes over $500,000 in value  on a quarterly basis. This process aims to ensure that each reported case  meets CS’s criteria for “success.” CS management also recognizes the  importance of communication as an important element of performance  management, which it demonstrates by communicating its goals to staff  and setting performance expectations in support of those goals.
While CS’s performance management system exhibits important  elements of a good system, we also found that CS’s fiscal year 2010  performance measures exhibit three weaknesses: (1) the use of outdated  Census data, (2) the underreporting of export successes, and (3) the lack  of a performance measure tied to governmentwide customer service  standards. Below, we describe these weaknesses and the steps CS has  taken to address the first two, while also identifying the weaknesses that  remain in CS’s modified performance measures for fiscal year 2012.
Three of its fiscal year 2010 measures tied CS’s success at meeting  performance targets to volatile national economic trends, as measured by  Census data. (See measures 2, 3, and 5 in table 2.) According to CS  documents, the 2-year lag in available Census data caused the affected  measures to systematically understate CS’s fulfillment of its mission and  its contribution to the U.S. government’s export promotion agenda. CS’s  fiscal year 2012 performance measures eliminate this weakness; the  fiscal year 2012 measures do not use Census data from prior years for  comparison but rather rely solely on performance information generated  within CS.
Four of CS’s fiscal year 2010 measures were calculated using export  success data (see measures 1 to 4 in table 2). CS acknowledged that  export successes were underreported to some extent. Underreporting  occurred at least in part because of the difficulty of getting clients to  provide CS information on their sales. Additionally, technical problems  associated with Commerce’s client tracking system made inputting export  successes cumbersome and time consuming; as a result, some CS staff  stated that they input only the minimum number of successes needed to  meet their performance goals. Some CS staff also told us that, in an effort  to balance administrative and client responsibilities, they did not always  follow up with exporters to capture all export successes.
CS has taken steps to address the underreporting of export successes  and problems with its client tracking system that it hopes will make  capturing this information easier. In May 2011, CS finalized new export  success policy guidelines that simplify export success reporting by  eliminating the requirement for a staff-written narrative and replacing it  with verification from the U.S. client or foreign buyer to document the  success. Doing so puts the responsibility on the clients to confirm the  assistance and value that CS provides. CS also created a standardized  reporting format to capture the relevant export success information. In  response to identified weaknesses with its client tracking system, the  International Trade Administration reported it plans to address identified  problems with the system, although it has not begun this effort. These  steps alone, however, do not eliminate the potential for underreporting of  the dollar value of export successes, which assumes new importance in  CS’s fiscal year 2012 performance measures.
CS has also taken steps to prompt clients to provide sales information  from export successes. Historically, CS has had difficulty obtaining the  dollar value of all export successes, although clients agree to provide this  information when signing a purchase agreement for a CS service.  Collecting this information is wholly dependent on a client’s willingness to  provide such information. At several of the posts we visited, CS staff told  us that some companies are reluctant to provide the dollar value of export  successes, considering that information to be proprietary. To overcome  the reluctance of companies to provide the dollar value of CS-assisted  exports, CS developed a new client intake form, which it began using in  April 2011. The form, like the purchase agreement, contains a statement  indicating that CS “expects” clients to report export sales related to CS  assistance. While this may improve the situation because the statement is  up-front and explicit, the problem may persist for several reasons. First,  this statement on the intake form is not a binding requirement. Second,  CS data indicate approximately 34 percent of CS’s export successes from  2008 through 2010 had no dollar value; nearly 25 percent of these export  successes were attributed solely to counseling, for which CS does not  collect a fee. Thus, the clients receiving counseling would not see or sign  the new intake form. And third, although clients obtaining fee-based  services from CS sign a purchase agreement, which includes a clause  about reporting export results or feedback, many companies have not  complied with the requirement, and CS has not strictly enforced it as  businesses are sensitive about disclosing such information. Therefore, it  is unclear that the new effort to collect this information will produce any  change, and the problem of underreporting the value of CS’s export  assistance through fee-based services may remain.
None of CS’s fiscal year 2010 GPRA performance measures reflected  governmentwide management priorities, such as quality, timeliness, cost  of service, and customer and employee satisfaction. Internally, CS tracks  survey data from its customers regarding their satisfaction with its fee-for- service and counseling activities. For example, CS’s annual customer  satisfaction survey in 2009 and 2010 indicated that 84 percent and 82  percent of respondents, respectively, were very satisfied or satisfied with  the service they received from CS, although the response rates to its  surveys were low—10 percent and 19 percent, respectively. CS reported  this information in its annual report for 2010; however, it omitted the  margin of error and confidence level along with the low response rate,  potentially misleading readers of its report about clients’ level of  satisfaction with CS services. One of CS’s new measures for fiscal year  2012 includes a cost component—reporting the ratio of export value to  costs of export promotion efforts, which creates a cost-versus-benefit  measure. If the measure reported a ratio of number of services relative to  costs, it would be an efficiency measure reflecting total cost of service.
Recently, both Congress and the President have made customer service  a governmentwide priority. The GPRA Modernization Act of 2010, which  became effective in January 2011 and is being fully implemented starting  in fiscal year 2012, requires that agencies establish a balanced set of  performance indicators including, as appropriate, customer service  standards. On April 27, 2011, the President directed agencies of the  U.S. government to put more emphasis on streamlining service delivery  and improving customer service. Among other requirements, the  executive order directs agencies to set clear customer service standards  and expectations, including, where appropriate, performance goals for  customer service required by the GPRA Modernization Act of 2010. CS is  aware of this new requirement, although its 2012 GPRA performance  measures currently do not include a metric addressing the requirement.
section_title: Commercial Service’s Resource Allocation Process Does Not Make Full Use of Relevant Information to Guide Its Decisions
paragraphs: Systematic use of economic, performance, and activity data can help CS  allocate resources to achieve its goals more efficiently and effectively. In  general, optimal resource allocation requires that managers monitor the  economic environment, operational costs, and performance to identify  strategic advantages that can be gained by realigning resources. In  keeping with good management practices when making resource  allocation decisions, CS is using a data-driven process to prioritize foreign  markets (and domestic locations) and to help it allocate its staff and other  resources to meet its performance goals and to support NEI objectives.  CS is in the process of adjusting to staff levels that are significantly  smaller than in 2004 and addressing resource management challenges.  Our analysis of the quantitative parts of the process found that there may  be opportunities to reallocate overseas resources to better reflect NEI  priorities and better achieve CS’s new performance goals. Furthermore,  important available data related to some CS performance goals and  activities are not systematically considered in the current process.
subsections: section_title: CS Has a Data-Driven Process to Inform Its Resource Allocation Decisions
paragraphs: In making resource allocation decisions, CS management considers a  combination of quantitative and qualitative factors to determine the  number and type of staff at overseas posts and domestic offices. In  response to our previous report, CS is updating and reinstituting a data- driven process that it last used in fiscal year 2007. CS management  does not have a formal process for analyzing how CS staff should be  allocated between the overseas, domestic, and headquarters locations.  The overall needs of the organization are assessed as part of general  workforce planning, which is undergoing changes in response to our  recommendations in 2010. CS management has reviewed the budget and  activities of its headquarters units as part of its ongoing efforts to improve  operations. About 70 percent of CS staff is located overseas, about 17  percent is in domestic field offices, and about 12 percent is at  headquarters in Washington, D.C.
With regard to overseas field staff, CS starts with its existing allocation of  more than 900 staff across the more than 75 countries and then goes  through a three-step process to adjust the allocation of staff depending on  available resources. CS managers first consider an Overseas Resource  Allocation Model that assesses market potential; the model ranks  countries and is the starting point for CS management prioritizing which  staff and posts should get more resources and which ones could be cut.  Second, CS managers then consider a cost-benefit model that also  produces rankings to ascertain how posts compare in terms of relative  expense and productivity. Third, CS management additionally evaluates  qualitative factors such as foreign and trade policy priorities in making  adjustments to the models’ strictly quantitative rankings. CS managers  use their professional judgment in balancing the results of the three-step  process, arriving at a final proposal that is sent to the management of the  International Trade Administration. It is not clear how managers balance  the market potential and cost-benefit rankings; however, our discussions  with a high-ranking CS official indicated that cost-benefit rankings were  given less weight. All decisions to hire new staff and where to place them  are reviewed by the International Trade Administration. Proposals to open  and close posts are reviewed by the International Trade Administration  and at the department level and then by the Office of Management and  Budget, as part of the annual appropriation process. Furthermore,  changes in the number of CS officers or locally engaged staff at a post  must be approved by the Chief of Mission to a foreign country, who has  responsibilities for managing and supporting U.S. government personnel  overseas.      Overseas model. The Overseas Resource Allocation Model includes  factors associated with market structure and size. Market structure  captures the impact of variables representing such factors as the  openness of a market, the level of development and country risk, and  other factors that measure the level of difficulty that U.S. businesses  may have in marketing their goods and services. The more open a  country’s market structure, the higher its ranking and the more likely it  is to get resources. Market size relates to the scale of export  opportunity for U.S. firms related to a particular country and includes  such measures as a country’s total imports, gross domestic product,  and investment flows. Larger markets are generally ranked higher. In  general, CS’s model is weighted 60 percent toward market structure  and 40 percent toward market size. While most of the model’s 20  variables are based on historical trade data, a few are based on  projections, including estimates of future imports by a trading  partner. A score for each country is computed based on a  percentage of the total market potential, and the countries are ranked  accordingly. (See app. V for the average annual U.S. exports to  partner countries for calendar years 2008 through 2010, by country  groupings.)
We analyzed the degree to which the overseas model’s export potential  scores were generally consistent with NEI priorities. While the NEI gives  highest priority to high-growth and next-tier emerging markets, the  outcome of the fiscal year 2011 Overseas Resource Allocation Model  showed that traditional markets—the European Union 15 and Japan,  and free trade agreement (FTA) countries—still represent high export  potential for U.S. companies (see fig. 3); this can be seen in terms of  average country scores (1.39 and 0.84, respectively) and in the combined  shares of the traditional market groups (35 percent in the pie chart in fig.  3). It also showed that on average the next-tier emerging markets have a  lower market potential score (0.67), and thus may require a longer-term  outlook and would contribute less toward short-term goals like doubling  U.S. exports by 2014. All “other” countries ranked in the model also had  low average scores, though as a grouping they account for a large share  of the total (54 percent) because of the large number of countries in the  group. The overlapping ranges of individual country scores show that the  market potential within many groupings varies significantly.    Cost-benefit model. CS’s cost-benefit model seeks to measure the  cost effectiveness of posts in the more than 75 countries where CS  operates. In contrast to the Overseas Resource Allocation Model,  which seeks to establish market potential, this model seeks to capture  actual CS results. A cost-benefit score is calculated using a weighted  measure based on the number and value of export successes in each  country, as well as the cost of operating in that country over a 5-year  period. Costs of CS posts, which include operational and  administrative costs such as salaries, rents, and utilities, can vary  considerably by country. The benefit component of the model gives  four times more weight to the number of export successes than to  their dollar value because not every export success has a dollar value  associated with it. CS management uses the cost-benefit model’s  rankings to ascertain how posts compare in terms of relative expense  and productivity.
We analyzed the cost-benefit scores used by CS in fiscal years 2006- 2009. Next-tier emerging markets have better (higher) cost-benefit scores  on average (1.93) when compared with other groups (see fig. 4). Average  scores for the other country groupings are lower, and there is a wide  range of scores for the 37 other CS posts, with the United Arab Emirates  ranking highest in the group (9.44 percent) and Libya lowest (0.13  percent). We also looked at costs and benefits separately. The average  number of export successes in high-growth countries reported by CS (485  successes) was at least twice as large as the average for any other  market group, but there was also a wide range among countries in  several of the groups (see fig. 5). The share of total export successes (26  percent) was lowest for NEI priority (high-growth and next-tier) markets  and highest for traditional markets (38 percent). We discuss costs later in  this report.    Qualitative factors (overseas). CS considers various qualitative  factors, including foreign policy and trade policy priorities, level of  economic development, geographic coverage, and commercial  environment. For example, CS opened an office in Afghanistan in  2010 in order to help support U.S. foreign policy efforts to develop the  local economy.
CS managers go through a similar process for allocating over 280 staff  among 108 domestic offices in all 50 states except Delaware and  Wyoming. Puerto Rico, a U.S. territory, is also included as a domestic  location. A quantitative domestic model ranks locations to identify those  with the highest export potential. CS then considers qualitative factors.  While the model takes into account export successes (a measure of  benefit), there is no similar consideration of costs in the domestic  resource allocation process.    Domestic model. The Domestic Resource Allocation Model uses a  mix of quantitative factors to rank the U.S. metropolitan statistical  areas (MSA) based on the export potential of the small and  medium-sized businesses located in each area. The model relies  primarily on an export intensiveness factor calculated for each of 60  industry sectors based on each industry’s level of exporting activity,  with greater weight given to industries with higher levels of exporting.  Two other variables are also used in the model—the SME percent  growth indicator and SME absolute growth indicator, both of which are  based on forecasted data at the MSA level. The model then uses  Census Bureau county-level data on small and medium-sized  businesses—including both manufacturing and services, as well as  exporters and nonexporters—and applies export intensiveness factors  to the industry groups within each MSA. The MSAs are then ranked  by the resulting weighted SME count.    Qualitative factors (domestic). CS considers policy priorities, whether  a location is a hub for international business activity, availability of  alternative services, and whether a location encompasses an industry  that the International Trade Administration or the administration has  identified as a priority. In some cases, these qualitative factors lead  CS to change how resources would be allocated based strictly on the  quantitative results of the Domestic Resource Allocation Model.
section_title: CS Is Still Responding to Resource Management Challenges
paragraphs: Given the current budget pressures of the federal government, CS  management faces tough decisions about how best to allocate existing  resources. We previously reported that CS had management control  weaknesses with regard to its resources from 2004 to 2009. During that  period, CS’s budgets remained essentially flat while per capita personnel  costs and administrative costs increased. CS’s workforce declined almost  14 percent through attrition, and, in response to the “crisis” situation,  hiring, travel, training, and supplies were frozen, compromising CS’s  ability to conduct its core business. Requested funding increases never  materialized, and CS has not been able to rebuild its workforce as it had  planned.
As a result, CS’s current distribution of overseas resources in fiscal year  2010 largely reflects this attrition and its 2007 Transformational  Commercial Diplomacy initiative, which emphasized emerging markets.  The focus under Transformational Commercial Diplomacy was to move  resources from well-developed markets to high-growth markets such as  Brazil, China, and India that would be increasingly important to future  opportunities for U.S. business. Under the initiative, 23 offices, mainly in  Europe, were closed, but the overall size of CS remained the same as it  shifted resources to emerging markets. CS’s constrained resources  limited its ability to continue moving staff. However, in an effort to support  the NEI, CS moved 15 staff from headquarters to domestic offices.  Though CS also hired 17 new Foreign Service officers in 2010, it has not  been able to fully staff all of its posts even in high-priority countries. For  example, CS China had a 27 percent vacancy rate in 2010. CS received  its fiscal year 2011 funding in April, and officials were considering what  reallocations could be made before the end of the fiscal year. CS is also  considering whether it could sustain a presence in more than 75 countries  given its level of resources. CS’s fiscal year 2012 funding is still under  consideration in Congress. A senior CS official told us they plan to have  its repositioning strategy implemented in fiscal year 2012 and its new  structure in place in fiscal year 2013.
CS's distribution of staff shows that a significant proportion of its staff  resources go to countries that are not NEI priority countries; currently,  about one-third of CS's overseas staff is in NEI priority countries, a little  over a third is in traditional markets, and one-third is in “other” countries  (see pie chart in fig. 6). High-growth markets have the most average staff  per country (41). We found that the current distribution of CS staff closely  mirrors key indicators of market size—U.S. exports to a trading partner  and total imports by the trading partner. As noted, the Overseas  Resource Allocation Model gives greater weight to market structure  variables, and therefore, CS decisions to shift resources in the future may  favor countries with higher market structure rankings.
CS’s resources include more than staff, though they are the biggest  component of the CS budget, and human capital costs vary by location.  Thus, we also reviewed the distribution of CS’s overseas funding and  found that it follows a different pattern from staffing. High-growth markets  get the largest average budgets ($3.2 million). Almost half of total CS post  funding goes to traditional markets, and less than one-third goes to NEI  priority markets (see pie chart in fig. 7). The upper ranges of traditional  export markets show that some of these countries have relatively high  costs. These results suggest that CS management may need to give  more consideration to what proportion of their staff and funding should be  allocated to NEI priority countries and traditional markets versus other CS  countries.
We found that CS’s resource allocation decision making could be  enhanced by including three types of relevant information. First, refined  and simplified data variables could be added to the Overseas Resource  Allocation Model to differentiate more sharply among countries when  ranking countries by U.S. export promotion potential. Second, data on  commercial diplomacy successes and advocacy wins would add relevant  information when considering costs and benefits at various posts; these  benefits are not systematically considered in resource allocation decision  making, even though they are integrated into CS objectives and  performance measures. And third, to enable managers to assess relative  workloads and efficiency in making resource allocation decisions and  calculating costs, CS could include data on activities that consume  considerable staff time and resources, including fee-for-service sales,  trade-counseling sessions, requests for advocacy and commercial  diplomacy, and other support functions such as organizing and hosting  visits by delegations to overseas posts and domestic locations.
CS uses its Overseas Resource Allocation Model to reflect the potential  of export markets, which it considers in conjunction with the historical  information on the performance of each overseas post in the cost-benefit  model. We assessed the fiscal year 2011 Overseas Resource Allocation  Model and found that the rankings generated by the model closely  approximated the rankings obtained using only the historical imports  variable for each country. The overseas model as currently constructed  includes 5 of 20 variables that are designed to incorporate projections of  future conditions, but these variables comprise only 25 percent of the  market potential score in the model. In addition, these 5 variables only  project a maximum of 3 years into the future. While projections and  indicators of the future economic performance of countries necessarily  involve uncertainty, the Overseas Resource Allocation Model, though  designed to reflect export potential, currently gives greater weight to  historical variables that have a high degree of overlap with the other  historical inputs in the resource allocation process.
In addition, the large number of variables also creates complexity without  obvious benefits, as we found a significant statistical correlation  (covariance) among the overseas model’s 20 variables, such as between  U.S. market share, average fixed investment, average annual gross  domestic product (GDP), and per capita GDP. Four variables were  statistically insignificant regarding their individual impact on a country’s  export-potential ranking. Furthermore, the current selection, number, and  weighting of the variables result in a tight distribution of country scores.  Over half the countries ranked by CS have scores of less than one-half a  percent and are within one-quarter percent of each other’s scores. (See  fig. 8.) CS management told us CS uses the model to help it differentiate  the export potential of its overseas locations, especially those with lower  rankings, but the current model provides limited differentiation of those  countries where CS told us the model would be of most value.
We found that CS does not systematically use available data on the  number and value of commercial diplomacy successes or advocacy wins  in considering costs and benefits at various posts. These are important  benefits and are reflected in CS objectives and performance measures,  but they are not systematically considered in CS’s resource allocation  decision-making process. Only export successes are considered in  measuring the benefits a CS country generated. In 2010, CS reported  112 commercial diplomacy successes valued at $4.6 billion in exports,  approximately 50 advocacy wins valued at $17.1 billion, and 12,300  export successes valued at $18.7 billion. Because of their high dollar  value relative to export successes, including commercial diplomacy  successes and advocacy wins could have a large impact on CS  management’s cost-benefit calculations and therefore potentially affect its  decisions on allocating resources among posts and whether a post is  worth the expense of operating it. High-growth markets showed the  highest average number of commercial diplomacy successes per year  (5), as shown in figure 9. However, though the average for the EU15 and  Japan was lower (3), the range in that market group was large, and Japan  had the highest number per year (18) of all countries. Nevertheless, the  largest share of commercial diplomacy successes comes from the 39  “other” CS post countries (see the pie chart in fig. 9); for advocacy wins,  however, next-tier emerging markets, on average, showed the largest  dollar value of advocacy wins ($844 million), followed by high-growth and  “other” CS countries (see fig. 10). While countries in the “other”  categories might not be ranked highly in the Overseas Resource  Allocation Model, they accounted for 55 percent of advocacy wins by  country group over the same period. Thus, if advocacy wins are factored  into resource allocation decision making, the importance and value of  some “other” CS markets may increase.
In making resource allocation decisions, CS does not systematically  consider activity data, including data on fee-based services such as trade  missions, trade-counseling sessions, requests for advocacy and  commercial diplomacy, hosting official visits, and supporting other trade- related agencies. CS does not collect systematic information on how CS  staff divide their time to carry out mission-critical activities. Such  information would enable managers to assess relative workloads and  efficiency in making resource allocation decisions and calculating  program costs. This information could also be used to inform  management decisions about setting performance targets, determining  the best mix of staff (Foreign Service officers versus locally employed  staff) at specific posts, prioritizing cost reductions, and deciding what fees  should be charged for which services. For example, if CS determined that  a post had a high need for services and little need for advocacy on behalf  of U.S. companies, the post could be staffed with more locally employed  personnel and fewer Foreign Service officers, thus reducing the cost of  the office while maintaining, or improving, its productivity.
Five examples follow to illustrate how activity data could help inform  resource management decisions. First, CS’s fee-for-service data could be  used to determine whether resources should be shifted to markets with  growing demand, regardless of whether those markets are designated as  NEI priorities. CS data we analyzed showed that about three-fourths of  services are sold to non-NEI priority countries (see fig. 11). However, it is  not clear whether these data reflect customer demand alone, or whether  to some extent they also reflect demand resulting from customers who  were redirected to countries where CS had available resources, when the  customers’ initially requested country could not accommodate their  request for assistance. Some staff in our field visits told us there are times  they have to delay or turn away a request for services, like a Gold Key  (introducing U.S. businesses to qualified buyers overseas), and that  sometimes staff at a U.S. Export Assistance Center will then refer the  exporter to another country where CS staff are not as busy. High-growth  markets averaged 309 services sold per country, while the free trade  agreement partners averaged about 101 and the EU15 and Japan  averaged about 71 services sold per country (see fig. 11). However, when  evaluating average sales per each country’s staff, free trade agreement  countries (15 products sold per staff) are by far more productive than  high-growth markets (see fig. 12), which have many more staff per post.  Analyzing data on fee-for-service activities could help CS management  understand these productivity differences and the capacity of particular  posts to deliver certain services, and the analysis in turn could help CS  determine where its limited resources should be focused to increase  sales of fee-based services.
Second, data on trade counseling could also be used to determine  demand for this activity, which, although it does not generate revenue  directly, represented about 50 percent of the services CS provided  exporters and also resulted in approximately 30 percent of its export  successes for fiscal years 2008 through 2010. However, counseling data  are not as complete as data on fee-for-service activities because there is  no purchase agreement for counseling. CS guidelines indicate that only  value-added counseling must be tracked in CS’s client tracking system.  Also, CS staff told us in interviews that they do not record all of their  counseling sessions in the client tracking system because of difficulties  with the system. CS therefore does not know the true demand for  counseling or how much staff time is spent on this activity. A better  understanding of the types of counseling provided and how much time  and effort each type takes would enable CS to make more informed  decisions about how staff should prioritize their time. It would also enable  CS to evaluate the degree to which charging fees for counseling services  could provide additional revenue to the organization. We found that fee- for-service income was very important to the operations of some of the  overseas posts we visited. In order to help fund export promotion  activities in the face of resource constraints, several senior CS officials  told us they felt it necessary to make the selling of CS fee-based services  a local performance target and tried to create incentives for their staff to  sell such services.
Third, both fee-for-service and counseling data could be used to assess  patterns of collaboration between domestic and international field offices  through a network analysis. Such analysis would enable CS to identify  key hubs that work with a broad array of offices in the global CS network  and less central offices working with a narrower set of countries.  Furthermore, it can be used to identify weak or missing collaboration  between offices to better serve U.S. exporters. (See app. VI for an example  based on our network analysis of these data.)
Fourth, commercial diplomacy and advocacy are significant activities,  especially for Foreign Service officers, because these activities involve  government-to-government discussions. For example, Advocacy Center  officials stated that the center receives about 500-600 requests for  assistance a year, of which they accept about 400 cases. While cases are  initiated in Washington, D.C., the majority of the work on the ground is led  by Foreign Service officers at the post where the competition for the  contract occurs, and it may take years before the pursued contract is  awarded. Although requests from companies for commercial diplomacy  and advocacy services are related to NEI priorities, CS data on these  activities are not systematically considered when setting resource  allocation priorities. CS officials told us that when they make staffing  decisions, they consider workload factors such as demand for commercial  diplomacy and advocacy in particular markets; however, their process for  considering these activities is not systematic across all posts and is not  documented.
Finally, some posts have significant responsibilities for supporting other  agencies and important delegations. These important activities are  counted in CS highlights—weekly reporting on noteworthy events or  successes in a country or region—but are not systematically considered  when determining resource needs. For fiscal years 2008 through 2010,  CS overseas posts assisted with a total of 1,203 important delegations,  and CS’s domestic offices supported 53 visits by foreign governments  and 208 visits by U.S. officials during the same period. At several of the  posts we visited, CS Foreign Service officers and locally employed staff  described the demands that these visits place on their time. These  supporting-role functions should be taken into account when allocating  resources; moreover, data on staff time and effort should be analyzed to  determine the extent to which these important but ancillary activities may  detract from CS’s primary export promotion objectives.
section_title: Conclusions
paragraphs: The National Export Initiative lays out a comprehensive strategy for  marshaling the nation’s export promotion resources with the goal of  doubling the dollar value of U.S. exports by the end of 2014. The U.S.  Foreign and Commercial Service (CS) is a critically important agent in  executing the NEI strategy and six of its eight priorities. The NEI targets  specific activities, such as advocacy and trade missions, that may require  changes in CS’s current structure, staffing, and activities and services.  Trade-offs CS faces also have implications for how it allocates resources  between (1) small and medium-sized enterprises versus large companies,  (2) short-term export generation activities versus long-term market  development efforts, (3) new-to-export companies versus experienced  exporters, (4) traditional and FTA markets versus high-growth and next- tier emerging markets, and (5) services that yield high-dollar exports and  reach multiple exporters versus customized services for single exporters.
CS’s revised set of performance measures for fiscal year 2012 gives  greater emphasis to the dollar value of export sales attributable to its  assistance, prioritizing activities that are more likely to produce significant  dollar value of exports. Moreover, because advocacy and the activities of  large firms generate a much higher dollar value of exports than the export  promotion activities serving small and medium-sized enterprises, the new  measures’ emphasis on export dollar value also is likely to shift the focus  to efforts that contribute to doubling exports but may result in less focus  on smaller firms. While our analysis shows that the fiscal year 2012  performance measures address some problems that we found with CS’s  fiscal year 2010 measures, some issues remain—for example,  underreporting of export successes, especially with regard to their dollar  value. Taking further steps to address these issues is particularly  important given this metric’s greater importance to the NEI. Additionally,  though CS has a role that is inherently customer focused, CS’s survey to  measure customer service satisfaction has a low response rate, making it  difficult to accurately assess client satisfaction with its services, and  customer service satisfaction is currently not a CS GPRA performance  measure.
To maximize its value in this time of increasing pressure on government  budgets, CS needs to ensure that its resource allocation decision makers  take into account the most complete and accurate economic,  performance, and activity data available. Currently, CS allocates its  resources (about 1,400 employees and a budget of about $260 million) to  more than 75 countries around the world based on various quantitative  and qualitative factors, but we found that CS does not systematically  consider certain important activities when calculating the export potential  and cost-benefit ratios used to rank locations. CS plans to implement a  repositioning strategy in fiscal year 2013. Financial constraints will require  tough resource allocation decisions based on analyses of trade-offs that  should include weighing the costs and benefits of operating in particular  markets and taking steps to maximize income and eliminate high- cost/low-yield export promotion activities versus providing a wide range of  affordable services to any exporter seeking assistance. Although CS has  reinstituted its Overseas Resource Allocation Model, limitations with the  model that we identified reduce its ability to reflect key changes in the  global economic outlook and, therefore, in potential U.S. exports to  various countries, thus reducing the model’s usefulness in helping CS  make these difficult decisions. Additionally, CS needs to systematically  incorporate relevant data such as advocacy wins and program activity  data to better understand all of the benefits that its activities create and  the full range of workload demands on its staff. Finally, such data can  also inform other important management decisions such as setting  priorities for particular posts and groups of posts, and identifying  opportunities for increasing fee income or eliminating marginally  productive export promotion services.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Secretary of Commerce direct the Under  Secretary for International Trade and the Assistant Secretary for Trade  Promotion to take the following five actions:  In order for policymakers to have accurate and complete information  to make performance management and resource allocation decisions,  take further steps to achieve greater cooperation by CS clients in  reporting the dollar value of export successes.    To improve government services in keeping with the Government  Performance and Results Modernization Act of 2010, take steps as  appropriate to improve the CS customer-service survey response rate  and include the measure in its GPRA-related reporting.    To improve program management and the information that CS  resource allocation decisions are based upon,  review the Overseas Resource Allocation Model to determine  whether the variables and structure best incorporate available  indicators of potential U.S. exports,  include commercial diplomacy and advocacy data in evaluating  cost-benefit ratios of CS locations, and  systematically include program activity data in making resource  allocation decisions.
section_title: Agency Comments and Our Evaluation
paragraphs: Commerce provided written comments on a draft of this report. We have  reprinted their comments in appendix VII. Commerce also provided  technical comments and updated information, which we have  incorporated throughout the report, as appropriate.
In its written comments, Commerce welcomed and generally agreed with  our overall findings and recommendations. Commence noted that CS has  undertaken an initiative to better focus its strategic planning and  alignment of its resources with its mission and the NEI and has improved  its analytical tools and processes, which—as noted in our report—can be  further enhanced. Commerce also stated that corrective actions begun  during the course of our study would benefit from guidance provided by  our recommendations, such as CS’s plan to incorporate customer-service  data into its performance measures and its effort to increase cooperation  from clients in reporting the dollar value of export successes.
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section_title: Appendix I: Scope and Methodology
paragraphs: To determine the U.S. and Foreign Commercial Service (CS) export  promotion role and the extent to which its goals and activities support the  National Export Initiative (NEI) priorities, we reviewed CS’s statutory  mission, CS services and activity information, and the Report to the  President on the National Export Initiative. We also met with CS officials  in Washington, D.C., who are responsible for managing CS and ensuring  it has the necessary resources to meet its mission and support the NEI,  as well as the International Trade Administration’s Deputy Under  Secretary, Department of Commerce’s NEI Director, and the Director of  the Trade Promotion Coordinating Committee. In addition, we met with  officials from CS’s Advocacy Center and from Commerce’s Market  Access and Compliance unit, as both contribute to CS’s success in  meeting its goals and the goals of the NEI. To determine the types of  services and activities CS undertook from 2008 through 2010, we  analyzed CS fee-for-service activity and performance data for all of CS’s  125 offices in more than 75 countries and its 108 domestic offices for  fiscal years 2008 through 2010, as well as data from the Advocacy Center  for the same time period, to ascertain the size of companies that CS  assists and the types of fee-for-service activities its clients purchase.  Market Access and Compliance also provided data on the number of  cases it initiated and successfully closed as well as the dollar value of  those cases from 2008 through 2010. We also reviewed CS guidance  related to capturing and verifying data on export successes, commercial  diplomacy successes, and advocacy wins, as well as on documenting  Market Access and Compliance and advocacy-related cases. We traveled  to six overseas posts (Brazil, Chile, China, El Salvador, Thailand, and  Vietnam) and interviewed CS commercial officers and locally employed  staff who carry out CS’s mission. The posts we visited differed in staff  size (small, medium, and large) and included posts considered to be key  markets (Brazil and China) or designated as an NEI priority market  (Vietnam). Information from the six posts is not generalizable but was  used to understand how activity data are collected, input, and used at  posts and in headquarters, as well as to identify potential problems with  the data and to learn about data-audit procedures, topics also discussed  in interviews with CS officials in Washington, D.C.
To determine if CS performance measures accurately reflect its activities  and align with the NEI, we reviewed CS’s fiscal year 2010 performance  measures and assessed its 2012 performance measures to see if they  changed to align with the NEI. We also reviewed Commerce’s annual  performance and accountability reports from 2008 through 2010. In  addition, we reviewed Commerce’s congressional budget submissions for  2011 and 2012 to identify upcoming changes to CS’s performance  measures. Additionally, we reviewed CS’s annual reports for fiscal year  2009 and 2010 to determine what performance measures CS reported  publicly. We also reviewed data CS provided to us on performance  measures it tracks for its own use but that are not reported in its annual  performance and accountability reports. Since we had CS data on its  activities, including export successes, commercial diplomacy successes,  and advocacy wins, we attempted to verify the data CS reported and  found some discrepancies. (See related discussion below on data  reliability.) We also interviewed the CS officials responsible for developing  and tracking CS’s performance measures to learn about the development  of the 2010 and 2012 measures.
To determine the extent to which CS uses relevant data in allocating its  resources to help achieve its strategic goals, we interviewed CS officials  about its resource allocation process, including the use of the Overseas  Resource Allocation Model, the cost-benefit model, and other qualitative  factors CS considers when making resource allocation decisions. We also  analyzed factors associated with market structure and size, and overall  ranking of CS posts in the Overseas Resource Allocation Model and the  degree to which the model’s export potential scores were consistent with  NEI priorities. We also performed a statistical analysis of the model’s  variables to evaluate the model’s ability as to reflect key changes in the  economic outlook and, therefore, potential U.S. exports to various nations,  and we assessed the fiscal year 2011 model’s ability to differentiate the  export potential of overseas locations, especially those with lower ranking.  In addition, we analyzed the cost-benefit scores used by CS in an attempt  to show whether NEI priority markets have better (higher) cost-benefit  scores on average when compared with other export market groups. We  also looked at costs and benefits separately and analyzed the number of  export successes and CS’s distribution of staff and funding among its  posts. We reviewed how each variable contributes to the overall score and  correlation among variables. We reviewed data on commercial diplomacy  successes and advocacy wins that would add relevant information when  considering costs and benefits at various posts, as well as factors that  could enable managers to assess relative workloads and efficiency in  making resource allocation decisions and calculating costs.
To assess the reliability of the data on CS activities (export and  commercial diplomacy success), fees-for-service, official events, and  advocacy wins data we (1) interviewed knowledgeable technical and  management personnel at CS, (2) reviewed documentation related to  these data sources such as manuals and other guidance, and (3)  performed a variety of electronic data testing procedures to check for the  internal consistency, completeness, and accuracy of the data.
Regarding the CS activities data (export success and commercial diplomacy  success), we identified a number of limitations, particularly regarding  potential incompleteness and inaccuracy in these data. In particular, not all  export successes are entered by staff in to the CS data system and in some  cases the dollar value of export successes is not entered.
Regarding CS’s commercial diplomacy success data, we also noted a  considerable number of instances of missing data on the dollar totals of  specific commercial diplomacy successes. We also found some  discrepancies; for example, CS’s commercial diplomacy dollar value was  sometimes reported as the value of assistance, which amounted to the  total dollar value of the commercial diplomacy success, and sometimes  as the export success value of the U.S. export. According to a CS official,  guidance at the time allowed for such reporting. CS, however, now plans  to report only the value of the U.S. exports resulting from commercial  diplomacy successes. To assess the reliability of the CS staffing data, we  confirmed there were no significant changes to the way the data were  compiled by CS since we last requested, reviewed, and confirmed the  reliability of the data in our previous report.
We determined that the CS data on activities (including fee-for-service  activities), export and commercial diplomacy success, official events, and  advocacy wins data were sufficiently reliable for the purposes of this  engagement, in particular to provide information on overall levels of export  and commercial diplomacy success, fees-for-service, advocacy wins, and  official events counts and dollar totals, as well as to provide information on  trends in these levels between 2008 and 2010. We also determined that the  budget and staffing and performance data were sufficiently reliable for the  purposes of this engagement. We conducted this performance audit from  September 2010 to September 2011 in accordance with generally accepted  government auditing standards. Those standards require that we plan and  perform the audit to obtain sufficient, appropriate evidence to provide a  reasonable basis for our findings and conclusions based on our audit  objectives. We believe that the evidence obtained provides a reasonable  basis for our findings and conclusions based on our audit objectives.
section_title: Appendix II: Distribution of Domestic CS Staff in U.S. Export Assistance Centers by State, Fiscal Year 2010
section_title: Appendix III: Country Groupings and Allocation of Overseas CS Staff in Fiscal Year 2010
subsections: section_title: Export market group Partner group
section_title: Appendix IV: Locations of State Department Partnership Posts Providing Export Promotion Services
paragraphs: State Department partnership post (45)
Commercial Service post (75+)
section_title: Appendix V: Country Groupings and U.S. Exports, Calendar Years 2008-2010
subsections: section_title: Export market group Partner group
section_title: Export market group Partner group
paragraphs: Korea (South)
section_title: Export market group Partner group
section_title: Export market group Partner group
section_title: Appendix VI: Example of Network Analysis of CS Fee-for-Service Activities
paragraphs: We conducted network analysis of 3 years of CS’s fee-for-service data  and found that certain domestic field locations tend to have strong  relationships (as measured by the number of fee-based services jointly  sold by a domestic and international office) with particular overseas posts,  while others do not. We examined the pattern of collaboration between  the three high-growth markets—Brazil, China, and India—and the 15  most active U.S. domestic offices. Figure 13 shows five domestic  offices—Chicago, Cleveland, Houston, Newport Beach, and Northern  Virginia—that each collaborated on a large number of participation  agreements with each of the three high-growth markets. However, other  domestic offices have strong relationships with one or two of the three  high-growth markets, but not with the others. For example, San Jose,  Milwaukee, and three others have their strongest relationships with China  and India, but less so with Brazil. Salt Lake City, Boston, and Baltimore  have only one strong relationship with a high-growth market. Such  patterns may suggest markets where personnel or budgetary resources  could be added or moved to expand existing relationships or to establish  new ones.
section_title: Appendix VII: Comments from the Department of Commerce
section_title: Appendix VIII: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Adam Cowles, Assistant Director;  Julie Hirshen, Analyst-in-Charge; Gezahegne Bekele; David Dornisch;  David Dayton; Grace Lui; Emily Suarez-Harris; and Amanda Weldon  made key contributions to this report. Other staff providing technical  assistance included Kathryn Bernet, Ming Chen, Etana Finkler, Mitchell  Karpman, and Jena Sinkfield.