[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
SMALL BUSINESS TRADE AGENDA: OPPORTUNITIES IN THE 113TH CONGRESS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON AGRICULTURE, ENERGY AND TRADE
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
FEBRUARY 28, 2013
__________
[GRAPHIC] [TIFF OMITTED]
Small Business Committee Document Number 113-004
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
BLAINE LUETKEMER, Missour
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JAIME HERRERA BEUTLER, Washington
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
DAVID SCHWEIKERT, Arizona
KERRY BENTIVOLIO, Michigan
CHRIS COLLINS, New York
TOM RICE, South Carolina
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
YVETTE CLARKE, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRAD SCHNEIDER, Illinois
RON BARBER, Arizona
ANN McLANE KUSTER, New Hampshire
PATRICK MURPHY, Florida
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Scott Tipton................................................ 1
Hon. Patrick Murphy.............................................. 2
WITNESSES
Mr. Daniel Ogden, Esquire, Attorney at Law & International Trade
Consultant, Carrollton, Texas, on behalf of the National
District Export Council........................................ 4
Ms. Jennifer Fulton, Chief Pickle, CEO, Miss Jenny's Pickles,
Kernersville, North Carolina, on behalf of the U.S. Chamber of
Commerce....................................................... 6
Mr. Michael Myhre, Associate State Director, Florida SBDC,
University of West Florida, Pensacola, Florida................. 8
Mr. Raymond Arth, President and CEO, Phoenix Products, Inc., Avon
Lake, Ohio, on behalf of the National Small Business
Association, Small Business Exporters Association.............. 10
APPENDIX
Prepared Statements:
Mr. Daniel Ogden, Esquire, Attorney at Law & International
Trade Consultant, Carrollton, Texas, on behalf of the
National District Export Council........................... 27
Ms. Jennifer Fulton, Chief Pickle, CEO, Miss Jenny's Pickles,
Kernersville, North Carolina, on behalf of the U.S. Chamber
of Commerce................................................ 55
Mr. Michael Myhre, Associate State Director, Florida SBDC,
University of West Florida, Pensacola, Florida............. 63
Mr. Raymond Arth, President and CEO, Phoenix Products, Inc.,
Avon Lake, Ohio, on behalf of the National Small Business
Association, Small Business Exporters Association.......... 68
Questions for the Record:
None.
Answers for the Record:
None.
Additional Materials for the Record:
Hon. Grace Meng.............................................. 78
Small Business Trade Agenda: Opportunities in the 113th Congress
Thursday, February 28, 2013
House of Representatives,
Committee on Small Business,
Subcommittee on Agriculture, Energy and Trade,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2360, Rayburn House Office Building. Hon. Scott Tipton
[chairman of the subcommittee] presiding.
Present: Representatives Tipton, King, Luetkemeyer,
Mulvaney, Huelskamp, Murphy, Schrader, and Meng.
Chairman TIPTON. Well, good morning. I apologize for being
late. Thank you for being prompt on this.
We would like to go ahead and call our hearing to order,
and I would like to be able to welcome our new and returning
members to the Subcommittee, especially Ranking Member Murphy.
Welcome to Congress.
Mr. MURPHY. Thank you.
Chairman TIPTON. I am glad to be able to work with you here
on the Small Business Committee.
I do look forward to working with all of our members in the
113th Congress, and I want to be able to give special thanks to
our witnesses here today, taking time away from your full-time
jobs, I know, to be able to come here and make this trip to
Washington, and to be able to tell us about some of the issues
that are inhibiting our ability to be able to grow our economy
and to be able to grow jobs and export markets.
Today we will hear directly from small businesses about the
obstacles and barriers that limit their ability to be able to
compete in the global market. Given the right circumstances and
tools, I know America's small businesses can compete with any
other company in the world.
There is strong bipartisan support on the benefits of
exporting. Exports are a major contributor to the nation's GDP,
totaling $2.2 trillion in 2012. They provide new sales
opportunities. And, most importantly, exporting creates and
supports high paying American jobs. However, of the 28 million
small businesses in the United States, only one percent
currently export. Increasing the number of small business
exporters is a key priority for me, as well as this Committee.
Last year alone, I held three Export 101 events in my district
so small businesses could learn how to be able to increase
their exports and how to develop new relationships in key
trading areas.
Along with limited personnel, we know that small firms face
a variety of trade barriers that constrain their participation
in the global market. A few of the most obstructive hurdles
include tariff and non-tariff barriers, anti-competitive
technical standards, and complex foreign and domestic
regulations. As a result, small businesses that do export rely
heavily on negotiated Free Trade Agreements [FTA] that remove
complex trade barriers, provide protection for their
intellectual property, and help streamline the trade process.
In 2010, 41 percent of the total U.S. exports went to FTA
countries.
FTAs are an important first step, but they are not the sole
solution. We must also work to be able to reduce the domestic
bureaucracy and make the overall process easier. The export
process can be complicated and overwhelming, and many firms do
not know where to start or go for the necessary information.
Unlike large corporations, most small firms do not have the
personnel and resources to navigate the technical trade
barriers.
As we begin, the 113th Congress, it is our Committee's job
to review the federal trade promotion agencies to ensure that
they are working in a coordinated and an efficient manner to
best serve small businesses. Moreover, we need to be able to
support an aggressive trade strategy that opens up new foreign
markets, streamlines the trade process, and strengthens our
fight against unfair trade practices. I look forward to working
with my colleagues to be able to identify common-sense and
practical solutions that will better assist small business
exporters.
Again, I would like to be able to thank our witnesses for
their participation and their insights, and I would now like to
recognize our ranking member for his opening statement.
Mr. MURPHY. Thank you, Mr. Chairman. And thank you all for
being here.
As the ranking member of the Subcommittee on Agriculture,
Energy, and Trade, I am looking forward to working together to
find common ground and bipartisan solutions. Having been a
small business owner myself, I know the obstacles small
businesses face, and I know how essential their success is in
generating new jobs and driving our economic recovery.
Earlier this week I sat down with the Distinguished
Chairman to discuss the important challenges facing America's
small businesses. There is clearly much to be done, and as I
said, I look forward to working with the Chairman over the next
two years, and I feel confident in our ability to drive
bipartisan solutions through this Subcommittee.
Today, we hold our first Subcommittee hearing on small
businesses, and their ability to participate in international
trade, a realm in which big business continues to have a clear
advantage, as the chairman said. We have before us four
extremely knowledgeable witnesses, and I look forward to
hearing their ideas on how Congress can help small businesses
export their goods and be more competitive on the world stage.
Right now, our economy is recovering gradually, and yet,
unemployment is not expected to drop below 7-\1/2\ percent
until 2015, which will make six straight years of unemployment
above 7-\1/2\ percent. As a result, the number one priority for
this Committee has to be job creation. And one way to boost
jobs is to open new markets to small businesses, which account
for 50 percent of all jobs in the United States. Right now,
small businesses make up 97 percent of all U.S. exporters, but
only about 30 percent of the goods exported. I believe there
are measures Congress can take to make international trade more
accessible to small businesses and help even the playing field
as demand for U.S. products on the global marketplace--which
serves 95 percent of the world's consumers-grows.
Right now, the vast majority of our small businesses still
do not market their products internationally. Of those that do,
many only send their goods to our neighbors to the north and
the south, and do not take advantage of markets in Europe and
Asia. Clearly, there remains significant opportunity to expand
the role of small business and international trade.
To address this area of potential growth, the Small
Business Administration, the Export-Import Bank, and the
International Trade Administration each offer programs
specifically tailored to provide education, networking,
technical, and financial assistance to small firms engaging in
international trade, and I am particularly interested in
hearing about the experiences our witnesses had with these
programs. This is one area I am particularly concerned could
suffer from Congress's inability to address the sequestration
because it is vital these agencies have the resources they need
to perform their essential work.
SBA's export programs generated $1.6 billion in sales in
fiscal year 2010 alone. That translates to real jobs here at
home. We need to amplify, and not reduce, these successful
programs, while simultaneously cutting back on programs that
have proven ineffective. Mandatory cuts across the board to
SBA's budget would not achieve this.
Agricultural exports is one area that is poised for
expansion. Small farms constitute more than 90 percent of the
sector. In 2011, U.S. agriculture exports reached nearly $140
billion, outpacing the previous record set in 2008 by 20
percent. This growth shows that America's farmers have the
potential to help lead our economy forward, spurring
development and employment gains across the country.
This is especially true in my own district in Florida,
which is recognized for its citrus and vegetable production.
However, as we examine the best way to stimulate international
trade amongst small businesses, we must recognize the double-
edged nature of Free Trade Agreements. Lowering tariffs and
other barriers clearly spurs commerce between countries, but at
the same time we have seen new imports undercut hardworking
U.S. businesses by introducing significantly cheaper goods into
our market. For example, I recently visited Adams Ranch in Fort
Pierce in my district where I heard from farmers concerned that
cheap Mexican tomatoes may be disrupting the marketplace for
our growers. Learning what works and what hurts our small
businesses is essential for any future trade agreements.
Issues like these will continue to challenge small
exporters, but I look forward to small firms' involvement in
trade continuing to grow. Over the last decade, exports from
smaller companies have doubled and are now valued at nearly
$320 million per year. With three-quarters of world's
purchasing power outside the United States, access to foreign
markets is no longer optional, but essential, for many
businesses' continued success. By helping more small firms
export abroad, we can accelerate economic growth and create the
jobs Americans so badly need.
I thank the witnesses in advance for their testimony, and I
yield back.
Chairman TIPTON. Thank you, ranking member. And as our
panel knows, you have five minutes to be able to deliver. I
would like to be able to explain the timing lights in front of
you. A little bit like traffic lights. When it is green, you
are good to go. When it is yellow, speed up. When it gets red,
stop. And we would appreciate that. And I do know we have
several members that have some other commitments to be able to
go to, so I will defer my questions for after your testimony.
Our first witness is going to be Mr. Daniel Ogden. Dan is
an attorney, licensed custom broker, and international trade
consultant. He is also chairman of the National District Export
Council, also known as DECs. DECs are local organizations
comprised of international trade experts who volunteer their
time to be able to provide counseling and best practices for
small businesses interested in boosting their exports.
Currently, there are 59 local DECs or about 1,800 members
covering nearly every region in the United States. He is
testifying on behalf of the National District Export Councils.
Welcome, and we look forward to your testimony.
STATEMENTS OF DANIEL OGDEN, ESQUIRE, ATTORNEY AT LAW AND
INTERNATIONAL TRADE CONSULTANT, CARROLLTON, TEXAS, TESTIFYING
ON BEHALF OF THE NATIONAL DISTRICT EXPORT COUNCIL; MS. JENNIFER
FULTON, CHIEF PICKLE, MISS JENNY'S PICKLES, CEO, KERNERSVILLE,
NORTH CAROLINA, TESTIFYING ON BEHALF OF THE THE U.S. CHAMBER OF
COMMERCE; MICHAEL MYHRE, ASSOCIATE STATE DIRECTOR, FLORIDA
SMALL BUSINESS DEVELOPMENT CENTERS, PENSACOLA, FLORIDA, RAYMOND
ARTH, PRESIDENT AND CEO PHOENIX PRODUCTS, INC, AVON LAKE OHIO,
TESTIFYING ON BEHALF OF THE NATIONAL SMALL BUSINESS
ASSOCIATION, SMALL BUSINESS EXPORTERS ASSOCIATION.
STATEMENT OF DANIEL OGDEN
Mr. OGDEN. Thank you. Good morning, Chairman Tipton,
Ranking Member Murphy. I would like to thank you for this
opportunity to testify at the hearing and share my views.
My testimony will cover the importance of trade to the
well-being and wealth of the U.S. economy, to the health and
profitability of small business, and to the creation of job
growth in the United States. I will also discuss the challenges
to success that small business exporters face from government
laws and regulations, both foreign and domestic, and the role
the federal government should play in advancing U.S. and
international trade interests.
Initially, it must be stressed that small business
exporters are small businesses first. They face the same
challenges to their profitability that all small businesses
face, and some of the most significant of these challenges
arise from the U.S. domestic, regulatory, and legislative
environment. In fact, small business exporters are unique in
this regard as they face challenges to their profitability from
both the foreign and domestic arenas. In seeking then to answer
the question what can Congress do to assist small businesses
increase their exports, one answer quite simply is to stop
overregulating, overlegislating, overtaxing small business.
One specific area that does affect small business exporters
is U.S. Export Controls Law. While export controls are
important to our national security and economic vitality, this
does not necessitate that they be so complex and cumbersome
that they discourage companies from exporting. The ongoing
effort to reform U.S. export controls by simplifying both their
administration and ease of compliance will increase the
likelihood that U.S. exporters will increase their exports.
I would also like to make a comment about U.S. trade policy
in general. International trade contributes greatly to the
wealth creation of an economy which should be the goal of any
economic policy. Trade is a two-way street. While exports are
always praised, imports are not a bad thing. Being able to
freely source imports and means of production is critical to
the profitability of many small businesses. In spite of this
fact, trade protection is a temptation and a disease that is
bipartisan in nature. Protectionism is not a creator of wealth,
but rather it is a creator of poverty. Avoidance of a
protectionist trade policy used either as a strategy or a
tactic should be at the core of the U.S. trade policy.
This temptation to engage in protectionist trade policies
is not, of course, unique to the United States. Protectionist
trade policies in foreign countries are a fact of life that
small business exporters have to deal with on a daily basis,
and this fact makes trade agreements an essential component of
the U.S. trade policy. The major focus of trade agreements in
the past has been on tariff reduction or elimination. This has
resulted in foreign nontariff trade barriers becoming the
protectionist tool of choice. These barriers are especially
damaging to our small business exporters. It is imperative,
therefore, that ongoing and future negotiations on trade
agreements stress nontariff barrier reduction and elimination.
There is one thing that Congress can do immediately, which
is to renew trade promotion authority. This renewal is crucial
for several reasons. Perhaps most important is the fact that
the U.S. has fallen behind other nations and entering into
trade agreements, thereby putting our exporters at a
competitive disadvantage. The TPA renewal will help to ensure
that loss to U.S. export sales from belated passage of trade
agreements does not happen again.
I would also like to briefly discuss U.S. export
assistance. Why do U.S. exporters need this assistance? The
answer is simple and can be stated in one word--competition. In
an ideal world, American exporters would not have this need. We
do not live in that world, however, as other countries provide
assistance through exporters. The federal government therefore
has a critical role to play in ensuring that exporters have a
level playing field in which to globally compete by providing
export assistance. One important feature of this assist is that
U.S. export assistance centers are in place locally to
interface directly with exporters, which are, of course, part
of the U.S. and Foreign and Commercial Service.
Despite the call over the years to eliminate the domestic
commercial service, and particularly the USFCS, their continued
existence is vital and irreplaceable. The ability of USFCS to
directly interface with foreign commercial officers is also
critical. It is imperative, therefore, that the U.S. and
Foreign and Commercial Service remains the unified agency with
both foreign and domestic operations under one roof.
An important feature of export assistance also is that
there should be just one federal agency where exporters go for
services such as trade counseling. At present, while the U.S.
and Foreign and Commercial Service plays this primary role, the
SBA also engages in trade counseling. This duplication is
unnecessary, wasteful, and confusing. Only one federal agency
should be involved in international trade counseling, and that
is the U.S. and Foreign and Commercial Service.
Further, the amount budgeted for export assistance should
also be increased. Part of this issue can be resolved by
transferring to the International Trade Administration from the
SBA funds that were used by the SBA for the International Trade
Counseling programs. And I would just say also that taxpayer
dollars spent on export assistance is money well spent.
One final issue is the Commerce Department's plan to
reorganize the International Trade Administration. While one
positive feature of this plan is the integration of certain
export services that will both help exporters find new markets
and customers and actually get their hands into those markets
or the goods into those markets and the hands of those
customers, it is also important to ensure that under this plan
that the operations of the U.S. and Foreign Commercial Service
continue to be customer and field focused.
In summary, I am out of time. I would refer you to my
written testimony as to my specific recommendations. Thank you.
Chairman TIPTON. Thank you, Mr. Ogden.
Our next witness is Ms. Jenny Fulton, Chief Pickle and CEO
of Miss Jenny's Pickles. After being laid off from her
financial industry job, Jenny Fulton and co-founder Ashlee
Furr, used Jenny's grandmother's recipes to start making
pickles. Founded in 2009, Miss Jenny's Pickles is becoming a
household name. Their products are sold in over 800 stores and
the company exports pickles all over the world. They were also
featured in a segment on CBS's 60 Minutes last October. She is
testifying on behalf of the U.S. Chamber of Commerce.
Jenny, thank you for being here, and we look forward to
your testimony.
STATEMENT OF JENNY FULTON
Ms. FULTON. Thank you. Thank you, Chairman Tipton, and
Ranking Member Murphy, and Distinguished Members of the U.S.
House, Committee of Small Business, Subcommittee on
Agriculture, Energy, and Trade.
I am Jenny Fulton, and I am the chief pickle at Old Orchard
Foods, doing business as Miss Jenny's Pickles. Our pickle world
headquarters is in Kernersville, North Carolina.
I am extremely honored and grateful for this opportunity to
share our story with each of you. I am testifying on behalf of
the U.S. Chamber of Commerce.
Miss Jenny's Pickles was born out of the financial
recession. Ashlee Furr was laid off in June of 2009, and my
layoff followed in January of 2010. Ashlee and I confirmed
after spending 16 years in the financial industry we were both
burned out and we decided to take a true leap of faith and
start our own pickle company. Knowing that 95 percent of the
world's population lives outside the United States, we decided
that exporting would be crucial to our success. In May of 2011,
the North Carolina Department of Agriculture's Export
Department and the Southern United States Trade Association
[SUSTA] organized an inbound trade mission for Chinese buyers
to meet with North Carolina businesses, in which we decided to
participate.
Wow. What an adventure. I met Mr. Shen there, and he is our
Chinese business partner. After hours of reading Chinese e-
mails translated by Google, talking via Skype with a 12-hour
time difference, and 32 pages of documents later, we finally
exported our first five pallets of pickles to China. Last year,
the North Carolina Export Department and SUSTA took a trade
mission to Shanghai for a food show. I went along there and it
was then that I had the opportunity to visit the stores that
carry Miss Jenny's Pickles. I must be honest. I was extremely
amazed, humbled, and proud to be standing next to our pickles
on the shelf in China. It was rewarding to know that I was
representing the United States of America, which has world
recognized food safety regulations.
Last year, I also participated in a trade mission to Canada
arranged by these same good people. It was there that we hired
a Canadian food broker, and this year I will be going to Hong
Kong and Germany. And during the early stages of working in the
international marketplace, we attended a forum in Charlotte
called Small Business Global Access hosted by Senator Kay
Hagan, along with chairman and president of the Export-Import
Bank, Fred Hochberg. I was so impressed with Fred's remarks on
Ex-Im's efforts to help small business exports that I ran out
to his car after the forum and I handed a jar of pickles to his
driver and I said, ``Tell Fred to eat these pickles because we
want to export this year.'' And today, we partner with the Ex-
Im Bank so that we can offer terms to our foreign buyers which
increases our sales by having this option. Without the Ex-Im
Bank, our small business would never have been able to offer
terms outside the United States. And without my out-of-the-jar
thinking and pure determination to export, I am not sure that
our young company would have had such great success.
Now, if more U.S. small businesses were able to seize
export opportunities, the gains could be immense. I have seen
firsthand for the government to improve communications
regarding U.S. export programs. After our company was featured
on 0 Minutes, we received hundreds of e-mails and phone calls
from Americans all across the country. They want to start their
own company, too. Well, small business needs help paving the
way to new markets. We are left on our own to find the doors
and knock on them. The services, expertise, and dedication of
the state and federal export promotion programs are world-
class, but I know there are many companies not aware of the
government services that are available to help them break into
new markets. This is not the fault of America's small business
owners.
There are many successful state programs out there that I
believe could be replicated in other states. For example, in
North Carolina, the Department of Agriculture is aggressively
helping North Carolina companies export. These good people
encourage companies like mine to consult with trade
specialists, to learn more about trade through workshops,
seminars, to participate in trade missions, and to meet with
international buying delegations. They have even opened an
office in Beijing. Without their help we would not have found
the international market opportunities.
On the federal level, the government accountability has
determined that 17 federal agencies with export promotion
programs could be made more effective through better
coordination. As the president of a small company, I truly
understand the importance of international trade and the impact
it can have on small business. It is simple. We want to ship to
more countries, we want to grow our client base, and we want to
create more jobs.
Congress can do one big thing that will make a really big
difference for small businesses today, and that is by creating
one website with all the resources, all the links available to
export. You can do it in one click. It is going to be that
simple because it is really hard out there. And we need to make
it easy for small business to succeed and not fail in our
global marketplace. By communicating effectively to small
business, you will generate billions of dollars in new American
exports. There are many seasoned exporters among American small
business, but there are many that have never even considered
exporting. I know that exporting can be challenging and
overwhelming, especially for small business, but in the end it
is all worth it.
In closing, I challenge each one of you to better promote
the trade resources that are available to small businesses.
Thank you for the privilege and opportunity to appear before
you today. It has been my honor.
Chairman TIPTON. Thank you, Ms. Fulton. It is easy to see
why you sell pickles well.
I would now like to yield to Ranking Member Murphy to be
able to introduce our next witness.
Mr. MURPHY. Thank you. Thank you, Mr. Chairman.
I would like to introduce Michael Myhre, the interim State
Director of the Florida Small Business Development Center
Network. Mr. Myhre has over 22 years of experience in small
business development. Prior to his current role, he was state
director for the Minnesota Office of Entrepreneurship and Small
Business Development, responsible for entrepreneurial and small
business policy development and support services. Mr. Myhre is
a graduate of the Carlson School of Management at the
University of Minnesota and is also a certified public
accountant. Welcome.
STATEMENT OF MICHAEL MYHRE
Mr. MYHRE. This is why we do what we do.
Chairman Tipton, Ranking Member Murphy, and Members of the
Subcommittee, thank you for this opportunity to testify.
My name is Mike Myhre, and I serve as the interim state
director for the Florida Small Business Development Center
Network. The Florida SBDC is part of America's SBDC network
providing the knowledge resources small businesses need to
start, grow, and succeed. I have prepared a written statement
and will give you a summary of those remarks.
In the context of my testimony, I ask you to keep a few key
statistics in mind on why it is essential to support trade
policy and investment in the SBDC program for the benefit of
small businesses. Research shows that companies that export
grow 15 to 20 percent faster, pay 15 percent higher wages, and
are 15 percent more profitable than their domestic market-only
counterparts.
The mission of the SBDC program is simple--to help small
businesses grow and compete. With a national network of nearly
1,000 centers and 5,000 professionals, America's SBDCs offer a
wide variety of programs and no-cost services to assist and
encourage their small business clients to expand. In that
effort, SBDCs retain specialized professional business
consultants who are driven to help their clients research and
develop specific strategies to expand into international
markets and grow revenues. And we know with more revenues comes
more production and with more production comes more jobs.
Now, not all small businesses are ready to export and many
should not. At SBDCs around the country, we strive to identify
those that are or are close to being export-ready. We provide
every small business client with an honest and accurate
assessment of the state of their firm and their state of
readiness to participate in the global marketplace. We help to
examine the exportability of their products and services,
research and identify markets and buyers, develop market-entry
strategies, establish necessary shipping and distribution
networks, determine appropriate payment methods, and identify
export financing and insurance needs.
A key competitive advantage large businesses have over
small businesses, access and affordability to business and
trade data and the means to use it. SBDCs equal the playing
field through our educational and partners organizations. Our
professionals have access to a wealth of information on export
markets, ranging from general country information to
specialized information on markets to specific industries and
products and countries worldwide. In some cases, SBDCs can also
conduct primary research for small business clients needing
specific information unavailable through secondary resources.
Further, we employ through our professionals the power to
interpret and use that data.
SBDCs also help balance the playing field by offering
guidance and expertise in the realm of regulations that govern
international trade. In recent years, the federal government
has tightened export regulations in response to growing threats
to national security. By working in partnership with the Census
Bureau and other agencies, SBDCs help small businesses get
their documentation right the first time, ensuring compliance
and mitigating the threat of loss and business. Helping small
businesses attract and handle financing has always been a
cornerstone strength of the SBDC network. Navigating what
resources are most applicable can be confusing without the
proper guidance. In international trade, SBDCs work closely
with SBA's Export Loan Program, the Export-Import Bank, and
conventional financial institutions to help small businesses
identify and apply for appropriate funding to support their
international trade activities. Without these funds, many
businesses would face uncertainty and potentially unnecessary
risk and loss.
In conclusion, 90 percent of the world market exists
outside the borders of the United States. Nonetheless, only one
percent of our small businesses export their goods and
services.
The biggest barrier to going international a small business
owner faces is fear. And fear is a result of lack of knowledge.
As you know, international trade assistance is incredibly
specialized and complex. SBDCs offer a wide range of
international trade services, including helping assess a firm's
readiness to export, navigating the regulatory maze, and
identifying and applying for appropriate funding. But these
services are extremely resource-intensive. What small
businesses need to exceed in their further expansion in the
world marketplace and the advantages that come with it are Free
Trade Agreements that are clear and focused on small business
interests, tariff and export controls that are uniform, clear,
and specific, but above all else, they need the confidence that
comes with the knowledge they get from their SBDC professional
that exporting is the right investment for them. Thank you.
Chairman TIPTON. Thank you for your testimony.
And our final witness is Mr. Raymond Arth. He is the
president and CEO of Phoenix Products, Inc., based in Avon
Lake, Ohio. He started his company with his brothers back in
1977. Phoenix Products is a small manufacturer that produces a
line of faucets that are primarily used in recreational
vehicles and residential homes. Their products are distributed
throughout the United States and Canada, and they are currently
working to expand into Mexico and Latin America. He is
testifying on behalf of the Small Business Exporters
Association.
Welcome, and Mr. Arth, you have your five minutes for your
testimony.
STATMENET OF RAYMOND ARTH
Mr. ARTH. Well, good morning. And thank you, Chairman
Tipton, Ranking Member Murphy, and the Members of the Small
Business Subcommittee on Agriculture, Trade, and Energy. I
appreciate the opportunity to be here to testify today.
As you heard, Phoenix Products is a manufacturer of
plumbing faucets, and I am here to represent that company. And
I am also here on behalf of the Small Business Exporters
Association, the country's oldest and largest nonprofit
organization devoted to promoting small business and medium-
sized export activities. It is an international arm of the
National Small Business Association.
Phoenix Products is the last stand-alone company that makes
our product category--low cost, primarily plastic faucets. And
as you heard, recreational vehicles and factory-built HUD code
homes. Think Winnebago motor homes or double-wide mobile homes
as the target market.
This is a market that has a lot of demand, but
unfortunately, over the last 10 years it has come to be
dominated by suppliers from China and Taiwan who are able to
offer products at much lower prices than we can meet. So today
we are faced with the unpleasant reality of diminishing market
shares in our core markets, and we have had to turn to foreign
partners to provide some low-end and high-end products. So we
are having faucets manufactured for us in addition to what we
make in our own factory.
I am pleased to report that in 2012, 70 percent of our
faucet sales revenues were derived from the faucets we make in
our factory from domestic components. But in 2008, 85 percent
of our faucet sales were from domestic products, so our share
is diminishing, and we are at-risk of losing the critical mass
we need to sustain our manufacturing operation. We need a
certain level of activity to make it all make sense. And so we
have identified export sales as the important element that will
determine whether or not we continue to be a manufacturer of
products or evolve into more of a braded distributor of
imported products.
In 2009, I spoke with folk at the Small Business Exporters
Association, and they suggested we get in touch with the U.S.
Export Assistance Centers [USEAC] as a resource to help us make
our efforts. And we had selected Mexico for a number of
reasons. We contacted the USEAC in March of 2009, and four
years later I am sorry to report that we have yet to make our
first sale in Mexico, our target market. We have learned a lot.
We have had a lot of--we have taken a lot of important first
steps, but we are still not able to close that last little gap.
So I have a couple observations I would like to share based on
our failure so far to crack into this market and how it might
affect what you are thinking about as we go forward.
As you have heard, it is very hard for a small business to
negotiate and enter into new international markets. There is a
knowledge problem finding out who the prospects are, where to
go. We have got all the compliance issues dealing with U.S. law
and regulations and the laws and regulations of our target
country. So the efforts to consolidate technical assistance and
coordinating all the providers is an important step that you
folk can take. Overall, I will give the USEAC fairly good
grades, but the service has been uneven, and the Cleveland
office has worked very hard for us, but the commercial officers
in Mexico City have not been able to provide the same level of
support as the domestic offices.
Related to information, Chairman Tipton, I do want to
recognize the transparent rules allowing direct export of trade
act for small business and jobs that you introduced in the last
session and then suggest that you consider reintroducing it in
this section.
A second important factor is that Free Trade Agreements do
matter. We have selected Mexico as our first target market
because our goods cross the border duty-free, while Chinese and
Taiwanese imports face substantial tariffs at the border. This
makes our products more competitive vis-`-vis the foreign
competition and improves our chances for success in Mexico. In
other countries where we have Free Trade Agreements, I think
the same rules apply. And Canada, with whom we have had the
longest running relationship, we do not even consider to be an
export sale. Sometimes we worry more about selling to
California than Canada.
Finally, the Ex-Im Bank you have heard is very important
and getting paid is the end of the whole cycle. And there is no
way for a company like ours to really have entered the market
internationally, been able to offer credit terms, identifying
credit worthy accounts in the first place, and then the loan
guarantees and other programs that Ex-Im Bank can bring to
support our efforts will be a key element when we finally make
that final step and secure customers outside the United States.
Should we prove to be successful beyond our wildest dreams,
they may even then serve the role of providing some working
capital financing to help us support the growth. We are
confident we can support everything in our plans.
So in the time allowed, those are my summary comments
today, and you can find more in the written testimony. Thank
you very much.
Chairman TIPTON. Thank you, Mr. Arth. And I appreciate the
pitch for our bill. We will be introducing that transparency
bill again.
We will now begin the questioning portion of our Committee
hearing, and I would like to begin with Mr. Mulvaney.
Mr. MULVANEY. Thank you, Mr. Chairman.
Questions for a couple different folks.
Mr. Arth, we will pick up right where you left off, which
is you are saying that you are having--you have identified
Mexico as a potential export market. You did that because your
goods cross the border relatively easily, but then you said you
had compliance issues. I thought we had a Free Trade Agreement
with Mexico that would make it easier to trade down there. Has
that not been your experience? Aside from getting the things
across the border, what has NAFTA done for you?
Mr. ARTH. Well, the biggest thing NAFTA has done for us is
the fact that our products do cross duty-free, which helps
level the playing field with Chinese and Taiwanese imports.
There is one compliance issue that is different with respect to
plumbing standards. The United States and Canada have a
harmonized standard so that if *
Mr. MULVANEY. Have or have not?
Mr. ARTH. Have.
Mr. MULVANEY. Okay.
Mr. ARTH. A harmonized standard, so if I design and build
my faucets to the standard of the United States, it is the same
as the standard in Canada.
Mexico has a whole different certification process. It is a
NOM certification, and I am told that the exact certification
is somewhat dependent upon the classification that is assigned
at the border. And apparently, it is not as clear cut as some
might think. So we are trying to find what we would like as a
Mexican agent, a sales rep, or trading company, or some partner
in Mexico that we can work with who can actually take the
product across the border so we can make that final
determination on which standard we need to get to and complete
that regulatory hoop.
Mr. MULVANEY. Gotcha. Now, you talked a little bit as well
about competing with China and Taiwan, saying you are having
some difficulty competing with them at certain price points.
Where is their competitive advantage coming from? Is it all
labor? Is it also regulatory environment in China and Taiwan?
Do you get a feel for where their advantages lie?
Mr. ARTH. I think there are some structural advantages that
they do have, and it probably is more regulatory and compliance
issues at our end than--or they have fewer of them.
Mr. MULVANEY. Can you give me an example?
Mr. ARTH. Well, I can tell you that the material costs that
we are paying are probably all pretty much global material
costs.
Mr. MULVANEY. Okay.
Mr. ARTH. My cost for a product at the very end of my
assembly line is not that far different if I take just direct
labor and material from the invoice price for a product I am
importing from China.
Now, I have got a whole lot of factory overhead that has to
be added into that, and then I have got my own administrative
staff and the cost of people that we have.
A quick example. My father sold his company in 1971. He had
135 employees. I can kind of go through all the capacities they
had. They did not have a human resource manager--135 employees.
They did their payroll in-house because you took hours worked
time s the rate, you paid people, and once a month or once a
quarter you sent in your payroll taxes.
I have got 31 people on my payroll. I have a college-
educated, part-time HR manager who works for us 20 hours a
week. I have my payroll processed by an outside agency because
I have got eight payroll deposit periods a month. I mean, all
of these things add onto the cost of just running the essential
functions of a business here in the United States today.
Mr. MULVANEY. Gotcha. A couple quick questions for both you
and Ms. Fulton regarding the Export-Import Bank. Would you tell
me specifically, Ms. Fulton, what they did for you? How you
used the Export-Import Bank as a small business?
Ms. FULTON. Well, we actually are their number 500 customer
on their express insurance, so I will be meeting with Mr. Shen
on Tuesday. And he was our first importer of Miss Jenny's
Pickles in China.
Mr. MULVANEY. Right.
Ms. FULTON. So I am going to be able to give him terms,
which is going to also allow him to buy more pickles from me.
So the Ex-Im Bank, without the insurance, I could not afford to
take that risk because, you know, normally we would have made
them pay upfront. Well, if they pay 100 percent upfront, they
reduce their sale order.
Mr. MULVANEY. So it is a bridge loan essentially?
Ms. FULTON. Basically, it is insurance. And their
guaranteeing the invoice or the purchase order that Mr. Shen
gives me up to 97 percent, 96 percent. And I can afford to take
a 4 percent risk. I cannot afford to take 100 percent risk.
Mr. MULVANEY. Mr. Arth, same question to you. How do you
all use the Export-Import Bank?
Mr. ARTH. It is pretty much exactly what you have heard
here. The first step would be we need to be able to offer
credit terms to buyers in other countries, and the Ex-Im Bank,
number one, does have knowledge, information resources to help
us qualify credit-worthy buyers. And then the second piece is
this credit insurance that they offer so that if we are not
paid after a 60- or 90-day period--I forget exactly--the Ex-Im
Bank will step up, basically buy the debt from us at better
than 90 percent of its face, and then they will take steps to
collect the money.
Mr. MULVANEY. And last question for you, Mr. Myhre. You
mentioned very briefly that you wish the Free Trade Agreements
that we have and that we are negotiating now would be more
focused on small business. Give me two or three examples of how
we can do that as we go through these negotiations.
Mr. MYHRE. Well, we know that Free Trade Agreements tend to
provide preferential treatment to larger businesses. And small
businesses tend to be an afterthought in the Free Trade
Agreements that currently exist.
Mr. MULVANEY. But give me specifics as we sit down at the
table and say this is what we need for small business.
Mr. MYHRE. I could not probably isolate two or three
examples. I can get those for you and provide those to you at a
later time.
Mr. MULVANEY. That would be great.
Thank you, Mr. Chairman.
Chairman TIPTON. Thank you. I would now like to recognize
Ranking Member Murphy for his questions.
Do we have anybody else? He will defer here as well.
Kindly, the ranking member is willing to defer his time.
Mr. Huelskamp.
Mr. HUELSKAMP. Thank you, Mr. Chairman. I thought this was
in violation of the rules. Two republicans in a row. Is that
permitted here? I guess so. I apologize.
Thank you for joining us today, and I appreciate the
testimony, especially folks from the real world and Jennifer
and Mr. Arth.
I had a follow-up question first though for Ms. Fulton. I
appreciate your testimony. I am fairly new to exporting. Could
you give a little more insight on what you think the biggest
barrier to expanding your sales in the future, whether it is in
China or are you looking at other countries as well?
Ms. FULTON. Thank you. It has just been a wonderful
opportunity.
You know, I knew that 95 percent of the world lived outside
the United States being in the financial background. So if I
decided to keep our sales just to the United States, I am
missing a huge opportunity of clients. What would help us is
resources, like I am getting ready to export to Canada. Well,
that is a bilingual label that has got to go on there. Well, I
have had to contact five different people to figure out how to
get that done. Fortunately, the North Carolina Ag Department
Export has been essential and crucial and SUSTA. But, you know,
I am not saying everybody has got to put everything together,
but if we could have a nice umbrella for people to get to to
where, okay, if I want to export to Germany because I am going
to Germany and that is one of my goals for 2013, I would like
to know a little bit of steps in advance on what I have got to
do to get my product over there without having to contact 20
different places. So to me, we have got the technology. We have
got the resources. Let us put it all together and help us
because that is time and money. That is important in our world.
Mr. HUELSKAMP. Thank you, Ms. Fulton.
Mr. Ogden, I had a question. I have got a small company in
my district called Vortex Valves that specifically cited
tariffs as a real barrier around the world. What markets do you
see that present the biggest opportunity for us to open up
markets, particularly for small businesses if we are able to
reduce tariffs? What should be our next targeted place that
would be most small business friendly?
Mr. OGDEN. Well, of course, we have ongoing talks, Trans-
Pacific Partnership, and there are a lot of markets in Asia
that small businesses are able to go to. The perspective trade
agreement with the European Union is essentially--and let me
just follow up a little bit on what some others have said. Some
of these barriers specifically that really affect small
businesses, one of them is standards. One of my fellow North
Texas District Export council members, and I mentioned in my
written testimony, the International Chem-Crete Corporation,
they make construction materials used all over the world. And
they comply with the, I think it is the ASTM standards, which
are internationally recognized for construction materials but
what happens is in many of these other countries that they have
to deal with will have different standards. And Mr. Arth talked
about this as well, what he is facing.
So what happens is you have to go--to get your product into
that country, you have to modify it in some respect, perhaps
even change the nature of that product. That adds up to your
costs and that puts you at a competitive disadvantage against
local producers in that market. And so standards are a big
deal. Intellectual property protection trade circuits is a huge
deal. I know the Deputy Under Secretary Blank just came out
with a new strategy that the Commerce Department has in trade
secrets.
So these are just two examples of these barriers. But in
terms of specific markets, you know, Asia is very much a
growing region right now. I think another area where we need to
pay attention to is Latin America. You know, it is always South
America. It is always kind of the backwater, so to speak, but I
think there are opportunities there. There are frankly
opportunities all over the world. We just need to make sure
that we have really good commercial diplomacy, really good
trade agreements in effect, and that we are very forward
thinking in that respect.
Mr. HUELSKAMP. Thank you, Mr. Ogden.
Last question for Mr. Arth. And I also have a constituent
that is having difficulties exporting to Mexico, and concerned,
we have NAFTA. Why are those happening? Could you describe, I
mean, something more general you are seeing outside your
particular industry that you say small businesses are trying to
export to Mexico. What are some barriers that perhaps we could
reduce with our efforts up here?
Mr. ARTH. Well, the problem that I have had really relates
to finding a partner in Mexico to work with. The commercial
services did a great job. They had a wonderful forum in Mexico
City that the Trade Winds Forum on Mexico and the Americas--it
was underpriced. Let me make a point that you did not charge
enough for that, and so if they had charged more there might
have been more resources available at the point people came
back.
I had four Gold Key meetings, which were very productive
identifying prospective customers. I was ready to go, and I did
not expect the Commercial Services staff to work those accounts
on my behalf. I need to find a partner in Mexico to work with
me.
And where in Cleveland the ICX seems to have connections to
local governmental and private sector organizations that are
involved in trade, the Commercial Services in Mexico City were
not really equipped to connect me to people or even identify a
trade rep organization or industry councils or those kinds of
folks where I might go to find those people who could assist
us.
Mr. HUELSKAMP. I appreciate the comments, and I yield back
my time, Mr. Chairman.
Chairman TIPTON. Thank you, Mr. Huelskamp. And now I would
like to recognize Ranking Member Murphy for his questions.
Mr. MURPHY. Thank you, Mr. Chairman.
Mr. Myhre, thank you for your testimony and for the Small
Business Development Centers' invaluable work assisting small
businesses grow domestically and overseas. It is heartening to
know that the SBDCs help provide some clarity in the maze of
U.S.-foreign government regulation and trade.
You noted in your testimony that we need clear, Free Trade
Agreements and uniform tariffs and export controls to help make
90 percent of the world's markets accessible to our small
businesses. Can you provide more specifics on what measures
would be most helpful for small businesses to expand
internationally?
Mr. MYHRE. Well, I cannot specifically answer. I would go
back to our national association to get that specific
information and recommendations. But what I can tell you is
that SBDCs are really working with the agencies to help those
businesses navigate the regulatory requirements to making sure
that they meet the compliance requirements necessary to do
business in international markets.
Mr. MURPHY. That leads to my follow-up. In Mr. Ogden's
testimony he stated that SBA's trade counseling program should
be eliminated and funding transferred to the U.S. and Foreign
Commercial Service. What is your view of that?
Mr. MYHRE. I would not agree with Mr. Ogden's opinion. You
know, the SBDC program has been working and doing trade
assistance and trade consulting with small businesses for more
than 35 years. And we know that the mission of SBA is to help
small businesses in all aspects. And as an SBA Economic
Development Program, SBDCs are instrumental to that process. It
sounds nice to put it underneath a single umbrella with a
single focus, but we know that small businesses need more than
just simply trade assistance when they are expanding into
international markets. It changes their business model in a lot
of ways and in SBDC assistance, the broader assistance that we
provide is necessary.
Mr. MURPHY. Do any of the other witnesses have any comments
on that?
Mr. OGDEN. Yes, Ranking Member Murphy.
My position is that the SBA does a great job when someone
comes in and says, ``Hey, I want to start a business. How do I
get started? How do I, you know, develop a business plan? How
do I maybe get some access to start-up capital?'' Everything
that you would call the pre-export phase. And they do a great
job in that, and that is really what they were created to do.
But I think when a company is in the position where they
have got some domestic sales, they have got themselves
organized, then there needs to be one place they go for export
counseling in all respects. And I am not talking about the SBA
Export and Loan Program. That is a completely separate thing.
In fact, the USEACs work very much with the SBA. What I am
talking about is the trade counseling. And this is not just
coming from me. This is coming from numerous exporters. In
fact, every single District Export Council member I have talked
to agrees with me on this, that the expertise that is in the
U.S. and Foreign Commercial Service, they should be the place
where export assistance and trade counseling is done. And Ms.
Fulton talked about some of this, you know, where do I go for
assistance? Well, if there is one federal agency providing that
assistance, it is going to make it much easier to exporters to
go.
And so the point is I think that there is a duplication of
effort and the U.S. Foreign Commercial Service has the
resources to have the orientation. All they do is provide--they
are involved in exports. Export assistance. And trade
counseling. And that is their mission. That is their focus. And
I just do not think the SBA should be involved in that part.
They are certainly great in helping companies get started but
when it comes to exporting, that function should go to the U.S.
and Foreign Commercial Service.
Mr. MURPHY. As we sit here on the Small Business Committee,
I would like to hear your thoughts on if it was all under one
umbrella, how many small businesses, how Ms. Fulton, for
example, would compete with the Microsofts of the world; and
how those huge corporations, they would probably deserve and
probably get a lot more attention than Ms. Fulton, for example.
Mr. OGDEN. Well, actually, that is a real good question.
And the simple answer is that the Microsofts really do not need
the U.S. export assistance centers. They have got the internal
resources and the staff to do a lot of things. The biggest
consumer of the Gold Key Programs, for example, which is a
crucial component of the Foreign Commercial Service, are small
businesses. Small businesses are the ones that go to the Export
Assistance Centers. That is really where their focus is. In
fact, the District Export Councils, even though we have large
companies that have members on the DECs, our focus is the SME
market. And that is the same focus the Foreign Commercial
Service has.
And the idea that a small business is going to be at a
disadvantage from a larger company to go and to use that just
is not--that is just factually incorrect and it is just the
opposite. So that is just not a concern that I have.
Mr. MURPHY. I am sure you are familiar with Boeing and
their use of it.
Mr. OGDEN. Export-Import Bank, right.
Well, first of all, this idea that the Ex-Im Bank is
Boeing's bank, that is a ridiculous idea. The Ex-Im Bank is the
bank for people like Ms. Fulton. Most of their--for example, if
you talk about the export credit insurance programs, most of
the consumers of those programs are small businesses. Again,
large companies, they have the internal resources and the
staff. They do not need a lot of the services provided by the
USEACs. And of course, the USEACs are separate from the Ex-Im
Bank anyway. It is a completely different agency.
So the fact that eliminating the SBA's trade counseling
program would in no way inhibit small businesses from going
either to the SBA or the Ex-Im Bank for the export financing
needs. Again, we are not talking about--I am not advocating at
all the SBA get all the export financing aspect. That should
remain. Okay? So I want to make that clear. But the fact that
the SBA is involved in trade counseling is not going to affect
small business in my opinion. In fact, it will help the
situation.
Mr. MURPHY. Ms. Fulton.
Ms. FULTON. Well, being the small business person, all I am
asking--I do not care who is doing what--is to put it up on the
website and say here is what you need to do. Because this is
crazy. I am just telling you. All you want to know is, hey, if
I want to export here, then I contact the U.S. Export
Department or the U.S. Commerce, or the North C Carolina--it is
a mess. You cannot find it easy. We have got to grow jobs. You
talked about 7-\1/2\ percent unemployment. I take a phone call
every day from somebody who wants to start their own business
and they do not know what to do. They call me. That is not--I
mean, I do not mind but then I cannot do my business. We need
just an overall website that says if you want to start your
business, start with Small Business. Start with SCORE. You do
not know how many people I have told go see SCORE. You know, or
go here to Export.
So I am just saying you all got to fix this.
Mr. MURPHY. Thank you. And I think that is part of our job
here, is to push the President on some of his initiatives that
he has laid out to centralize everything into one website,
because like you said, we do have the technology. Let us put it
to use. So I think that is something that we could probably do
in a bipartisan manner here, is to urge the president to do
this in a timely fashion.
Ms. FULTON. Thank you so much.
Mr. MURPHY. Did you have a follow-up?
Mr. MYHRE. I do. Just a response to Mr. Ogden's comment. If
SBA's mission was to only help pre-venture individuals start
businesses then I would completely agree with him. But the
reality is that SBDCs help and primarily dedicate their
resources, their consulting resources to the small- and medium-
sized enterprises that offer the greatest potential to add jobs
to our economy.
So in Florida, I can speak specifically that 75 percent of
the consulting that we do, the hours that we dedicate in human
resource professional consultant time goes to small- and
medium-sized enterprises. And a big part of that is helping
them develop market expansion strategies and international
trade assistance is an important part of that. In Florida and
in the national SBDC network, I know our SBDCs are working in
partnership with the USEACs and have a very cooperative working
relationship with them. We also have in Florida a step program.
We help businesses develop export marketing plans where we sit
and research and develop those specific strategies and then
pass them on to the Gold Key service as part of a program that
we have specifically for those small- and medium-sized
enterprises.
Mr. MURPHY. Thank you.
Mr. Arth, you point out that the NAFTA created an
opportunity for your company by ensuring that products sold to
Mexico are duty-free. What are your views on the more recently
enacted trade agreements with Korea, Panama, Colombia? And do
you feel these agreements will create similar results?
Mr. ARTH. When I was at the Trade Winds Forum in Mexico
City I also met with the senior commercial officers from a
number of Latin American countries. You mentioned Colombia. The
senior commercial officer from Colombia was very enthusiastic
about my product and in that time, before we had a Free Trade
Agreement, it looked like a good opportunity for me. I have
tried to move slowly and not bit off more than I could chew.
Mexico could be a huge market for us so I focused all my
attention there. But it seemed as though there was a good
opportunity for us there potentially before the Free Trade
Agreement came into effect, and I would imagine now it could be
an even better opportunity for us. I wish I had the resources
in-house to understand. I do this when I am not visiting
Winnebago or working with an RV dealer or doing all the other
things I have to do as company president.
So I do believe that these will create opportunities. For
me, I am not so sure Korea is a great market. Calls to
Newcastle kind of situation. But I do think in the Western
Hemisphere clearly and perhaps the Trans-Atlantic Trade
Agreements that are being discussed with the European Union
could be worthwhile for a company like mine.
Mr. MURPHY. Thank you.
You noted the important role that Ohio--the state--that
they play in your efforts to export. And Ms. Fulton, you
praised the state of North Carolina in your trade initiatives.
Have you found that the states are filling a void that in some
areas should be filled by the federal government? And if so,
what are some recommendations you have?
Ms. FULTON. Thank you.
I would say in North Carolina they absolutely are filling
some voids. And the fact that they are holding our hand, they
are bringing qualified buyers in to North Carolina for North
Carolina products. So I think a lot of other states can take
note because I worry, when I walked in that room and Mr. Shen
said I want to buy Miss Jenny's Pickles, I knew it was okay.
Where, you know, maybe that is something we do at a federal
level. I do not mind the state doing it. I am just telling you
it was really hard and there is, I know, a lot of information
out there that I still do not know that I probably need to
know. But being only three years old and exporting is our new
focus and one of them, it would just make everything easier to
help out. And I do think, you know, everybody is busy. I mean,
you are busy. I am busy. We have just got to make it simpler.
And the state of North Carolina has done a fantastic job.
Mr. MURPHY. Mr. Arth.
Mr. ARTH. I am not sure there is that big a void right now
as much as the coordination of all the efforts. As you may be
aware, Ohio used to maintain their own international trade
offices in a half dozen or more countries around the globe.
They had a trade office in Mexico City, and I was working with
the folks in Colombia, as well as the USEAC as I was going
forward. When things kind of ground to a halt with the USEAC, I
was disappointed that Ohio had closed their trade office, but
that was really a duplicative function that if it was being
doing well once in Mexico City, we should not need them both
doing it.
So this whole notion of making, you know, a central point
of information and trying to coordinate all these resources, in
four years working with the USEAC, I thought I had identified
all the good resources and had either gone to work with them or
determined that they did not apply quite yet. Yet, this
morning, talking with Mr. Myhre and Mr. Ogden, I have
discovered that both the SBDC and the DECs have some support
features that may well serve what we are going to do going
forward. And so I have got a couple more phone calls and
contacts to make as we try to cross the border into Mexico.
Mr. MURPHY. Great. I yield my time back.
Chairman TIPTON. Thank you, ranking member.
I would now like to recognize Mr. Luetkemeyer.
Mr. LUETKEMEYER. Ms. Fulton, thank you for your testimony
today. It is great to see an entrepreneur, somebody who made--
you had a difficult situation. You made lemonade out of lemons
or pickles out of cucumbers, whichever one you want to talk
about.
Ms. FULTON. Thank you so much.
Mr. LUETKEMEYER. But it is nice to see that the American
dream is still alive.
Ms. FULTON. Thank you.
Mr. LUETKEMEYER. You are an example of that; that hard
work, initiative, entrepreneurial spirit can make it all work.
I know it is difficult to work yourself through the maze of all
of the different rules and regulations, programs, policies, and
all the other things, but you have done a good job and need to
be congratulated for that.
Ms. FULTON. Thank you so much.
Mr. LUETKEMEYER. Whenever you said you all fix it, be
careful what you wish for.
Ms. FULTON. I understand.
Mr. LUETKEMEYER. You know, part of the medical creed is
first you do no harm. So according to the federal government,
maybe that is what we need to do, too, first do no harm.
You have experienced some things obviously that are
important from the standpoint of seeing how the system works,
what can actually be done and what cannot be done. Just a quick
question with regards to do you have an SBA loan by any chance?
Ms. FULTON. I do not.
Mr. LUETKEMEYER. Okay.
Ms. FULTON. I do have a line of credit but I could not get
that line of credit until last year when we had been in
business right at three years. We did talk to the SBA about a
loan in the beginning, and because, remember, I was a financial
advisor, not a pickle maker, I had no experience so there was
no opportunity for me to get funding.
Mr. LUETKEMEYER. Okay. Very good. Well, I was just curious
about it.
What percentage of your business comes from foreign trade
right now?
Ms. FULTON. Five percent, and I want to take it to 25
percent.
Mr. LUETKEMEYER. Twenty-five percent?
Ms. FULTON. Yes, sir. That is my goal.
Mr. LUETKEMEYER. Have you had any problems with, at this
point, with currency manipulation, currency valuations between
the countries that you are dealing with? Is that a problem for
you at all?
Ms. FULTON. Well, I will tell you, a little bit. And that
is a great point. One thing that we learned is, on our label--
and again, these are going to be left for you all to have
later--is by putting that America flag on there----
What I was going to say is when people outside the United
States see that American flag on our label, they know it is a
premium product. They know there are food safety regulations
that have produced this product, and they are willing to pay a
premium. So in the beginning, you know, our price point in
China was a little high. The good news is we have got that
American flag on there. You know, not every Chinese person
speaks English, so we came up with the international sign. If
you want to know how to communicate, it is a thumbs up. And
that is what they gave me when they tried Miss Jenny's pickles
in Shanghai. And we have also reduced our price. But it was a
problem in the beginning. But the flag on the label made a big
difference. I will just tell you that.
Mr. LUETKEMEYER. Okay. So you deal with China.
Mr. Arth, you deal with mostly the Latin American countries
at this point; is that right?
Mr. ARTH. Actually, we do buy materials from China and
Taiwan.
Mr. LUETKEMEYER. Okay. Okay. Have you found a problem with
currency valuations between the countries at all?
Mr. ARTH. Are you talking about fair valuation?
Mr. LUETKEMEYER. Yeah. Right. Because I know the Chinese
are trying to manipulate the currency a little bit and it kind
of causes some problems for some of our manufacturers who buy
products.
Mr. ARTH. You know, it is very difficult for us to be able
to point to that and say with any certainty that they are
manipulating the currency. It has been relatively stable. I
mean, our contracts for purchasing materials always have a set
exchange rate. And that is true with the Taiwan dollar as well
as the R&B.
Mr. LUETKEMEYER. Okay. You are in a business where you
compete probably against a lot--I think you made the comment
with regards to other products from other countries, especially
with a metal product. I know that there is a lot of dumping
that goes on, especially from the Chinese, Taiwanese,
Philippines, that area of the world, the Asian-Pacific Rim. I
have some companies in my own area that have problems with
that. Have you experienced that at all with those countries
dumping stuff here that compete against your products and need
some trade protection perhaps?
Mr. ARTH. I am not sure that dumping is going on today with
respect to our core products, which would be the plastic
faucets. Metal faucets are going through a whole new adventure
right now because of the pending lead law that is going to take
effect in January of next year. There may be dumping going on
now just to get rid of old inventory while it is still
saleable.
With respect to the plastic faucet commodity, I do not
think there is a great deal of manipulation or games being
played in other countries to promote that product. When they
first came into this country there were some prices that looked
pretty strange, below material cost almost. But today I think
things have normalized.
Mr. LUETKEMEYER. I have just got a few seconds left. One
quick question for you. You represent the Small Business Export
Association. What percent of small businesses export their
products out of this country?
Mr. ARTH. Oh, geez. It is in my testimony, and I do not
remember the number off the top of my head. I believe it is
less than one percent. Or just over one percent. Two hundred
eighty seven thousand small businesses out of the 27.9 million,
so a little over one percent are actively exporting.
Mr. LUETKEMEYER. Okay. Do you have an idea, just very
quickly, the number of businesses that actually sell a part or
a product to another country that export that product then?
Mr. ARTH. That I do not have a clue but I am confident that
my faithful staff can provide a response to that.
Mr. LUETKEMEYER. I am just curious because it all ties
together with regards to, even though you may not import or
export directly, if you are having problems with--if the
country that you sell your product to has problems, then that
means you have problems as well.
Mr. ARTH. Correct.
Mr. LUETKEMEYER. Thank you for our testimony. I am out of
time.
Mr. Chairman, I yield back.
Chairman TIPTON. Thank you, Mr. King for your questions.
Mr. KING. Thank you, Mr. Chairman. And I thank the
witnesses for your testimony.
As I am listening to this I am starting to think, I
remember back in 1975 when I started a business my biggest fear
was government regulation and how many different hurdles did I
have to leap over that I did not know existed. And I would find
them usually at my peril. So the burden of even domestically
starting a small business that many years ago has to be
multiple times greater today. And once you jump through all
those hoops it would seem to me that you would be acclimated to
get through a few more in foreign countries. However, different
hoops in each country, and that can be the barrier.
I am curious, and I go first to Mr. Arth, how many
countries do you do business in? Export to?
Mr. ARTH. Today we sell--we have distributers in Canada
that we sell to, and then also U.S. distributors who take our
products across the border into Canada. We do very small export
sales to Australia, to Colombia. We used to do Panama. I am not
sure if that is still current. I did list the countries in my
testimony. There are a handful. But we are not yet selling
anything into Mexico.
Mr. KING. And the reason I ask that question is how many of
those countries, just to get a general understanding, I do not
need to pry into your business practices, but a general
understanding of how many of those countries you travel to
before you can open up a market in order to build a network
that you can work with?
Mr. ARTH. To tell you the truth, I have never been to
Australia or any of the other countries with the exception of
Canada, which if you live in Cleveland, Ohio, is right across
the lake. So they are our next door neighbor. Travel to that
country has not been--to those countries has not been a crucial
element. But in all of those cases we may have kind of fallen
into--those were accidental export markets as opposed to
deliberate accomplishments where we can say we are selling
products into Colombia.
Mr. KING. But generally speaking, you had accidental
markets, but when you decide you want to sell into a country do
you make a commitment that you travel there and build a
network?
Mr. ARTH. At this point I am not working on those other
incidental markets. Canada I visit and I do work some shows in
Canada on a regular basis.
Mr. KING. Thank you.
Mr. ARTH. But the others are small pieces right now.
Mr. KING. Ms. Fulton, I know that you have some ambitious
export plans, so I am curious as to how that networking has
worked for you in the past and what countries you are shipping
to now and how that is going to work for you to build your
network in the future.
Ms. FULTON. Well, thank you. We export to China. I did go
to the country and Canada last year and meet with buyers to
build that market. And we hired a Canadian broker. And so we
should be exporting to Canada hopefully within the next 60 to
90 days. I have also met with buyers from Mongolia. We also
have buyers in Europe that I have met with, but I do not have a
presence in Hong Kong. I do not have a presence in Germany. So
I am going over there to pave the way to get our product over
there.
Mr. KING. I brought that up because that is my suggestion.
It is just my belief that this world runs on networks and if
you are looking people in the eye and taking the measure of
them you can be a lot more effective than if you are
transferring things electronically these days. It still comes
down to people, and it comes down to trust and professionalism
and efficiency. So, and you mentioned Germany. How do you
intend to crack into that market?
Ms. FULTON. I forgot to mention, so thanks for coming back
to me, as a small business though, without SUSTA, the Southern
United States Trade Association, I would have never been able
to go to Germany or Hong Kong. And so what we are doing is we
get subsidized once we go over there. We get reimbursed for
part of our airplane and our hotels. And they also set up one-
on-one buyer meetings for me so that I am not wasting my time
because, again, I have never been to Germany. I am going to
have to figure it out. But by having SUSTA and North Carolina
Export with me, holding my hand a little bit, even though they
will not knock on the door and they know I will, but they are
going over there with me, and that makes a big difference.
Mr. KING. I think as Mr. Myhre said, the biggest barrier is
fear of the unknown. Absolutely.
Do you run into any sanitary or phytosanitary issues trying
to market into Europe?
Ms. FULTON. I have not got that far yet but I will get back
to you on that.
Mr. KING. I will be looking forward to that.
We are in the process of opening up our negotiations with
the Trans-Atlantic Trade Agreement. I do not know if that was
mentioned here before I arrived, but those issues have been
huge barriers, especially from the agriculture and the food
side. And one of those things is an issue that I see is trade
protectionism on how we process chickens that are not allowed
into Europe right now. I actually just came back from some
fairly intense negotiations over there on this, and I am not at
this point optimistic we are going to get something done
because trade protectionism is often masked in those kind of
issues, like sanitary, phytosanitary issues, GMO issues, et
cetera. But I am going to take it those are natural-born
cucumbers turned into pickles at your place.
Ms. FULTON. Yes, sir.
Mr. KING. And I appreciate the chairman for holding this
hearing and all of the witnesses. It is a breath of fresh air
for me, as Blaine said, to hear from real people doing real
work. I think that was you, Blaine, but maybe not. But I know
that is what you believe.
Thanks. I yield back.
Chairman TIPTON. Thank you, Mr. King. And we are going to
have votes called in just a couple of minutes.
I had a couple of questions but I would like to yield to
Ranking Member Murphy. You had a couple of follow-up questions
you wanted to ask.
Mr. MURPHY. Just one more and then I yield back.
Mr. Myhre, as you highlighted in your testimony,
regulations on exports have been an increasingly significant
part of what is happening nowadays. In addressing national
security concerns though, these rules place a high degree of
scrutiny on products, but they also demand more resources from
firms to navigate the complex and time-consuming process. Do
you believe there can be a more balanced approach between
security and commercial interests and implementation of these
export controls?
Mr. MYHRE. Certainly. I do not have any specific
recommendations. I have to go back to my area experts to find
out what those are but there certainly has to be a balance we
understand and understand the challenges which you have to
balance national security with the red tape in which, you know,
small businesses have to navigate. What we try to do is make
sure that we mitigate that by staying attune to what that red
tape is and then working with those small businesses to work
through those.
Mr. MURPHY. Do these more stringent controls compel foreign
companies to avoid U.S. products or to retaliate against their
American competitors?
Mr. MYHRE. I have not heard that there is any resistance
against it.
Mr. MURPHY. Okay. All right. Thank you.
Chairman TIPTON. Great. Just to be able to follow up on
that just a little bit, can, maybe very briefly because they
have now called votes for us to go over, can you give us a
month, two months, about how long does it take you to be able
to get all of the information you need together, you know, for
the foreign transactions to actually take place?
Ms. FULTON. Well, I will just answer real quickly because I
met Mr. Shen in May, and we did not export until October. And
it took actually seven weeks to get my product from the boat
all the way over there. So again, met in May and then it left
my dock on October.
Chairman TIPTON. Okay.
Mr. MYHRE. That is the fast track. I would say that the
normal experience for most of our small business clients, we
work intensively with them. It takes anywhere from 80 to 100
consulting hours to research, to develop, and then identify
specific market strategies. But then they have to go to, as the
congressman highlighted, to the country to develop the
networks, find the buyers, et cetera. We find that it takes
anywhere from 6 to 12 months at a minimum.
Chairman TIPTON. You know, I am a small businessman and
that has always been our experience. And time investment and
capital investment to be able to create those markets to tell
the field, if you will, and then to be able to ultimately get
there and then have 60-90 days before you get that first check
coming back after you have established the market is always a
real cost that we have got to understand.
I believe our panel almost unanimously has stated that some
of the largest barriers to exporting is understanding and
complying with those foreign regulations. Can you explain, and
again, if you keep it brief--I apologize for our time
constraints on our end here--how you keep up with those foreign
regulations, including technical barriers and changes to the
tariffs.
Ms. FULTON. What I would say to that, Chairman, I keep
different folders for each different country, and I print off
everything that is supposed to go to China, everything that is
going to Canada, and keep it totally separate and keep a large
file on it. But again, I am sure there is information out there
I need to know that I do not.
Chairman TIPTON. All right.
Mr. MYHRE. From our professional expertise, all of our
people are certified in their area of expertise, so they are
required to continue to have professional development training
to stay attune to their area of expertise.
Chairman TIPTON. Okay.
Mr. ARTH. We do anticipate when we finally get going in
Mexico that we will actually retain counsel in Mexico to keep
us appraised of the situation in that country and then working
with domestic resources, USEAC, and others to stay up on U.S.
trade regulations.
Chairman TIPTON. Believe me, I have a lot of great empathy
for the idea of having one-stop shopping to be able to get that
information. I think having a myriad of different websites to
be able to go to when we are starting out and all we want to do
is make pickles or to be able to sell faucets, that is our real
business. And the better position I think from the federal end
of the world, and we have some great examples in North Carolina
and in my home state of Colorado as well, being able to work
with people wanting to be able to export going out. I think
simplification and consolidation of that information is going
to be really critical for us.
I guess just for me to be able to close here, just real
quickly if I could get maybe Ms. Fulton and Mr. Arth to be able
to explain, if you just had one bit of quick advice to be able
to give other businesses that wanted to be able to export, what
would that be?
Ms. FULTON. Take the risk. Do it. It is worth it in the
end.
Chairman TIPTON. Great.
Mr. ARTH. You know, call USEAC was the best advice I got.
It has not been complete and totally satisfactory, but they
have done a good job and I think I would make the same
recommendation to someone who asked me.
Chairman TIPTON. Great. Well, thank you all so much for
taking the time to be able to come in for this I believe
important Committee hearing. This is about jobs. I believe Ms.
Fulton this is probably your family if I am seeing the same
eyes sitting behind you.
Ms. FULTON. Yes, sir. Very proud.
Chairman TIPTON. It is about these kids. It is about their
future and it is about American entrepreneurialism to be able
to get this country moving and to be able to get our people
back to work. And small business can help lead the way. And
when we have only got one percent of small businesses having
that opportunity to be able to really get in right now there is
a big market for us to be able to capture and to be able to put
that American flag on our products. No country in the world
does it better than the workers and the entrepreneurialism of
this country.
Thank you again. First meeting together with our new
ranking member here as well. This Committee will continue to
closely follow the barriers and issues faced by small business
exporters, and I look forward to working with you and my
colleagues in Washington on new solutions to be able to make
overall trade practices and processes easier for small
businesses.
I ask unanimous consent that the members have five
legislative days to submit statements and supporting materials
for the record. Without objection, so ordered. This hearing is
now adjourned. Again, thank you.
[Whereupon, at 11:21 a.m., the Subcommittee was adjourned.]
A P P E N D I X
[GRAPHIC] [TIFF OMITTED]
The U.S. Chamber of Commerce is the world's largest
business federation representing the interests of more than 3
million businesses of all sizes, sectors, and regions, as well
as state and local chambers and industry associations.
More than 96% of Chamber member companies have fewer than
100 employees, and many of the nation's largest companies are
also active members. We are therefore cognizant not only of the
challenges facing smaller businesses, but also those facing the
business community at large.
Besides representing a cross-section of the American
business community with respect to the number of employees,
major classifications of American business--e.g.,
manufacturing, retailing, services, construction, wholesalers,
and finance--are represented. The Chamber has membership in all
50 states.
The Chamber's international reach is substantial as well.
We believe that global interdependence provides opportunities,
not threats. In addition to the American Chambers of Commerce
abroad, an increasing number of our members engage in the
export and import of both goods and services and have ongoing
investment activities. The Chamber favors strengthened
international competitiveness and opposes artificial U.S. and
foreign barriers to international business.
Positions on issues are developed by Chamber members
serving on committees, subcommittees, councils, and task
forces. Nearly 1,900 businesspeople participate in this
process.
Thank you Chairman Graves, Ranking Member Velazquez, and
distinguished members of the U.S. House of Representatives
Committee on Small Business Subcommittee on Agriculture, Energy
and Trade. My name is Jenny Fulton, and I serve as the Chief
Pickle Officer/Chief Executive Officer of Old Orchard Foods,
LLC or Miss Jenny's Pickles. Our pickle world headquarters is
located in Kernersville, North Carolina. I am extremely honored
and grateful for this opportunity to share our story with each
of you today. I am testifying today on behalf of the U.S.
Chamber of Commerce, which is the world's largest business
federation representing more than three million businesses and
organizations of every size, sector, and region, as well as
state and local chambers and industry associations.
Starting Miss Jenny's Pickles
Miss Jenny's Pickles (www.missjennypickles.com) was born
out of the recession. Ashlee Furr, my business pickle partner,
was laid off in June 2009, and my layoff followed in January
2010. Ashlee and I confirmed that we were both burned out with
the financial industry and decided to take a true leap of
faith--like many during the hard economic times--and start our
own company.
Coming from financial backgrounds, we had very little
knowledge in the food industry, but using a family recipe we
decided to start our very own pickle company. We began by
researching other small food businesses, but we needed help.
The first resource we turned to was Service Corps of Retired
Executives (SCORE) in Greensboro, NC. After they stopped
laughing at us, they began to point us in the right direction
and were instrumental in helping us start a small business.
However, we faced another hurdle. We needed a certification to
manufacture food products for mass markets. Ashlee & I attended
NC State University for three days of chemistry in food science
and looked to the North Carolina Department of Agriculture for
guidance.
For the first two years we grew our own cucumbers and
jarred every jar. We formed a partnership with a local YMCA to
use its kitchen which saved us thousands of dollars by not
having to build a commercial kitchen to produce our product. We
still use the YMCA kitchen today for some of our products but a
co-packer makes the majority of Miss Jenny's Pickles. This
allowed us to expand our market and brand.
In the beginning, we knocked on doors of local independent
stores to carry our product and attended local food shows to
meet buyers from grocery stores. Once we were approved by the
stores we had to deliver inventory which consisted of very
early morning deliveries to stores, then returning home to get
our children to school, then returning to the field to pick
cucumbers, and then taking them to the YMCA for processing. We
did this day in and day out. By the end of 2010, we had our
pickles in 50 stores. By the end of 2011 we had pickles in 200
stores, and by the end of 2012 we were carried in over 800
stores.
In our short three years, Miss Jenny's Pickles has grown
its business to five full-time employees and a part-time CFO,
Barry Safrit who is wonderful with our planning and financials.
We have created jobs through the growth of exports. We have
been exporting for two years now, with pickles going to China,
and soon to Canada, Hong Kong and Germany. Today, we continue
to look for new markets, bringing our products to customers all
over the world. I am pleased to be before you today to discuss
the opportunities that small businesses would like to see made
more available, so we can grow even more.
Breaking into the International Market
Knowing that 95% of the world's population lives outside
the United States, we decided that exporting would be crucial
to our success. In May 2011, the North Carolina Department of
Agriculture's Export Department (www.ncagr.gov/markets/
international) and the Southern United States Trade Association
(SUSTA) (www.susta.org) organized an in-bound trade mission for
Chinese buyers/distributors to meet with North Carolina
businesses, in which we decided to participate. Wow, what an
adventure! It was there that we met our business partner in
China, Mr. Shen. After hours of reading e-mails translated
using Goggle Translate, talking via Skype with a twelve-hour
time difference, and 32 pages of documents, we finally received
our first order from China. The North Carolina Export
Department was wonderful to work with. They stuck by us through
the good times and the bad. Miss Jenny's Pickles sent off its
first five pallets of pickles to China, and from there started
to receive more inquires about our products and expanding our
exports.
Last year, the North Carolina Export Department and the
SUSTA took a trade mission to Shanghai for the SIAL (www.sial-
group.com) food show. SIAL is the global marketplace for those
involved in the food industry. I went along, and it was then
that I had the opportunity to visit the stores that carry Miss
Jenny's Pickles. I must be honest; I was extremely amazed,
humbled, and proud to be standing next to our pickles on the
shelf in China. It was rewarding to know that I was
representing the United States of America, which has world-
recognized food safety regulations, and a product ``Made in the
USA'' with the American flag on the label, for which people in
China are willing to pay a premium. This March, Mr. Shen is
returning to the United States, and I will be visiting and
hosting him and his team while they are here to build on our
relationship and increase our exports to China.
Last year I also participated in a trade mission to Canada,
arranged by the same two organizations. It was there we hired a
food broker in Canada. This year, with the help of NC Export
Department & SUSTA, I will be attending food shows in Hong Kong
and Germany to build our international brand as we look for
more markets to do business in.
During the early stages of working in the international
marketplace, we attended a forum in Charlotte, NC, called Small
Business Global Access hosted by U.S. Senator Kay Hagan along
with Chairman and President of the Export-Import Bank Fred
Hochberg. I was so impressed with Mr. Hochberg's remarks on Ex-
Im's efforts to help small businesses export that I ran out to
his car after the forum and handed a jar of pickles to his
driver. I said to the driver, ``Please make sure Mr. Hochberg
tries our pickles because I want to export this year!'' Today,
we partner with Ex-Im so that we can offer terms to our foreign
buyers which increase our sales by having this option
available. Without the Ex-Im Bank our small business would
never have been able to offer terms outside the United States.
The trade and export promotion programs funded by the
International Affairs Budget are essential to expanding U.S.
activity in new and emerging markets. They will play a vital
role in our international sales going forward.
Without my ``out of the jar'' thinking, and pure
determination to export, I am not sure that our young company
would have had such great export success. As a result, we are
creating jobs, increasing revenue, and exporting our pickles
around the world.
Improve U.S. Trade Promotion Programs to Help Small
Businesses Export
International trade plays a central role in creating
American jobs and boosting economic growth at home. More than
38 million American jobs already depend on trade, and over 97%
of the 275,000 U.S. companies that export are small and medium-
sized enterprises (SMEs). However, this figure represents just
one of every 100 U.S. SMEs, underscoring how difficult it is
for smaller firms to enter export markets.
If more U.S. small businesses were able to seize export
opportunities, the gains could be immense. I have seen
firsthand the need for the government to improve U.S. export
promotion programs. After our company was on 60 Minutes, we
received hundreds of emails and phone calls from Americans that
want to start their own company just like us and tap into the
resources available. However, they don't know where to begin.
People flew all the way from Seattle to Kernersville to meet
with us and ask for help. I can't tell you the number of hours
that we spend helping other companies. We need to put a central
resource in place to help American entrepreneurs to succeed in
the global marketplace.
Small businesses need help in paving the way to new
markets. We are left on our own to find the doors and knock on
them. Many doors are not open to us. The services, expertise,
and dedication of the state and federal export promotion
programs are world class, but I know that many U.S. companies
are not aware of the government services that are available to
help them break into new markets. This isn't the fault of
America's small business owners. The assistance offered by the
state and federal government needs to be promoted more
effectively. Small businesses need a roadmap for export
success.
There are many successful state programs that I believe
should be replicated in other states and ideally on a federal
level. In North Carolina, the Department of Agriculture is
aggressively helping North Carolina companies export. These
good people encourage companies like mine to consult with trade
specialists, to learn more about trade through workshops and
seminars, to participate in trade missions, and to meet with
international buying delegations. Without their help, we would
not have found many of the international opportunities we've
identified.
On the federal level, the Government Accountability Office
(GAO) has determined that the 17 federal agencies with export
promotion programs could be made more effective through better
coordination, elimination of duplicative activities, and better
allocation of resources. In particular, GAO found that
strengthening the interagency Trade Promotion Coordinating
Committee would improve the effectiveness of U.S. export
promotion programs. GAO also found that effective export
promotion programs can provide significant benefits to SMEs in
the competitive global economy. I am a member of the White
House Business Council and have the opportunity to participate
in calls that discuss trade promotion programs among other
small business issues.
There are also private companies and organizations such as
the SUSTA that engage in export promotion. Other export-minded
organizations that I am a part of include the National
Association for the Specialty Food Trade (NASFT), which is
dedicated to helping specialty food companies thrive and
promoting the specialty food industry on an international
scale. We are also members of Pickle Packers International
(PPI), which has served the pickled vegetable industry for over
119 years by sponsoring research, representing industry before
government agencies, producing educational materials, and
providing networking opportunities to its members. Membership
of PPI represents 87 percent of the cucumber tonnage grown for
pickle-use in North America, valued at more than $1.5 billion.
I also sit on the Board of Directors for the North Carolina
Specialty Foods Association which has been a great help to our
business.
There are many seasoned exporters among America's small
businesses, but there are many others that have never even
considered exporting. I know that exporting can be challenging
and overwhelming at times, especially for small businesses.
Each country is different, and each culture is unique.
Introducing U.S. products is always time consuming,
challenging, and expensive. But in the end, it is all
worthwhile.
Trade Policies That Bring Growth and Prosperity
As the president of a small company, I truly understand the
importance of international trade and the impact it can have on
small business. It's simple: we want to ship to more countries,
grow our client base, and create more jobs. The more we
diversify our client base, the more stable we will be.
Standing in the way, however, is a complex array of foreign
barriers to American exports. Those barriers are alive and
well, and they pose a major competitive challenge to U.S.
industry and agriculture and the millions of U.S. workers whose
jobs depend on exports.
From a business perspective, the foremost goal of U.S.
trade policy should be to tear down those barriers so companies
like mine can start exporting to new markets. Free trade
agreements have helped us accomplish this in the past and will
help our business grow in the future.
American workers and businesses are facing one of the
harshest economic storms we've seen in years. Over eight
million Americans have lost their jobs since the recession
began, and we need to put Americans back to work. Recognizing
that 95% of the world's consumers live overseas, I applaud
President Obama's goal to double U.S. exports. An efficient way
to promote U.S. exports is for Congress to support trade
policies that will generate billions of dollars in new American
exports. These include:
Restoring the president's traditional authority to
negotiate trade agreements;
Concluding a comprehensive, high-standard, and
commercially meaningful Trans-Pacific Partnership trade
agreement; and
Launching negotiations for a comprehensive Trans-
Atlantic Trade and Investment Partnership that will eliminate
tariffs and non-tariff barriers to trade, ensure compatible
regulatory regimes, and liberalize investment, services, and
procurement.
Let me touch a bit further on a few of these priorities.
Trade Promotion Authority
First, the president needs the authority to negotiate trade
agreements--Trade Promotion Authority (TPA). Congress has
granted every president from Franklin D. Roosevelt to George W.
Bush the authority to negotiate market-opening trade agreements
in consultation with the Congress.
The U.S. Constitution gives the Congress authority to
regulate international commerce, but it gives the president
authority to negotiate with foreign governments. TPA rests upon
this constitutional partnership: It permits the executive
branch to negotiate agreements in consultation with the
Congress; when an agreement is reached, Congress may approve or
reject it, but not amend it.
TPA lapsed in 2007. That's unacceptable; every American
president needs TPA, and every president should have it.
Potential partners won't negotiate seriously if they know
agreements could be picked apart by Congress. The Obama
Administration and Congress should begin discussions on new
negotiating authority as soon as possible.
Trans-Pacific Partnership
Once TPA is renewed, how should the President and Congress
use it? Clearly, the United States needs to engage in the Asia-
Pacific region as never before. The region accounts for half of
the world's population and boasts many of its fastest growing
economies.
The U.S. may be falling behind in the world's most dynamic
region. Over the past decade, the growth in U.S. exports to
Asia has lagged behind our overall export growth. As the think
tank Third Way has pointed out, the U.S. share of the import
market of 12 key Asia-Pacific economies actually fell by 43%
between 2000 and 2010. In short, Asian nations are designing a
new architecture for trade in the global economy's most dynamic
region--threatening to draw ``a line down the middle of the
Pacific.''
This is the case for the Trans-Pacific Partnership (TPP),
which is the one trade agreement under negotiation today in
which the United States actually has a seat at the table. The
TPP is our chance to ensure the United States is in the game in
Asia. The American business community needs the TPP to succeed
so we can be competitive in Asia-Pacific markets. With Canada
and Mexico joining the negotiations in 2012, the TPP today
embraces 11 countries.
Trans-Atlantic Partnership
As we consider new trade accords with our biggest
commercial partners, Europe calls out for attention. Together,
the United States and the European Union generate half of
global GDP. More than $1.5 trillion in goods, services, and
income receipts flow between the United States and the EU
annually. U.S. firms have direct investments of nearly $2
trillion in the EU--20 times what they have invested in China.
These European investments generate some $3 trillion in annual
revenues for American companies that have invested in the
European Union to sell their wares to its more 500 million
citizens. The numbers are similar for European firms'
investments in the United States. Our economies are so closely
integrated that about 40% of U.S.-EU trade is intra-firm.
In his State of the Union address earlier this month,
President Obama issued the long-awaited announcement that the
United States and the European Union will negotiate a Trans-
Atlantic Trade and Investment Partnership. The U.S. business
community strongly supports this initiative. For too long, the
United States has ignored the untapped potential of its ties to
the world's other economic colossus. For the sake of jobs and
growth, it's time to turn that around.
Conclusion
In closing, I challenge each of you to expand upon and
better promote the trade resources that are available to small
businesses. Investing in the export potential of America's
small and medium-sized businesses could bring dramatic gains
and stimulate the economy. If America fails to look abroad, our
workers and businesses will miss out on huge opportunities.
Thank you for the privilege and opportunity to appear
before you today. I greatly appreciate the opportunity to
testify today on behalf the U.S. Chamber of Commerce and Miss
Jenny's Pickles. Thank you very much.
[GRAPHIC] [TIFF OMITTED] T9821.030
Chairman Tipton, Ranking Member Murphy, Members of the
subcommittee, thank you for the opportunity to submit testimony
on strategies to improve small business participation in
international trade. I have prepared a written statement for
the record and will give you a summary of my remarks.
Over 90 percent of the world market exists outside the
boards of the United States. Nonetheless, only one percent of
small businesses export their goods and services. The single
biggest reason small businesses don't export is their simple
lack of knowledge of the opportunities that exist and their
simple readiness to navigate the process. This loss opportunity
severely inhibits, or at least limits, both their individual
growth and overall national economic growth.
The mission of Small Business Development Centers is
simple--to help small businesses grow and compete. In that
effort, SBDCs retain specialized professional business
consultants who are driven to help their small business
customers research and develop specific strategies to expand
markets and grow revenues. Through the growth of revenues
businesses are able to hire more workers and contribute to the
expansion of our economy. In the Florida SBDC Network we brand
these specialize consultants as our Growth Acceleration
Professionals, or GAP experts.
With a national network of nearly 1,000 centers, America's
Small Business Development Centers offer a wide variety of
programs and services to assist and encourage small businesses
in their efforts to access international market opportunities.
By accessing these specialized growth and international market
consultants, we strive to identify those firms that are or are
close to being ``export ready'' and assist them with developing
the tools and strategies they need to succeed beyond our
domestic boarders. What we consistently find is that small
businesses, including our smallest small businesses with fewer
than 20 employees, are at a competitive disadvantage to their
large business counterparts in their readiness to export due in
large part to the daunting complexity of trade regulations and
the potential uncertainty of international business
transactions.
Export Readiness
At SBDCs around the country small businesses receive honest
and accurate assessment on the state of their firm and their
state of readiness to participate in the global marketplace.
Unlike other programs or resources, our network of SBDC
specialists assists small business owners in reaching,
developing and, most importantly, executing international trade
strategies. Through one-on-one consulting, training, customized
research, and access to a network of trade professionals and
partners, the SBDC provides its customers with the tools and
strategies to successfully and profitably navigate the
expanding world of international trade. Meeting with small
businesses, SBDC consultants help determine the exportability
of their products or services, identify appropriate markets and
buyers, develop market entry strategies, establish shipping and
distribution networks, determine appropriate payment methods
and identify export financing and insurance needs.
Trade Research
Another key disparity between large and small business is
access and affordability to business data. To aid in the
process of getting a small business export ready our SBDC
export specialist provide strategic international market
research to help its small business customers make informed
decisions on the best international market opportunities for
their product or service. Our SBDCs have access to a wealth of
information on export markets, ranging from general country
information to specialized information on markets for specific
industries and products in countries worldwide. In some cases,
our SBDCs can also conduct primary research for small business
clients needing specific information unavailable through
secondary sources. Examples of research SBDCs provide include:
General information on doing business in
different countries
Demographic, economic, political and cultural
information on different countries
Information on specific industries/products in
export markets, including:
- market size, characteristics and trends
- competitive environment
- trade barriers and regulatory environment
- pricing infrastructure
- sales & distribution channels
- key contacts (manufacturers, distributors, end-
users, trade associations and journals, government
offices, etc.)
- trade shows
Detailed statistical information on U.S.
exports by state, product and country
Compliance Assistance Programs
Another major hurdle small businesses face is the various
export control regulations that govern international trade. Our
SBDCs export specialists offer Export Compliance Assistance
Programs. Through these programs, they educate small businesses
on export regulations and practices that can be implemented to
ensure compliance.
In recent years, the federal government has significantly
tightened export regulations in response to growing threats to
national security. Government export enforcement officials are
actively pursuing companies whose export operations are not
compliant with U.S. regulations. Lack of export regulatory
awareness on the part of an exporter can lead to audits and a
whole host of penalties, including fines, revocation of export
privileges and debarment from contracting that could threaten
the very going concern of small business firm.
Many small businesses mistakenly believe that they are not
affected by export regulations because they produce products or
sell only to ``friendly'' countries. Whether they know it or
not, all exporters operate under U.S. export control laws,
which are broad and far-reaching. Even with the help of a
freight forwarder, small businesses can unknowingly violate
these laws. The exporter is ultimately responsible to have a
thorough understanding of export regulations and to establish
operating procedures aimed at preventing violations.
At SBDCs export compliance assistance is a free service
offering:
Counseling and technical assistance on the
full range of U.S. export regulations
ECCN classification guidance
Export license determination assistance
Assistance in establishing an Export
Management System
In-house training on the Export Administration
Regulations, documentation and procedures
Targeted referrals to government authorities
responsible for export controls
Low cost seminars on export compliance issues
Onsite assistance available through the
network of offices
SBDCs also regularly collaborate with the US Census
Bureau's Foreign Trade Division to host seminars on the Foreign
Trade Regulations (FTR) and the Automated Export System (AES).
These seminars provide two days of training on changes to the
FTR, common mistakes and how to avoid them, Export Controls and
Enforcement and Commodity Classification. In addition, the
seminars help familiarize small businesses with the Census
bureau's extensive trade statistics system.
By work with the Census Bureau and other agencies SBDCs
help small businesses get their documentation done right the
first time and develop the skills they need to handle exports
on their own.
Export Financing
Helping small businesses attract and handle financing has
always been a cornerstone strength of the SBDC network.
Navigating what resources are most applicable can be confusing
without the proper guidance. In international trade SBDCs work
closely with SBA's Export Loan program, the Export-Import Bank
and conventional financial institutions to help small
businesses identify and apply for appropriate funding to
support their international trade activities. Without these
funds many small business would face uncertainty and
potentially unnecessary risk and losses.
Conclusion
As you can see, international trade assistance is
incredibly specialized and complex. SBDCs offer a wide range of
international trade services, but these services are extremely
resource intensive. SBDCs do an outstanding to assist small
business whenever and wherever they have opportunity to do
business. We help navigate the regulatory maze but efforts to
streamline and coordinate export services are necessary and we
welcome the committee's focus on unraveling some of this
complication and bringing a small business focus to the
national effort to increase trade to our country's trade
partners.
The complexity and the cross-agency jurisdictions are not
the fault of the Obama Administration, the Bush Administration
or Congress. Rather they are a product of years of changing
economic realities and the many responses to those issues.
However, it isn't just assistance and guidance that is
necessary. We need Free Trade Agreements that are clear and
focus on small business interests, and we need tariff and
export controls that are uniform, clear and specific. We
appreciate the efforts of the Trade Promotion Coordinating
Committee, they are a great help in our efforts to educate
small business on trade. Likewise, the US Trade Representative
has been a solid advocate for small business concerns and a
solid supporter of SBDC expansion worldwide. Those efforts are
vital but to truly make our small businesses competitive in the
global marketplace there is much more work to be done.
Thank you.
[GRAPHIC] [TIFF OMITTED]
Good morning. I would like to thank Chairman Tipton,
Ranking Member Murphy and the members of the Small Business
Subcommittee on Agriculture, Energy and Trade for inviting me
to testify today. I am Raymond Arth, co-founder and President
of Phoenix Products, Inc. a manufacturer located in Avon Lake,
near Cleveland, Ohio. Our company produces faucets and also
imports finished faucets, hand showers and other accessories
that are sold under our company brand names. Our products are
sold throughout the U.S. and Canada, from the Rio Grande to the
Arctic Circle. In addition we have very modest export sales to
Australia, Costa Rica, Guam and Panama with ambitions for
robust exports in the near future.
About Phoenix Products, Inc.
Phoenix is a small company; we have thirty-one employees,
several of whom work part-time. As demand requires, we
supplement our factory staff with up to 10 temporary employees.
Like many small manufacturing companies our labor force is
primarily comprised of workers skilled in a specific trade--
meaning we have very limited in-house resources when it comes
to pursuing new market opportunities such as exporting.
To the best of my knowledge, Phoenix is the last, stand-
alone company that still manufactures low cost plastic faucets
in the U.S. Since our founding in 1977 we have sold our
products primarily to the Recreational Vehicle (RV) and
Manufactured Housing (HUD Code) industries. For the first 25
years or so we were able to withstand foreign competition and
stemmed the tide of low cost imports into our market segments.
Unfortunately, we have been forced to supplement our product
line with Chinese-produced faucets in order to remain
competitive in an industry which has continually been undercut
over the last 10 years by Chinese and Taiwanese product price
points that are impossible to match here in the U.S.
I am pleased to report that today we still produce and sell
more faucets in our factory than we import. But our customers
are increasingly more interested in lower prices and the trend
is toward the imported products. In 2008 sales of imported
faucets represented only 15 percent of our total faucet sales.
Today imports account for 30 percent of the faucet sales
category with growth coming from both the low-cost and high-end
designs.
Exporting Phoenix Products
The long-term survival of our factory depends on developing
foreign markets for the products we produce in the U.S.
Undoubtedly, we can adjust our business model in other ways,
but at the end of the day, as the share of imports grows and
our domestic production shrinks we lose our economies of scale
and the savings associated with high volume purchases.
Eventually we could lose the critical mass that makes it
possible to sustain our manufacturing capability. Equally
important, we are overdue for a design face-lift that I cannot
justify given the uncertain long-term viability of our
manufacturing function. I have made plans for Phoenix to
survive as a distributor of branded imports. But I am a
manufacturer from a family of manufacturers. The Arth family
has been pouring metal and/or building faucets in Cleveland
since 1894. It is what we know and I would hate to see it end.
Our original core market, the factory-built HUD Code home
industry collapsed at the turn of the century and we made our
first attempt to develop export sales to Mexico in partnership
with another domestic supplier and a partner in Mexico. That
effort failed and we shelved the project until after the Great
Recession. For the last four years we have made a more
concerted effort to sell our products to the social housing
market in Mexico and as any exporter will tell you--starting
out is something short of trial by fire.
I am proud to be here representing not only my company, but
also the Small Business Exporters Association (SBEA)--the
largest and oldest nonprofit association in the country
dedicated exclusively to small and mid-size exporters, and is
the international trade arm of the National Small Business
Association (NSBA). I was familiar with SBEA and asked for
their advice on initiating an export sales effort. They
suggested that I first consult the U.S. Export Assistance
Center (USEAC) for assistance.
In March 2009, I contacted the Cleveland USEAC office. It
took two months before we managed to arrange a meeting with a
Commercial Officer at our facility. We exchanged frequent
emails and phone calls but did not accomplish much for over a
year. In Sept. 2010 a new Commercial Officer named Jay Biggs
was assigned to our case. I mention Mr. Biggs by name because
he did a great job for us during him time in Cleveland and in
my mind deserves commendation. He succeeded in getting useful
information from the Commercial Specialist in the U.S. Embassy
in Mexico City. He also suggested that I attend a trade
conference sponsored by the Department of Commerce.
The Trade Winds Forum on Mexico & the Americas was held in
Mexico City in April 2011. It was an excellent program that
included a number of very informative workshops and seminars.
The networking events provided contacts that may prove valuable
in the future. As part of the program, I also had four Gold Key
appointments, one-on-one meetings with prospective foreign
customers that had been arranged by the embassy staff. The
Commerce Department's Gold Key program accomplishes many of the
factors that SBEA believes are important--it cuts transaction
and opportunity costs, it helps minimize fear factors and it
aids in assessing upside potential. The companies appeared to
be solid prospects and I left the conference encouraged that we
could finally begin to establish a market in Mexico.
Unfortunately, after the conference it was difficult to get
ongoing support from the Commercial Services staff in Mexico
City and in June, a couple of months after the conference, Mr.
Biggs was transferred to Guangzhou--leaving us without our
primary stateside resource.
I should also mention that during the Trade Winds Forum, I
met with the Senior Commercial Officers (SCO) from Argentina,
Chile, Columbia, Costa Rica, Dominican Republic and Panama.
Several of the SCOs were enthusiastic about our market
opportunities in their countries. Due to our limited resources,
however, I chose to focus our attention on the Mexican market
so that we can offer complete service and support when the time
comes. Perhaps we would be further along with sales in Columbia
or elsewhere had I elected to pursue multiple markets at once.
In order to pursue sales in Mexico, we asked Commercial
Services for assistance in identifying a sales representative
in that country, who we would pay for their services in selling
our products on our behalf. In July 2012, over one year later,
we did receive one referral but it was not a practical option,
as the sales organization wanted significant up-front payments
for investigation and development that we deemed impractical.
So now we are working with U.S. industry contacts to identify
prospective Mexican sales agents.
Determined not to give up, eventually the Cleveland USEAC
and U.S. Small Business Administration (SBA) arranged a meeting
with the Export-Import Bank of the United States (Ex-Im Bank)
that provided critical insight and information about
establishing our terms of sale and how to ensure we get paid.
They also connected us to Global Target, an educational program
offered by the Global Business Center at the Monte Ahuja
College of Business at Cleveland State University. This program
broadened our knowledge and helped us identify further
resources to assist us.
The State of Ohio also provided assistance. The Ohio
Department of Development has a robust International Trade
Division. We have received a great deal of support from the
International Trade Advancement Center (ITAC) especially with
respect to NAFTA compliance, county of origin training and so
forth.
The bottom line is that--despite receiving some valuable
assistance and training--two years after my initial trip to
Mexico we are still trying to make that critical connection
that will make the next steps possible.
Challenges of Exporting for Small Businesses
I have never been one to complain--I'm too busy running my
business, but in looking to craft policy to bolster exporting
from small- and mid-sized enterprises (SMEs), it is critical to
understand the vast differences between large and small
companies and the inherent competitive disadvantages small
firms face when looking to go global.
Large companies in the U.S. are, for all practical
purposes, fully globalized. They have a good sense of where
their export markets are and what is needed to sell in those
markets. They know where to go to finance their foreign sales
and have the resources to handle common types of foreign trade
barriers to U.S. exports. The situation among small and mid-
sized companies in our country is dramatically different.
The economic difficulties over the past few years, coupled
with ongoing outsourcing, have put small businesses at a
distinct disadvantage in the global economy. NSBA and SBEA have
been urging for years--decades, even--that more must be done to
emphasize the needs of small business within the scope of U.S.
trade in order to enhance exporting opportunities for small
U.S. companies.
According to the SBEA's 2010 Small Business Exporting
Survey, among those small-business respondents not currently
exporting, the largest barrier is information. Thirty-eight
percent of non-exporters said they don't know enough about
exporting and aren't sure where to start. Twenty-eight percent
cited concerns over getting paid from a foreign costumer. When
asked whether they would be interested in exporting if some of
these concerns were addressed, 43 percent said they would.
Interestingly, those small businesses currently exporting named
the same top two challenges, but in reverse order.
For a new product or a new market, the learning curve can
be pretty steep especially when most smaller companies, such as
Phoenix Products, have only a few key people working on export
transactions. According to the SBEA's Exporting Survey, an
overwhelming majority, 96 percent, of small exporters handle
exporting operations within the company--only four percent use
an export management company. The time that we devote to an
export transaction is time that we won't be devoting to some
other, equally important business operation. You have to
wonder--especially in my case, after two years of no results,
is it even worth it?
So while we have learned a great deal, I have yet to make
our first sale in Mexico. Despite persisting steadily we remain
frustrated by the lack of progress. I anticipate making the
necessary connections this year, but I will be relying on
contacts made through industry associates and not any of the
governmental support organizations.
So Phoenix Products is the poster child for ``Disappointed
and Disillusioned Exporters.''
What insights or suggestions can be derived from our
experience?
Improve Technical Assistance and Coordination
Let me begin with the obvious: developing foreign markets
is a challenge, especially for a small firm with limited human
and financial resources. There are cultural factors to learn,
language barriers, legal snares and obstacles, and the complex
array of logistical and governmental issues surrounding cross-
border trade. We have had to learn a great deal about Mexican
labor laws and their VAT, about NAFTA and international
logistics. We are still trying to identify a sales
representative or other partner in Mexico that will present and
promote our products to our target customers.
We could not have made any progress without expertise and
training. The Cleveland USEAC was very helpful in linking us to
educational resources, the Ex-Im Bank and the Trade Winds
Forum.
In our dealings with the Department of Commerce we have
seen very uneven levels of responsiveness and support. The
Cleveland USEAC was initially ineffectual, then actively
promoting our efforts and now responsive to us when asked but
unable to help us make that critical connection with a Mexican
entity to promote our products.
The Trade Winds Forum on Mexico & the Americas was a great
success. It was under-priced; actually it turned out to be
free. The fee was only $1,650 for the conference and four Gold
Key meetings complete with a driver and translator. At that
price it was a steal. But then, First Energy, our local
electric utility, subsidized the full amount.
My advice is do not give away valuable support services;
charge a fair price at the front end so you can afford to
provide sufficient support to move us along if there is an
opportunity. I think it is a mistake at any time, but
especially now, to charge too little as was the case with this
conference. I wonder if part of my problem getting follow-up on
support was an overload created by a program that was under-
priced. Developing export markets is expensive and the
Department of Commerce might be able to offer better support if
they set the bar higher at the front end and had fewer, but
more committed clients.
There are many resources available at the federal, state
and local level but it is extremely hard to figure them all
out. We have dealt with:
The U.S. Commerce Department: USEAC and
Foreign Commercial Services
SBA with respect to the Ex-Im Bank
Ohio Department of Development--International
Trade Division
The Northeast Ohio Trade & Economic Consortium
(NEOTEC) and its affiliate International Trade
Assistance Center (ITAC)
Global Target Business Center at Cleveland
State University
The good news is that these organizations seem to work
together well. USEAC brought in the SBA and Ex-IM Bank on my
behalf. They directed me to Trade Winds Forum on Mexico & the
Americas. In the Global Target program all the named
organizations were participants and collaborators. Equally
important is that these public entities included and embraced
private sector providers and advisors.
Theoretically, most of the local organizations are
overlapping with the Department of Commerce. But as a practical
matter they have proven better able to provide more in depth
service and support. Although I have not felt that I had too
many choices for the same service, it is more a case of having
various providers for different services. Knowing who to call
for what is the trick.
It is important to realize that most small exporting
companies will not be interacting with agency officials in
Washington; they will be dealing with lower-level government
officials in federal offices across the country. These
officials must be fully invested partners in the President's
National Export Initiative: well-recruited, well-trained, and
well-incentivized to think broadly about exporting and helping
local exporters succeed. Accountability for successes and
failures must reach down to the local level.
With more than twenty federal departments and agencies
playing some role in international trade, it is important that
SME's have a place to turn. Many of these agencies overlap and
offer duplicative services. I would recommend a One-Stop Shop--
ideally the Department of Commerce and more specifically the
International Trade Administration (ITA)--create a centralized
staff dedicated to field small business ``how to'' calls on
exporting and to assist small businesses in transferring their
exporting thoughts and ideas into reality. It would be
beneficial to develop a ``beginning-to-end'' focus on each
company--staying with a company from initial inquiry through
the completion of the transaction and any necessary follow-up.
Increased coordination between agencies will help more
small businesses access the tools they need to export--enhanced
export training and technical assistance are key. Especially
for small companies that are new to exporting and those with
specialty products for exotic markets, there are undeniable
fear factors, knowing exactly where to go and who to call could
alleviate some of this anxiety. Cross-agency outreach guides
and learning materials on the intended foreign markets with
virtual marketplace and virtual trade missions would make it
easier and less expensive for small businesses to reach foreign
partners.
Interpreting and comprehending government regulations has
proven to be another challenge that exhausts a small firm's
human resources and even drains our wallets when we have to
turn to outside professionals. It should come as no surprise
that the results from the SBEA Exporting Survey shows that
fifty-four percent of SME's export to less than 5 countries.
Foreign laws and regulations can change daily, making it
increasingly difficult for a small business to stay up-to-date
on when and how to comply with these regulations, and it acts
as a deterrent to explore new markets. Currently, I am having
problems identifying the applicable plumbing standard
accrediting bodies in Mexico for a product as simple as a
kitchen faucet.
SBEA and I encourage you, Mr. Chairman, to reintroduce your
legislation from the 112th Congress, H.R. 5513, the Transparent
Rules Allow Direct Exporting (TRADE) for Small Businesses and
Jobs Act. As you know, the measure would direct the pertinent
agencies to monitor and collect up-to-date information on
tariff and non-tariff laws, regulations, and practices. It will
then be presented in a clear and easy-to-read format, and will
serve as a resource for businesses looking to enter a new
market. I would recommend that this information is then
published on one centralized website.
Promote Free Trade Agreements
Free trade agreements are extremely important as they lower
foreign barriers to our exports and produce a more level
playing field. It is critical the president has the authority
to negotiate trade agreements through Trade Promotion Authority
(TPA). TPA, which expired in 2007, is critical to the passage
of trade deals through Congress because it allows the
agreements to advance under ``fast track'' rules with no
amendments. New and expanded market access through trade
agreements has been an important catalyst for increased small
business exports.
At Phoenix we consider selling into Canada to be a routine
matter, the paperwork is simple and the logistics network is
just an extension of our normal domestic carriers. Canada is
not a huge market for our products, but we have national
distribution through Canadian and U.S. wholesalers.
NAFTA is the critical factor that makes it possible for us
to seriously pursue business in Mexico. We will face
competition from Asian suppliers in Mexico but their products
are subject to significant import duties. The fact that our
products are duty free under NAFTA makes our products cost
competitive and improves our prospect for success.
Expand and Improve Export Finance
The Ex-Im Bank is also an important part of our export
strategy. To be competitive we need to offer credit terms to
prospective customers. Until I met with the Ex-Im Bank I didn't
know how we could prudently extend credit. With their support,
I am confident we can offer competitive terms to qualified
buyers and be assured of collection in the long-term.
Phoenix Products has adequate financial resources to
support our expected growth through export sales. But should we
achieve success beyond our wildest dreams, the working capital
loans available through the Ex-Im Bank could also proved to be
an essential contributor to our success.
The Ex-Im Bank is self-supporting and actually has
generated excess revenues of nearly $2 billion dollars over the
last 5 years. I cannot understand why the reauthorization of
its lending authority has been so controversial. It is crucial
the Bank maintain its congressionally approved lending
authority allowing the Bank to operate without restrictions, so
companies, such as Phoenix Products, have the certainty and
predictability we need to level the playing field and compete
in the international marketplace.
Additionally, more focus needs to be on Ex-Im meeting and
maintaining the 20 percent mandate of financing dollars going
directly for small business. Congress should not allow the
percentage to drop below 20 percent or re-definitions of Ex-Im
``financing'' that are indirect (i.e. via suppliers). New
formulas that turn the 20 percent into a goal rather than a
mandate, or allow Ex-Im to avoid the mandate--as it has in the
last couple of years--should not be an option.
Stepping back a little, we need to realize that Ex-Im is
the ``bank of last resort'' or even ``bank of only resort''
because relatively few U.S. commercial banks finance exports
and most of those that do prefer to deal with larger companies.
On a more broad scale, we need to get more community banks
into export finance and educate them on available government
lending programs so they can better advise their small business
customers who are considering exporting. This can be achieved
by streamlining paperwork, externalizing some of the banks'
administrative costs for smaller export finance deals,
providing export finance training, enhancing outreach to banks
on the benefits of trade finance and improving bank recruitment
practices.
The U.S. financial sector is far less engaged in world
trade than the financial sectors in Europe, Asia and other
parts of the world, where banks themselves encourage business
customers with promising products to export. To truly step up
American exports, our banks must do more.
Conclusion
While there is no doubt that some of America's biggest
companies can continue to increase their exports, the largest
untapped resource for American exports is small and medium-size
companies. SME's struggle with real and perceived challenges to
exporting. Just over one percent, or 287,000, of the
approximately 27.9 million small businesses in the U.S.
currently export. Although the number of small exporters has
been steadily growing their share of overall U.S. exports--34
percent in 2010, up from 27 percent in 2002--exporting is still
not as much a part of the business culture in the U.S. as it is
worldwide.
Many SME's think exporting is too burdensome or too risky,
or they just do not know where to start. As highlighted
throughout my testimony, some of the top barriers for small
exporters are: (1) problems identifying foreign business
opportunities and federal export assistance resources, (2)
limited information on how to analyze foreign regulations and
contact potential foreign customers, and (3) the need for
external financing in order to undertake an export transaction.
Federal and state agencies play an important role in helping to
reduce these types of exporting barriers for small businesses.
Lowering more of these barriers will help small exporters tap
into new market and grow.
Given the specter of a jobless economic recovery and
lagging consumer spending, exporting holds many opportunities
for small businesses during the domestic economic malaise, and
supports long-term domestic growth and job development. Though
small business exports represent less than five percent of the
GDP, with aggressive support from the U.S. Government this
contribution would be significantly increased.
Let me conclude with several key points:
Developing viable export markets for our
products improves our long-term ability to manufacture
products in Ohio.
Free trade agreements, especially NAFTA and
others with Latin American countries, promote exports
and jobs here in the U.S. by increasing emerging
economies' ability to purchase U.S. goods and services.
The Ex-Im Bank is a self-supporting entity
that promotes foreign trade through its credit and loan
guarantees and working capital support. It is crucial
the Bank maintain its congressionally approved lending
authority allowing the Bank to operate without
restrictions.
Charge a fair price for the services provided
so there can be adequate resources to support your
customers.
The USEAC has provided advice and connected us
to education and training. So far the Department of
Commerce has not been able to provide the level of
support we needed to establish a presence in Mexico.
They have taken us most of the way, we still need that
final connection to a Mexican based sales
representative or distributor to get it started.
Increased coordination between agencies--
including a One-Stop Shop--will help more small
businesses access the tools they need to export.
Enhanced export training and technical assistance are
key.
Again, I would like to thank Chairman Tipton and the
members of the Subcommittee for the opportunity to speak today.
I would be happy to answer any questions you may have.
Statement of Congresswoman Grace Meng
Over the last few decades, our world has become
increasingly connected. Businesses that are unable to adapt to
the new and future economy will find it difficult to keep up.
Globalization has realigned the way in which our nation, and
the world, does its business. The increased access to world
markets has provided a great opportunity for businesses in our
country, yet only 1 percent of small businesses currently
export their products. I agree with the many Members and our
witnesses who spoke before me, that we must improve, and break
down, barriers to export for U.S. small businesses. We need to
cut away the red tape, and educate our communities on the
benefits to becoming involved in, or at least considering, the
export of their goods.
For companies with the resources to enter it, the
international market has proved to be very beneficial. But that
first step is the most difficult; and I believe there are ways
for us in Congress to improve the ExportImport Bank and the
Small Business Administration's ability to educate and reach
out to small businesses. This type of proactive outreach will
only serve to improve small businesses' opportunities in the
global marketplace.
When entering the world market, a small business owner must
make that decision carefully; doing so may not be the right
decision for every small business owner; and is not a decision
that should be made haphazardly. But, if a small business
decides exporting is in its best interest, we should make sure
that the resources exist for them to succeed. The benefits of
U.S. businesses that decide to export are clear--small
businesses that exported averaged a 37 percent revenue growth
from 2005 to 2009, compared to a 7 percent decline for small
businesses that did not.
As I've said many times before, small businesses are
absolutely essential to the recovery of our economy and the
strength of our nation's workforce. Let us ensure that
America's small businesses have the resources they need to
compete in a global environment, and that the federal
government can be an ally in their success, not a hindrance.