[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
BUREAUCRATIC OBSTACLES FOR SMALL EXPORTERS: IS OUR NATIONAL EXPORT
STRATEGY WORKING?
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
HEARING HELD
JULY 27, 2011
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 112-028
Available via the GPO Website: www.fdsys.gov
_____
U.S. GOVERNMENT PRINTING OFFICE
76-495 WASHINGTON : 2012
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC
area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC
20402-0001
HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
ROSCOE BARTLETT, Maryland
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
CHUCK FLEISCHMANN, Tennessee
JEFF LANDRY, Louisiana
JAIME HERRERA BEUTLER, Washington
ALLEN WEST, Florida
RENEE ELLMERS, North Carolina
JOE WALSH, Illinois
LOU BARLETTA, Pennsylvania
RICHARD HANNA, New York
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
MARK CRITZ, Pennsylvania
JASON ALTMIRE, Pennsylvania
YVETTE CLARKE, New York
JUDY CHU, California
DAVID CICILLINE, Rhode Island
CEDRIC RICHMOND, Louisiana
GARY PETERS, Michigan
BILL OWENS, New York
BILL KEATING, Massachusetts
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, General Counsel
Michael Day, Minority Staff Director
C O N T E N T S
----------
OPENING STATEMENTS
Page
Hon. Sam Graves.................................................. 1
Hon. Nydia Velazquez............................................ 2
WITNESSES
Mr. Suresh Kumar, Assistant Secretary and Director General, U.S.
Department of Commerce, International Trade Administration,
U.S. Commercial Service, Washington, DC........................ 3
Ms. Marie Johns, Deputy Administrator, Small Business
Administration, Washington, DC................................. 5
Mr. Christian Foster, Deputy Administrator, U.S. Department of
Agriculture, Foreign Agriculture Service, Washington, DC....... 7
Mr. Mark Rice, President, Maritime Applied Physics Corporation,
Baltimore, MD.................................................. 19
Mr. Mitchell Goetze, President and COO, Goetze's Candy Company,
Inc., Baltimore, MD............................................ 21
Mr. Maurice Kogon, Director, Center for International Trade
Development, El Camino College, Hawthorne, CA.................. 25
Mr. Wade Merritt, Vice-President, State International Development
Organizations (SIDO), Vice-President, Maine International Trade
Center, South Portland, ME..................................... 23
APPENDIX
Prepared Statements:
Mr. Suresh Kumar, Assistant Secretary and Director General,
U.S. Department of Commerce, International Trade
Administration, U.S. Commercial Service, Washington, DC.... 35
Ms. Marie Johns, Deputy Administrator, Small Business
Administration, Washington, DC............................. 39
Mr. Christian Foster, Deputy Administrator, U.S. Department
of Agriculture, Foreign Agriculture Service, Washington, DC 42
Mr. Mark Rice, President, Maritime Applied Physics
Corporation, Baltimore, MD................................. 50
Mr. Mitchell Goetze, President and COO, Goetze's Candy
Company, Inc., Baltimore, MD............................... 52
Mr. Maurice Kogon, Director, Center for International Trade
Development El Camino College, Hawthorne, CA............... 67
Mr. Wade Merritt, Vice-President, State International
Development Organizations (SIDO), Vice-President, Maine
International Trade Center, South Portland, ME............. 74
Questions for the Record:
Questions for Mr. Kumar, Ms. Johns, and Mr. Foster........... 77
Chairman Graves Questions for Mr. Foster..................... 79
Rep. Owens Questions for Mr. Goetze.......................... 80
Rep. Owens Questions for Ms. Johns........................... 81
Chairman Graves Questions for Ms. Johns...................... 82
Chairman Graves Questions for Mr. Kumar...................... 83
Answers for the Record:
Mr. Goetze Answers for Rep. Owens............................ 84
Additional Materials for the Record:
Aerospace Industries Association of America Statement for the
Record..................................................... 87
National Council of Textile Organizations Statement for the
Record..................................................... 92
BUREAUCRATIC OBSTACLES FOR SMALL EXPORTERS: IS OUR NATIONAL EXPORT
STRATEGY WORKING?
----------
WEDNESDAY, JULY 27, 2011
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 1 p.m., in Room
2360, Rayburn House Office Building. Hon. Sam Graves (chairman
of the Committee) presiding.
Present: Representatives Graves, Bartlett, Hanna, Mulvaney,
Tipton, Ellmers, Velazquez, Clarke, Chu, Cicilline, Richmond,
Keating.
Chairman Graves. Good afternoon, everyone. I will call this
meeting to order.
I want to thank our witnesses on both panels for being here
today. Today we are going to hear testimony on the National
Export Strategy and the administration's efforts to increase
coordination among federal agencies, reduce domestic obstacles
to trade, and expand exports for small businesses. We will also
hear directly from some small firms on the barriers that limit
their ability to export.
In March 2010, President Obama announced his National
Export Initiative aimed at doubling exports by the end of 2014.
There is strong bipartisan support on the benefits of exporting
and it is a major contributor to the U.S. GDP totaling $1.8
trillion in 2010. It provides new sales opportunities for small
businesses and most importantly, exporting creates and supports
high paying U.S. jobs. However, of the 28 million small
businesses in the U.S., only one percent currently export.
There is a great untapped potential there.
One important way to get more small businesses to export is
by passing the three pending free trade agreements with
Colombia, Panama, and South Korea. The independent U.S.
International Trade Commission estimates a passing of three
trade agreements would increase U.S. exports by $13 billion.
President Obama stated this will create over 250,000 jobs.
Unfortunately, until the administration and Congress act on
these agreements, American small businesses will be at a
competitive disadvantage with foreign firms.
As we seek to open new foreign markets, we also need to
reduce the domestic bureaucracy to make exporting much easier.
The export process can be complicated and overwhelming, and
many firms do not know where to start. It is just a simple
fact. Small firms have a limited amount of time and resources
to understand the complex federal and foreign regulations that
are out there.
There are over 20 federal agencies that can assist
businesses with some or all of the export process. Small firms
have long voiced that navigating the agencies may be as
difficult as navigating the export market itself and it is our
Committee's job to take a look at these programs and ensure
that small businesses can access the help they need to
effectively compete in the global marketplace. With the
unemployment rate staying above eight percent for 29
consecutive months, exports can be a catalyst to create new
jobs and get our economy back on track.
I look forward to today's testimony and understand how we
can work together to make it easier for small businesses to
export. And now it is my pleasure to yield to Ranking Member
Velazquez for her opening remarks.
Ms. Velazquez. Thank you, Chairman Graves.
The resilience of American small businesses is
unquestionable. In the face of an economic downturn they have
adapted and come to utilize foreign trade as a tool for growth.
Even as domestic sales lapsed, U.S. exports grew more than 17
percent and shrunk the trade deficit to levels not seen in over
a decade. Since 2003, American small business exports have
grown by about 80 percent. They now account for nearly half a
trillion dollars in annual export sales.
Despite these figures, however, small exporters possess a
significant source of untapped potential. While small
businesses account for nearly 97 percent of all export firms,
they are responsible for only 30 percent of all export
revenues. Additionally, more than half of all small business
exporters ship goods to just one foreign partner. If we are to
achieve the goal set forth in the National Export Initiative of
governing exports within the next five years and creating two
million new jobs, it will be critical to increase both the
number of small business exporters and the number of countries
they ship to.
The 2011 National Export Strategy was promulgated for
precisely this purpose. The NES sets forth a strategy to
implement the NEI. In the context of small exporters this means
improving coordination of trade promotion activities. It means
increasing access to export credit for small firms. It also
means updating antiquated regulations and reducing redundancies
that discourage small firms from shipping abroad. While the
issuance of the NES undoubtedly represents a step in the right
direction, much more must be done.
We often hear from small businesses that red tape and
convoluted agency processes prevent them from accessing the
very programs that are meant to help them. Duplicative
initiatives coupled with a lack of coordination between
agencies can lead to conflicting messages about where to go for
assistance. Breaking down these barriers should be a priority.
Additionally, more must be done to provide small businesses
with improved access to capital. Many small firms have
continued to find lending conditions extremely unfavorable.
This is particularly true in the context of export loans where
banks are wary of financing products that will be shipped
overseas. Despite unprecedented efforts taken over the last
three years to support and expand the SBA's credit programs,
its internal trade loans have actually fallen by more than half
over the past five years. They now provide $390 million less in
loans to small exporters.
At the same time, small businesses have found credit
difficult to come by on the programs operated by the Export-
Import Bank. While small businesses receive more than 85
percent of all EX-IM bank loans, they receive only slightly
more than 20 percent of the authorization dollars. With so many
small firms continuing to struggle to find credit, it simply
does not excuse why this agency should continue
underperforming. Today almost nine out of 10 consumers live
outside the United States. In order for small businesses to
remain at the center of our recovery, they must be able to tap
into those markets. If implemented correctly, the NES has the
potential to advance that goal, making our small businesses
more dynamic, competitive, and robust, while allowing them to
focus on what they do best, creating new jobs.
With that I take this opportunity to thank all the
witnesses for coming and spending some time with us today. I
would like to thank the chairman for yielding and I yield back.
Chairman Graves. Thank you, ranking member.
If any other Committee members have an opening statement
prepared, I would ask that they submit it for the record.
And just to explain the testimony process, each witness has
five minutes. The light will stay green in front of you until
you have one minute left. Then it turns yellow and then red
after five minutes. I would ask that you please try to keep on
the time limit.
STATEMENTS OF SURESH KUMAR, ASSISTANT SECRETARY AND DIRECTOR
GENERAL, U.S. COMMERCIAL SERVICE, U.S. DEPARTMENT OF COMMERCE;
MARIE JOHNS, DEPUTY ADMINISTRATOR, SMALL BUSINESS
ADMINISTRATION; CHRISTIAN FOSTER, DEPUTY ADMINISTRATOR, OFFICE
OF TRADE PROGRAMS, FOREIGN AGRICULTURE SERVICE, U.S. DEPARTMENT
OF AGRICULTURE
Chairman Graves. Our first witness is Suresh Kumar. He is
the assistant--did I get it right? He is assistant secretary
and director general of the U.S. Commercial Service with the
U.S. Department of Commerce. He has an Economics degree from
Delhi University and an MBA from Bombay University. Thank you
for being here. I appreciate you coming in and you have five
minutes.
STATEMENT OF SURESH KUMAR
Mr. Kumar. Chairman Graves, Ranking Member Velazquez, and
distinguished members of the Committee. Thank you for the
opportunity to appear before you today.
Priority number one of the National Export Strategy is to
develop programs designed to enhance export assistance to small
and medium enterprises. This is consistent with the statutory
mandate of the U.S. and Foreign Commercial Service to assist
SMEs to grow exports. It is essential to both the national
economic recovery and global competitiveness that small
businesses participate more effectively in export markets. Our
clients consistently tell us what they need most is assistance
to better understand complex documentation requirements,
helping and identifying the right international partners and
distributors--what we call matchmaking and our clients often
term as entering a market but ensuring that they get paid.
Our small business clients particularly value in connecting
to federal and state government programs. This is exactly what
the Commercial Services does. We serve as a one-stop shop, a
single point of contact and a clearinghouse for small
businesses. We are the surrogate export department for small
businesses. Background Dynamics, a $5 million, 20 percent
operation which I visited on Monday, is a small business which
epitomizes what we do for them and the services they need from
us. They design and manufacture linear actuators, multi-axis
automation, and mechanical motion systems for multiple
industries ranging from defense to entertainment to health care
amongst others.
Our trade specialists help connect them to a support
network to realize export success. By connecting to the
Delaware Valley Industrial Resource Center, a part of the
Manufacturing Extension Partnership Program, they received
valuable manufacturing-related guidance. Contact with the
Pennsylvania Department of Trade allowed Macron to access a
$3,000 grant that permitted them to participate in a commercial
service trade mission to Mexico, where through our matchmaking
services they identified two potential distributors that
provided them a beachhead in Latin America. Macron is currently
working with the Commercial Service in exploring new
opportunities in Asia and Latin America.
The global network of the U.S. and Foreign Commercial
Service spans approximately 1,450 trade specialists across 108
domestic U.S. export assistance centers and 126 offices in 79
countries. Our trade specialists are the boots on the ground in
local communities across the country and in global markets
across the world that connect businesses to market
opportunities.
Our programs connect SME exporters to international
partners, distributors, and buyers. Our counseling and
facilitation services help businesses across state and federal
government resources to secure expertise, grants, and even
financing. The U.S. Commercial Service works closely with state
governments, trade associations, cities' local chambers of
commerce, and institutions like the State International
Development Organization to engage small businesses in our
programs. Last year, the Commercial Service assisted 18,000
companies to export, 16,000 of which were SMEs, and we
facilitated 12,300 export successes and helped 4,630 companies
export to new markets. For every one dollar invested in the
U.S. Commercial Service, we returned $135 to the American
taxpayer by way of facilitated exports.
Through the Trade Promotion Coordinating Committee (TPCC),
the Commercial Service promotes joint collaboration amongst the
20 federal agencies involved in trade promotion. We helped
design a single uniform method for referring new clients to the
most appropriate service provider. Our enhanced client intake
registration form on export.gov, the Federal government's
export assistance web portal more accurately identifies and
directs companies to the most appropriate federal agency.
The National Export Initiative, which President Obama
announced in March 2010, is off to a good start. Exports
comprised 12.5 percent of U.S. GDP last year, up from 11.2
percent in 2009. The $1.84 trillion in exports of U.S. goods
and services is the second highest annual total on record. We
remain on pace in 2011 to achieve the NEI goals.
Besides looking into the rearview mirror it is important to
prospectively look forward to the future. This is why the
pending trade agreements with Korea, Colombia, and Panama are a
priority for the Obama administration. With the Korea Trade
Agreement alone, U.S. exports could increase by more than $10
billion and could support more than 70,000 American jobs. The
agreement would eliminate tariff on over 95 percent of
industrial and consumer goods within five years, making small
and big businesses globally competitive.
A recent study by the U.S. International Trade Commission
reported that tariff and non-tariff barriers disproportionately
affect a small business's ability to export. FDAs are
particularly important to small businesses to ensure low
tariff, remove complex trade barriers, and secure access
through a streamlined trade process. Small businesses do not
need to navigate global markets alone. They have the full
support of the U.S. government to connect to profitable
opportunities worldwide. The U.S. and FCS of the Commercial
Service Trade Specialists stand ready, willing, and able to
connect small U.S. businesses to the 95 percent of consumers
who live outside our country.
I thank you again for the opportunity to appear before you
today and I look forward to answering your questions. Thank
you.
Chairman Graves. Thank you. Our next witness is Marie
Johns, the Deputy Administrator for the Small Business
Administration. In her role she oversees the Office of
International Trade, including the administration of the State
Trade Export Promotion grants. She earned her Bachelor's and
Master's degree from Indiana University School of Public and
Environmental Affairs. Thank you for coming and welcome.
STATEMENT OF MARIE JOHNS
Ms. Johns. Thank you, Chairman Graves. Thank you, Ranking
Member Velazquez, and members of the Committee. I am honored to
be here this afternoon to testify.
In his first State of the Union Address, President Obama
announced the National Export Initiative and his goal of
doubling U.S. exports in five years. This is an important goal.
Increasing exports will strengthen our economy, bolster our
global competitiveness, and create good jobs. As the agency
that serves America's small businesses, the SBA has an
important role to play. Administrator Mills chairs a small
business working group of the Trade Promotion Coordinating
Committee or the TPCC, which is the main federal body working
to encourage more U.S. businesses to export. Meanwhile, the SBA
is working with our partners across the Federal government to
support small businesses.
Small businesses are well poised for growth through
exports. Since 2003, revenues from America's small business
exports have increased as ranking member said about 80 percent.
They now account for nearly $500 billion in annual sales.
However, small businesses, as the ranking member also
mentioned, only represent about 30 percent of export revenues
and more than half of small businesses who do export are only
shipping to one country.
The SBA, along with our partners and the TPCC, is working
to increase both the number of small companies who are
exporting and the number of countries to which they ship. Our
plan, which has been incorporated into the 2011 National Export
Strategy, has four components. First, we identify small
businesses that are ready to export. Second, we prepare those
small businesses with counseling and technical assistance.
Third, we connect those small businesses with export
opportunities. And fourth, we support those small businesses
with loans and counseling.
The SBA and our partner agencies have done extensive
outreach to identify and motivate small business exporters. For
example, the Department of Commerce and the SBA have worked
closely together to identify and refer new clients to the most
appropriate resource. To better prepare small businesses for
successful exporting, federal agencies have collaborated to
train the trainers, offering export training for SBA resource
partners such as counselors at our Small Business Development
Centers, our Women's Business Centers, and SCORE. Meanwhile,
the NEI is working to connect small businesses with export
opportunities. In September of 2010, we launched a series of
export matchmaking events, the first of which was in New
Jersey, and it drew participation from approximately 150 small
businesses, lenders, and others.
Lastly, the SBA and other agencies, excuse me, continue to
support small businesses once they have begun exporting. This
includes an increased presence at international trade shows,
coordination of marketing materials, and ongoing outreach to
lenders to encourage their participation in export financing
programs.
Thanks to increased guarantee percentages, increased loan
limits, and an improving economy, SBA export loan programs have
seen a major uptick over last year's levels. These loans are
helping small businesses across the country expand their export
capabilities. For example, in Missouri, Environmental Dynamics,
Inc., took advantage of an export working capital loan once the
limit was raised to $5 million. The increased loan size made
the program much more appealing to the company, and the firm
which has sold internationally for 20 years, is using the loan
to finance an expansion. Meanwhile, in New York, Turbofil
Packaging Machines used an export working capital loan to help
the company complete a large overseas contract.
The success of the NEI depends on the work of more than a
dozen agencies across the Federal government. Each agency has
staff dedicated to working on NEI initiatives who meet and
communicate regularly with their colleagues throughout the
administration. We have worked to reduce bureaucratic barriers
and make our efforts as crosscutting as possible. Overall, our
goal is to ensure that we are connecting federal resources at
every point and making them work for small businesses.
Thank you, Mr. Chairman, ranking member, and members, and I
look forward to answering your questions.
Chairman Graves. Thank you.
Our final witness on this panel is Christian Foster. He is
the deputy administrator for the Office of Trade Programs in
the Foreign Agriculture Service within the U.S. Department of
Agriculture. He earned a Master's of Arts from Georgetown
University in 1982 and a Bachelor of Science in Foreign Service
from Georgetown in 1980, I believe. Welcome. And I appreciate
you being here.
STATEMENT OF CHRISTIAN FOSTER
Mr. Foster. Mr. Chairman, members of the Committee, I am
pleased to be here with you today.
In his 2010 State of the Union address, President Obama
told the nation we are launching a National Export Initiative
that will help farmers and small business increase their
exports. USDA has taken the President's charge to heart. The
efforts of USDA personnel throughout the country and around the
globe, bolstered by public-private partnerships, have assisted
farmers, ranchers, and all agricultural exporters in achieving
record export sales. In Fiscal Year 2011, we expect U.S.
agricultural exports to reach their highest level in history,
reaching $137 billion.
For more than 50 years, the Foreign Agricultural Service
has led USDA's efforts to build overseas markets. We know that
every $1 billion in agricultural exports supports 8,400 jobs
and generates an additional $1.3 billion in economic activity.
At USDA, the commitment to NEI starts at the top. I am pleased
to say that next week Secretary Vilsack will be hosting the
administration's NEI Small Business tour event in Milwaukee,
Wisconsin. The event is designed to connect small businesses
with the resources they need to export. We will be
collaborating with the Department of Commerce, the Small
Business Administration, and the Export-Import Bank.
I would like to now highlight a few of USDA's actions in
NEI priority areas. Last year, more than 625 new small
businesses benefited from the USDA administered Market Access
Program to promote their products overseas, resulting in over
975 first-time sales. For example, a company, WildRoots, a
healthy snack food company with production facilities in
Illinois and Nebraska, matched MAP funds to market their
products in Canada. Export sales from this company soared from
zero in 2008 to $4 million last year. The company buys
blueberries from Michigan, corn and soy products from Illinois,
cranberry from Massachusetts, and almonds from California.
Another example of our export assistance to small
businesses is how we link them to foreign buyers at USDA hosted
and supported trade shows. Last year, USDA supported U.S.
pavilions at 27 international trade shows in 19 countries.
Nearly 1,000 exhibitors reported $179 million in onsite sales
and over $1 billion in estimated 12-month sales. Participating
U.S. companies introduced over 6,000 new-to-market products.
USDA-led trade missions link our producers to foreign
buyers. A trade mission in January to Peru included 16 small
businesses. Three hundred thirty eight one-on-one meetings were
held with over 100 Peruvian and 10 Ecuadorian companies. To
date, USDA has recorded $1.9 million in sales resulting from
that mission. In addition, USDA supports reverse trade missions
that bring foreign buyers to the United States to meet with
potential suppliers of agricultural products. Such missions are
particularly valuable for small businesses that may not have
the resources to travel abroad.
Tariff and non-tariff barriers remain challenges for U.S.
agricultural exports. Securing congressional approval of the
pending trade agreements with South Korea, Colombia, and Panama
would significantly reduce tariff barriers to U.S. farm
exports. USDA is also stepping up efforts to address sanitary
and phytosanitary barriers to farm exports.
In 2010, the USDA administered U.S. Technical Assistance to
Specialty Crops Program assisted U.S. potato exporters in
overcoming a Thai phytosanitary protocol that prevented U.S.
exports. The U.S. Potato Board used program funds for Thai
officials to visit and review U.S. seed certification
procedures and pest mitigation measures. Thailand agreed to
additional market access that more than doubles the number of
states that are eligible to export seed potatoes to Thailand.
I am pleased to report that USDA is making progress in the
Administration's goals under the NEI. As our Secretary said,
increased exports mean higher incomes for producers, more
opportunities for small business owners, and for folks who
package, ship, and market agricultural products. They mean a
thriving rural America which is good for our Nation as a whole.
This concludes my statement. Thank you very much. And I am
happy to answer any questions.
Chairman Graves. We will move into questions and our first
questions are going to come from Mr. Mulvaney.
Mr. Mulvaney. Thank you, Mr. Chairman.
Very briefly, Ms. Johns, Mr. Kumar, I was listening to your
summary of what your agencies do and it sounded to me like
there might be some overlap between those two things. Ms.
Johns, tell me what your agency does that Mr. Kumar's does not.
Ms. Johns. Congressman, we--our agency, as you know, we are
the voice of small businesses in the administration among
federal agencies. And so our entire focus is on small
companies.
Mr. Mulvaney. I understand. But in terms of helping them
with exports, what do you do that is unique from what Mr.
Kumar's organization does?
Ms. Johns. We do a number of things. But I certainly want
to emphasize that we work closely with the Department of
Commerce under the Trade Promotion Coordinating Council. Our
administrator sits on the president's Economic Council. So we
are involved in the crosscutting federal efforts to coordinate
federal resources to support exporting.
What we do specifically. We have capital programs. We have
counseling programs. And those areas of our agency's
programmatic thrusts are the primary ways that we support small
businesses.
For example, we are working, as I mentioned in my opening
statement, on training more international trade counselors so
that we have a network across the country available to small
businesses. Any small business in our country is less than an
hour's drive away from an SBA resource where they can get
counseling for exporting. We have specific loan products that
are available for them.
Mr. Mulvaney. Let me stop you there because the loan
program was one thing I did hear that was different from what
Mr. Kumar does. But what you just described is training
counselors to help folks sort of get through the process of
exporting, which is exactly what I heard from him.
So Mr. Kumar, tell me what am I missing here? What is the--
help me understand how the SBA's efforts to promote small
business exports and the Department of Commerce's efforts to do
the same--how they are complementary and not duplicative.
Mr. Kumar. Thank you very much for that observation.
Trade, any trade, until it is consummated, is touched by a
number of agencies. And indeed there are several things before
you can consummate a trade. From identifying a customer to
defining the access for finance, to getting the right
distributor, it is an entire chain. And how the two of us or
the two agencies get contrasted is this.
First, physical availability of finance is handled by them
but connecting customers who invariably, because we work in the
communities--I mentioned the 109 offices we have across the
United States. And we physically work with the businesses to
connect them to the right resource.
Second, we ensure this time through the National Export
Strategy and National Export Initiative that how do we leverage
the combined resources for maximum benefit? In fact, it was
something the president challenged us through the NEI. And what
we did as a consequence is we realized that dealing with new-
to-export companies, people who want to export for the first
time, people who needed to go through an education,
information, and skills training program, were perhaps best
leveraged through the SBA. On the other hand, dealing with the
280,000 current exporters and one of the members,
representatives mentioned that 58 percent of them only go to
one market, we chose to concentrate on exporters currently
going to some to take them to newer markets.
So here was a classic example of looking at the entire
supply chain, concentrating the efforts of one agency towards
new exporters and concentrating the efforts and the abilities
and the boots on the ground as we call it towards current
exporters to take them to newer markets.
Mr. Mulvaney. Mr. Kumar, let me cut you off there, Mr.
Kumar. I am sorry. I only have a few minutes. Because I am
going to follow up on that point and ask Mr. Foster a question
aside from congratulating him on where he went to school.
If I am a farmer who is new to exporting, I want to get in
the export business, do I go see you, Ms. Johns, or Mr. Kumar?
Mr. Foster. Indeed, in the U.S. government there are vast
resources available across all agencies. If you are a farmer
you have a number of options to get support. You can go to the
U.S. government portal, export.gov, which will direct you to
the U.S. Department of Agriculture. You can go to your
Department of Agriculture for the state, which will link you to
our regional service provider that will help any small business
in that region. You can come to FAS directly, again, via the
internet. And then I should say we are working now with our
local farm service agency offices and rural development offices
across the country so that they know if any farmer were to walk
in, any small business from a rural area were to walk in, they
would know where to go in the Department of Agriculture.
Mr. Mulvaney. Thank you. I yield back my time. Thank you,
folks.
Chairman Graves. Ranking Member Velazquez.
Ms. Velazquez. Thank you.
Ms. Johns, you do business planning, right, for small
business exporters?
Ms. Johns. Yes, we assist them with business plans.
Ms. Velazquez. And access to capital?
Ms. Johns. Yes.
Ms. Velazquez. And Commerce does not. Right?
Ms. Johns. We provide--I think that my colleague said it
well. When we talk about exporting and small businesses, the
clear issue that we, I think, all agree on is that there is
tremendous upside potential to involve more small businesses in
exporting in order to grow and create jobs in the country. So
what the SBA does is to use its network and its longstanding
experience in preparing more small businesses to be able to do
just that.
Ms. Velazquez. Okay. It has been almost a year since the
state Trade Export Promotion Program was enacted under the Jobs
Act. And the agency has yet to award a single dollar under the
program. With three out of every five states' Export Promotion
Projects being caught, this money, as you know, has netted more
than ever before. So what can you tell us and the states that
they can expect--when will they be able to expect these funds?
Ms. Johns. Yes, ranking member. We have gone through a
process, a very rigorous process, for managing this new grant
program. First of all----
Ms. Velazquez. Thirty million, right?
Ms. Johns. Thirty million per year.
Ms. Velazquez. Per year.
Ms. Johns. And it is a--we were authorized for three years
but we have money appropriated for two. Every state that
applied for the funds will receive funding. That is the first
thing.
Ms. Velazquez. Just answer my question. When do we expect
for these funds to get into disbursed?
Ms. Johns. My best estimate of that is early to mid-
September.
Ms. Velazquez. Okay. And under the STEP Program, grant
recipients will have one calendar year to fulfill the
requirements of the program. Will this year begin on the date
states are notified of successful applications or from the date
they actually receive the grant?
Ms. Johns. That is a detail that I do not know. I will
certainly get back to you on that.
Ms. Velazquez. I would like to know that.
Ms. Johns. I will let you know.
Ms. Velazquez. While USDA and the Department of Commerce
know the number of new-to-export firms they are providing
assistance and which new markets the programs are helping to
open, SBA has yet to begin tracking those numbers. And as you
know, as part of the national strategy for small business
exports, tracking numbers are going to be very important to
measure success. So when are you going to start putting
together the framework to collect those numbers?
Ms. Johns. We have a requirement to report on the state
activity with exporting and we are in the process of pulling
that framework together now. I wrote to the committee saying
that we needed additional time from the timeframe that was
specified in the Small Business Jobs Act, so we appreciate your
flexibility there and we are working hard to get that document
to you.
Ms. Velazquez. Mr. Kumar, of all the services provided by
the Department of Commerce, the Gold Key Matchmaking Services
is perhaps the best in terms of linking small businesses here
in the U.S. with foreign buyers abroad. But what we continue to
hear from small business exporters is that the cost is
prohibitive. What can you tell us your agency will do to make
this program more affordable so that small business orders can
benefit?
Mr. Kumar. Thank you, Ranking Member Velazquez.
The Gold Key indeed is one of our more popular services.
And what it does is physically matches----
Ms. Velazquez. Answer my question, please. I know what it
does. What I am asking you is what will you do, the agency, to
make this program accessible for small business exporters?
Mr. Kumar. It is currently accessible to any business which
wants to do it. The cost for that program is $700. The value
through research that we find is perhaps more than 10 times
what we charge for it. And it is already discounted for small
and medium enterprises. We happen to believe it is a fair
charge. And in discussions with several small and medium
enterprises who not only use our services and those who
counsel, the cost of a Gold Key has never come as a challenge
to SMEs.
Ms. Velazquez. Well, that is not what we hear from small
businesses. We are going to have a second panel here and I will
invite you to stay so that you can listen to what they have to
say.
Mr. Kumar. Thank you.
Ms. Velazquez. That cost will go up. Do you foresee?
Mr. Kumar. We have an obligation to Congress to assess the
value of the services we provide. And measure the costing and
adjust the pricing once every two years. That is the reason why
I could give you the 10 time multiple. We are just in the
process of going through the findings of that. I cannot comment
whether it will go up or stay where it is but it appears that
the value provided by the service and what is likely to be
provided by any external vendor is about 10 times more than
what we can get.
Ms. Velazquez. Mr. Foster, a significant portion of the
National Export Strategy seems primus on the passage of not
just the Korea, Panama, Colombia Free Trade Agreements but also
the ratification of a Trans-Pacific Partnership and completion
of the Doha agreement. Can the Export Strategy succeed if these
agreements are not completed?
Mr. Foster. We continue to work as part of the
Administration and remain committed to securing Congress's
approval of the pending trade agreements that you mentioned. We
are committed to seeing those through. The Trans-Pacific
Partnership is another agreement we continue to work on. We at
USDA, with USTR that has the lead on this, we remain committed
and will continue to work on that.
Ms. Velazquez. But do you think that if we do not get those
agreements passed and ratified that the Export Strategy will be
in jeopardy in terms of the success?
Mr. Foster. As the Administration says, the agreements, we
believe, have tremendous benefits for American exporters and
jobs and producers' incomes. So we believe they will have
tremendous benefits.
Ms. Velazquez. Thank you, Mr. Chairman.
Chairman Graves. Ms. Ellmers.
Ms. Ellmers. Thank you, Mr. Chairman. My question is
basically for each one of you, and thank you for being here
today to give your testimony.
As we know right now, small businesses are facing many
obstacles domestically, including higher gas prices, increased
government regulations, and always the looming possibility of
tax increases. Can you explain how this impacts small
businesses and their supply chain and your ability to help them
export? And I will start, Mr. Foster, with you. And then if we
could just move down the panel. Thank you.
Mr. Foster. Our goal at FAS for the last 50 years is
promoting agricultural exports. We believe we do that well and
investment there is a wise decision. We are trying in every
manner possible across government and within the multiple
agencies in the Department of Agriculture to make sure small
businesses get the support they need. We certainly understand
that transportation infrastructure at ports and the like are
incredibly important to moving exports, agricultural exports
out of the country. We work through the NEI, on that topic.
That is one of the primary recommendations of NEI looking at
infrastructure. I believe we would all agree we will continue
to focus on that. For agriculture that is vital. As we know for
Louisiana, Congressman Richmond here, the Port of Louisiana is
one extremely important example of getting agricultural exports
out of the United States. Forty-seven percent of grain
transports out of that region, a tremendously large amount.
Ms. Johns. Thank you for your question, Congresswoman.
At the SBA we are--our mission is to support our small
businesses. And we are coming out of the worst economic
downturn since the Great Depression. Small businesses were hit
inordinately hard but they are bouncing back faster actually
than some other sectors of the economy. The reason that this
National Export Initiative and the work that we are doing at
the agency in conjunction with our federal partners at the TPCC
is that as has been stated earlier, 95 percent of market demand
exists outside of our country. The USA--Made in the USA brand
is still a very, very strong, very valued brand. And so the
extent--to the extent that we can get more of our small
businesses ready for exporting, that is a huge win for the
economy overall.
As I mentioned in my testimony, we have a four-prong
approach that first we identify those companies that have not
yet exported but are right there and with some support can move
into that category. Once we identify those companies, then we
prepare them with the counseling through our national network
of resource partners and the counseling that we provide through
our 68 field offices. We have a robust and a very integrated
network to provide the counseling for them. We have more
international trade counselors available thanks to the Jobs
Act, et cetera. Then we connect those small companies, excuse
me, with opportunities working closely with the Department of
Commerce and other federal partners in that role and then once
the business opportunity happens we support those small
businesses with what they need in order to be successful. So
this effort is incredibly important to small businesses and to
our economy as a whole because small businesses are the
creators of jobs in our country. They really are our economic
engine.
Ms. Ellmers. Amen. I believe that, too.
Mr. Kumar.
Mr. Kumar. Thank you very much, Congresswoman.
In the face of increased costs which everyone is going
through the question really was how can we most effectively
help small and medium enterprises engage in global markets.
That is what we do through our business counseling sessions.
And also through helping people develop business plans and
marketing plans. But it does not stop there. Ours is a turnkey
plan which we work with. And what we do is then connect the
players to the most cost effective logistics provider.
Logistics is a major part of the exercise. Then look at the
best distributors through matchmaking services in external
countries where they export to.
In addition to that, we engage people through trade
missions, which is an easier better way by scale to come to
meet buyers. Additionally, we have increased the concentration
we place and focus we place on international buying programs
where we get buyers from foreign countries coming to shows
here. So that also reduces the cost burden on an SME.
And finally, even using technology. We now have, even wine
tasting or export of wines from California. We have had virtual
wine tasting missions put together where simultaneously when
you are here on your Internet or website or through web access
you are dealing with buyers in China or wherever they are who
are tasting the same wine, educated on what the wine is about,
and have all the product benefits and features which they can
base it on.
So we are interceded by looking at the elements of cost and
trying to provide the value to small and medium enterprises in
the most cost effective manner because we believe the price is
right only when those who must buy, buy, and those who sell
make a profit.
Ms. Ellmers. Thank you so much. And I yield back. Actually,
I think I went over a little bit. Thank you.
Chairman Graves. Ms. Clarke.
Ms. Clarke. Thank you very much, Mr. Chairman. And thank
you, Ranking Member Velazquez. I would like to thank our
panelists for their expertise and their testimony today.
While I am a bit skeptical about the pending FDAs, I
recognize that we are in a global economy where trade plays an
important crucial role towards our domestic economic success.
So to that end I would like to ask each of you if you could
elaborate a bit more about the internal framework within your
various entities regarding programs or initiatives that you
have unveiled or plan to unveil in support of the NEI.
Ms. Johns. I will begin, if I may.
Ms. Clarke. Yes, please.
Ms. Johns. You are asking about actual programs that we
have launched in support of the NEI. Yes, thank you,
Congresswoman Clarke.
We have done a number of things. First of all, by our
very--the very role that the agency plays as part of the
president's Export Council where Karen Mills is a member, I
work with the Trade Promotion Coordinating Council where Karen
chairs the Small Business Working Group. That is the
institutional way through the TPCC and the PEC where the SBA is
involved. And the benefit of the TPCC is that it has allowed us
to work in a much more collaborative fashion with our federal
partners.
And we have talked a bit in this hearing about the
different pieces and different players who are involved in this
process. It is complicated. It is certainly doable but it is
complicated to ensure that we are providing all the resources
that businesses need across the board to be able to export. And
so what we are doing with the Small Business Working Group
under the TPCC is that various working groups have been
created. A working group focused on preparing--identifying
small businesses. A working group focused on preparing,
connecting, and supporting. Each of the four elements of the
plan have a working group assigned to them and we have specific
programs under each of those working groups that we have
launched.
For example, the Connecting Working Group is focused on
matchmaking events. I mentioned in my testimony the first one
in New Jersey. We intend to have more of those around the
country because we found them to be very successful in bringing
the players, the right players together to make business
happen. Under the Preparing Work Group we have launched our
Train the Trainers Initiative where we are working with the
Association of Small Business Development Centers and training
individuals who work in the SBDCs as well as our Women's
Business Centers and our other resource partners. And we have
created within each of our district offices, each of our 68
district offices, a district international trade officer so
that any small business in the country will be in a very short
distance able to reach someone who can provide expertise in
those areas. Those are some of the initiatives.
Ms. Clarke. Let me ask. Do you have sort of a, I guess, a
formula for what you think participation of--given the number
of businesses that exist in the small business, medium-size
business sphere of our economy, what percentage of those
businesses should be eligible to participate in these programs?
And based on that, are you I guess targeting resources because
when you think about it, you know, it--I think part of the
pushback is not understanding how these businesses actually
plug into a system of global economic--with global economic
implications. And so no one quite understands what it means for
the average small business in terms of its growth and its
development.
And for those who do venture into that area it is so very
complicated for them to break through that they kind of
discourage others because it is such a daunting endeavor. Do
you get where I am?
Ms. Johns. If I may respond, yes, Congresswoman. That is
exactly why I have been--to your point, that is exactly why I
have been focusing on the counseling and the nationwide network
of counselors that the SBA is putting in place. Because that
can address--it can take away the mystique. It can take away
the complexity for that small business who needs that support.
You are talking a large business. They have their own in-house
resources for how to navigate this global marketplace but we
are that--we stand in that gap for small businesses.
And I will give you an example. I was in Indianapolis,
Indiana not long ago at one of our Women's Business Centers,
talking to a group of women, one of whom I will highlight. She
is a jewelry maker. Because of the resources that she found at
the Women's Business Center and was exposed to the idea of
exporting, she is now able to take her jewelry making business
and she, through the web, has launched in two countries. She is
in Great Britain and she is in France. And she intends to grow
from there.
And I just use that as an example to say that with the
benefits of technology that we have at our disposal now and I
believe a strong role that we must play at the SBA is to build
awareness to again demystify the notion of exporting, connect
small businesses with the expert advice that they need and the
other support, and we will see a breakthrough. It is our
responsibility to develop metrics to track that. We are in the
process of thinking through how we need to do that but the main
point is getting these tools from the Small Business Jobs Act
into the hands of small businesses, doing our part to develop
the network of support that the small businesses need, and then
building awareness. Because that is a big problem. Too many of
our small businesses just have not thought about exporting. And
when the issue is raised and when we talk about the tools that
are there at the SBA and across the Federal government, a very
strong positive reaction always results.
Ms. Clarke. Thank you very much, Mr. Chairman. I yield
back.
Chairman Graves. Mr. Tipton.
Mr. Tipton. Thank you, Mr. Chairman. Panel, I would like to
thank you for taking the time to be here.
I am a small business guy myself and certainly I recognize
your appreciation that small business is the number one job
creator in this country and probably one of the keys to being
able to lead us out of this recession.
If I could, Ms. Johns, you stated in your opening statement
and I heard this, that the administration wanted to be able to
double exports in the last five years--over the next five
years. How is that going?
Ms. Johns. Well, we are certainly working as hard as we can
to----
Mr. Tipton. Where do we sit now?
Ms. Johns [continuing]. To do our part but I would defer to
my colleague on the actual data there.
Mr. Kumar. Last year exports grew at 17 percent over a year
ago. A doubling of export is a 15 percent compounded annual
growth rate year over year. This year in the first seven months
exports are tracking at 17 percent. Given the fact that over 19
months we are tracking at 17 percent, that is about our goal
but that is why we always like to call it a beginning. Whether
you look at macro level or micro level, the trend is quite
heartening. Besides the 17 percent, exports were at 1.83
trillion last year, the second highest. And exports as a
percent of GDP went up from 11.2 to 12.5. That is at the macro
level.
At the micro level we physically were able to touch 18,000
SMEs. No, 18,000 companies, of them 16,000 SMEs. And we were
able to post significant increases in export success. Again,
our approach was to divide and conquer to leverage our combined
resources. The USFCS focused on taking newer companies--
existing exporters to newer markets. We succeeded in 4,700 such
cases; 12,300 export successes.
So whichever form we look at it, whether we look at it in
physically facilitated exports and what it had been over a year
ago or at the macro level, we are tracking well onto our goal.
Mr. Tipton. Good. You know, I guess I am curious because
part of the problem is when we are dealing with small
businesses, as you note, you do not have some of the
sophistication in the marketplace. Are all of the forms, all of
the applications, are those available and deliverable online?
Mr. Kumar. Export.gov is the single web portal which we
would like every business to be directed to. And what we have
done on that portal and continue to improve the portal is have
the Trade Information Center intercede so that any inquiry from
any one of your constituent companies is directed to the right
agency.
Mr. Tipton. I understand the direction but I mean in terms
of filling out forms, are those available online?
Mr. Kumar. Yes, it is.
Mr. Tipton. All forms are available?
Mr. Kumar. Not all. Most forms, through the Client Intake
System. The right forms----
Mr. Tipton. Are you working to get them all online?
Mr. Kumar. Yes, sir.
Mr. Tipton. You are. What is your time of completion on
that?
Mr. Kumar. Export.gov is an interagency staff. Most of the
forms which small business entities require are already online.
And I cannot give you a finite time but it should not be more
than six months or so when every form would be there.
Mr. Tipton. Okay. Great. And I may be following up a little
bit on Congresswoman Velazquez's question there. If I was
interpreting it correct. But the return on investment that we
were having for the cost of what you do versus the yield from a
benchmark, do you have any idea what that is?
Mr. Kumar. I do not have the benchmark idea but what we do
is track the value of exports. Export successes.
Mr. Tipton. On a year over year basis what would you say
given some of the statistics that you just gave me earlier?
Mr. Kumar. It is tracking upwards. I did mention in my
testimony that the return on investment to date states that
every dollar invested in the service is coming out at 1.35. And
I do know it is significantly higher than what it was in the
previous year.
Mr. Tipton. Okay. I think there will be probably something
because, you know, as Congressman Mulvaney was pointing out, it
sounds like we do have some duplication going on. And I think
it is probably in all of our interests right now to see where
we can merge those components to be able to work the most
efficiently, to be able to achieve that common goal of being
able to export more at the most efficient cost that we can
certainly have.
Thank you, Mr. Chairman. And I yield back.
Chairman Graves. Thank you. Our next questions come from
Mr. Richmond. I might remind Mr. Richmond that that last pitch
was not a strike; it was a ball. And I should limit your time
and I am too nice a guy.
Mr. Richmond. Mr. Chairman, I certainly appreciate that.
And, you know, sometimes you get lucky and you just have to
accept luck. So I just accept the luck from the baseball game
and hope that I can repeat it next year. But you never know.
Chairman Graves. Well, just remember when the chairman is
up to bat and you are pitching.
Mr. Richmond. I will tell you I was surprised and
disappointed that the umpire called that a strike. I just did
not want to overrule the umpire but certainly he was wrong for
calling it a strike. I thought it was a ball all the way.
First I will start with Mr. Kumar. First let me thank you
because I had the opportunity to see and participate in a New
Markets, New Jobs NEI Small Business National Tour, one of
which was in New Orleans at Tulane University. And the feedback
that I received from many constituents and small businesses in
New Orleans was incredible in terms of the education and the
information that was provided there. My question to start off
with is for Mr. Foster and Mr. Kumar. How much do you all talk
to other agencies? Because Mr. Foster, you correctly pointed
out Louisiana and the Port of New Orleans, Port of South
Louisiana, our role in exporting in the country. However, I do
not know if the Corps of Engineers understands that if they are
not dredging the Mississippi River, which is our superhighway
for trade, you have now put road bumps in the middle of our
highway. So the more you can talk to other agencies to let them
know the importance of that it would certainly be helpful.
Now my question to you, you talked a little bit about
hosting a reverse trade mission. And I guess I wanted to hear a
little bit more about how you do it and how you identified
businesses outside of the country to come to it. And do you
have that in such a model that cities can duplicate it if they
have the resources to do it? We are a port city and we export a
lot of things and we have the ability to do more. That would be
something I am interested in if you all could give us a roadmap
on how to do it.
Mr. Foster. Thank you. I will answer that first. Thank you
very much, Congressman.
And again, yes, we at USDA are very familiar with your
district and your state. I was mentioning earlier corn, wheat,
and soybeans are going out through your ports at about $49
billion a year, so that means a lot to us.
We at USDA have four regional trade associations, non-
profits that help small businesses exclusively in those
regions. In fact, our Southern United States Trade Association,
which covers the whole south, is based in New Orleans. They
work every day with new small and medium-size companies to help
enter world markets. I have a note here that a company called
Magic Seasonings, not far from New Orleans, is involved in our
program and is now exporting to several countries after
attending a number of trade shows that we helped fund them to
go to. Another company, Crown Products, that produces sunflower
seeds and popcorn and so forth in Louisiana, are working with
us and going to trade shows. They are now selling to the
Dominican Republic at the tune of $200,000.
The Southern United States Trade Association (SUSTA) that
we fund brings reverse trade missions regularly to Louisiana.
We want to make sure they do this through all our partners
there. We can do even more to make sure that they are reaching
out to every small business in your state and any of the
states--to make sure that they are meeting the buyers that our
posts are bringing to the United States. We have 100 offices
around the world covering 150 countries. They regularly bring
buyer missions to the United States. Again, that is because
small businesses cannot afford to get all over the world to
meet the buyers. But I will say the SUSTA trade organization I
mention has funds to supplement any company in your district,
for instance, that wants to attend an international trade show
to enter world markets. They get funding up to 50 percent of
the cost to travel. And I must say USDA does not charge any
services, any fees. I am sorry, charge any fees for our
services.
Mr. Richmond. Okay. Ms. Johns, I have a two-part question.
When we talk about the STEP Program I guess the question
becomes was there large participation from the states? And do
you all anticipate allocating or leveraging all of the funds
allocated for the program?
Ms. Johns. Thank you, Congressman. Yes, there was a very
good response to the STEP grant program. Fifty-three states and
territories responded and as I mentioned earlier, each one of
the entities who sent in an application will receive funding.
We are in the process now of working with the states to ask
them to--it is a comparative process. We are asking them to
resize their application because we were oversubscribed. The
applications that we received were over $42 million for a $30
million program. But that process is underway and as I said to
the ranking member, we will have those dollars out the door
within the next few weeks.
And I am sorry. The second part of your question was
regarding----
Mr. Richmond. Just would you leverage it all.
Ms. Johns. Oh, I am sorry. Yes. There is a matching
requirement. And the good thing about the STEP Program is that
it really gives--it gives an incentive. A bit of a jump start
and another opportunity for states to build their own capacity
for supporting exporting small businesses because as discussed
earlier, some of those resources have gone away at the state
level but this is a way to help replenish that opportunity.
Mr. Richmond. Thank you. Mr. Chairman, thank you. I
exceeded my time but next year I will make that up to you.
Chairman Graves. Does anyone else have any other questions?
With that, I appreciate you coming. And I would encourage
you if you have got to leave if one of your staff could stay to
listen to the next panel. And I will go ahead and seat our
second panel.
STATEMENTS OF MARK RICE, PRESIDENT, MARITIME APPLIED PHYSICS
CORPORATION; MITCHELL GOETZE, PRESIDENT AND COO, GOETZE CANDY
COMPANY, INC., ON BEHALF OF THE NATIONAL CONFECTIONERS
ASSOCIATION; WADE MERRITT, VICE PRESIDENT, STATE INTERNATIONAL
DEVELOPMENT ORGANIZATIONS; MAURICE KOGON, DIRECTOR,
INTERNATIONAL TRADE DEVELOPMENT, EL CAMINO COLLEGE
Chairman Graves. We will bring the hearing back to order.
Our first witness is Mr. Mark Rice, who is the president
and founder of Maritime Applied Physics Corporation. His
company designs and builds high-tech Maritime vessels,
including hydrofoils and unmanned vehicles for the U.S. Navy.
They started with one person and grew into 80 full-time
employees with the help of a Small Business Innovative Research
Program. Mr. Rice received his Bachelor's degree in physics
from the University of Maine and is a licensed professional
engineer. Welcome. I appreciate you coming in and traveling all
this distance.
STATEMENT OF MARK RICE
Mr. Rice. Thank you very much. Thank you, Chairman Graves
and Ranking Member Velazquez and members of the House
Committee. I appreciate the opportunity to testify.
Our company is a 75-person, 80-person employee-owned
company. I founded it in 1986. The company builds five defense
products. We are a manufacturer of defense products and these
range from unmanned boats to very automated cranes. We also
have about 10 R&D contracts mainly with DOD.
We have exported to South Korea, Germany, Scotland, France,
and hopefully to Brazil. Our company has offices in three
states and through the recession we have grown at an annual
rate of about 20 percent due in large part to exports.
Our journey has not been easy to become an exporter and I
would like to share a particular story with you about our
experiences in South Korea. It began in the year 2000. We
received an email from a business agent in South Korea. The
agent had researched our involvement in a U.S. Navy project for
supplying ship rudders through the Internet. And he indicated
there was a similar program in South Korea. He invited us to
visit the world's largest shipbuilder, Hyundai Heavy Industries
in South Korea, and at this point we were a 25-person company
with no exporting experience. We did not understand the laws,
the customs, or the cultural aspects of doing business
overseas. We had no idea who the Department of Commerce was or
where to get financing. We were totally ill-prepared. We did
not understand the laws, either in this country or overseas,
and at the time it was really unclear to us whether we needed
an export license, and once we understood that we might it was
not clear whether this was from the Department of State or the
Department of Commerce. We learned through trial and error
until we found the U.S. Export Assistance Center in Baltimore
and they really bailed us out of the export license problems
that we got ourselves into.
So with that scare behind us we continued three more times
to Korea and we got, in one case, the State of Maryland Export
Assistance Grant. On each trip we were sort of gradually drawn
a little further into this. We had never built these products
ourselves. We had largely done the engineering for the products
that we were talking to the Koreans about. We ended up in a
head-to-head bidding competition against a British firm that
was a multi-billion dollar firm. They brought in
representatives of the British government. They had a retired
Korean admiral on their staff. And we went head-to-head with
them over a period of about six months. And at the end of that
process we won the competition on both a technical basis and
our cost was about half a million dollars below the British
cost. We received a contract for 100 tons of machinery,
hydraulics, and electronics. We came home to celebrate and to
find 20 new workers to do the work. We then went to our bank,
shared the news with our bank, and they promptly canceled our
credit lines and said the deal was too big for us. And it was a
large U.S. bank.
So we were in a very disparate business situation at that
point and I approached a local bank and I found a very brave
banker who understood the SBA Export Assistance Program, went
to the SBA and basically stitched the deal back together. He
saved our company. And after three years we basically got
through the export process, delivered 100 tons of equipment,
and broke even on the deal.
So without the Export Assistance Center, the SBA and Sandy
Spring Bank, we would not have survived as a company. It was
very difficult and it required a lot of commitment and time and
resources, both from our company and from those people who
helped us through this process. It was overwhelming and I can
attest to that.
So the USEACs, the SBA, the local offices, the people we
really go out and interact with on a one-to-one basis, are the
people who saved our company, put this deal together, and
turned us into an exporting company.
So there are four recommendations I would like to make at
the end of this.
The interagency coordination of export licensing has gotten
a whole lot better since we did this. The Department of State
and Commerce are pretty well coordinated but we need to get to
a one-stop shop here. Having two parallel processes is just
confusing and it makes it twice as hard. We got caught between
the two agencies.
The second one is the same recommendation on export
financing, whether it is SBA, EX-IM, there are a myriad of
opportunities out there. Not only do the small companies not
understand these options but their bankers do not understand.
So in many cases the banks that have to act as the go-between
between the small business and EX-IM or SBA are not well
informed in these programs and things like letters of credit
and the complexities of international business are just tough.
The third one, as a country we need to increase our
awareness of the need to export and the national priority given
to exporting. When I went to a shipyard in South Korea and I
talked to the average worker, every worker in that shipyard
knew the importance of exporting. When I go hire someone from a
U.S. university or a U.S. high school, they have no idea. It is
a cultural thing that we teach and we need to learn how to
teach it.
The fourth one is the Department of Commerce recently
reduced its staff in Washington by sending people out to the
field offices. That is great. The real work in this business is
done in the field offices. In our case the SBA representative
was with the USEAC sitting in that office and had the
Department of Agriculture been there and everybody else this
whole thing would have gone more smoothly. So get people to the
field and get the decision-making in the field. There is far
too much bureaucratic time spent in these programs discussing
the administration in the offices as opposed to the execution
of their missions.
So I would like to thank the members of your Committee,
Chairman, ranking member, and I look forward to your questions.
Chairman Graves. Our next witness is Mr. Michael--Mitchell.
Mr. Mitchell Goetze, president and COO of Goetze Candy Company,
Inc. Goetze Candy is a fifth generation family business that
manufactures the trademark candy Caramel Creams and Cow Tales.
Mr. Goetze grew up in the family business, attending his first
trade show when he was 12, and he is testifying on behalf of
the National Confectioners Association. Welcome and I
appreciate you being here.
STATEMENT OF MITCHELL GOETZE
Mr. Goetze. Thank you, Chairman Graves, Ranking Member
Velazquez, and other members of the Small Business Committee
for inviting me to testify on behalf of our company, as well as
our trade association, and highlight some of the issues facing
our industry and small business today.
The Goetze Candy Company is located in Baltimore, Maryland,
and I am certainly honored to be here. The Goetze Candy Company
was founded in 1895 by my great-great-grandfather and it has
been in my family for five generations. We have 100 employees
and manufacture, as you said, confections under the brand names
Caramel Creams and Cow Tales. I am also the chairman of the
National Confectioners Association.
The association is representing the United States Gum,
Candy, and Chocolate industries of which 85 percent are small
businesses like mine. U.S. confectionary is a $30 billion
industry with international sales of well over a billion
dollars. Industry sales grew by about three percent a year and
international sales grew by about seven percent. Industry
employs over 70,000 in manufacturing and over 200,000 when we
include our suppliers and distributors that support the sale of
our products. The confectionary industry is a critical
component to manufacturing in the United States overall.
We welcome the opportunity to grow our exports but two key
obstacles stand clearly in our way of export growth. First, the
input costs of American products that are higher than our
foreign competitors; and second, several bureaucratic obstacles
and larger public policy issues that add complexity and impede
trade. As a small company it is hard to find the resources to
adequately research global markets and execute sales orders.
Input costs drive a small company's ability to export our goods
and present an extreme challenge. Sugar is the most widely used
ingredient in the confectionary industry but the current U.S.
sugar policy is woefully outdated. The current law allows only
about 15 percent of sugar to be imported and what we are forced
to buy domestically from a handful of sugar suppliers is priced
at twice the world price. Actually, we had a price increase
yesterday from the top three U.S. suppliers of sugar and it has
officially doubled over the last three years, the price per
pound.
The artificially high price of sugar directly drives the
price of all other agricultural materials we buy. To be able to
compete, companies today are moving operations to Canada and
Mexico to avoid the U.S. sugar restrictions and take advantage
of lower business operating costs. We need reform to the
outdated sugar program now.
Health care expense has dramatically increased over the
past 10 years. Goetze's cost to provide health care to our
employees has risen two and a half times, pushing our rate from
$182 to $465 per employee per month. We need to address the
uncertainty of health care and the abuse of the system or
companies like mine will be forced to raise employee
contributions or worse, drop health insurance altogether.
All goods need to be transported to our ports on our coasts
to be exported. Transportation costs are roughly 10 percent of
operating costs for our industry and the freight cost per pound
shipped has risen by 15 percent in two years. That increase
along with a rise in diesel fuel price surcharges have led to a
34 percent increase in overall shipping costs for us. We
advocate for increase in the truck weight limit to offset
enormous transportation costs associated with the diesel fuel
index.
The U.S. Government provides some great services to
business but the promotion of these services offered must be
increased. The Foreign Agricultural Service has been
particularly instrumental through their Market Access Program
known as MAP. We certainly support continuing MAP funding.
I would like to point to the U.S. Department of Commerce
Gold Key Program, which was mentioned earlier, that could be a
good model for use in the agricultural sector which it does not
apply to us. A similar program would help us with basic steps
of how export--how to export would be very helpful and make
entering new markets less intimidating. On a broader policy
scale, 95 percent of the world's population lives outside the
United States and what an enormous opportunity for exporting
small goods manufactured here. If tariffs were reduced by 10
percent to our top 17 export markets, NCA estimates that we
could see more than a $14 million increase in U.S. export sales
of confectionary goods.
We support the president's National Export Initiative to
double U.S. exports and the most efficient way to do this is
through congressional approval and a timely implementation of
the pending Free Trade Agreements with Korea, Colombia, and
Panama. With Free Trade Agreements in place, we would help
lower our input costs, make our products more competitive,
which will increase exports and grow jobs.
When a product is labeled Made in America that message
resonates around the world. I believe that we can grow U.S.
manufacturing but only if we consider a careful balance of
reduced domestic regulatory burdens, smarter, more competitive
supply management, increase marketing of government resources,
and have the policies in place to not only allow our products
to enter new markets but to be able to enter those markets at a
competitive price.
In conclusion, owning or running a small company today,
small confectionary company today, is far more challenging than
even my grandfather could imagine. It has become so complicated
and challenging at times that I forget that I am just
manufacturing candy. There are many bureaucratic obstacles to
overcome in order to even ready one's product to be able to
break into an international marketplace and grow exports. I
would like to say that our National Export Strategy is working
but with the ever-growing obstacles and challenges I cannot.
Again, thank you for inviting me to share my perspective
and I look forward to working together to find solutions to
resolve these issues. And I am happy to answer any questions.
Ms. Velazquez. Now it is my pleasure to welcome Mr. Wade
Merritt. He is currently vice president of State International
Development Organizations, the leading U.S. organization
dedicated to supporting state international trade agencies. He
also serves as vice president for the Maine International Trade
Center where he works directly with small and medium-size
businesses, as well as federal agencies to coordinate trade
missions, technical assistance, and export credit assistance
programs. Welcome, and thank you for being here.
STATEMENT OF WADE MERRITT
Mr. Merritt. Thank you, ranking member, Chairman Graves,
Ranking Member Velazquez, members of the Committee. Thank you
for inviting me to testify today.
My name is Wade Merritt. I am the vice president of the
Maine International Trade Center and currently serve as vice
president of SIDO, which is the National Association of State
Trade and Export Promotion Agencies. And an allied but separate
group of boots on the ground providing export development
services in the United States.
Nationally, SIDO states currently boast a domestic staff of
300 with a total budget of over $83 million for international
development. I know that is not a lot when compared to the
overall budget for the commercial service. Our overhead is
lower and we have become experts in doing much more with much
less.
The president's goal of doubling exports is ambitious and
requires robust export development programs at both the state
and federal level. The president also suggested that this
growth be led not by the Boeings and Caterpillars of the world
but by small and medium-size businesses like my friend here
from the University of Maine, Maritime Applied Physics, or the
80 percent of my clients in Maine who have fewer than 100
employees. These small and medium-size businesses hold the
largest potential but also require the greatest level of
overseas support.
A 2006 World Bank study demonstrated that on average every
dollar spent by countries on export promotion yielded $40 in
new exports. And you heard from Director General Kumar that
Commerce is showing a much higher number than that. And I would
point out that our number was from 2006. Presently, our
country's export promotion spending by percentage of what we
export--and this is state and federal combined--is much closer
to that of a developing country than to our peer nations. There
is a lot of room to grow and the time to take advantage of that
opportunity is now.
The states working collaboratively with the Federal
government are ready to do our part. However, as states are
being called upon to provide even higher levels of service, the
current fiscal crisis has prompted state governments to make
difficult choices. In just two years, state support for trade
development and investment attractions dropped by 20 percent.
States are having to choose short-term budget fixes over long-
term solutions. And as I mentioned earlier, foregoing an
investment with a proven 40, 90 or 135 to one return is not--
just is not a choice that states should have to be making.
The STEP Program to the U.S. Small Business Administration
is now poised to provide much needed support to our state trade
offices and exporters. While the roll out of the program has
been delayed as metrics have been revisited, proposals have
unexpectedly had to be reformatted and resubmitted. And I can
attest that I have personally been wrestling with this while
simultaneously preparing this testimony. The program has the
potential to truly revitalize American exports. Once STEP
Program funds are awarded, states will quickly be in a position
to enhance the services and assistance available to small and
medium-size exporters in our states. I think that is a key
point because we are much closer to the ground.
There are several export promotion priorities that should
be addressed and implemented in order to maximize the chances
of success for the NEI. First, the commercial service will be
essential to deliver--a revitalized commercial service will be
essential to deliver on the NEI's commitment. Even the best
funded state trade program cannot provide global market
coverage and all states depend on the worldwide network of
commercial service posts to provide their businesses with
market access in countries where the state has little or in my
case no independent resources. State programs are well
positioned to complement federal promotion efforts domestically
through our on-the-ground practical assistance programs but
reductions in CS budget and overseas personnel deployment
adversely affects our programs and has a chilling effect on the
ability of U.S. producers to export their products.
Secondly, access to traditional markets is essential. While
accessing emerging markets is a worthwhile objective, most new-
to-export companies will find the best opportunities where our
exporters have enjoyed a comparative advantage in the past.
Case posts such as Hamburg, Barcelona, Amsterdam have been
closed and Canada, our largest trading partner and often the
first export market, has just one American officer responsible
for the entire country. These offices should be reopened and
staffed as soon as possible.
Third, pricing for CS services. We heard that earlier, such
as Gold Key and International Partner Search should be
maintained at the current rate which we believe is affordable
for small business. These programs represent some of the tools
most frequently used to enter new markets and increasing the
costs would be counterproductive to the growth of the NEI.
Fourth, support for the SBA's Office of International Trade
is essential to the success of the STEP Program. Through STEP,
the Federal government has provided much needed assistance to
boost non-agricultural exports. Now it is necessary to fulfill
that commitment by affording the SBA the resources it needs to
name a full-time associate administrator for international
trade and to supplement its staff with the numbers necessary to
roll out this pilot program successfully and efficiently.
And finally, an enhanced partnership between the federal
and state trade agencies to seamlessly deliver customer focused
services is critical to expanding the pool of successful U.S.
exporters and promoting market diversification among existing
exporters. In order to better coordinate efforts and avoid
duplicative services, there needs to be a mechanism for sharing
metrics, tracking successes, and identifying the areas for
improvement where currently there is no incentive for
collaboration. American exports create and sustain millions of
jobs in the U.S. and current prospects for expansion are
excellent, but a collaborative partnership that combines
resources and finds efficiencies at the federal and state
levels in a systematic manner is the best way to assist
companies in finding export success.
Thank you, members of the Committee, for allowing me the
opportunity to speak. And I will also welcome your questions.
Chairman Graves. Our final witness is Mr. Maurice Kogon,
director for International Trade Development, El Camino College
in Hawthorne, California. Mr. Kogon has over 50 years of
international business experience as a U.S. government
official, business executive, educator, and consultant. His
experience includes over 30 years with the U.S. Department of
Commerce, which he held management positions in trade promotion
and strategic planning. Mr. Kogon has a Bachelor's and Master's
degree in Foreign Affairs with George Washington University
here in D.C. and we welcome you.
STATEMENT OF MAURICE KOGON
Mr. Kogon. Thank you, Chairman Graves, Ranking Member
Velazquez, and Committee members. Thank you for the opportunity
to provide this testimony.
As you said, my name is Maurice Kogon and I have spent a
lot of time in this field, at the federal and state level, with
a multinational, as a small business owner and as an educator,
including 33 years in the Commerce department. My testimony
today raises a basic question about the National Export
Initiative, specifically does it adequately meet needs of the
thousands of small businesses that are or could be exporting?
In my view, it is not yet as relevant or as helpful as it could
be to meet needs of this vital constituency.
I have three main points. First, the NEI has an ambitious
goal to double exports in five years but not a strategy that
will get us there. The strategy relies too much on global
economic factors we cannot control, while the programs we can
control are not focused enough on the small businesses that
most need export help, and also not enough on the services they
most need at critical early stages. The NEI's export promotion
programs are basically only what the government can afford; not
on what can best help small businesses at each stage of their
export development. Far too many small businesses with export
potential are left to fend for themselves. Claims that the NEI
is on pace based on recent large export gains belie the reality
that most of these gains came from recovery and world import
demand and would have happened anyway.
My second point is that the NEI does not adequately address
what I see as our national export paradox. That while we are a
very large exporting nation, we are not a nation of exporters.
Roughly 85 percent of U.S. manufacturers do not export at all
and over half of the 15 percent that do export sell only to
Canada or Mexico. The NEI addresses the half of the 15 percent,
the low hanging fruit, but essentially writes off the far
larger group of potential new exporters in the 85 percent. U.S.
exports would increase significantly if we could get more of
the 85 percent into the export base. For that, in my view, we
need to go beyond a low hanging fruit strategy. We need what I
call a fertilize the tree strategy to optimize exports--that
is, to increase exports to our full potential and capacity as a
nation. An optimization strategy would focus not just on
getting existing exporters into new markets, but would also
cultivate the far larger group of potential new exporters that
could most contribute to long-term export expansion.
It would have two interrelated goals. First, we need to
increase U.S. exports as a percent of GDP. Although we are the
world's third largest exporter, our exports to GDP ratio lags
well below our major world competitors. For example, Germany is
at 45 percent; we are at 12 or 13 percent. Our competitors,
with comparable economies and competing in the same global
marketplace, are more fully exporting to their capacity. We
have the potential to close this gap. We are, after all, the
manufacturing powerhouse of the world and the world leader in
innovation and technology. And, most of our manufacturers are
not even exporting yet.
Second, we need to increase the number of new exporters. We
could come much closer to our national export potential if more
non-exporters were to start exporting. We now have roughly
280,000 actual exporters in the U.S. As noted, they account for
only 15 percent of all manufacturers. Many of the 85 percent
non-exporting manufacturers may well have export potential.
Why? For one reason they have succeeded in the world's toughest
market--our own--against the same competition they would face
in foreign markets. If they can sell competitively here, they
have the potential to export to at least one or perhaps even
many of the roughly 200 world markets.
If my suggested priority on new exporters makes sense, why
is the NEI so narrowly wedded to the low hanging fruit? The
reason is, and Mr. Kumar mentioned that and I agree, they
cannot afford to do both. Limited resources should be reserved
for the export ready firms able to make the best use of the
trade promotion and matchmaking services. But that misses the
larger point. The new-to-export sector is too important to
ignore or write off. The solution is obvious. It is not to
stretch federal resources further, but to collaborate with non-
federal partners well equipped to fill the gap.
This gets to my third and final point, the need for
systematic collaboration with non-federal partners. The vast
network of state and local export assistance organizations
could be part of an overarching export optimization strategy to
both fertilize the tree and pick the low hanging fruit. Centers
like mine and others are at the grassroots of potential new
exporters. We have the expertise and resources and are ready
and willing to engage in a meaningful collaboration.
Unfortunately, I do not see a federal mindset, a plan, or a
mechanism to collaborate. The NEI is more concerned with
internal collaboration within the TPCC. It gives abundant lip
service to collaboration with others, but not much else.
Here is what real collaboration would look like in my view.
Nonfederal partners would have a seat at the TPCC table. They
would help plan and develop a holistic export optimization
strategy that shares data with potential and existing
exporters, jointly recruits prospects, reconciles programs to
reduce wasteful duplication and overlap, and coordinates the
seamless delivery of complementary services to both new and
existing exporters.
Before concluding, let me emphasize that my concern is with
the strategy, not with the programs. They do increase exports
and do have a high ROI to justify their costs. The only problem
is that they do not go far enough and do not meet enough small
business needs.
Thank you again for the opportunity to share my thoughts.
My written submission elaborates on all my points today,
including specific needs of small businesses through all stages
of the export process from start-up to getting paid. Thank you
and I welcome your questions.
Chairman Graves. Ms. Velazquez, I will start with you.
Ms. Velazquez. Sorry. I was not ready.
Chairman Graves. That is okay.
Ms. Velazquez. Mr. Kogon and all of you, it has been
incredibly helpful to us, your testimony, and specifically your
experience in the exporting business.
Mr. Kogon, you said you do not have any issue with the
program but the strategy. In putting together the formulation
of the strategy did the administration reach out to any of you
or do you know of any input that was requested from businesses
that are in the export business--in the exporting business?
Mr. Kogon. When the NEI was first issued there was an
opportunity to submit comments to the TPCC. I submitted a very
detailed white paper saying basically what I said today in much
more detail and laying out a complete strategy that I thought
would be more effective. I do not believe anybody paid any
attention to that frankly and I thank the Committee for
recognizing that that paper exists.
Ms. Velazquez. Any other? Yes, Mr. Rice.
Mr. Rice. Yes. Yes, ma'am. There was an outreach effort and
there were several visits through the District Export Council.
There were road shows that traveled through the country but I
agree that I think it as more show than substance. I did not
feel that I had an opportunity to significantly influence it.
Ms. Velazquez. Mr. Rice, you spoke that when you first were
contacted by the overseas industry or business you went to the
State Department, the Department of Commerce, and the SBA to
complete your first overseas sale. Of all those agencies, which
of them was the easiest one to work with? And this is not to be
critical of the agencies; it is just to learn how to better
improve what they do.
Mr. Rice. There were two key people. There was in the USEAC
in Baltimore a gentleman named Bill Burwell and in the SBA
there was a woman named Debora Conrad. I mention the names
because they were individually extremely helpful as opposed to
organizationally. They understood our problem, they took us
under their wing, and they really helped us through these
things. And that interagency interaction worked extremely well.
And to your earlier question, there was a great division
between the financing role and the overseas Gold Key sort of
reach out role. And I understood that very clearly from the
first interaction with the two groups.
Ms. Velazquez. Mr. Kogon, I asked the representative, the
witness from the USDA the question that the strategy was
predicated into the success of trade agreements--Korea, Panama,
and Colombia. What will happen to the strategy if we do not get
those trade agreements ratified?
Mr. Kogon. The strategy is multifaceted. It includes the
reduction of trade barriers and it also----
Ms. Velazquez. Oh, the success of the strategy.
Mr. Kogon. Yeah. I do not, you know, they were already
claiming success of the strategy based on export increases of
the past two years. I do not think it had anything to do with
the strategy. For the same reason, a couple of years ago
exports went down and I do not think they would blame bad
strategy on that. So I think strategy is not really the driving
force here. It is what we can do to help companies get into
exporting.
Ms. Velazquez. Okay. Mr. Goetze. Yes, sorry.
Mr. Goetze. That is okay.
Ms. Velazquez. You wanted to add something?
Mr. Goetze. Yes. I would just add to that. You know, from
our perspective with the Free Trade Agreements, I mean, what
they allow certainly is the first step of opening those new
potential export markets. But along with Free Trade Agreements,
they also include the protection of intellectual property.
There are agreements on that which is a big concern of U.S.
brands like ourselves. Mr. Rice manufactures a product that is
very successful because of its technology, whereas a piece of
candy, you know, is not all that complicated to go into another
foreign land. It is easily duplicated. So the protection of
intellectual properties is important.
And then certainly some of the issues that have floated
around about child labor certainly dealing with countries with
Free Trade Agreements. There are also stable economies. The
governments usually have collaborative efforts.
Ms. Velazquez. Are those the reasons why in your testimony
you said that the North American Free Trade Agreement created a
disincentive for you as companies to remain here but you also
said that you support Free Trade Agreements with Korea, Panama,
and Colombia. Why will these trade agreements produce different
results than the ones from North America?
Mr. Goetze. Well, first of all I think I am here
representing certainly the U.S. company with extreme input
costs and, you know, when we originally spoke I thought my
contribution could be that before a product is even ready to be
exported, input costs are important. I think when you take a
look at Free Trade Agreements, you know, if you talk about the
north or the south of us they are very similar to what we did.
That is the way we see the world. When we try and take this
product and go to the Middle East which we were recently over
in Dubai looking at a show or Germany through the NCA, through
the MAP Program, it is more complicated. But with an agreement
in place I think as a small company you feel more secure
conducting business with a country like that or a country that
falls under a Free Trade Agreement for all the reasons I
mentioned--the intellectual properties, the stability of the
economy, things of that nature.
Ms. Velazquez. Thank you.
I have another question. I will come back.
Chairman Graves. Okay. I have got a question concerning--
and it was brought up in the earlier panel. And it comes to
marketing plans. How much, you know, we have so few firms
obviously or small businesses in particular, you know,
exporting stuff. How much of that is related to--and I welcome
input from all of you--how much of it is related to market? I
mean, that is obviously--it can be extraordinarily expensive.
And if you are concentrated on domestic here in the United
States obviously and I suppose it could be very, very tough to
go into another country and try to even let them know you have
got a product out there available, I mean it is very curious to
me and, you know, is it just too expensive to try to do that?
And you know, where do you go, you know, what country do you
pick to try to make a dent at least? Let us start with Mr.
Rice.
Mr. Rice. A couple of thoughts. Number one, the expense of
going overseas is in the $5,000 to $10,000 range for a
reasonable thing. And that is a lot for a small company, a very
small company. So the more you can do virtually--so the
Department of Commerce has some virtual methods to get you
overseas to get your feet wet.
The second thing I would say is when I came back we put
together a program that is called Export Tech, which is a
three-day program where a CEO from a small company comes in.
The first day it is really infusing them with knowledge. The
second day is addressing specific problems they may have in the
markets they think they want to go to. And the third day, which
is two months later, they have to provide a business plan to a
council of their peers and experts on where they want to go,
what it is going to take, and what the realities of the
business plan might or might not be. I think that is the sort
of training we need to get out to people, whether it is through
Mr. Kogon's organization or these public-private partnerships.
People just do not understand what the markets are. The
business plans are daunting. They do not understand the
cultural aspects and they need help. And they have to have help
coaching themselves through the process. They have to do it. As
a farmer, if you were going to export, you know, to Dubai and
you needed to understand what crops you were going to raise and
what might there be a demand for, that is where the foreign--
where the foreign presence and the commercial service really
helps. It lets you reach into the country, understand through
their culture what their market is, and then feed that
information back through the USI Act to the local business to
reach their educational level up to where it needs to be.
Mr. Kogon. I would like to comment on that. Mr. Chairman, I
think you started to say how important is marketing and market
planning. For new-to-export companies, which is my focus today,
none of which is being provided by either SBA because they do
not have the competence to do it and US&FCS because they are
not interested in helping new-to-exports; they are focused on
the other. It is not one thing or two things you can do. That
is why we developed a seven-step export enabler program. And we
start with assessing whether that company has the potential and
readiness to export. Then we train them on how to export. Then
we provide the research to identify which markets are most
promising and what is the best strategy to get into those
target markets. Then we help them develop an export market
plan. And the market plan would address the distribution
pricing, promotion, and adaptation strategy in each target
market. Then we move to the marketing, the promotion, to
implement those aspects of the market plan. So we take them to
trade shows or we recommend that they improve their website or
they do all the marketing things.
And the seventh step is the matchmaking. Matchmaking
through Gold Keys is very important. What you should know is
the U.S. and Foreign Commercial Service is no longer able to
provide the level of Gold Key support that is needed. And when
the STEP Program comes along with more demand for Gold Keys it
is going to be a mess--there are going to be some problems.
Mr. Goetze. I would say when talking about marketing a
product overseas, we spend approximately $12,000 to send two
people to let us call it Germany. Germany every year. That is
two people. That is time away from the office. We participated
in that show for 10 years. So in essence we have spent about
$120,000 just in participating in travel and the show. Right
now we roughly do maybe a half a million dollars in export
sales. The real challenge is when you show up there, is
actually selling the product and having the person that you are
trying to sell it to understand, you know, your product just in
general.
Again, I go back to the input costs. Usually sugar and
other agricultural products that are in our Caramel Creams, you
throw the cost out to them and they shake their head and say,
well, no, that is not what it should cost. So once you get over
that and you come home it is usually a nine-month to a 12-month
sale cycle for confectionary. By the time you finish your
communication and negotiation you might have to come up with
some type of special packaging or labeling to comply with that
country.
In our case, those sales, unlike the United States, you go
and you sell a retailer here in the United States, it is sold
and it usually stays on the shelf if you perform. International
business constantly needs this feeding that you hear. There are
not the retail--other than Europe there are not the retail
placements that there are here in the United States. It is
mainly an ad hoc sale. So every year it seems we are
duplicating the sale thing. We know you get residual sales if
the product sells well or they find a different market. But the
challenge is it is not placed on a retail shelf in most cases.
Chairman Graves. Mr. Merritt.
Mr. Merritt. Thank you, Mr. Chairman. I completely agree
with my colleague form California that the ability that it will
sell in the United States pretty well, you know, you are battle
hardened by the time you reach the world market. I think that
is a good thing.
What we find is that it is incredibly difficult to shake
some of these small business owners from their complacency,
that they have been able to survive on the U.S. market for so
long that the thought of even getting out of the office is, you
know, it is not there.
It is very expensive to market. We run trade missions in
Maine on a complete total cost recovery basis. Those are,
again, they match up very nicely with Mr. Rice and Mr. Goetze.
About $7,000 for a participant to go overseas with us for a
week. The USDA has fantastic programs for agricultural
exporters and then we have been able to stretch those into
fishers and into forest products, which for a state like mine
that is a large portion of our base but that is not the case
necessarily for other states. It is why we got really excited
about the SBA STEP Program, honestly, which is that there is
lots of money out there for agriculture and for forestry and
for fisheries, but there has never really been anything for
manufacturers which is one thing that we have kind of thrown
out there for a long time of our competitor nations are, you
know, providing whatever. I mean, it does not have to be much.
In our case, small--we were able to find from another pot of
money small grants. A thousand dollars to put towards companies
participating with us on trade missions to offset costs of
travel or matchmaking services or whatever. And just that tiny
little bit of money was enough to be an incentive to get them
out of the office and actually looking at that international
market.
So, you know, we had not pushed. We, the states, had pushed
Commerce to do something like this, to do a market access
program like grant program for manufacturers. SBA kind of came
out with this more flexible program that said the states could
apply for it and do whatever you would like to do for export
development. Most of us have decided to go that route. That is
what we are doing with our application is to provide offsetting
costs for Gold Keys. Mr. Kogon mentioned, however, there may be
an issue with capacity at the commerce level as to whether or
not the posts are going to be able to handle this influx of
Gold Keys which is going to come out of many of our STEP
proposals.
And then finally, just to kind of put a point on the
difference between USDA and the ag programs and everything
else. We heard a couple of years ago that there was actually
more money that was given to the California Raisin Board for
marketing of California's raisins than there was in the entire
one grant program that the Commerce Department offered for
manufacturers. Just one industry was receiving more money than
all the rest of the manufacturers could even have the potential
to get their hands on which was not much honestly.
So I guess that would be my key. It is just difficult to
get people out of the office and if you are able to provide
them even a small incentive, you know, they are willing to do
it and willing to think about it.
Chairman Graves. Mr. Goetze, do you guys use beet sugar or
cane sugar?
Mr. Goetze. Cane.
Chairman Graves. Cane.
Ms. Velazquez. Mr. Merritt also answered my question.
Chairman Graves. Okay.
Ms. Velazquez. Thank you.
Chairman Graves. Mr. Bartlett.
Mr. Bartlett. I am sorry that I could not have been here
for the testimony and the questions but I wanted to get back
because two of our witnesses are from Maryland. Thank you very
much.
When I ran for Congress 20 years ago there was an article
in Money Magazine that said that Maryland was the least
attractive state in the union for retirees and business. And
just the other day, I forget which entity it was, said that
once again Maryland is the least attractive state in the union
for business. So I wanted to come to see two really triumphant
warriors. You are still making it in Maryland. Thank you very
much.
You know, every six hours, in fact, just a little less than
that, we have another billion dollar increase to our debt. And
about every 12 hours we have another billion dollar increase in
our trade deficit. I know people who have been--who feel that
because that dirty smokestack industry is moving overseas and
we have that nice, clean service-based economy in our country
now. And sometimes if you push something to an absurdity you
can say, gee, that is not going to work. Is it?
And no matter how much you charge for cutting each other's
hair and doing each other's laundry, that is not going to be a
viable economy. Is it? And so what this hearing is about today
is enormously important. And we have got to do something to
reduce that trade deficit. I do not know which one of those two
deficits will bring us to our knees first; whether the budget
deficit and the increasing debt or the trade deficit. When
every 12 hours another billion dollars of wealth leaves our
country--it comes back. A lot of it comes back but it comes
back to buy us. Seventy percent of all of our cement, about the
same number--70 percent of our track is owned by foreign
countries now. So I really appreciate what you all are trying
to do increasing trade because that will help to lower that
trade deficit.
We have--one of the first things that we can do, you know,
what you have to do to compete with those people over there,
unless you are competing with somebody in Japan, every one of
those companies pays less corporate tax than you do. You have
the second highest corporate income tax in the world. That is a
little tough for you to compete in a global marketplace when
you start out with that deficit, is it not?
And then we have probably more regulations here than most
places. There was an article that really gave me some pause. It
must be a year or more ago now and it was in a strange place.
It was a National Demographic. I do not know if you read it or
not. It was the story of two Chinese businessmen, a local
contractor, and a reporter. And they went to a shell of a
building in a small Chinese town. And they were going to build
a factory. And the reporter says that the senior businessman
took a scrap of paper out of his backpack and wrote an outline
of the building on it and said I would like to put, you know,
restrooms here and manufacturing here and so forth and so
forth. And he timed them and it took him an hour and eight
minutes. And he had engineered the conversion of all three
floors of this building for a factory. And then he turned to
the--the businessman turned to the local contractor and said if
you do not use cheap materials and do a good job, I will get
you to do my next factory conversion. And he said and I would
like you to start immediately. And the local contractor looked
at his watch and he said it is 2:30. Is it okay if I start
tomorrow morning?
Wow. How many years would it take us before we could get to
that point after our environmental impact study and so forth?
And I wondered, you know, just how long--just how long can we
continue this fight with all of the problems that we have with
the second highest corporate income tax in the world with all
of the regulations, and with the impediments starting a new
business. Can you start--I would like you to start immediately.
It is 2:30. I said, okay if I start tomorrow?
So I want to thank you very much for what you do for our
country and, you know, help us fight the battle to get the
taxes down, to get regulations down so that you have a truly
level playing field.
The fact you are able to export at all means that you are
super performers because all the impediments that we have laid
in your way you do very well to be able to compete. We would
like to help you compete better. Thank you very much for what
you do for our country and thank you, Mr. Chairman.
Chairman Graves. Thank you.
I want to thank you all for participating today. We are
going to closely follow the bureaucratic obstacles that small
business exporters are facing right now. And I plan to let you
know--I plan to send a letter to the U.S. Government
Accountability Office. The GAO requesting a report on the
efficiency of trade promotion, the efficiency of the Trade
Commission, coordinating committee, and the barriers faced by
small business exporters.
I would ask unanimous consent that members have five
legislative days to submit statements and supporting materials
for the record. Without objection, so ordered. And with that
this hearing is adjourned.
[Whereupon, at 4:00 p.m., the Committee hearing was
adjourned.]
CERTIFICATE OF NOTARY PUBLIC
DISTRICT OF COLUMBIA
I, Stephen K. Garland, notary public in and for the
District of Columbia, do hereby certify that the forgoing
PROCEEDING was duly recorded and thereafter reduced to print
under my direction; that the witnesses were sworn to tell the
truth under penalty of perjury; that said transcript is a true
record of the testimony given by witnesses; that I am neither
counsel for, related to, nor employed by any of the parties to
the action in which this proceeding was called; and,
furthermore, that I am not a relative or employee of any
attorney or counsel employed by the parties hereto, nor
financially or otherwise interested in the outcome of this
action.
Notary Public, in and for the District of Columbia
My Commission Expires: May 31, 2014
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]