Smaller Companies Grab Bigger Share of Surging U.S. Exports

Nov. 23 -- Smaller companies are grabbing a bigger share of U.S. exports, making up for some of the jobs lost as multinational firms move operations overseas.

American businesses without international subsidiaries accounted for 46 percent of sales abroad in 2005, up from 38 percent in 1999, according to a Commerce Department analysis published last week. The trend is likely to continue, helping cushion the economy from the worst housing recession in 16 years, economists said.

``We are at a six-month backlog now and we have been for over a year,'' said Leon Trammel, chairman of Tramco Inc., a Wichita, Kansas-based maker of conveyor belts. ``Our business is just great.''

After exporting his first belt to the Netherlands on an impulse 35 years ago, foreign sales will be almost half of his firm's projected $40 million in sales this year, Trammel said.

Faster global communications and fewer trade barriers have enabled businesses like Tramco, with few or no factories overseas, to take advantage of the strongest global economy in almost three decades. Private companies with less than 500 employees account for all the jobs created since 2005, according to figures from ADP Employer Services.

``It's a very important element driving the economy,'' said John Murphy, vice president of Latin American Affairs for the U.S. Chamber of Commerce, said in an interview. ``For small companies, exporting is the only way for them to tap into foreign markets.''

Export Surge

Exports have set records in each of the past seven months, the longest surge since 2000, according to the Commerce Department's monthly trade report. Trade contributed more to growth in the second and third quarters than in any similar period since 1990 and 1991.

Smaller firms may help exports double their contribution to the economy and add a full percentage point to growth in 2008, according to a forecast by Joe Carson, head of global economic research at AllianceBernstein LP in New York.

``Since it takes time to build up foreign contacts and distribution channels, these firms are probably just starting to develop their export potential and will reap benefits in the future,'' Carson said. ``There is a learning process here that everyone has to go through.''

Advances in communications, such as the Internet and cell phones, have been an important factor opening opportunities for smaller firms, said Tramco's Trammel, who employs 140 workers, most in Wichita.

No Traveling

Trammel took the export plunge after touring a former client's factory in Europe and realizing the company could benefit from installing his conveyor belts. For the next 10 years ``our international sales consisted largely of my ability to travel,'' Trammel said. The company now has clients in 52 countries.

``It is easier to sell overseas now,'' Trammel said. ``Air travel and communication is so great that you can communicate anywhere in the world.''

Lower tariffs as a result of free-trade agreements have also helped. Since the North American Free Trade Agreement with Canada and Mexico in 1993, the U.S. has entered into accords with Chile and Central America. Treaties with Peru, Colombia, Panama and South Korea are currently awaiting congressional approval.

``The free-trade agreements are really an important element for the smaller companies because tariffs and non-tariff barriers pose less difficulties for large multinationals,'' the U.S. Chamber's Murphy said. ``For smaller enterprises, the tariffs can be a deal-breaker.''

Dollar Drop

A drop in the value of the dollar, by making U.S.-made goods less expensive to foreign buyers, is also helping boost foreign demand. The dollar has fallen 11 percent against a basket of currencies from major trading partners since January 2006, according to Federal Reserve data.

A European customer eyeing an American product priced at $100, would now need to come up with only about 68 euros to make the purchase, compared with 99 euros five years ago.

Conversely, a drop in the dollar also raises the cost of producing goods overseas, encouraging American companies to do more manufacturing at home and foreign companies to set up U.S. factories, AllianceBernstein's Carson said.

``Companies are re-looking at the U.S. as a production base,'' said Carson. ``With the most productive workforce in the world and with great transportation systems, you could easily see a shift in production rates'' toward the U.S.

That may be one reason spending by factories on new equipment rose for a fourth straight year in 2006, according to the Commerce Department's Annual Survey of Manufacturers. The last time that occurred was from 1994 to 1998.

The increase in exports ``is a very positive sign for future growth,'' Robert Stein, a senior economist at First Trust Advisors LP in Vienna, Virginia. ``Now that smaller firms have a more diversified base of customers, it makes them more stable. They can plan for the future, they can invest. We can keep operations in the U.S. that otherwise would have gone abroad.''