Remarks by Franklin L. Lavin
Under Secretary of Commerce for International Trade
”A Look at Trade in Asia: What Businesses Need to Know” Asia-Pacific Business Outlook Conference
University of Southern California, Davidson Conference Center
Los Angeles, California
March 26, 2007
The United States Department of Commerce is proud to have been your co-sponsor of this conference for 20 years. The basis for long-term relationships is the value it brings to both partners, and we have found it to be of great value to work with you to make this conference a success. I speak from a bit of experience on this matter as I was a speaker here for the first time fifteen years ago, so I’ve had the chance to watch this program grow over the years.
Let me begin my remarks with a salute to Dick Drobnick whose team has pulled together this conference, and a word of thanks for our sponsors: Korean Air, Wells Fargo, and the U.S.-ASEAN Business Council.
And I am joined here today by a terrific group of people with whom I had the honor of serving with, our U.S. Ambassadors: Pat Herbold (Singapore), Skip Boyce (Thailand), Chris LaFleur (Malaysia) and Michael Marine (Vietnam). Thank you for your service and thank you for your participation here.
Also, I’d also like to recognize our U.S. Department of Commerce leadership who are here, both those who are based in the U.S. and 12 Senior Commercial Officers from across Asia.
I’d like to thank these professionals for their commitment to helping American companies export. You will be hearing many of them talk about their experiences throughout the day. I hope you will take advantage of their presence here.
This morning what I would like to touch on three topics: how to consider opportunities in Asia, how to think about exporting, and what we at the Commerce Department can do to help.
Good News: Positive Trends in Trade
Before I talk about Asia, let’s review the situation for international trade today.
We have seen a pattern in international trade that has accelerated in recent years, and this has resulted in a boom in exports. This has occurred because of a pattern of a steady decline in trade barriers through the GATT and the WTO as well as with FTAs. This has been combined with a steady increase in international connectivity such as air travel, e-mail, and global logistics that have facilitated business. As a consequence it has never been easier to export. It is no surprise that last year was a record year for American exports, with a leap of more than 10 percent to $1.4 trillion.
So trade is booming, and Asia is a leading driver of that boom. Trade with Asia is growing faster than in any part of the world. U.S. exports to Asia are more than $250 billion, which is as much as U.S. merchandise exports to the entire world in 1987.
In economic terms, Asia represents the perfect storm: Large populations, rapid economic development, and the emergence of large number of middle class consumers.
Few countries have captivated the world’s imagination like China, which has become our second-largest trading partner. U.S. exports to China were up over 30 percent last year. To put it another way, last year U.S. exports to China exceeded those to Russia, Brazil, Spain and France combined.
India is home to nearly as many people as China, and its economy is also booming with U.S. exports to India more than 25 percent last year.
And the good news continues around the region. U.S. exports to the ten nations of Southeast Asia were even greater than our exports to China. Japan remains America’s largest export market in Asia; we are nearing a Free Trade Agreement with Korea; and exports to Singapore are greater than those to Brazil. So Asia hosts a range of appealing markets, each with their own opportunities and challenges.
Challenges for U.S. Business in Asia
And this takes me to the first point I would like to leave with you: Asia represents a great opportunity, but you have to be thoughtful about how you approach it.
While these numbers are terrific, a careful analysis of what works in your particular industry is more important than the macroeconomic data.
Each country is distinct, with different economies, business practices, and different regulatory environments. Don’t necessarily start by aiming for the biggest target. You probably want to start with a market that fits your skill level. As you will develop your navigational skills your comfort level will grow.
A smaller market might have a better physical, industrial or legal infrastructure that will allow your product to do better there than a large market. Or there may be better compatibility between your product and the needs and standards of the country you are trying to export to. Or if your product has proprietary components, you might consider a market that is more likely to respect and protect your intellectual property.
Why Companies Export
This takes me to the second theme I wanted to develop with you today: why do companies export? What are your goals as you pursue new markets? Let me touch on five reasons we tend to encounter:
The first is more of the same- Companies begin exporting for more customers, more revenue and more profits to expand their business. In other words, companies migrate abroad for the same reasons that a company expands domestically. If that is your objective, you should start exporting in familiar markets with few barriers.
Second is scale- Economies of scale are created by producing more which lowers the costs of production. If there is a new market that you can sell to, then you can produce more at a lower cost per unit.
The third reason is scope- Exporting softens business cycles, so while the market might not be good in Canada next year, it might be great in Australia. And that can also be true with inputs. Right now a high Euro makes it relatively cheaper to source from the U.S. than the Euro Zone. The same might be true with regard to other inputs that might be more or less plentiful in one market or another.
A fourth reason is knowledge- As your company gains skills and experience overseas, you might also find it easier to develop introduce new products or otherwise experiment. Then you can transfer those experiences back to the U.S. or other markets, providing your company a competitive advantage.
Finally, the best defense is a good offense- Just as you are thinking about entering new markets, your global competitors are thinking about coming here. You need to deny territory to your competitors and understand global supply chains. Do not give your competitors a home market advantage.
The point is that every company in this room will likely draw on one or more of these reasons, but you need to sort through your goals in these markets. Only then can you devise the right approach for you.
What We Can Do For You
Let me turn to the third point I’d like to make today- that the Commerce Department can help you reach your international business objectives. As I mentioned earlier, we have a team here from across the United States, and we also have our commercial officers in from across Asia. They will have the chance to discuss with you the particulars of how they can help, but let me mention a few key areas:
1) Export counseling and research: If you are trying to develop research on your sector, or understand the regulations in your industry, or to find out which competitors are in the market, our commercial team can help you with that.
2) Matchmaking: We can find distributors, wholesalers, and others who will carry your product or represent your industry.
3) Trade missions: The Department of Commerce takes groups of businesses to Asia on trade missions. We have conducted more than 40 missions to the region since 2005. For example at the end of November we took more than 200 American businesses to six cities to India on our largest trade mission ever.
4) Trade Shows: We help American companies participate in international trade shows by organizing USA pavilions and through trade show certification. In the last two years we have been part of more than 110 trade fairs in the Asia-Pacific region. We are scheduled to be at 39 shows in China alone in 2007, for example.
5) Advocacy: We advocate on behalf of U.S. companies competing for contracts.
Please follow up with us on all these points as you go through you discussions over the next two days. We believe we have a terrific assembly of talent, and we would love to put it to work for you.
Let me conclude with this final thought. The single biggest reason why businesses don’t succeed in doing business abroad is not a lack of hope but the lack of a plan. By being prepared, knowing the risk, and developing a strategy you can increase the chance your international experience will be positive. We can help you turn your aspirations into reality by developing a plan for success. Being here is a good first step. Your next step is to work with the experts that are here who are committed to helping you reach your goals.
Export Achievement Awards
Before we go on to the next speaker, I’d like to mention two companies here in the audience that are examples of how we at Commerce can help you find the success you seek in Asia. The first is Feecorp, located in Camarillo, California. They supply new and certified surplus parts, components and assemblies to commercial and military markets.
Feecorp participated in the Aerospace Executive Service (AES) Trade Mission to the Asian Aerospace conference in Singapore in 2004 and again in 2006. Amy Magat of the Downtown Los Angeles Export Assistance Center recruited Feecorp to participate in the mission, which took place while I was Ambassador to Singapore.
As part of mission participation, Commerce provided Feecorp one-on-one meetings with pre-qualified buyers, agents, distributors and representatives in Singapore, as well as with potential buyers from around the region, including Thailand, South Korea, Indonesia, the Philippines, Vietnam, Japan and Taiwan. In addition, the members of the trade mission participated in the Asia Now Show Time program where they received counseling on the aerospace market from our commercial specialists.
As a result of these efforts, Feecorp successfully began exporting its products to companies in Singapore and Taiwan.
And Gatlin Education Services (GES), which is the world's largest provider of asynchronous web-based training to colleges and universities, worked with Commerce to find opportunities for their services in China.
Located in Forth Worth, Texas, Steve Gatlin, the President of GES sent us information on an organization in China that they wanted to sign on as its representative. We asked our Beijing office to conduct due diligence and assess the potential of this company as a partner for GES. As a result, the company we researched and analyzed has become GES’s agent in China, and several significant contracts are pending.
Congratulations to Feecorp and GES for their success. They represent the kind of assistance we can provide to your company. Please be sure to see our Foreign Commercial Service officers who will be here during conference to find out what they can do for you.
Best of luck and thank you.