For years, Bob Duncan of Leawood Export Finance Inc. in Overland Park, Kansas, was a vociferous advocate of globalization. As president of the B2B export finance firm, which helps U.S. companies expand their export sales, Duncan saw his company grow steadily throughout the post-Cold War 1990s, venturing into one foreign market after another. During that time, Duncan himself talked up the advantages of globalization--a combination of advances in trade, communications and capital flows--to hundreds of small U.S. businesses considering expanding overseas.
But over the past two years, as globalization has undergone its most severe test to date, Duncan's mood has become darker. His company has laid off employees and slashed costs, and he has become less certain of the future of global integration. "The global economic situation has become unclear, and there are clearly major risks," Duncan worries.
His fear is hardly unique. Until early 2001, U.S. entrepreneurs rapidly expanded their global reach, targeting export markets worldwide and strongly advocating freer trade. But in 2001 and 2002, global integration whipsawed, delivering bad news across continents as nations' economic downturns fed on one another and the war on terror heightened security risks and fears. This reverse globalization has dried up some export markets, severely squeezing small businesses. Some entrepreneurs have responded proactively, using careful management to minimize the impact of the global slowdown and strengthen their long-term export markets. Others, however, have been hit so hard by reverse globalization that they are scrambling just to stay alive.
The 1990s were an era of rapidly accelerating global social and economic integration. During the decade, world trade in goods nearly doubled in value, to $6.4 trillion in 2000, and thousands of companies bet their future on exports. Political leaders like Al Gore celebrated globalization with messianic speeches touting the nearly endless benefits of integration. Businesses ran advertisements featuring executives teleconferencing with partners across the globe and Buddhist monks surfing the Internet from remote abbeys.
"The Web has drastically leveled the international playing field between smaller companies and big business."
Though many U.S. consumers associate globalization with leading multinationals like Coca-Cola or GE that have huge operations in many countries, small businesses have actually been one of the main drivers of global integration. According to the U.S. Department of Commerce, between 1987 and 1999, the number of small and midsized U.S. exporters more than tripled, to 224,000. By 1999, 97 percent of American exporters were small businesses, though smaller exporters still only accounted for one-third of total U.S. export sales.
The increasing diversity of American society only enhanced small businesses' willingness to look abroad. As rising numbers of immigrants came to the United States in the 1990s from Latin America and South Asia and started businesses, large numbers of those foreign-born entrepreneurs naturally looked to their homelands for export markets. In 2000, studies found that nearly one-third of all start-ups in Silicon Valley were led by a person of South Asian descent, many of whom outsourced a percentage of their companies' work to India or Pakistan.
Some American entrepreneurs even started or moved their entire operations abroad, relying on the United States only as a consumer market. "The opportunities here are so much greater than if I had tried to start a small business in the U.S. because I'm closer to the manufacturing in China. I can be at ground level, making sure my suppliers are honest," says Robert Kushner, 36, president of Pacific China Industries Ltd., a toy manufacturer based in Hong Kong.
Several factors combined to create entrepreneurs' love affair with globalization. Most important, the development of the Internet allowed small companies to easily contact clients overseas and ship goods without opening huge representative offices abroad. "The Web has drastically leveled the international playing field between smaller companies and big business," says Daryl McKigney, president of the Small Business Survival Committee, a Washington, DC, advocacy group. "PayPal and eBay allow small companies to handle billing for small orders without complex credit arrangements." In some cases, Web-based B2B marketplaces such as VerticalNet have made it even easier for entrepreneurs to contact potential customers; Forrester Research, a technology research firm, predicts such B2B marketplaces will push global online exports to $1.4 trillion by 2004.
When entrepreneurs did have to leave their desks to meet clients, the expansion of airline route networks in the 1990s allowed them to meet customers face-to-face and be home in 48 hours or less. What's more, the reduction of trade barriers in most major economies during the past decade made it easier for small companies to deal with export regulations, while the Export-Import Bank and private institutions became more willing to provide financing to small exporters.