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.
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Going Abroad
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."
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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.
Originally published in the February 2003 issue of Entrepreneur Magazine
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