LFM ’97 discusses trade and globalization for LFM-SDM webcast
By Monica Nakamine
February 11, 2003
As part of an ongoing series of online seminars, Dan Crocker, LFM ’97, gave a webcast presentation on November 19, 2002, entitled "How the U.S. Government Helps American Companies Make More Money Overseas." Crocker, who is currently a commercial attaché at the U.S. Embassy in Brasilia (Brazil), spoke on trade issues that American companies must consider as they continue to do business overseas.
"Any company in the U.S. has to be concerned about free and fair trade, or just trade in general," said Crocker. "It has to operate as a global company or be aware of globalization."
The U.S. government is committed to the principle that free trade leads to sustainable economic growth, for us as well as for developing nations, and has made provisions to encourage this. Therefore, as more and more foreign companies attempt to enter, and succeed in, the American market, U.S. businesses must compete globally in order to sustain themselves domestically and internationally.
Current trading climate
Despite a global recession, the trading climate is good and competition is fierce. Entering and competing in the American market is extremely desirable to foreign companies for a variety of reasons, as Crocker pointed out:
- Trade barriers are low (e.g. 2% tariff)
- The regulatory structure is clear and transparent
- The judicial system is consistent
- The U.S. population is large and comparatively wealthy
- The dollar is strong
These conditions, however, force American companies to become global competitors.
"What that means for you is that if you’re selling a widget, you can bet there are a variety of companies overseas who would like to sell widgets in the U.S. if they can," said Crocker. "If they can sell well in the U.S., they can sell well anywhere because the competition is so intense."
Many foreign companies have succeeded in competing in the American market, simultaneously damaging domestic industries.
"There are a lot of American industries dying within a short period of time due to this kind of competition," said Crocker. "If you’re working in the shoemaking industry, in the last 10 years, you’ve seen an incredible loss of jobs. As a consumer, you might like that because you can buy a variety of shoes for a cheaper price. But if you’re working in that industry, you may have lost your job and may not be happy about it."
Crocker also outlined the long-term, or macro, factors that American companies should be on the lookout for:
- Trading blocks (fortresses) or world trade organizations
- Bilateral (between two countries) or regional trade agreements
- Longitudinal measures that show sustainable economic development
- Regional and internal security problems
- Basic financial solvency measures
As a caveat, Crocker added, "This is all guesswork. You want to be informed, but it’s informed guesswork. Nobody has a crystal ball. There are too many factors to measure."
Why care about trade?
As Crocker mentioned, trade is crucial for American businesses as they try to maintain sustainability both in and outside the U.S. Later in his webcast, he touched on a few specific details that should also be considered as companies grow or decline, and as the trading climate continues to shift. Issues surrounding trade are important to American companies because:
- Upstream supply chains may benefit from sourcing globally;
- Input costs may be sensitive to global prices;
- Domestic swings in demand can be buffered by selling overseas;
- Companies may need to produce in a country in order to sell there (e.g. Boeing China);
- Producing overseas might be cheaper (e.g. shoes);
- Savings might be incurred on downstream transportation costs (e.g. BMW);
- Overseas manufacturing sites may already exist, and should be optimized for maximum output;
- There is little to no protection against foreign competition for American companies; and
- The U.S. market is only a fraction of a much larger global market.
"You’ve got about six billion people worldwide with 280 million in the U.S. If you’re focusing on the domestic market, you’re focusing on 5 percent of the world population," said Crocker. "Any way you slice it, there’s a bigger market out there than the U.S. market. There are very few products that you can cite for which there is only domestic demand. So if you care about growing your company and revenue, then you care about trade."
Aside from competing against foreign companies, American businesses must also be aware of a host of other potential setbacks that they have little to no control over. These issues usually stem from the nature and policies of the foreign country that the American company is attempting to do business in:
- Tariffs, duties, and quotas
- Tax regimes on goods and services
- Obscure regulations on labeling, measuring, etc.
- Little support for intellectual and private property rights
- Regulations that protect domestic industry or family dynasties at the expense of the consumer
- Byzantine judicial procedures
- Large-scale corruption
- Countries that will promote their domestic industry for public contracts
- Cultural and language differences
Crocker concluded his presentation by providing resources that would help American companies trade overseas. For general advice, he suggested the United States and Foreign Commercial Service (USFCS) is a good starting point. Housed within the International Trade Administration, which is an arm of the Department of Commerce, the USFCS promotes the export of goods and services from the U.S. and protects U.S. business interests abroad. For more specific information, he recommended [create links for all]:
- United States Export Assistance Center
- Export-Import Bank of the United States
- World Bank
- Inter-American Development Bank
- Asian Development Bank
Crocker has been a commercial attaché at the U.S. Embassy in Brasilia for the past X years, and has also worked at the embassy in Santo Domingo in the Dominican Republic. His private-sector work experience includes positions at Schlumberger, Brenco, and Hewlett-Packard. Married with two children, Crocker is an alumnus of Princeton University where he received his bachelor’s degree in engineering, and the University of Virginia where he earned a master’s degree in foreign affairs.