Just about a year ago, I made a career transition and joined the U.S. Small Business Administration where I now focus nearly entirely on helping U.S. exporters. Prior to that, I spent seven years in the energy industry around the world where I saw firsthand the transformative effect of innovation, science and technology on global economies. But not until I joined SBA did I come to appreciate the outsized contributions of high growth businesses in creating breakthrough innovations, jobs, and revenues that far surpass our big name companies. And while the impact of small businesses is large, it could be far greater through trade.
To appreciate the potential, it’s important to understand that small business is really a very big business. In the United States, 53 percent of workers are employed by small businesses. These businesses have created three out of every four jobs since 1992. In fact, if our small business sector were a country, our output would rank No. 5: above both Germany and Japan!
And we’re not alone. Across the world, small businesses constitute the overwhelming majority of firms. According to the SME (small to medium enterprise) Competitiveness Outlook, they represent over 95% of all firms; they account for approximately 50% of GDP; and they employ 60%–70% of the global workforce. But the economic impact of U.S. and international small businesses could be even greater if they entered the global marketplace. By taking advantage of globalization, exponential growth is possible.
We know that small businesses that export report higher sales, employ more people, pay higher wages, and are, on average, more productive than firms that do not export. And, we also know that 96 percent of all of the world's consumers and nearly three-quarters of the world's purchasing power are outside of the United States. Yet still only five percent of all of America's small businesses are exporters. More specifically, in 2014, there were 297, 519 identified Small and Medium-Sized Enterprise Goods Exporters. During the same year there were 5, 756, 419 Small Employer Firms.
In other countries, small businesses fare better, but still represent a lost opportunity for their country’s economies and growth.
The barriers to trade that small businesses once faced are being shrunk thanks to technology and innovation. Mobile internet makes it possible to reach distant customers via small transactions that add up to big revenues. Cloud based solutions now mean that a small business isn’t held back by the lack of IT infrastructure and is able to save costs, as well as to operate from a range of locales. Many of today’s big businesses and global players were the small innovative firms that innovated and took advantage of technology (and SBA assistance) to grow.
So why aren’t more U.S. small businesses exporting? Among the main barriers are access to information, capital, and barriers to market entry. A number of SBA and other U.S. Government programs can help overcome the gap. The Small Business Administration has the State Trade Expansion Program (STEP) that enables SMEs to participate in overseas trade opportunities that include match making services, trade missions, and trade shows. SBA also has three programs which provide capital for international growth: the Export Express program which can be used to enhance export development; the International Trade Loan that assists entry or expansion into international markets as well as to better compete if adversely affected by imports; and the Export Working Capital Program which provides funding to meet short-term export working capital needs. Through SBA’s Trade Hotline (1-855-722-4877), agency trade policy experts work to resolve trade barriers faced by U.S. small businesses. Export.gov is a comprehensive website that provides trusted market intelligence, practical advice and business tools to help U.S. companies expand in global markets. International collaboration with a focus on small business is a priority for SBA. For example, we strive to do more to help American innovative small businesses to commercialize their intellectual property, enter joint ventures, and trade with other countries.
A recent analysis by Fortune magazine noted that since 1995, Fortune 500 companies have grown at nearly twice the rate of U.S. GDP. In part, the breakneck growth of tech companies such as Apple and Amazon helps explain the acceleration, but another major factor is the benefits of trade. America’s largest companies were better positioned than “mom-and-pops” to expand their businesses abroad. Imagine the multiple increases in our economy if more of those “moms and pops” were to trade.
In a nutshell, the solution is simple and important to SBA. To take advantage of the big impact of small business, we need to double down with support, policies and programs so that companies can grow revenues, jobs and the U.S. economy through trade.