Reaching Out

May 2, 2011

Karen West

0511_Exports

Lynn Hannah still has the antiquated telex machine she once used to monitor her companys first shipments of spinach to Japan in the early 1970s, even though her family-run company, Pacific Valley Foods, long ago entered the computer age and now exports 90 percent of its food products to just about every corner of the globe. With its most recent venturessending Washington-grown berries to India and corn to Pakistanthe Bellevue firm could very well be the poster child for an unprecedented campaign under way to bulk up the nations foreign trade muscle.

President Barack Obamas National Export Initiative aims to double United States exports by 2015. An offshoot of that is Gov. Chris Gregoires initiative to boost foreign trade in Washington by 30 percent during the next four years. Both are counting on an export boom to help lift the country from financial crisis and ensure a long-term, healthy recovery in the process. I view trade as the ticket out of the recession for Washington state, Gregoire says.

While Boeing, Amazon and Microsoft are the engines running Washingtons economy, small and medium-sized enterprises such as Hannahs eight-person food company are providing the fuel. More than 90 percent of Washingtons 8,500 companies that export products worldwide are businesses with fewer than 500 employees. In fact, small and medium-sized businesses generated one-fifth of Washingtons $46.6 billion in exports in 2010helping make the state the fourth-largest exporter in the U.S., and third-largest in agriculture. Among the 50 states, Washington realized the second-highest dollar growth in exports between 2005 and 2009, with exports increasing by $18.7 billion.

New exporting strategies are being carried out by dozens of government-sponsored agencies, and have turned state and federal trade experts into matchmakers, hand-holders and support group leaders. They help businesses, particularly small and medium-sized companies, locate, set up shop and win new markets overseas by providing export financing, counseling on foreign markets, lobbying expertise to overcome trade barriers and funding for new export-promotion programs. Government agencies also enlist the private sectors help and create partnerships to help facilitate exporting.

Recent initiatives to boost trade include the awarding of $3 million by Washingtons Community Economic Revitalization Board to six programs statewide that help companies enter new markets or engage in exporting for the first time, and the dispatching of Washingtons largest trade delegation ever to China and Vietnam in September.

Since President Obama announced his export initiative in January 2010and reiterated it in this years State of the Union addressgovernment officials, including former U.S. Commerce Secretary Gary Locke, have been fanning out across the country and crisscrossing the globe extolling one common theme: Exports are vital to generating jobs and creating tax revenues.

The more American companies export, the more they produce, said Locke, former two-term governor of Washington, as he outlined the national free-trade strategy in Seattle last fall. The more they produce, the more people they hire. And that means more jobs. Locke, who has been nominated by President Obama to be the next ambassador to China, says doubling U.S. exports during the next four yearsto $3.14 trillion, up from 2009s $1.57 trillionwill support two million new American jobs.

Its a tall order given that only 1 percent of U.S. companies4 percent of Washington firmsexport their products, despite the fact that 95 percent of the worlds consumers live outside the United States. And labor groups are skeptical, worrying that too many jobsand U.S. technologyare heading overseas.

The focus on export growth alone is only part of the path to economic success, says Kristen Beifus, director of the Washington Fair Trade Coalition. If the U.S. and Washington state dont slow the growth of imports, the goal of creating more jobs and reducing the trade deficit wont be realized.

Trade-related job loss, Beifus says, is a major source of Washingtons unemployment problems. To have sustainable economic development, the U.S. needs to reform its current trade policies, she says. The Trade Reform, Accountability, Development and Employment Act is a step in the right direction, Beifus adds. The act calls for a renegotiation of existing trade agreements and the inclusion of workers rights and environmental protections in future pacts.

She also charges that pending free-trade agreements with South Korea, Colombia and Panama are modeled after failed past agreements that have led to job losses and the offshoring of manufacturing.

Full Speed Ahead

Despite its critics, the national trade strategy is being embraced by much of the country, including Washington state, where more than one in three jobs is tied directly to exports today. The state was the first to sign on as a pilot state for field-testing new federal exporting programs.

During the next four years, Gregoire expects the state export initiative to help 5,000 Washington businesses achieve $600 million in new export sales. We are getting businesses to think about new markets, says Patti Brooke, assistant director of the state Department of Commerces Business Services Division, which oversees international trade and economic development. We are creating a culture of exporting and want to influence the thinking of the businessperson in terms of their product market.

Those efforts are paying off. Washington state reported near-record fiscal year 2010 sales of $154 million from state export assistance. Companies reaching out to new markets will learn to become less dependent on the Washington state market, Brooke says. While the global recession pushed Washington exports down 5 percent in 2009, they picked up a bit last year, and this year is expected to be even better.

As a gateway to Asia, Washington has a built-in advantage for trade opportunities because of its location and deep-water ports. But federal and state officials say thats not enough. About 58 percent of the nations companies that already sell products overseas do so to only one country. Diane Mooney, director of the U.S. Export Assistance Center in Seattle, says companies that have already exported to at least one country are in an ideal position to export to additional markets, such as Brazil, Singapore and Eastern Europe.

While much of the export growth in Washington will come from agricultural, aerospace and software products, new sectors are emerging, including clean tech, global health and life sciences. Bothell-based Cardiac Science Corp., for example, recently closed a $1 million deal to provide cardiac defibrillators to Romania, a new market for the global medical device firm. When the Romanian government stalled the deal over budget and timing issues, the U.S. Foreign Commercial Service, the trade promotion arm of the U.S. Department of Commerce, intervened, and after several rounds of talks between both parties, the sale finally went through.

Another company, SensorLink in Ferndale, relied on the federal agency to help with new business in Kenya. The engineering and consulting company partnered with a small Kenyan firm for the first time to get a $340,000 contract to provide U.S.-manufactured equipment to the Kenya Power & Lighting Co. Because Kenya was an unfamiliar market for SensorLink, it asked the Foreign Commercial Service agency to verify the legitimacy of the company and help form the partnership.

While federal officials seek additional markets for veteran exporters, Washington state programs are focusing on virgin small and medium-sized businesses exporting for the first time. Last year, the state commerce department handled more than 1,300 requests for export help. The agency currently has nearly 500 active cases to assist businesses with their export strategies, including many in the service sector, such as Rob Henrys small architecture firm in Seattle.

As a designer of movie theaters, Henry was struck by the lack of quality cinemas during a trip to Shanghai a few years ago. But he says he would never have sought design work in China if it werent for the states help. His firm already has designed the interior of one of Shanghais newest movie complexes and is working on four more cineplex projects valued between $2 million and $5 million.

Although Shanghai was fertile ground for new cinemas, he didnt consider entering the market until he was invited to a state-sponsored seminar on doing business in China. I didnt know how to get connected, Henry says. But state commerce officials did. They conducted business reports, identified potential partners and set up introductory meetings. They also assisted with contract negotiations and resolved money payment and tax issues that neither he nor his client was aware of.

With state assistance, The Henry Architects of Seattle won a contract to design movie theaters in Shanghai.

For Henry, the timing was perfect. Chinese consumers are shifting from low income to middle income and upper class, and the government is loosening its grip on film distribution restrictions. It [going to the movies] wasnt something the average Joe could do before, Henry says. Now they want everything new and they want it to be splashy. Theres a lot more opportunity to do more creative things in China. They want more creative, contemporary, modern architecture.

He admits working in a foreign country has its share of challenges and he acknowledges giving his Chinese clients a big discount to get his foot in the door. Although he is hoping for a long-term relationship, Henry fears there might be limits to future growth. There appears to be a tendency in China to drop foreign architects involvement once they have all the information they need to proceed on their own, he says.

Threat or Opportunity?

Henrys fears are shared by others. Trade officials have long bemoaned the fact that foreign economies are growing faster than Americas. As Chinas booming economy transforms the nation from a predominantly farming society to a manufacturing powerhouse, the country is eager to produce its own competitive products. At the same time, its demand for high-value U.S. products is shifting to food, timber and other less valuable commodities.

Commerces Brooke is not concerned. I dont see this as a threat, she says. Our products are perceived as superior-made products. In fact, she says Chinas evolving economy is an opportunity for more growth: As its middle class prospers, its consumers will demand more U.S. products, such as iPads, GPS navigators and medical devices.

On his blog from the September trade mission to Asia, state Department of Commerce director Rogers Weed commented on seeing a Starbucks on practically every corner in Beijing among other U.S. brands. And while having lunch at a Hard Rock Cafe in Vietnams Ho Chi Minh City, Weed said, The manager told us their clientele has gone from barely any Vietnamese when they opened about 18 months ago to around 60 percent Vietnamese today.

While China is Washingtons largest trading partner, Mark Calhoon, senior managing director for the states international trade department, predicts Brazil, India, Vietnam and Indonesia are just beginning to open up and are in much earlier stages of readiness for developing trade opportunities. For example, Seattle-based SSA Marine is building a big shipping terminal in Vietnam in a joint venture with the government. Vietnam also opened the door to Washington potatoes and cherries recently. Agriculture director Dan Newhouse credits last years trade mission for the new business.

More trade missions are planned this year, including a Washington delegation at Junes Paris Air Show, where aerospace companies market their products.

Business owners are also finding success by attending worldwide trade shows. Thanks to a grant from the Department of Commerce, six Northwest jet boat builders who are rivals at home teamed up to pitch their products at a trade show in Germany. The Snake River Boat Builders Export Program wants to make the Pacific Northwest the jet boat capital of the world.

It was at a trade show that Lynn Hannahs Pacific Valley Foods got its first exposure to the international side of the business. Hannah recalls taking a phone call from a representative of the Japanese government requesting six shipping containers of frozen leaf spinach. I was in the right place at the right time, she says.

When she and her husband, Scott, started their business nearly 40 years ago in the rec room of their Bellevue home, they werent initially planning to go into the export business. They sold mainly frozen vegetables, canned foods, potatoes and other products to supermarkets nationwide, but the competitive squeeze for shelf space pushed them into international markets.

It turned out to be a blessing in disguise, says Hannah, chief operating officer of the company. Today, it exports most of its vegetables, french fries, berries and other foods to Asia. Pacific Valley Foods maintains small offices in Tokyo and Shanghai; Hannah says the Washington State Department of Agriculture has been invaluable in helping broker deals, resolving shipping snafus and breaking into new markets, such as India and Pakistan. She hopes to pursue new business this year in the Middle East and Russia.

As for her old telex machine, Hannah says, Im going to have it bronzed.

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