1 OECD WPTGS (Oct. 2010) The Role of SMEs in US and EU Exports Alexander Hammer and James Stamps Office of Economics U.S. International Trade Commission.

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OECD WPTGS (Oct. 2010)

The Role of SMEs in US and EU Exports

Alexander Hammer and James Stamps

Office of EconomicsU.S. International Trade Commission

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What is the USITC?• Independent and objective U.S. government agency with

broad investigative responsibilities on matters of trade

• Mission:

(1) Administer U.S. trade remedy laws

(2) Provide President/USTR, Senate, and House of Representatives with independent analysis on trade issues

(3) Maintain U.S. Harmonized Tariff Schedule

• Connection to Policy: Informs but does not prescribe

• Used at many stages in trade policy formulation & deliberation

• NEVER determines policy, but is 1 input to policy process

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USTR Requested USITC:

Framework

Study 1Inv. No. 332-508

January 12, 2010

Study 2Inv. No. 332-509

July 6, 2010

Study 3In. No. 332-510

October 6, 2010

What’s known & unknown about U.S. SME exports

Compare US & EU SME exports

Reported views of barriers

Role of FTAs

Identify barriers that disproportionately affect US SMEs

Estimate role of services

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USTR Requested USITC:

Framework

Study 1Inv. No. 332-508

January 12, 2010

Study 2Inv. No. 332-509

July 6, 2010

Study 3In. No. 332-510

October 6, 2010

What’s known & unknown about U.S. SME exports

Compare US & EU SME exports

Reported views of barriers

Role of FTAs

Identify barriers that disproportionately affect US SMEs

Estimate role of services

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What is an SME? No universally accepted definition by U.S. Government

Even common definition is different from EU

Most Sectors Large Sectorsc

Number of Employees

< 500 < 500d < 500 < 500

Maximum Revenue

- $250K $7 million $25 million

Defining Institution

SBA Advocacye

(Based on U.S. Census data)

USDASBAf / SBA

ADVOCACYfSBAf / SBA

ADVOCACYf

(Selected Exporting Sectorsb)

b Selected on the basis of size and export potential, and includes (1) wholesale trade services, (2) professional, scientific, and technical services, and (3) finance and insurance services, and their associates subsectors. c Computer services was the only subsector in this category.

FarmManufacturinga

Services

f Revenue parameter established by SBA, employee number established by SBA Advocacy for research purposes.

a Also includes non-exporting service sectors.

e SBA, Office of Advocacy from U.S. Cesus Bureau data.

d Threshold imposed by Commission staff to partially harmonize definitions across sectors, but was not imposed by the defining institution.

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SME Role in U.S. Economy

SMEs:

~50% U.S. private nonagricultural GDP (1998-2004)

~99% nonemployer- based firms (2006)

Largest share: wholesale/retail trade, real estate, professional services.

10.0% 11.0%

11.1%

11.6%

15.3%

8.0%

9.4%

23.5%Wholesale and retail trade

Real estate

Professional, scientific, and technical services

Manufacturing and mining

Construction

Health care and social assistance

Finance and insurance

Other

Note: "Other" includes services sectors: utilities, transportation, information, education, entertainment, accommodation and food, administrative and support and waste management and remediation services, management of companies, and other services.

Source: Kobe, The Small Business Share of GDP, 1998 – 2004 , 2007, 8-9.SME GDP = $4.7 trillion

Large Firms: Dominant sector: manufacturing (23.3%)Finance sector bigger than SMEs Real estate & prof. service, & construction smaller

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SME Role in U.S. EconomySMEs: < 20 Employees

(15%) Large Firms(49%)

SMEs: 20-99 Employees

(18%)

SMEs: 100-499 Employees(18%)

CAGR 0.80%

CAGR 1.06%

CAGR 1.63%

CAGR 1.48%

CAGR 1.13%

100

102

104

106

108

110

112

114

116

1998 1999 2000 2001 2002 2003 2004 2005 2006

< 20 20–99 100–499 500+ SME

Index: 1998 = 100CAGR = Compound annual growth rate

Source: SBA Advocacy, Data on Small Business, U.S. Data, from Census data.

Number of employees per firm

U.S. Nonfarm Private Employment (2006)

U.S. Nonfarm Private Employment Growth (1998-2006)

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Data Limitations1. Services Sector: No published SME exports data2. Merchandise Sector: Data can be distortive

Domestic & Global Market

KeyDirect Channels

Indirect Channels

Manufacturer(SME)

Manufacturer(Large Firm)

Wholesaler(SME)

Wholesaler(Large Firm)

Note: Wholesaling is an important

economic activity for SMEs

Available SME DataOn Direct Channels

Available SME DataOn Indirect Channels

Source: Commission staff.

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SME Account ~30% U.S. Exports

-

200

400

600

800

1,000

1,200

1,400

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Ex

po

rt V

alu

e (

Bil

lio

ns

of

$)

0

5

10

15

20

25

30

35

Sh

are

(%

)

SME Unknown Large SME Share Of Known Exports (RHS)

Source: U.S. Census.

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SME Merchandise Exports: By Country Largest in value: Canada & Mexico Largest share: HK, Israel & Switzerland

0 50 100 150 200

Israel

Malaysia

Italy

Switzerland

India

Australia

Hong Kong

Brazil

Belgium

Singapore

Taiwan

France

Netherlands

Korea

United Kingdom

Germany

Japan

China

Mexico

Canada

SME Large

23.2

38.0

20.6

32.0

37.6

29.9

28.6

46.6

27.3

27.1

18.1

25.7

21.6

33.8

33.7

34.2

26.0

31.0

34.3

28.9

74.4

58.7

54.4

54.6

129.5

232.3

119.4

73.3

142.2

147.6

66.8

45.9

80.2

216.5

74.1

93.1

114.7

28.8

224.3

66.4

1.8

-7.9

5.3

2.1

5.9

-8.9

9.9

2.4

4.5

5.8

0.1

-1.0

4.1

13.8

3.7

7.2

2.4

1.1

2.8

4.1

3.830.2 96.7World

SME share

SME growth

Change in shareBillions of $

Source: U.S. Census.

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SME Merchandise Exports: By Sector Largest in value: Electrical Largest share: Wood products

0 50 100 150 200

All nonmanufactured products

Textile mill products

Furniture and fixtures

Leather and allied products

Apparel and accessories

Beverages and tobacco products

Wood products

Printed matter and related products, nesoi

Textiles and fabrics

Nonmetallic mineral products

Plastics and rubber products

Paper

Fabricated metal products, nesoi

Petroleum and coal products

Electrical equipment, appliances, and component

Food and kindred products

Primary metal manufacturing

Miscellaneous manufactured commodities

Machinery, except electrical

Chemicals

Computers and electronics products

Transportation equipment

SME Large

3.830.2 96.7

World

SME share

SME growth

Change in share

15.2

49.2

40.5

56.2

29.2

62.7

36.4

36.0

29.4

33.3

26.8

37.6

31.7

26.4

45.4

32.5

44.3

30.6

24.8

27.6

38.4

40.3

66.8

138.3

70.1

-10.0

172.5

42.2

12.0

9.0

67.7

61.0

43.7

109.5

488.2

83.4

75.2

209.3

106.7

95.4

143.8

59.9

68.3

61.5

0.5

-3.0

-1.5

15.9

16.3

2.5

-12.5

-2.0

3.5

6.8

-0.8

7.4

8.6

2.1

4.5

2.1

-0.2

2.3

5.4

5.6

4.6

7.8

Billions of $

product, machinery, & chemicals apparel & accessories

Source: U.S. Census.

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Smaller the Firm More Export Growth Dependent on Market Entrants

Source: U.S. Census.

Small'07, 1.4 Micro'97, 0.5

Micro'07, 0.8

Small'97, 0.9 Medium'97, 2.6

Medium'07, 5.4

Large'97, 55.4

Large'07, 102.3

(100,000)

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

(50,000) - 50,000 100,000 150,000 200,000 250,000

Firms (number)

Export

valu

e (

Millio

ns o

f $)

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Findings (Study 1)• No universal U.S. Government SME definition (common <500)

• Data problems Lack of published services data inhibits analysis Data limitation on wholesale trade source inhibits analysis

• Despite ~50% U.S. GDP & employment and ~99% U.S. firms, only ~ 30% U.S. merchandise exports

• SME merchandise exports Growth comparable to large firms, but more dependent on new entrants Mostly to NAFTA partners Canada & Mexico Mostly electrical products, machinery, & chemicals

• SME Services data Preliminary research using firm-level data suggest majority to EU, Asia, Canada,

w/professional services to UK and Canada.

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Three Objectives (Study 2)• Compare exporting activities of U.S. and EU

SMEs.• Report U.S. SMEs’ views on barriers to

exporting, and strategies to overcome them.• Identify the benefits to U.S. SMEs of improved

export opportunities from FTAs and other trading arrangements.

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U.S.-EU SME Data Comparisons:Definitions of “SME”

Employment threshold*

• United States: generally <500 workers

• European Union: generally <250 workers

* In addition to employment thresholds, financial thresholds (annual revenue, turnover, or balance sheet total) are also used.

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U.S.-EU SME Data Comparisons:OECD Trade by Enterprise

Characteristics (TEC) Database

5 Datasets• Dataset 1: Trade by activity sector and

enterprise size.• Dataset 2: Concentration of trade by activity.• Dataset 3: Trade by partner countries and

activity.• Dataset 4: Trade by number of partner countries

and activity.• Dataset 5: Trade by commodity and activity.

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U.S.-EU SME Data Comparisons:Data comparability and data limitations

• Data on U.S. and EU firms with <250 workers.• U.S. exports compared to EU exports outside of the EU.• Data are for 2005.• EU data are for “EU-17.”a USITC used econometric

estimate to provide data for EU-24.• Data are for firms in manufacturing industries, and

exclude sectors such as agriculture, wholesalers, and financial services.

a Austria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Hungary, Italy, Latvia, Lithuania, Luxembourg, Poland, Portugal, Slovak Republic, Slovenia, and Sweden.

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Role of SMEs in Exporting and Manufacturing

SMEs (<250 workers) play a less prominent role in both exporting and manufacturing in the United States than in the European Union.

TABLE 2.2 Estimated exports and sales for manufacturing firms, by firm size, United States and European Union, 2005

United States EU-17 (observed)a EU-24 (estimated)b

Billion of $ Percent Billion of $ Percent Billion of $ Percentc Exports

SMEsd 65.0 12.7 126.8 34.1 252.9

(230.9–274.9)e 31.2

Large firms 445.2 87.3 221.1 59.5 535.0

(497.6–572.3)e 65.9

Total 510.1 100.0 371.6 100.0 811.5 (728.5–847.2)e

100.0

Sales

SMEs 920.0 19.3 1,589.8 45.4 3,096.7 39.6 Large firms 3,839.8 80.7 1,914.8 54.6 4,727.6 60.4

Total 4,759.8 100.0 3,504.6 100.0 7,824.3 100.0 Exports/sales ratio

SMEs 7.1 8.0 8.2

(7.5–8.9)e

Large firms 11.6 11.5 11.3

(10.5–12.1)e

Total 10.7 10.6 10.4

(9.3–10.8)e Notes: For sources and notes, see USITC, Small and Medium-Sized Enterprise: U.S. and EU Export Activities, and Barriers and Opportunities Experienced by U.S. Firms, July 2010, table 2.2.

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Role of Wholesalers/Intermediaries

Exporting SMEs in the United States (<250 workers) are more likely to be wholesalers/intermediaries than in the European Union.

TABLE 2.3 Estimated share of exports by firm size and major industry, 2005 United States EU-17

Percent Percent a

Share of SME exports through

Manufacturers 39.2 51.4 Wholesalers 41.0 23.8 Other 19.8 24.8

Share of large exports through

Manufacturers 77.4 75.2 Wholesalers 13.8 2.3 Other 8.8 22.4

Share of total exports through

Manufacturers 68.4 65.3 Wholesalers 19.7 12.3 Other 11.8 22.4

Manufactured goods exports as a share of all goods exports, all firm typesb

86.6

88.5

Implied minimum share of manufactured good exports by non-manufacturing firmsb

20.9 26.2

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Exports by Firm Size andMajor Industry

• U.S. export-oriented wholesale firms are larger then EU wholesale firms.• SME manufacturers (<250 workers) in the European Union had larger exports than those in the

United States.

TABLE 2.4 Estimated exports by firm size and major industry, 2005

Exports United States EU-17

Billion $ Percent Billion $ Percent a Total manufacturers 510.1 371.6

SMEb 65.0 12.7 126.8 34.1 Large 445.2 87.3 221.2 59.5

Total wholesalers 147.2 70.0 SMEb 68.0 46.2 58.6 83.7 Large 79.2 53.8 6.9 9.9

Total other 88.1 127.2 SMEb 32.8 37.2 61.3 48.2 Large 50.8 57.7 65.9 51.8

Total, all firms 745.4 568.8

SMEb 165.8 22.2 246.7 43.4 Large 575.2 77.2 294.0 51.7 Notes: For sources and notes, see USITC, Small and Medium-Sized Enterprise: U.S. and EU Export Activities, and Barriers and Opportunities Experienced by U.S. Firms, July 2010, table 2.4.

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SME Exports by Sector

The export share of U.S. SMEs (<250 workers) is lower than that of the EU in nearly every sector.– Greater export intensity of EU SMEs relative to U.S. SMEs might be, in part, related to a difference in U.S. and EU industry composition.– SMEs in the European Union accounted for more than 50 percent of exports in 7 manufacturing sectors: furniture manufacturing; metal

products; publishing, printing, and reproduction of recorded media; leather; textiles; wearing apparel; and wood products.

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Findings (Study 2)• SMEs play a less prominent role in both manufacturing and exports in the

United States than in the European Union. However, the export/sales ratios for U.S. and EU manufacturing firms are similar.

• The role of SME wholesalers/intermediaries is greater for the United States than for the European Union.

• U.S. export-oriented wholesale firms are larger than EU wholesale firms. The data suggest that U.S. SME manufacturing firms may benefit from the export services of large wholesalers to a greater extent than do SMEs in the European Union.

• The export share of U.S. SMEs was found to be lower than that of the EU in nearly every sector.

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Next Steps

3rd USITC report on SMEs:

• Due in October 2010

• Report focus on U.S. SMEs only

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Major components of study• Profile of services SME exporters: new data

– Uses customized U.S. BEA and Census data– Questionnaire

• Top trade barriers that disproportionately impede SME exports

• Exports and SME performance• Indirect exports by SMEs• SME operations as multinationals