This paper discusses the importance of services exports for the U.S. economy. In this context, the paper analyzes how export promotion agencies (EPAs) can use the Internet to grow services exports by small- and medium-sized enterprises (SMEs).
The first part of this paper discusses how engaging in international trade benefits services SMEs and the U.S. economy. Part 2 provides an overview of the barriers faced by SME service firms in using the Internet to go global and analyzes the different ways that SMEs use the Internet, from reaching consumers globally, communicating with suppliers, to becoming part of global supply chains. Based on interviews and an online survey with export promotion agencies (EPAs) in the U.S. and select other countries, Part 3 describes how EPAs are engaging service SMEs and assisting them in using the Internet to become international traders. Part 4 draws on the experiences of EPA support for SME services exporters and recommends how to scale up some of these approaches in ways that would have a broader impact on SME services exports. The paper concludes with thoughts on future research.
Part 1: International trade and the impact of the Internet on SME services exports
The important of services and SMEs of the U.S. economy
Reducing barriers to international trade produces a range of economic benefits. At the macroeconomic level, international trade leads to lower prices for consumers as tariff rates and other barriers are removed. Trade also forces domestic businesses to compete with imports, increasing overall productivity in the economy, supporting higher wages and increasing overall welfare. In addition, SMEs that export have higher employment, are more productive, pay higher wages, and are more capital and skill-intensive. As more productive firms become exporters, less productive firms exit the industry, leading to a reallocation of resources to productive firms and raising average industry productivity. Engaging in international trade also exposes firms to uncertainty and risk, which catalyzes learning and requires adjustments that produce more productive and innovative firms. For instance, the challenge of being in a foreign market requires innovation to adapt business operations and to tailor services for the market to address cultural, language and regulatory differences.
Data shows that most firms do not export and those that do are larger than average. In the United States, the top 1 percent of firms—large multinationals—account for 90 percent of U.S. trade but only 15 percent of employment. In contrast, SMEs are the main drivers of jobs growth in the U.S., accounting for 63 percent of net new private sector jobs since 2002, and 60 percent of net job gains since the end of the recession. In addition, 37 percent of these jobs created by SMEs were in high-tech industries. SMEs are also more innovative than larger firms, producing 16 times more patents per employee than large firms.