oversight

Observations on the Commerce Department's Overseas Trade Exhibitions Program

Published by the Government Accountability Office on 1977-03-22.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

 00023 - [A1051785]
 [Observations on the Ccomerce Departmentas
Exhibitions Ptogram'. larch 22, 1977. 20        Overseas Trade
                                              pp.
Testimony before the House Committee on
Commsserce, Consumer and Hon!tary Affairs Government Operations:
                                            Subcommittee; by J. K.
Pasick, Director, International Div,
Issue Area: International Econosic ard military
                                                     Programs (600).
Contact: International Div.
Budget Function: International Affairs
                                           (150).
Organization Concerned: Department of
                                        Commerce.
congressional Relevance: House Commnaittee
                                             on Government
    Operations: Coamerce, Consumer and Honetary
    Subcommittee.                                    Affairs

           Th.. Department of Coneercels overseas trade
 program costs about $30 million; $20 million               exhibitions
  the overseas program, $3 million for the         in direct costs for
 program to promote exports,                 related domestic
                               and $7 million sFert
 States to support these prograph. The activitiej in the United
 overseas include trade centerA, trade fairs,           conducted
 special promotions. A previous review of          trade i.esions, and
 trade exhibition program concluded that Com-ercets overseas
                                            the Frogram could be
 more effective as a tool to promote foreign
 responded to earlier recommendations by         trade. Commerce has
 portions or resources to trade centers     allocating    greeter
                                          and
 and Communist countries. The united States     fairs   in developing
 to use permanent trade centers as a major is the only country
technique. Trade centers are often not the export
                                               most
                                                        promotion
avaiLabl.e resources for promoting experts,,          effective   use of
developed countries. The Department should particularly in
of estimated sales ac tAe major justification  di.contiaue the use
measurement kor the program and should develop and effectiveness
performance seasures for the program, such           additional
product liaes exhibited and the number of      as   the  number of new
                                              nta
attracted to its promotiona.l events. Increased export firms
be placed on domestic stimulus programs              emphasis should
into exporting and most available funds    t_  get   acre P.S. firms
firms new to the field. (SC)               should be used to assist
     act                  UNITED STATES GEINERI.L ACCOUNTING OFFICE
                                     WASHINGTON, D.C.


     CD                                                    FOR RELEASE ON DELIVERY
                                                           EXPECTED AT 10 A.M.
                                                           MARCH 22, 1977
ii
                                           STATEMENT OF

                                     J.    KENKNTH FASICK

                             DIRECTOR, INTERNATIONAL DIVISION
                                           BEFORE THE

                          SUBCOMMITTEE ON COMMERCE,       CONSUMER,

                                AND MONETARY AFFAIRS

                                          OF THE

                           COMMITTEE ON GOVERNKENT OPERATIONS

                       UNITED STATES HOUSE OF REPRESENTATIVES

           Mr. Chairman and Members of the Subcommittee:

                We welcome the cpporturnity to discuss our observations on

           the Commerce Departmant's overseas trade exhibitions program.

           Our comments are rather current in that we have just completed

           reviewing the Department's progress in improving the program as

           a result of recommendations we made previously in reporting to
           the Congress.

                Since July 1, 1971, we have issued 31 reports to the

           Congress, its Committees, or individual Members cn trade-related

           matters, including trade-promotion activities of the Department

           of Commerce.    These reports have included recommendations--both
to the Congress and to the departments and agencies concerned--to
improve the effectiveness of Government programs for promoting
exports.
     Our interest stems from a recognition that increased
exports serve the national interests through stronger trade and

balance of payments positions.         Our export posture must be

improved to help pay the increasingly heavy costs of oil and
raw material imports.
ALLOCATION OF PROMOTION RESOURCES
     Commerce's current export promotion programs total
approximately $30 millions-$20 million in direct costs for the
overseas program, $3 million for the domestic program, and
$7 million spent in the United States to support these programs.

     The activities conducted overseas include trade centers,
trade fairs, trade missions, and special promotions.
     --Trade centers are permanent exhibition facilities
       used tor trade shows and for between-show pro-
       motion events, such as technical sales seminars
       and displays of products of firms new tc exporting.
       Commerce operates fully equipped trade centers,
       with staff and exhibit space for trade shows, in 6
       developed market country cities (London, Paris, Milan,
           Stockholm, Tokyo, and Sydney) and 4 emergent market
           country cities (Tehran, Taipei, Mexico City, and
           Singapore).   Commerce also has smaller centers with

           limited display space in Cologne, Vienna, Warsaw, and


                                   2
 Moscow and a trade development office without exhibit

 space in Athens.   New trade centers are to be opened

  soon in Sao Paulo and Caracas, and plans are being

 made to close Sydney,

 The costs for trade center operations total about $5

 million, most of it for the trade shows.    In fiscal

 year 1977, 76 trade shows are scheduled--49 in

  developed countries and 27 in emergent market

  countries.

-- Trade fairs are Commerce-sponsored exhibits of

  American products at established fairs or, in

  some cases, at Commerce-staged fairs.   The cost

  of these fairs annually total about $4.3 million.

  In fiscal year 1977, 6 are scheuuled in developed

  countries and 18 in emergent market and Communist

  countries.

-- Trade missions are Commerce-sponsored visits to

  foreign markets by groups of American businessmen

  interested in direct sales, joint venture and

  licensing arrangements, and/or market exploration.

  In fiscal year 1977, trade missions are scheduled

  to visit 41 emergent and 9 developed market

  countries.




                           3
    -- Special promotions are events developed in

      response to special products or market require-

      ments.   The two commonly used are catalog shows

      at U.S. consulates and ir-store promotions in

       foreign department stores.      In fiscal year 1977,

       25 special promotions are scheduled in developed

      markets and 22 in emergent merkets.

Previous GAO report on
overseas trade exhibitions

     Our previous review of Comm.rce's overseas trade exhibitions

program concluded that the program could be more effective as a

tool to promote foreign trade.       We recommended that the

Secretary of Commerce consider:

     -- Allocating a greater portion of Commerce's resources

       for overseas promotional activities to developing

       countries and limiting promotional efforts to devel-

       oped countries mainly to introduce new products or

       new-to-export companies.

     -- Initiating a continuing program to contact American

       companies, State governments,      and other inter-

       .ntionally oriented organizations to determine what

       types of promotional services are needed and to

       provide those services not offered under existing

       private or Government programs.




                                 4
    -- Developing a more effective domestic program to
       inform Amer.can companies of the benefits of
      foreign trade and to stimulate these companies
      to use trade exhibitions to expand their export
      businesses.
    -- Evaluating the desirability of maintaining
      permanent, fixed-facility trade centers in view
      of the need for alternative     ,romotional devices
       in developing countries.
    -- Adopting more useful measures of the benefits of
       trade promotion programs, recognizing that these
      programs:   cannot always produce immediate rbsults.
    -- Establishing a flexible fee structure using minimal
       fees to attract new companies and charging higher
       fees to repeat exhibitors and established inter-
       national trading companies.
    Now I would like to discuss with you the details of cur
findings in following up on our prior recommendations.
Reallocation of resources
 .o emer;ent markets
     In 1970, Commerce allocated about 79 percent of its funds
for trade centers and trade fairs in developed countries.    We




                               5
recommended that the Department allocate a greater portion to
developing countries.
     Commerce has been responsive to this recommendation.     For
example, in fi:scal year 1977, only about 40 percent of these
funds will go to developed country events   nile 60 percent will
go to trade centers and fairs in developing and Communist
countries.   Seventy-five percent of its trade fair participation
(18 of 24 fairs) is now in developing markets.    The Department
has also opened trade centers in these markets.    In 1971,
Commerce had only one trade center in a developing market and
none serving Communist markets, whereas it now has eight of
varying sizes anid will open two more in the near future.
     Previously, promotion events in developed countries were
emphasized since Commerce believed that market conditions in
such countries were mor · conducive to immediate, substantial
returns from exports than were market conditions in developing
countries.   The Department now believes that emergent markets
offer the greatest sales growth potential over the long range
and that U.S. firms must penetrate these markets early to
establish a demand for American goods and services.   However,
it also believes that new-to-export firms- are interested

17 New-to-export firms are those that have not exported in the
   prior 12 months. New-to-market firms are those that
   have not exported to the market where the Commerce event is
   held in the prior 12 months. Firms already exporting to
   these markets are termed oid-to-market.




                                 6
primarily In immediate sales ardA that they can achieve this
more readily in developed markets. Therefore, Commerce
believer it is necessary to have promotion programs in both
developing and developed markets to expand the export base with
new to export firms and to encourage more experienced exporters
to enter the longer range developing markets.
NEED FOR TRADE CENTERS
     The United States is the only country to use permanent
trade centers as a major export promotion technique.   Major
trading countries, such as Great Britain, ?rance, Germany,
and Japan, whose economies are much more dependent on exports
than ours, use trade fairs not trade centers, as their pri-
mary overseas promotion technique.
     In our prior report, we recommended that Commerce evaluate
the desirability of maintaining permanent ttade centers in
view of the need for alternative promotional devices in devel-
oping countries. Commerce responded that it was essential
to continue trade centers in developed markets for both short
and long-term trade development reasons and as a primary means
fcr introducing new firms to exporting.
     We continue to believe that trade centers often are not
the most effective use of available resources for promoting
exports, especially in developed countries.




                                7
Trade center 'shows duplicate trade
fairs in developed countries

     In Western Europe and Japan there is a well-developed

structure of trade fairs, including permanent exhibit facilities,

such as those in London and Tokyo.    Many of these trace fairs

featured the same types of products in the :same country during a

12-month period as did trade center shows.    In fiscal year 1975,

for example, 35 of the 48 shows held in Commerce's Western

Europe and Japan facilities, featured products similar to those
exhibited at trade fairs in the same country during calendar

years 1974 and 1975.   The pattern was similar in Eiscal year

197S, when 28 of 46 trade center shows featured products

similar to those in trade fairs.

Trade fairs have produced
better results

     Because uf their international recognition, many trade fairs

have more market penetration potential for U.S. firms because they

attract the best audience at the decisionmaking level.     Trade

fairs often offer opportunities for displaying of products not

suitable for the relatively small display areas at Commerce trade

centers.   Examples of such products are construction and mining

equipment, pleasure boats, and energy-generating equipment.        Such

products, for example, are featured at trade fai's in France, but

are too large to be displayed at the Paris trade center.

      If one were to use Commerce's primary methods of evaluating

 an exhibition's success in penetrating overseas markets, such as



                                 8
amounts of sales and numbers of new trade contacts, trade fairs
are as good as or better than trade center shows.      In fiscal

year 1976, participants in developed country trade center shows
averaged sales of $315,000, whereas participants in Commerce-
sponsored trade fairs averaged sales or $998,000.      Participants

in trade center shows and trade fairs averaged about the same
number of trade leads and agents obtained.
Most trade center participants
are experienced exporters
     Although the situation has improved since our earlier
report was made, most trade center participants continue to be
experienced exporters.   This is significant, since one of

Commerce's main justifications for operating the centers is that
they are an effective way to introduce inexperienced firms to
exporting.
     Previously, we had found that more than 70 percent of the
exhibitors at trade center shows were already exporting to the
countries where the events were held.     In fiscal year 1 9 7 6 r firms

in this category accounted for 28 percent of the exhibitors and
another 61 percent were Airms which were already exporting to
one or more other countries.     This means that only 11 percent

of the participants were in the primary target category of
inexperienced firms in the export'       ield.




                                    9
Closing of trade centers
     Commerce's export promotion plans for fiscal year 1977
indicate that it has recognized the limitations of permanent
trade centers in developed market countries and is acting to
improve its trade promotion effort.       The Department closed its

Frankfurt trade center in January 19"7 and opened a small faci-
lity in Cologne.   The Cologne facility will not stage trade
Shows, but instead will support U.S. firms participating in
German trade fairs.   We think this is a step in the right direc-
tfon since we had questioned Dnpartment officials about the
justification for the Frankfurt center during the course of our
review.
     Commerce also has plans to close the trade center in
Sydney in fiscal year i977.    In its recent congressional pre-
sentation supporting this action, Commerce said that trade shows
at this center have been primarily benefiting firms already
established in this market and that the Australian market can
be served by other promotional techniques, such as trade fairs
and trade missions.
PROGRAM PERFORHANCE MEASURES

     At th, time of our earlier report, Commerce's overriding

consideration in deciding where an exhibition would be held and
what product line would be used was the potential to generate
export sales within 12 months.    Commerce allocated most of .ts

overseas promotion funds to trade center shows and trade fairs


                                      1
                                      .
in developed countLies because it believed that "hard sell"
promotion events in such markets were more conducive to
immediate results than they would be in developing country
marke ts.
     In our earlier review we found that:
     --Although the U.S- share of developing market
        ir.lports had been declining, Commerce's emphasis
        on achieving immediate sales resulted in little
        or no promotional effort in important developing
        markets such as Taiwan, Mexico, Brazil, and the
        Middle Eastern countries.
     -- Most established exporting f'rms we c'ontacted
        said that the number of Commerce exhibitions
        in developed countries, while useful, could be
        reduced without adversely affecting their sales.
     -- Since most of the companies participating in
        Commerce's developed c¢uuntry promotional events
        were already exporting to these markets, the
        sales they attributed to Commerce events were
        overstated because they incluied sales whici;
        would have been made in any case and sales
        which were made by their foreign subsidiaries.
     We concluded that short-range sales were not the best
performbance measuzres because this resulted in the Department
directing its activities to those countries and firms least


                                    11
in need of the effort.    We, therefore, recommended that
Commerce adopt more useful measures, such as the:
     --piumber of new to export firms attracted to
       its promotional events.
     -- Number of new product lines exhibited.
     -- Extent to which promotional resources are
       allocated to countries where there are few
       facilities for exhibiting U.S. products.
     -- Extent to which resources are used to
       promote competitive American products in
       countries where the U.S. share of the import
       market is relatively low.
     Commerce has subsequently placed more emphasis on
additional performance measures to determine effectiveness by
collecting data on the amount of ser-ice and assistance it
provides to companies (e.g. the number of new to export and
new to market firms participating in overseas trade promotion
evenxts) and asking firets Lo report or. how well they met their
objectives for participating in Commerce's activities.
However, Commerce's primary performance measure continues to be
the amount of export sales -sported by participants themselves
as attributable to Cowmerce's promotional events or in the
following 12 months.     For example, in February 1976, ir testi-
mony in support of the fiscal year 1977 appropriation request,
a Department official said that the program contributed about


                                     12
$1.3 billion to U.S. exports in   1 975--a
                                             figure acquired from
the participating firms who benefit from the program.
     The shortcomings of sales as a performance measure as
                                                           well
as a program objective has also been recognized in a
                                                     1976
Commerce task force study of the export assistance
                                                    vrograms.
The study concluded that sales should not be the primary
                                                          objec-
tive or measure of performance for the program because
                                                        they
reflect personal opinions and judgments reported by
                                                    the parti-
cipating businesses.
     The study recommended that the program's objective be
changed to improving the conditions for exporting, by
                                                       overcoming
the following impediments to greater involvement by
                                                     U.S. firms.
     1. Negative attitude--the belief that exporting
         is too risky and complicated; not worth it.
     2. Informational gaps--ignorance of how or where
         to export, unfamiliar conditions and markets,
         complicated domestic and foreign trade regulations.
    3.   Operational/resource limitations--high cost of
         establishment in foreign market, lack of
         practical marketing experience in the foreign
         market, lack of distribution channel, lack of
         a business reputation/image in the foreign
         market, staff toc small and inexperienced.
    4.   Foreign buyer resistance--foreign buyers'
         limited knowledge of U.S. suppliers, products,
         technology, and servicing; tendency to
         chase from familiar foreign suppliers. pur-
    5.   Foreign competitive factors--foreign govern-
         ments' intensive support of export programs,
         promotional competition.




                                  13
     The Department Lias not adopted the results of to task
force study, which we believe has much merit.       Our position
continues to be that the Department should discontinue She use
of estimated sales as the major justification and effectiveness
measurement for the program.
FEES FOR COMMERCE TP_'jE SHOWS AND FAIRS
     In our earlier review, we found that Commerce charged
nominal fees for its trade center show and trade fair events,
which were not intended to recover the costs of staging these
events.   These fees were the -ame foL both new-to-export firms
and established exporters.     On the premise that lower exhibitor
fees are a form of subsidy to interest companies in exporting,
we concluded that non-exporting firms needed greater inducement
than established exporters and that, since the latter claim.ed
significant sales resulted from Commerce's events, they would
be willing to pay more of the costs.       We recommended that
Commerce establish a flexible fee structure, charging minimal
fees for new-to-export firms and higher ones for repeat users
of Commerce events and for established exporting firms.
     During 1975, the Office of Management and Budget told
Commerce to charge full cost recovery fees to established ex-
porters for its trade center show and trade fair promotions.
As a result of discussions between the two agencies and with
Congress:Lonal appropriations committees, Commerce in fiscal
year 1976 adopted so-called    "minimnur. full cost recovery" fees


                                      14
which were intended to recover its direct overseas promotional
coats and a portion of its overhead costs.
     Commerce was concerned that full cost recovery fees

would cause established exporters to cease participating in
its trade center shows and trade fairs. The present fees,
therefore, were based on Commerce's ilquiry to various firms
as to what amount they would be willing to pay to participate.
The fees are substantially higher than those in effect at
the time of our earlier review.   Old to market exporters are

now charged more than those classified as new to export

and new to market--$2,000   to $3,500 versus $900 to $2,000.
The variance in fees depends on the type of event and
whether the country location is considered a developed or
emergent market.
     However, according to Commercei' own studies, the fees

for old to market firms were set to recover an estimated
62 to 77 percent of Commerce's costs. Thus, Commerce is
still subsidizing established exporting firms' participa-
                                                            the
t.'ns in trade center shows and trade fairs. Furthermore,
arount of the subsidy will probably increase since the fees
were based on program costs in fiscal year 1975 and have not
 been adjusted to reflect rising operating costs.




                                  15
      In addition, the basis used for determining costs does not
include expenditures by the State Departmcnt in support of
Commerce trade centers.    State estimated that these costs, mainly
for personnel, amounted to about $1.4 million in fiscal year 1976.
DOMESTIC ACTIVITIES
     Our previous report recommended that Commerce initiate a
continuing program to contact American companies, State govern-
zm,,tsr and other internationally oriented organizations to
determine what types of promotional services are needed and to
provide services not presently offered by existing programs.
We also recommended that Commerce develop a more effective
program to inform American companies of the benefits of foreign
trade and to stimulate these companies to use trade exhibitions
to expand their export businesses.
Contoct with industry
     Commerce has made progress in improving its contacts with
industry to determine what export promotion services are needed.
For example, through the President's Export Council, established
in 1973, and its network of reqior.n        and district councils, com-
posel of members of exporting firms, the Department can receive
input on U.S. firms' export assistance needs.        Also, the
Department established an operational planning division in 1976
to serve as a focal point for industry-oriented communications
and to ma'ce sure that the needs of U.S. firms are reflected in
its. export promotion planning and market research.



                                       16
Stimulating U.S. firms
     Commerce has also improved its domestic program to inform
companies of the benefits of exporting and of the promotional
services available.    However, we believe that a more focused
effort is needed to identify and stimulate non-exporting
farms which are capable of competing in overseas markets.
     The Department's domestically oriented export development
program seeks to inform U.S. firms about export benefits,
opportunities, and methods and to help them compete for
                                                        specific
sales prospects. Five activities comprise this program.

    -- The major export products and systems program
      helps U.S. firms to compete for large export
      sales.
    -- The trade opportunlcies program is a computerized
      system through which Commerce notifies subsciib-
      ing U.S. firms of specific overseas sales
      opportunities.
    -- The export information program provides overseas
      market and trade information in response to
      requests by interested firms.
    -- Domestic export stimulation activities are
      intended to make businesses aware of the
      opportunities available ard techniques involved
      in ext;rting.



                                  17
     -- The foreign buyers program assists foreign business-
       men traveling in the United States.
     The field offices of Commerce's Domestic and International
Business Administration play a key role in implementing the
export promotion program within the United States.     In the

international area, they try to get firms to participate in
Commerce overseas promotional events or to subscribe to one
of the overseas sales leads programs.     Field offices also

participate in Commerce's target industries program, which
seeks to identify firms in industries that Commerce believes
have outstanding export potential.   According to agency offi-
cials, field office services are best suited for small and
medium-size firms and about 80 percent of their resources go
to assist this type firm. Internationally, the thrust of this
assistance is to stimulate the so-called new-to-export and
new-to-market firms.
Potential for increasing exports
     The United States exports relatively less of its output of
goods and services than do other industrial countries.     The

amount has been increasing over the past several years, but in
1976, exports still accounted for only about 7 percent of gross
national product.   This Lould be improved in view of America's

companative advantage in many industries, and it is important




                                     18
to attract firms which do not export, thereby oroadening the
country's export base.     A few years ago, Commerce estimQ4.ed that
some 20,000 firms had the capability to export but were not
doing so.
        Some Commerce export promotion activities are intended to
attract firms wita little or no experience in the exporting
field.     Media advertising and seminars on exporting, for example,
are aimed at such firms.     The international business assistance
provided by Commerce's field offices is also directed primarily
toward such firms.    Al*hough Commerce has these programs to
stimulate firms to enter the export business when they are
identified, it does not have a concentrated program for identi-
fying capable but non-exporting firms and determining whether
exporting is suitable for them.
SUMMATION
        I would like to take a few additional minutes to make an
overview of the situation.     The Department of Commerce has taken
steps in line with some of our previous recommendations to Laiprove
its program.     We are glad to see this and look forward to continued
improvement in this important area of promoting exports-
        It is still evident, however, that the use of fixed-facility
trade centers in developed countries does not provide the best
available means for promoting increased exports over the long
term.    The program is thus more rigid and less flexible to
respond to changing needs.     Furthermore, the many trade fairs


                                     19
available in the developed countries often provide a very

adequate vehicle for promoting the sale of U.S. goods.

     What we need most is to get more U.S. firms into exporting

through increased emphasis on domestic stimulus programs and

through insuring that most of the program funds are used t.o

assist firms new to the field.     The importance of maintaining

and increasing sales for those firms alreddy exporting is also

recognized, but the Government should recover a reasonable

portion of the costs from these firms for its services.     Note

that I say reasonable, since we realize that full cost recovery

might discourage some firms from participating, to the overall

detriment of our best interests.

     Commerce has adjusted its thinking to better help those

most in need and to concentrate more on those areas having the

best potential markets-.   This, then, should also be the basis

for evaluating the results of the promotion programs.

     Mr. Chairman, this concludes my statement.     We will be

pleased to respond to any questions you or Members of the

Subcommittee may have.




                                     20