Export Promotion: U.S. Export Assistance Centers' Efforts to Support U.S. Businesses

Published by the Government Accountability Office on 1999-09-09.

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

                          United States General Accounting Office

GAO                       Testimony
                          Before the Subcommittee on Tax, Finance, and Exports,
                          Committee on Small Business, House of Representatives

For Release on Delivery
Expected at
2:00 p.m., EDT
                          EXPORT PROMOTION
September 9, 1999

                          U.S. Export Assistance
                          Centers’ Efforts to Support
                          U.S. Businesses
                          Statement of Benjamin F. Nelson, Director, International
                          Relations and Trade Issues, National Security and
                          International Affairs Division

                  Mr. Chairman and Members of the Subcommittee:

                  I am pleased to be here today to discuss the activities of the U.S. Export
                  Assistance Centers—the so-called USEACs. As you well know, small
                  businesses offer great potential for export growth. However, they also are
                  likely to seek export assistance—particularly those that have never
                  exported. Various federal agencies and public and private organizations
                  provide a range of export assistance activities, from giving export
                  counseling to supplying export finance. Research by GAO and others in the
                  late 1980s and early 1990s found that export assistance at the federal level
                  was fragmented among 10 different agencies. In response, USEACs were
                  created to strengthen the delivery of export promotion programs by serving
                  as “one-stop shops” that would provide information on all export
                  promotion activities available to U.S. firms seeking assistance. There are
                  currently 19 USEACs.

                  We have followed the development of the USEAC concept and have
                  reported on early implementation issues. My testimony today will focus on
                  our most recent report: Export Promotion: U.S. Export Assistance Centers
                  Seek to Improve Services (GAO/NSIAD-99-180, June 25, 1999). Specifically,
                  I will discuss our findings related to (1) USEAC agencies’ efforts to improve
                  coordination among federal agencies and nonfederal export service
                  providers and (2) the challenges USEAC agencies face in their efforts to
                  better meet the needs of the business community—particularly firms that
                  export services and firms that are not yet ready to export.

Summary           Agencies participating in the USEACs are making joint calls on prospective
                  clients and sharing information on clients and services, where appropriate.
                  The USEACs have also pursued partnerships with nonfederal
                  export-service providers, including state and local government, nonprofit,
                  and for-profit organizations. In many cases, the USEAC agencies have
                  co-located their staff in the same office suite or building with such
                  nonfederal providers. For fiscal year 1998, nearly 20 percent of the “export
                  actions” reported by USEAC trade specialists mentioned at least one
                  partner as having participated in assisting a firm in exporting a product or

                  While coordination among the various entities has improved, USEACs face
                  significant challenges in helping firms that export services. At a time when
                  opportunities for service sector exports are growing, Commerce’s export
                  promotion services are often unavailable or inappropriate for firms that

          Leter   Page 1                                     GAO/T-NSIAD-99-242 Export Promotion
                     export services—as they were largely designed for firms that export goods.
                     Certain USEACs have initiated creative approaches to addressing this
                     issue. For example, one USEAC helped to stage a series of international
                     video conferences through which U.S. architects could gain market
                     intelligence and meet potential clients. USEACs are also helping groups of
                     service exporters in the design services sector (including architectural,
                     engineering, industrial, graphic, and new media design) and the education
                     sector to form consortiums through which they can jointly pursue export

                     Some USEACs have also used a special partnership program developed by
                     the Small Business Administration (SBA) to assist enterprises that are not
                     yet ready to export. Under this program, USEACs organize federal and
                     nonfederal export-service providers into consortiums that provide firms
                     that are not ready to export with comprehensive export training tailored to
                     the firms’ needs. USEACs then offer intensive follow-up counseling to
                     those firms that successfully complete the program. Some firms
                     participating in this program have become customers for USEAC export
                     promotion and finance services and, ultimately, exporters.

Background           The Export Enhancement Act of 19921 sought to improve the delivery of
                     federal export promotion services by, among other things, requiring the
                     Trade Promotion Coordinating Committee (TPCC) to develop a National
                     Export Strategy that would include transforming the Commerce
                     Department’s nationwide network of district offices into “one-stop shops.”
                     In response, the TPCC brought together Commerce, SBA, and the
                     Export-Import Bank (Eximbank) staff as part of a nationwide network of
                     export promotion service-delivery offices. By mid-1999, there were 19
                     USEACs–supported by 84 satellite offices. The satellite offices, which
                     generally have one or two Commerce staff members, are placed closer to
                     outlying business.

                     Through the USEAC network, the participating agencies seek to deliver a
                     full range of nonagricultural export education, promotion, and finance
                     services to U.S. firms. Commerce provides export promotion services
                     largely to export-ready, small- to medium-sized firms. SBA provides export
                     finance primarily in the form of export working capital guarantees. It also

                      (Pub. L. 102-429, Oct. 21, 1992).

             Leter   Page 2                                    GAO/T-NSIAD-99-242 Export Promotion
                       offers export education services, largely through two quasi-governmental
                       programs, to small firms that are not ready to export. The Eximbank offers
                       a broad range of financing to exporters. In providing export promotion
                       services, participating agencies are expected not only to coordinate among
                       themselves but also to coordinate with nonfederal export-service
                       providers, such as state agencies and world trade centers.

USEAC Agencies         In an effort to improve service delivery, USEAC agencies have taken steps
                       to better coordinate their activities. For instance, they have encouraged
Improve Coordination   USEAC staff from the different agencies to make “joint counseling” calls on
                       clients. When joint calling might not be appropriate, USEAC staff shared
                       information and referred clients to each other.

                       In 1996, we recommended that the USEACs establish a customer tracking
                       system that would contain information on clients and services provided to
                       them. During our recent work, we found that Commerce has introduced its
                       new Client Management System (CMS) to the USEAC network. CMS may
                       have the potential to serve as a USEAC-wide client tracking system that
                       could be shared by all participating agencies. For example, access to a
                       common database on clients could help participating agencies better target
                       their services to client needs. SBA is currently working with Commerce to
                       adapt the CMS system to meet its needs and is training its USEAC staff to
                       use it. The Eximbank also is considering introducing a client tracking
                       system that would be compatible with Commerce’s CMS.

                       All USEACs also coordinate at least some of their export service activities
                       with nonfederal export-service providers. For example, USEAC staff make
                       presentations at trade seminars sponsored by nonfederal organizations,
                       enter into formal memorandums of understanding with nonfederal
                       export-service providers, or participate on a partner’s board of directors.
                       Coordination may also take the form of co-location of USEAC staff in the
                       same building or office space with nonfederal export-service providers.
                       According to Commerce officials, about 75 percent of all USEACs and
                       satellite offices are co-located with nonfederal partners. For example, the
                       Portland, OR, USEAC is located in a World Trade Center with several state
                       export promotion agencies and a nonprofit export-service organization. At
                       the Atlanta, GA, USEAC, some staff from the Georgia Department of
                       Industry, Trade, and Tourism actually work in the USEAC. Staff roles have
                       been allocated so as to avoid duplication, and staff from both the USEAC
                       and the state agency have access to each other’s client tracking systems.
                       According to the Atlanta USEAC Director, this arrangement has permitted

                       Page 3                                    GAO/T-NSIAD-99-242 Export Promotion
                        the participating federal agencies to leverage their staff and extend their
                        reach into the export community.

                        The level of coordination is reflected in the number of joint efforts. For
                        fiscal year 1998, nearly 20 percent of the “export actions”2 reported by trade
                        specialists at the USEACs through the CMS system mentioned at least one
                        partner as having participated in assisting the client. Over 6.7 percent of the
                        export actions involved assistance by another federal agency, such as SBA
                        and the Eximbank, as well as the Agency for International Development,
                        the U.S. Department of Agriculture’s Foreign Agricultural Service, and the
                        Trade Development Agency. Over 14 percent of the export actions for fiscal
                        year 1998 mentioned nonfederal partners as having also contributed to the
                        export. These included a wide variety of state, local, quasi-governmental,
                        and nonprofit organizations.

USEACs Seek to          The1998 National Export Strategy reaffirmed a 1994 TPCC commitment to
                        assist service sector firms seeking to export. According to the Commerce
Improve Assistance to   Department, U.S. service exports in 1998 were $260.3 billion, an increase of
Firms That Export       about 160 percent from 1988 and about 50 percent from 1993. In 1998, U.S.
                        exports of services represented nearly 28 percent of total exports. The
Services                demand for U.S. services is fueled not only by increased foreign demand
                        but also by the decentralization of manufacturing worldwide. U.S. firms
                        need certain services as they seek to establish and maintain manufacturing
                        facilities overseas. At the same time, technology has reduced the cost of
                        providing services on a large scale and allowed them to be produced at a
                        much greater distance from the customer.

                        Commerce, as part of a wider-ranging effort to strengthen assistance
                        provided to exporters, formed an inter-USEAC Services Team to focus on
                        the needs of service exporters.3 In fiscal year 1998, about 10 percent of the
                        export actions submitted by Commerce staff at the USEACs were in
                        support of service exporters. The Services Team, which is organized into

                         Commerce has been using export actions as a measure of USEAC activity for about 3 years. Trade
                        specialists submit export action reports when they believe their assistance has directly contributed to a
                        firm’s export sale of at least $1,000. Export actions are not a precise measure, however, since not all
                        firms are willing to share the necessary information regarding their export sales.
                         The Services Team is comprised of Commerce Trade Specialists from the Long Beach, CA, and Seattle,
                        WA, USEACs; USEAC satellite offices, including those in Anchorage, AK; Honolulu, HI; Inland Empire,
                        CA; Monterey, CA; Newport Beach, CA; Orange County, CA; Reno, NV; and San Francisco, CA; and
                        overseas posts, including those in Buenos Aires, Argentina; and Ontario, Canada.

                        Page 4                                                     GAO/T-NSIAD-99-242 Export Promotion
several industry-focused subteams,4 found that service exporters
sometimes have difficulty using Commerce’s export promotion programs.
These programs were largely designed for firms that export goods and are
often unavailable or inappropriate for firms that export services. For
example, service exporters have experienced difficulty using Commerce’s
Agent/Distributor Service program. This program, which U.S.
manufacturing firms typically use to locate overseas agents or distributors,
can be inappropriate for service firms, which might want to use it to
identify individuals interested in licensing a patent or participating in a

In connection with their participation on the Services Team, Commerce
staff at several USEACs we visited have employed innovative approaches
to assisting firms that export services. For example, the USEAC satellite
office in San Francisco is working with a consortium of firms in the design
services industry (including architectural, engineering, industrial, graphic,
and new media design) to develop a strategy to promote these firms’
exports. Under such a strategy, firms can pool resources to create more
effective marketing tools and take advantage of the enhanced visibility that
the consortium achieves through its own brand name and its partnership
with large, brand-name corporations. The San Francisco satellite office, in
cooperation with the American Institute of Architects, has also initiated a
series of international videoconferences through which U.S. architects can
gain market intelligence and give presentations to potential clients.

In another example, the Portland and Seattle USEACs are working with
U.S. colleges that wish to bring foreign students into the United States for
education. Like tourism, education provided to foreign students in the
United States is considered to be a service export. These USEACs, in
conjunction with separate groups of colleges, have helped these colleges
form consortiums to attract foreign students in a more cost-effective
manner than if each college were to act separately. In Portland, the
consortium members to date have begun establishing rules governing
participation in the consortium and making proposals for joint efforts.
These include developing a consortium web site, obtaining sponsors, and
generating consortium publications.

 Subteams include design services; training, consulting, and education; franchising; professional
services; transportation; and travel and tourism.

Page 5                                                     GAO/T-NSIAD-99-242 Export Promotion
Special Program May    Beginning with its 1994 National Export Strategy, the TPCC has
                       consistently characterized the USEACs as a key element in federal efforts
Hold Promise for       to assist small- to medium-sized exporters and firms interested in
Assisting Firms That   exporting. Firms seeking USEAC assistance vary considerably in their
                       ability to export. Commerce staff have traditionally focused on firms that
Are Not Ready to       are ready to export, and SBA and Eximbank staff provide export financing
Export                 to firms that already have potential deals. As a result, most USEACs do not
                       work directly with small- to medium-sized enterprises that are not ready to
                       export but show potential. According to USEAC directors, bringing these
                       firms to the point where they are export ready can be very labor-intensive
                       and time-consuming. In such cases, the USEACs generally refer such firms
                       to SBA-affiliated education programs or to nonfederal export-service
                       providers with similar programs.

                       To better serve firms that are not ready to export but show potential, SBA
                       has encouraged the USEACs to adopt a program called the Export-Trade
                       Assistance Partnership (E-TAP). This program provides a structured
                       mechanism for supplying such firms with comprehensive information on
                       how to export and follow-up export promotion assistance. While this
                       program was first developed by the SBA District Office prior to the creation
                       of the USEAC network, the Seattle USEAC has adopted it as a primary
                       program for assisting firms that are not ready to export. In addition, two
                       other USEACs have had several years of experience with the E-TAP
                       program, and seven others have recently used the program on one or two

                       While E-TAP programs may differ from location to location, they all involve
                       three essential steps. First, the USEAC identifies not-ready-to-export
                       clients with the greatest potential to export and encourages them to apply
                       for the E-TAP program. Second, the USEAC forms a consortium of federal
                       and nonfederal export-service providers who present comprehensive,
                       in-classroom training on export matters to these preselected firms. Third,
                       the USEAC staff provides one-on-one follow-up assistance to those firms
                       that complete the training and decide to become involved in exporting.
                       Firms pay a fee to participate in the program. Any firms successfully
                       completing the program may apply a large portion of that fee to obtain a
                       Commerce Department export promotion service. For example, the Seattle
                       USEAC presented an E-TAP program that permitted firms to apply as much
                       as $200 of the $385 registration fee to obtain a Commerce service. Firms
                       completing the program also may be encouraged to participate in an
                       overseas trade mission, during which they would meet prospective

                       Page 6                                     GAO/T-NSIAD-99-242 Export Promotion
                     customers and possibly make sales. An E-TAP program can be industry
                     specific or presented to firms from several industries.

                     In Seattle, several of the firms that have participated in this program have
                     gone on to export. These include a manufacturer of wastewater treatment
                     facilities. This firm recognized that U.S. firms establishing manufacturing
                     facilities overseas would need its products. At the suggestion of the
                     USEAC, the company sent one of its managers to an E-TAP program in
                     1994. The company then developed a close working relationship with the
                     Seattle USEAC as it gained experience working with a bank that finances
                     export transactions, learned how to structure export transactions to ensure
                     repayment, and contacted a law firm to handle the legal aspects of
                     exporting. In 1995, the firm worked with Commerce to arrange a visit to
                     Singapore where, working with a joint venture partner, it secured its first
                     export sale—a $750,000 wastewater treatment facility. Exports now
                     represent about 70 percent of the company’s total sales.

                     Mr. Chairman, and Members of the Subcommittee, this concludes my
                     prepared statement. I will be happy to answer any questions you may have.

Contact and          For future contacts regarding this testimony, please call Benjamin F. Nelson
Acknowledgments      at (202) 512-4128. Individuals making key contributions to this testimony
                     included John Hutton and Joseph Natalicchio.

(711453)     Leter   Page 7                                     GAO/T-NSIAD-99-242 Export Promotion
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