dough_bollinger: Why Small Businesses in the Pacific Northwest Should Expand and ...

By Elizabeth Littlefield

Wade Rain is a small family-owned business in Tualtin, Oregon that distributes irrigation equipment ? most of which is made in the United States. About ten years ago, the company saw an opportunity to expand into Mexico, where heavy farming and light rainfall have combined to deplete the water table. Wade Rain knew that the irrigation equipment it sells could help farmers conserve water, but it also wanted to mitigate the risk of investing overseas. Shortly after opening Wade Rain de Mexico, the company purchased political risk insurance from the Overseas Private Investment Corporation (OPIC), to protect against the risk of expropriation.

Today, Wade Rain de Mexico is generating close to $25 million in annual revenues, about three quarters of which comes from the sale of American-made irrigation equipment. The company is now exploring the possibility of expanding into parts of Central and South America.

Wade Rain is just one of the many small U.S. businesses that have worked with OPIC to expand into emerging markets. As the U.S. government?s development finance institution, OPIC understands that small businesses are at the heart of the U.S. economy and we are committed to putting them at the heart of the global economy as well. About 96 percent of the world?s consumers reside outside the U.S. and when U.S. businesses expand into developing countries, they help create important new markets for American-made goods and services. ?Emerging markets have grown from 23 percent of the world economy in 1999 to nearly 40 percent in 2011, and will soon comprise the majority of the global GDP, making this an excellent time for U.S. small businesses to explore new markets.

While exports are essential to the health and growth of the American economy, so too is foreign investment. Small firms that invest abroad tend to grow more quickly, have higher survival rates, use more advanced technology and show higher levels of labor productivity.

According to the U.S. Chamber of Commerce, many of America?s largest companies earn more than half of their revenue investing abroad. There are some foreign markets that cannot be adequately addressed by exporting goods or services from the U.S.

The experience of Wade Rain seems to confirm these findings. John Newbegin, General Manager of Wade Rain de Mexico, says that while the company would have had some success operating as an exporter, it was able to sell a lot more equipment by setting up an operation in Mexico. ?Being in the country with a Mexican business license, and a Mexican warehouse, right there with our customers, invoicing in pesos, it gives us a whole level of advantage,? said Newbegin.

Recent research found that U.S. companies that invest abroad tend to create more jobs in the United States ? even during the height of the most recent recession ? and pay higher wages than companies focused solely on the domestic market.

So why don?t small businesses invest abroad more often? Two reasons, which need to change

First, there is a misperception that doing business overseas creates a zero-sum game between American workers and their foreign counterparts. Not true. OPIC has invested $395.8 million in insurance and financing commitments in Washington company-sponsored projects alone, and more throughout the Pacific Northwest region. Those projects are expected to generate $623.3 million in total U.S. exports; 2,270 U.S. jobs and 466 local Washington jobs.

Second, small firms contemplating expansion into global markets still face significant challenges including sourcing reliable foreign partners, protection for intellectual property, financing, and navigating the complexities of foreign tax regulations and political risks.

To help address these challenges, OPIC has, for many years, traveled across the country hosting a series of workshops called Expanding Horizons. Our goal is to introduce U.S. small businesses to OPIC?s financing, political risk insurance and other services that can help them to expand successfully into lucrative emerging markets. ?We are hosting our next workshop October 3 in Seattle.

The Expanding Horizons series has been an enormous success for small businesses, educating nearly 2,000 American small business owners over the past six years on products and services from OPIC and its sister agencies such as the Small Business Administration and the Export-Import Bank.

Elizabeth Littlefield is the president and CEO of the Overseas Private Investment Corp., the U.S. Government?s development finance institution, which is hosting a series of Expanding Horizon seminars for small businesses interested in expanding into emerging markets. OPIC will be in Seattle for an event on October 3 at the Grand Hyatt.