LITTLE COMPANIES, BIG EXPORTS
Tiny Ohio-based Vita-Mix Corp. has been grinding and blending for 70 years. It rarely sold its high-powered blenders outside the U.S., relying instead on Americans' appetites for fresh-baked bread and vegetarian delights. But last year, with stagnation haunting the Midwest, the third generation of Barnard family owners went global. They hired James L. Smith, a Combustion Engineering veteran, as international sales manager. Now, exports account for 20% of the company's $15 million a year in sales, and blenders are leaving the company's plant for 20 countries. Faxes from Venezuela to Norway pour in.
Vita-Mix's good fortune also shines on Olmsted Falls, a quaint town of 15,000 on the outskirts of Cleveland. While the region has hemorrhaged jobs, Vita-Mix has added 63 new ones in the past year, for a total of 113 employees. Its folksy headquarters is bustling as banks of telephone operators take 800-number calls from customers seven days a week. "Exporting is the salvation for our standard of living and the security of our workers," says Smith. "It makes me proud as heck."
Vita-Mix is one of thousands of hot new exporters helping to sustain U.S. export growth. To be sure, it takes a lot of $495 blenders to equal one $135 million Boeing 747 or one $550,000 Caterpillar hydraulic excavator. And no one knows for certain how much of America's $400 billion a year in exports comes from small companies with sales of $5 million to $300 million a year. Perhaps only 1 in 10 of these companies in America's rendition of the German Mittelstand, or middle sector, now exports, experts believe.
NICHE PLAYERS. This huge, uncharted area of the U.S. economy is now vital to sustain growth in exports. After years of double-digit increases in the late 1980s, U.S. exports grew at only 7.5% in 1991 and actually declined in November, December, and January. Now, it's up to the small fry to keep exports headed upward. "It's clear that the export growth has come by bringing new entrants into the market. It's not just the majors expanding," says David L. Blond, director of international trade forecasting for DRI/McGraw-Hill in Washington, D. C.
The biggest growth is coming in such items as medical products, scientific instruments, environmental systems, and consumer goods, where thousands of companies have carved niches. Some 87% of the 51,000 exporters tracked by Cognetics Inc. of Cambridge, Mass., employ fewer than 500 workers. "We know that the majority of exporters are small," says founder David Birch, a leading authority on small companies. These companies typically are private, closely held, or family-owned.
America's small companies are discovering, too, that the economics of exporting have changed, for good. Once, it was an article of faith that such companies would lose money for three to five years. Now, small makers of everything from potato peelers to pumps are using fax machines, 800 numbers, and overnight air express services to shave the once formidable costs of going global.
Other forces are also reshaping the export culture. Americans are now low-cost manufacturers after a long decline in labor costs and the dollar and a rise in productivity. They also find themselves with a trove of high-quality products that are often known around the world. English has spread as the lingua franca of global business, which lowers language barriers. Small business also gets an international edge since many immigrants entering the U.S. take key jobs in smaller export companies. At the same time, downsizing at bigger companies has created a steady stream of U.S. executives taking their experience to smaller companies.
LIFE AND DEATH. This all shapes up as a structural shift in the U.S. economy--one that's not likely to be reversed if the value of the dollar edges up modestly. In effect, the core of the U.S. economy is gradually being internationalized. Five years ago, 7.5% of America's gross domestic product came from exports. Now, DRI estimates it will reach 12.2% by the end of 1994, largely as a result of newcomers. That still would be low compared with Germany or Holland. But because of the size of the U.S. economy, it means the U.S. export boom could still be in its early stages, not at its rump end.
This proliferation of smaller U.S. exporters provides America with some insulation against the slowdown in growth in Europe, Canada, and Japan--America's largest markets. The small guys often key in on Latin America, Eastern Europe, and East Asia, all still growing. The major Hispanic population in the U.S. and the proximity to Latin America are thrusting many smaller players southward. Strong Ukrainian, Polish, and Lithuanian links give companies in Chicago, Milwaukee, and Cleveland an edge in Eastern Europe. And the presence of so many Asian high-tech entrepreneurs on the U.S. West Coast helps their companies crack the Pacific Rim.
This export "movement" is occurring with little help from state and federal governments. Unlike European or Asian export powers, the American infrastructure for spurring exports remains poorly funded and badly organized. In some cases, it is even being cut back. The State of Illinois, which once boasted one of the country's most successful models, is cutting its export activities by 22% this year because of a budget crunch.
The U.S. Commerce Dept. gets high marks for its sponsorship of trade fairs and matchmaking programs in faraway capitals. But at the grass-roots level, a budget squeeze has forced the government to retreat from helping new-to-export companies. Altogether, some 18 federal agencies are involved in exports, and they rarely coordinate with each other. The major money-center banks in the U.S. also turn a cold shoulder to newcomers that are in need of export financing.
HIGH-TECH HOOKUPS. Even in the absence of a well-defined export campaign, small exporters are helping themselves, plugging into the technological revolution. The fax machine, in particular, has given grass-roots exporters a chance. "There's only one thing greater than the airplane, and that's the fax," says John Kirchgeorg, CEO of Life Corp., a maker of emergency-oxygen kits. With under $5 million in sales, Kirchgeorg's company, located in the faded tannery district of Milwaukee, ships specially designed oxygen kits to 43 countries, mostly by air. He tries to respond to most faxed inquiries the day he gets them. Then, he sends off videotapes of his products by air express--a far cry from the era of clunky telexes and overseas mail.
Exporters also are using the telephone like never before. They set up toll-free 800 numbers that encourage foreign customers to call frequently. To help overcome the linguistic hurdle, American Telephone & Telegraph Co. has begun offering a 24-hour phone line that allows English-speaking Americans to make international calls with a translator. AT&T, MCI, and Sprint offer phone hookups that allow small U.S. exporters to send electronic-mail messages into their distributors' computers. Even tiny $3 million-a-year Sharper Finish Inc. of Chicago, a maker of commercial laundry equipment, can keep in ready contact with 300 distributors in 30 countries. The result: Exports account for 60% of sales.
Bigger companies rely on satellite computer hookups. Royal Appliance Manufacturing Co. in Cleveland, a $273 million-a-year maker of the Dirt Devil handheld vacuum, ties its computers to its European subsidiaries by satellite. Each day's sales in Europe are monitored and fed back to Cleveland. "It works like a champ," says CEO John A. Balch. Royal hopes its still-small foreign sales can eventually match its domestic revenues.
Other technologies are just beginning to be tapped. One is advertising on Cable News Network and other satellite-television channels. Likewise, the expansion of U.S. credit-card companies encourages foreign customers to buy products on the telephone with their card numbers. Perhaps the ultimate expression of technology's role is AT&T's new "The Export Hotline," a 24-hour-a-day data base that allows a potential exporter to call 1-800-USA-XPORT and get free export information by fax. All this technology has "substantially lowered the barriers of entry into the game," says Birch. "You can enter the international game with much fewer resources than was required 10 years ago."
Of course, technology alone won't do the trick. Americans also have to make good products at the right price. The surprise is that the small guys--even consumer-goods makers--do just that. Small and midsize U.S. companies are exporting rice cookers and high-quality china to Japan and cutlery to Germany. Sports gear such as motorized surfboards and racing motorcycles are in big demand. Treatment Products Ltd., a $5 million-a-year company in Chicago, ships its high-end car wax to 15 countries.
Surprisingly, a lot of these pint-size Americans are taking on Japan. Midwest Tropical Inc., a $5.5 million-a-year company in Chicago, sends designer aquariums to Japan and other countries. Its six-foot-tall vertical units, with fluorescent lighting and rounded corners, are a hit with Japanese whose homes are too small for bulkier tanks. The aquariums' prices: up to $1,200.
MODEST COSTS. Run by a husband-and-wife team, Kenneth and Susan Burnett, Midwest Tropical found Japanese distributor Shimada International, thanks to a State of Illinois export officer. Shimada insisted that Midwest Tropical adapt its product to Japanese quality standards--which meant new heaters and lights, for example. The Burnetts did everything Shimada asked. As a result, sales of about $230,000 in 1990 doubled in 1991 and are growing again this year by 30%. "You have to say: 'I want into this country real bad. What do I have to do?' " says Ken Burnett.
In making these consumer-goods exports, the Americans boast a cost and quality advantage that stems from the modest cost of labor and highly automated production. That's one reason Invacare Corp., a $263 million-a-year company in Elyria, Ohio, can boast of sales of wheelchairs and other home medical equipment to 40 countries. It projects $75 million in international sales this year, including some $24 million worth of goods exported from the U.S. These exports are growing at a 26% clip.
For its mass-produced chairs, it can drive costs down to a minimum. Average hourly labor costs are $13, including benefits. And Invacare relies on just-in-time manufacturing systems and autmmated systems that punch diodes and transistors into boards for the computerized controls. New carbon-fiber composites are used to make the chairs light and maneuverable. "We're just getting started" in world markets, says CEO A. Malachi Mixon III.
STAYING POWER. Of course, for every smallish U.S. exporter that has made it, there are others that have failed or lacked basic information. American businesspeople still have much to learn about exporting. But hard times at home, combined with new technologies and better manufacturing abilities, are propelling them outward. Unlike Detroit's Big Three, they are quick to adapt to foreign tastes, and they're willing to sort through the thicket of safety standards and health codes in such tough markets as Japan and Germany. "We see wide-open blue skies," says George W. Sanborn, CEO of Sanborn Inc., a Wrentham (Mass.) maker of centrifugal equipment used in pollution-control efforts. Sanborn says he's counting on prospects in Czechoslovakia for a big boost, as much as 10% of an estimated $25 million in sales this year.
Many abroad can't help but wonder: Will it last? Americans have a record of exporting when it's easy, then retreating when conditions shift. These new exporters, however, have a feel of permanence. At Vita-Mix, for example, President and CEO Grover Barnard, who learned Russian in the U.S. Army, has created a corps of employees who speak German, Spanish, French, and Arabic. He insists that the company's culture is being transformed from that of a small stay-at-home to a global player. "We're going to be thinking that we're part of the world," he says.
The reason is simple. With the domestic U.S. market stagnant and competition from bigger U.S. and foreign companies intense, it's the only way to stay in business. "If you don't go overseas and don't know what's happening, you're not going to be ready for those people to come here and work you over in your backyard," says Barnard. "You have to take the battle out there." More and more Americans across the heartland are taking up the call.William J. Holstein in Cleveland, with Kevin Kelly in Chicago, and bureau reports