Should Government Assist Business - Essay Example

INTRODUCTION Government assistance in business is provided through many ways in every country. In United s, the government has constantly been engaged in providing assistance to small business to enable them to stand and work on their own. This assistance provided to small businesses, has its own great benefits to the overall economy, but that too, is not free of burden on the government and its policies. Business is assisted when the Government grants patent and copyright privileges; fixes standards of weights and measures; makes various loans available; sets up tariff schemes and other import restrictions; assists in foreign operations; provides for a postal system; conducts and encourages research and development; pays out vast sums for goods, services, and transfer payments; and helps in maintaining a sound banking system (Isaacs & Slesinger, 1964, p. 10). Therefore, the purpose of this essay is to illuminate the benefits of this assistance provided by the US government to business on economy and also about the burden it implies on the government and its policies and then come to a point to decide as to should government assist small businesses in their effort to be a part of internationalization by entering into export market. U.S. GOVERNMENT- ASSISTANCE TO BUSINESS IN EXPORT Encouraging exports is a primary concern of most governments. In the United States, the Department of Commerce has many programs devoted to the development and nurturing of beginning exporters. Substantial resources are devoted to export promotion programs designed to increase the propensity of small companies to export. However, while useful politically throwing monetary resources at a problem can be very wasteful. In the era of government budgetary problems and fiscal frugality, program accountability is part of every politician and administrators agenda. In the export promotions sector, the need to spend money wisely has emerged as a key concern. Government assistance refers to the policies that a government puts forth to help the exporter conduct international business. Studies have shown that governments can either help or hinder the export process. Typically, they help by providing information, sale leads, tax incentives, insurance, and financing programs. Czinkota and Ricks (1981) and Reid (1984) found that government assistance could stimulate export activity by providing relevant information. Governments can also hinder export decisions via their foreign exchange rate policy. Bauerschmidt, Sullivan, and Gillespie (1985) found that a high U.S. dollar relative to foreign currency was the most important barrier to international activity for U.S. exporters. Traditionally, small and medium-sized firms have played an important role in local economies. However, the role of small and medium-sized firms in international trade is changing. A report by Birch (1988) noted that U.S. firms most likely to be exporters are small, not large firms. More than half of all exporters have fewer than 100 employees. According to information from the U.S. Department of Commerce, it is mainly smaller firms that do not export and were thus targets of export promotion activities (Czinkota and Johnston 1981). Bilkey (1978) has suggested that for maximum success export stimulation programs should be tailored to the export development position of the firms to be stimulated. He argues that if export assistance programs are formulated in terms of the export internationalization process, then: (1) experienced exporters would be stimulated to increase exports by devaluating the currency and by removing perceived obstacles to exporting; (2) non-exporters would be stimulated to begin exporting by being provided with export orders (perhaps by developing Japanese-type trading companies) and with managerial assistance (such as export extension programs and export consulting services); (3) firms that have not attempted to export would be stimulated to explore the feasibility of exporting by programs promoting the attractiveness of exporting (trade association meetings, advertising, public meetings) and through international education within schools (such as foreign language training, student exchange abroad, international business education, and so on). On the surface, state government expenditures on export promotion make sense. One billion dollars worth of exports creates, on average, 22,800 jobs (Davis, 1989). In 1988, over ten million U.S. jobs depended on trade. It has been estimated that $2 billion of GNP are generated per billion dollars of exports, together with $400 million in state and federal tax revenues (Shaw, 1977). More recently, the National Governors Association has reported that the doubling of the value of U.S. exports in the first half of the 1980s generated more than 1.5 million new jobs, accounting for over 80% of employment increases in the manufacturing sector and a third of the growth in private-sector employment. Thus, exports may be considered a major engine of economic growth in the U.S. economy. Growth in the volume of exports by U.S. firms is desirable because it creates more jobs and leads to a higher standard of living in the United States. Since the U.S. contains just 5 percent of the worlds population, relatively vast potential markets for U.S. products exist abroad. Yet knowledge about international marketing and international markets is often unavailable to small and medium-sized U.S. enterprises (Edmunds and Khoury 1986), many of which are inexperienced in the international marketplace. The U.S. ranks last among the Organization for Economic Cooperation and Development (OECD) countries in exports as a percentage of Gross National Product. This low ranking is explained in part by the skewed distribution of export activity. The Department of Commerce estimates that a mere 1 percent of U.S. manufacturing firms account for 80 percent of U.S. manufactured exports (Edfelt 1986). Government aids small businesses in the field of finance by means of various mortgage guarantees and loans, insurance of bank deposits, and provisions underlying credit. But, the Government also controls finance through regulations of the terms of credit, supervision of securities and commodity markets, and supervision of banking and interest rates (Isaacs & Slesinger, 1964, p. 10). Meanwhile, as these new avenues for governmental influence have been opening, a growing displeasure with government has become more apparent. Many have commented upon the inadequacy of government to cope with business planning profusely. Yet, on the other hand, we have come to rely more upon governments and demand more from them. Many facets of the economy, through their own pressure groups, have been responsible for much of this increased demand (Isaacs & Slesinger, 1964, p. 10). In times of tightening budget constraints, and competing public priorities, the question then still remains as to why it should be through the use of public funds and public efforts that firms should be enticed into exporting. Given the motivation of business activity by profit, one could argue that the profit retention of exporters should be enough of an incentive to motivate export efforts. Therefore, the expenditure of public monies on export promotion may be inappropriate. Even if such funds are spent, a secondary question then concerns the issue of how the allocated budget can be used most effectively. Given the large size of the foreign market and this low participation rate, small and medium-sized firms have the potential to reap large gains from export activities. Although it may increase cost and uncertainty, exporting can help smaller organizations increase profits, prolong product life cycles, and open new distribution channels. Furthermore, small firms have been shown to be less severely affected by adverse external shifts than their larger counterparts. They have been shown to be less sensitive to currency fluctuations, in part, because they can usually make quick price adjustments (Holden 1986). Nations that achieve highly competitive positions in world markets tend to have small and medium-sized firms actively involved in international trade. For example, in Germany and Japan small and medium-sized enterprises account for a large percentage of each countrys exports (Dichtle et al. 1984, Edmunds & Sarkis 1986). Unfortunately, this is not the case in the U.S., despite research indicating immense potential. Americas small and medium-sized firms are producing products desired in the world market; yet, their enthusiasm for internationalization is tempered by their inability to gather market information and maintain a continuous flow of communication with foreign clients, and by their lack of experience in planning and targeting export sales in world markets (Kaynak and Kothari 1984). If small and medium-sized firms are to partake of export marketplace opportunities, current U.S. export assistance for these firms should be modified. For example, the adoption of an interactive approach in which firms experienced in exporting exchange information and/or personnel with firms that have no experience may be more useful. Perhaps a third party such as an export consultant or representatives from the federal or state overseas commerce agencies could mediate this interactive process. Government agencies can be major promoters of export activity by guaranteeing loans, by subsidizing export prices, by organizing trade fairs, by sponsoring trade missions, by being a party in interstate trade agreements, and by publishing basic market data (Albaum, Strandskov, and Duerr 1998). CONCLUSION Therefore, after discussing all the aspects of assistance provided to export businesses on the part of government and its overall impact on the economy, we can say that the U.S. government should infact focus on assisting and encouraging small and medium size business to export. It should facilitate and provide incentives to the businesses having the export potential as it is supposed to have a great impact on the economy of the country by bringing more foreign reserves into the country and also increasing the employment nationally, followed by an increase in GNP. It would increase the government expenditures, but in return, it would create jobs and facilitate GNP more than the worth of expenditures incurred by the government. References Albaum, Gerald, Jesper Strandskov, and Edwin Duerr (1998),” International Marketing and Export Management.” Singapore, UK: Addison-Wesley. Bauerschmidt, Alan, Daniel Sullivan, and Kate Gillespie (1985). "Common Factors Underlying Barriers to Export Studies in the U.S. Paper Industry," Journal of International Business Studies 16 (3), 111-123 Bilkey, Warren J. (1978), "An Attempted Integration of the Literature on the Export Behavior of Firms”. Journal of International Business Studies (Spring), 33-46 Birch, David L. (1988), "The New Economy: Trading Places," Inc., April, 42-43 Czinkota, Michael R., and Wesley J. Johnston (1981). "Segmenting U.S. Firms for Export Development," Journal of Business Research (December), 353-365 Czinkota, Michael R., and David A. Ricks (1981). "Export Assistance: Are We Supporting the Best Programs?" Columbia Journal of World Business 16 (Summer), 73-78 Davis, Lester A. 1989. “Contribution of exports to U.S. employment”: 1980-87, Washington, D.C.: U.S. Government Printing Office. Dichtle, E., M. Leibold, H. Koglmagr, and S. Muller (1984), "The Export Decision of Small and Medium-Sized Firms: A Review," Management International Review 24 (2), 49-60. Edfelt, Ralph (1986), "U.S. Business in International Competitive Perspective," Issues in International Business 3 (1), 17-24 Edmunds, S.E., and S.J. Khoury (1986), "Exports: A Necessary Ingredient in the Growth of Small Business Firms," Journal of Small Business Management (October), 54-65. Isaacs & Slesinger (1964). “Business, Government and Public Policy”. Princeton. Publication Kaynak, Erdener, and V. Kothari (1984), "Export Behavior of Small and Medium-Sized Manufacturers: Some Policy Guidelines for International Marketers," Management International Review 24 (2), 61-69 Moini A. H. (1998), ‘Small Firms Exporting: How Effective Are Government Export Assistance Programs’. Journal of Small Business Management, Vol. 36 Ogbuehi & Longfellow, 1994, “Perceptions of U.S. Manufacturing SMEs concerning Exporting: A Comparison Based on Export Experience”. Journal of Small Business Management, Vol. 32 Reid, Stan D. (1981). "The Decision-Maker and Export Entry and Expansion," Journal of International Business Studies 12 (2), 101-112 Shaw, Robert G. 1977. “Commerce and state departments export promotion programs”. Washington, D.C.: U.S. Government Printing Office. Read More