Why Massachusetts Business Urgently Needs to Internationalize

Why Massachusetts Business Urgently Needs to Internationalize
By Philip Guarino
February 2011

Although some encouraging signs have started to emerge in 2011, the US economy still faces significant challenges on the road to recovery. Nationally, most indicators tend to point to a tepid rebound and a protracted period of slower economic growth. For decades, the US economy has relied on domestic consumption as the major engine for growth; a large and growing domestic economy masked the immediate need for companies to look abroad for customers. Today despite a devalued US dollar, only a minimal fraction of US businesses actually conduct business overseas–and an even smaller percentage in more than one country. With slow growth on the horizon, exporting is no longer a luxury but a necessity if American businesses aim to grow.

The vast size of the US economy and relatively strong economic growth have largely shielded most American companies from the need to export that virtually all other industrialized economies have faced. Smaller countries by default must look abroad as domestic markets are often too small. Startlingly only 4% of US companies actually export at all, and less than 0.5% of US companies export to more than one country- yes- Canada included.

As a percentage of GDP, the US exports a mere 12% of its gross domestic production. The figure in Massachusetts is even lower. Although an improvement over 2009 figures, Massachusetts business exported only $26.2 billion in 2010 against a total GDP of $270 billion or 9.7% of GDP. Although this percentage has been slowly rising both on a state and national level, both figures are far below the 24% average OECD figure for high-income countries. This leaves vast room for improvement.

Other indicators also point to an overdependence of Massachusetts on domestic markets. Although major US cities like Boston rank high in terms of GDP, according the Brookings Institution’s “World Cities Index”, an indicator that measures international economic interdependence and connectedness, they still lack global punch. Even the most integrated of the US cities are less connected to world markets than the vast majority of European or Asian counterparts.

So how does Boston fare? Not particularly well. Not one of our top 10 trading cities is international. This weak level of internationalization could potentially have pernicious and long-term effects on the competitiveness of Massachusetts industry if companies continue to be slow to react to increased globalization, particularly if competition moves more swiftly.

An ongoing commitment of political leaders to foster trade links, to improve port infrastructure and airport connections is crucial. Massachusetts needs to reach out and build more numerous and closer links to major international markets. Emerging markets like China, India and Brazil are generating 2/3 of world economic growth; neglecting these is a poor strategic decision for the Commonwealth and for business. Existing associations do a commendable job of providing resources, but they also need the cooperation of the financial sector in order to make assistance available and accessible. Financial institutions can do their part by streamlining the implementation of the export assistance programs rolled out by the SBA and the US Export-Import Bank and by taking themselves a proactive approach to international business.

But it is a shift in US and Massachusetts business strategy and mentality that is the key prerequisite. Business leaders must adopt a more global vision and proactively seek more of their business abroad. They must not see international growth as “foreign” adjunct but as an integral part of their overall development strategy. Success in international markets brings added sales revenue but it can also provide long-term competitive advantages and expertise, which is transferable both in foreign markets and at home. Exposure to different market dynamics also strengthens brand-building and provides valuable insight to corporations. And as competition increases, business can only be dormant for so long.

The time is now and the opportunities great. To continue to rely on domestic consumption to revive an ailing economy is folly. The persistent model of consumption outstripping production is simply unsustainable; domestic policy urgently is in urgent need of realignment. Businesses can effectively prepare for a changing environment by realigning internal resources and creating effective strategies that prioritize investment for international growth.