Why Export? Six great reasons, the last two are surprising…here is the third of the six.

Exporters are better able to leverage their production than non-exporters.  In the Milwaukee 7 region this is influence by manufacturing dominating our exports.  Nationally, over the past several decades, manufacturing has been growing, while manufacturing productivity has been growing even faster.  That's meant fewer jobs in manufacturing.  Exports tend to compound this productivity.  Thus, for M7 the export strategy is not a direct jobs strategy.

4 Small and Medium-Sized Enterprises: Characteristics and Performance,  United States International Trade Commission, Publication 4189, November 2010, Washington, DC,xii
 (Data for manufacturing SMEs are from the Commission’s questionnaire; data on services SMEs are from Census.)

Exporting over the OCEAN BLUE

In the March 2015 Harvard Business Review, the authors of The Blue Ocean Strategy, W. Chan Kim and Renée Mauborgne suggest that competitiveness and market expansion are the keys to long term success.  In the Milwaukee 7 Global Cities

Export Initiative, overcoming a shortfall in competitiveness is identified as key to economic success. The Blue Ocean authors say, “But long-term success will not be achieved through competitiveness alone.  Increasingly, it will depend on the ability to generate new demand and create and capture new markets.”1

Exporting is the capturing of new markets and is at the heart of the M7’s strategy.  Exports have been the primary source of economic growth in each of the seven counties in the region over the past decade.  Between 2009 and 2012 exports accounted for over 100% of growth.2

  

This past week Paul A. Laudicina, partner, chairman emeritus of ATKearney spoke to the M7 Regional Economic Development Advisory Council and said that nationally we can expect a “3.3% base-case average annual real growth between 2015 and 2020.”

When you apply that 3.3% growth rate to the regional economy, then at the end of 2019 the economy would have grown by seventeen billion dollars.  Doubling exports only requires the region increases exports by $15.3 billion. Given that exports are the primary source of growth in the region, the goal of doubling exports appears necessary and realistic.  To do that, many company leaders need to change direction and start to export strategically.

In the March HBR article the Blue Ocean authors also identify the one key factor that undermines efforts to change direction.  In their conversations with managers about their efforts to execute these market expanding strategies the authors noted, “we identified a common factor that seemed to consistently undermine their efforts: their mental models--ingrained assumptions and theories about the way the world works.  Though mental models lie below people’s cognitive awareness, they’re so powerful a determinant of choices and behaviors that many neuroscientists think of them almost as automated algorithms that dictate how people respond...”

In the M7 strategy this is exactly the cognitive obstacles that Strategy #1 is designed to address.3  When it comes to getting companies to start exporting strategically, get the CEO/President/owner over this hump and get out of the way.

¹ Kim, W. Chan, and Renee Mauborgne. "Red Ocean Traps." Harvard Business Review Mar. 2015: 68-73. 

² Data based on Brookings ExportNation 2013

³ See the executive summary of the M7 export strategy at http://bit.ly/1DLifxa

Photo copyright 2004 by Bill Burnett, East coast of Siberia

Why Export? Six great reasons, the last two are surprising…here is the second of the six.

Exporters are better able to weather shifts in the economy and during the recent deep recession they were able to continue to grow while non-exporters who survived, shrank.

2  Small and Medium-Sized Enterprises: Characteristics and Performance,  United States International Trade Commission, Publication 4189, November 2010, Washington, DC,xii

Why Export? Six great reasons, the last two are surprising…here is the first of the six.

 You can point to six great reasons to become an exporting company.  The first has to do with comparing otherwise similar companies. 

1  Small and Medium-Sized Enterprises: Characteristics and Performance,  United States International Trade Commission, Publication 4189, November 2010, Washington, DC,xii

America’s Mittelstand

“Mittelstand” is a German word used to designate small and medium sized manufacturers who employ 70% of Germany’s workforce¹.  These firms are “achieving unprecedented efficiencies by designing a business model with a razor-thin focus and learning to do the one thing really well....To compensate for their razor-thin focus ... they diversify internationally and enjoy great economies of scale...these characteristics make these companies perfect examples of focused business models, which seem to thrive even in harshest economic conditions²."

  

When you read about the characteristics of these German companies it sounds like you are reading about southeast Wisconsin.  The German companies are concentrated in the mechanical equipment, automotive, electrical equipment, chemical and precision manufacturing sectors.  They often cluster themselves around big manufacturers.  They have two primary strategic focal points.  First, they focus on innovation to create competitive advantage and emphasize long-term profitability versus the short-term results.   Where they differ from us is their second equally important strategy - exports!  These German companies have exporting and innovation as their key strategic objectives. 

These two objectives are the key objectives of the Milwaukee 7's Global Cities Export Initiative.

We know from research that companies that sell into multiple countries tend to become much more innovative as a result of this international exposure, thus for German Mittelstand companies, their international transactions play double strategic duty meeting their two strategic goals to innovate and to expand exports.

Are the seven counties of south eastern Wisconsin home to America’s Mittelstand?  The region, called “Milwaukee 7”, is home to thousands of small and medium sized manufacturers.  The region was settled by German immigrants and much of that European influence can still be found in the manufacturing sector.  Many of the region’s small and medium sized firms cluster around larger companies to whom they provide components and parts.   Manufacturing accounts for 82% of exports in the region³.  However, few Wisconsin SME manufacturer make exports a key strategic initiative and almost none approach the levels of exports that the Germans achieve.

For the region to become the American Mittelstand, our companies need to make exporting a key component of their growth strategy.  This is a marvelous opportunity for the region.  Exports have been the primary source of economic growth in each of the seven counties around Milwaukee for the past ten years.  Currently, we do not do nearly enough exporting.  The good new about exporting is that it will also  address our apparent shortfall in innovation and competitiveness in the region as a whole.

¹Kajeepeta, Sreedhar. "Finding Hidden Gems in the German Mittelstand By Sreedhar Kajeepeta - Oct 2011." Finding Hidden Gems in the German Mittelstand By Sreedhar Kajeepeta - Oct 2011. CIOInsight.com, n.d. Web. 28 Jan. 2015. <http://archive.today/P1r6W>.

² Girotra, Karan, and Serguei Netessine. "Extreme Focus and the Success of Germany's Mittelstand." Harvard Business Review. N.p., 12 Feb. 2013. Web. 28 Jan. 2015. <https://hbr.org/2013/02/good-old-focused-strategy>.

³   "Export Nation 2013." The Brookings Institution. N.p., n.d. Web. 28 Jan. 2015. <http://www.brookings.edu/research/interactives/export-nation>.