The U.S. economy grew at 0.7 percent in the first half of 2011, yet the average company in the S&P 500 is expected to enjoy 17 percent earnings growth by the end of the year.
How are these big companies defying the gravity of slow domestic growth?
They’re practicing the fine art of exporting to countries where demand for their products is growing faster than in the United States.
Let’s take a closer look at the biggest changes that have unleashed the power of trade over the last few decades:
• The emergence of 3 billion new customers. The world economy has experienced a transformation brought about over the past three decades by China’s, and later India’s, move to a market economy. Consistent with this trend, and somewhat prompted by it, has been a move to market rationalism in much of Latin America. In short, the economic population of this planet has effectively doubled in one generation.
• The death of distance. Geography has rapidly declined as a business constraint. Goods, people and ideas move around the world cheaper and faster than at any time in history. Business activities—from accounting to design to customer—that once had to be undertaken at one locale can now be disaggregated and spread around the world. Mumbai is next door. Monterrey is your best customer. Shanghai sits next to you in class.
• The elimination of tariffs. We’re experiencing the cumulative impact of 60 years of reductions of trade barriers by the General Agreement on Tariffs and Trade (GATT) and World Trade Organization (WTO), along with the benefits of the more than 600 free trade agreements currently in place.
These changes have three important implications for businesses:
Think about exporting. It is no longer safe for any company to remain content in its home market. Sooner or later, you will face threats from foreign entrants. You need to find a way to take the offensive and enter new markets.
Shift from vertical skills to horizontal skills. Most businesses exist in the vertical. They have a small set of core competencies, and they devote their business life to the successful execution of that skillset. Now you have to develop horizontal skills. How can you evaluate a market you have never visited? How can you sell to someone you have never met? How can you navigate government regulations in foreign countries?
Develop a culture of flexibility and innovation. This does not mean that every day you will generate a new product, or that every new market will require a new approach. Markets, customers and opportunities differ, though, and a wise business knows how to take advantage of these differences.
Sure exporting is risky—exporting in particular and global trade in general are politically unpopular. But the growth of companies in the S&P 500 proves exporting’s benefits are worth the effort to manage its risks.
Editor’s note: Peter Cohan is the co-author, along with Frank Lavin, WG’96, of the new book, Export Now.