American exporters must adapt to overcome growing competition from emerging-market firms using cheap capital from their home countries to finance international expansions, the chief of the Export-Import Bank of the United States said in Atlanta.
The rise of “state-directed capitalism,” in which countries like Brazil, India and China pick their global champions and extend them preferential credit, signals a major shift in the global economy, said Fred Hochberg, Ex-Im’s chairman and president.
“The economic model of the United States and the West for the past 200-300 years has produced boundless opportunities, it has created unprecedented wealth in this country,” he said in a Sept. 7 speech at the Metro Atlanta Chamber. “But that model – the jobs it creates, the middle class it’s built – is being challenged as never before.”
As of 2006, Brazil, India and China together extended more export financing than the Group of Seven industrialized nations. Around the same time, the three countries’ combined share of global purchasing power surpassed that of the U.S. for the first time, Mr. Hochberg said.
This “sea change” represents a conundrum for U.S. exporters, he said. Rising incomes abroad lead to more customers, but cash-rich foreign governments are better equipped to bolster their domestic firms, which are competing with increasing sophistication in a widening range of sectors.
“This rise in emerging economies and their global influence is meaning that the rules have changed and how we operate is going to have to be different,” Mr. Hochberg said.
Mr. Hochberg cited ZTE Corp., a China-based telecommunications giant. He said the company sells routers suspiciously similar to those created by Patton Electronics, a Maryland firm that relies on exports for 70 percent of its $30 million in annual revenues.
ZTE, which has an office in Atlanta, has a $15 billion loan from the Chinese government to finance its aggressive overseas plans. Lower capital cost means ZTE can undercut its competitors like Patton or Cisco, which don’t have the same resources, Mr. Hochberg said.
The Ex-Im bank tries to remove financing as a hurdle and allow American products to compete on quality, not on artificial price disparities. The bank’s offerings include working capital loans, loans to foreign buyers of U.S. products and receivables insurance, in which the bank picks up the tab if a foreign buyer stiffs a U.S. exporter.
Many Atlanta firms have benefited. Ex-Im is providing a $200 million loan to Brazil’s Gol Airlines on a maintenance deal with Delta Air Lines Inc., said Mr. Hochberg, who visited Delta’s maintenance operation and met with leaders of UPS Capital while visiting Atlanta.
Suniva, a Norcross-based manufacturer of solar cells, has received working capital loans to ensure a stable supply of silicon, the main component used in solar cells. Suniva has also used Ex-Im’s insurance to extend credit to buyers in India.
Ex-Im offered $24.5 billion in export financing during fiscal year 2010, up 70 percent in two years. A tightening of credit after the financial crisis, especially by U.S. banks keen to limit international exposure, and a shift toward emerging markets made Ex-Im lending more vital.
Though Ex-Im needs to keep up with similar banks in some 80 countries, Mr. Hochberg admitted that the bank, an independent and self-sustaining government entity, won’t be able to compete in raw numbers next to large funds set aside by countries like China and Brazil.
Last May the Brazilian Development Bank set up an Exim Brazil subsidiary. China, using financial resources that are often both opaque and strategically directed, has helped create global powerhouses like Huawei Technologies from companies that were barely exporting a decade ago.
While U.S. technology still excels, Mr. Hochberg added that it’s only a matter of time before Brazilian business jets and Chinese commercial airplanes join the competitors of Gulfstream and Boeing.
But the U.S. need not be resigned to the idea that the rise of emerging economies means the demise of the American competitiveness. Often seen as the “Asian century,” the 21st century can also be the American century if the U.S. tackles its challenges head on, Mr. Hochberg said.
The first step is to reorient the U.S. economy toward exporting, a process spurred by President Obama‘s National Export Initiative, which aims to double U.S. exports by 2014, Mr. Hochberg said.
“We’ve got business leaders and people at every level of government thinking, ‘OK, exports have to be central our strategy. It’s not a nice-to-do add-on; it’s got to be central to how we grow our business,'” he told GlobalAtlanta.
A mix of ignorance about global opportunities and lack of capital keeps many small companies from exporting, Mr. Hochberg said.
To fight the problem, Ex-Im is launching Global Access for Small Business. The program aims to bring 5,000 new small businesses into the bank’s portfolio and double its annual small business volume to $9 billion by 2015.
Ex-Im is encouraging companies of all sizes to target nine developing countries with growing infrastructure needs: Brazil, Colombia, India, Indonesia, Mexico, Nigeria, South Africa, Turkey and Vietnam.
“These are countries that are growing, they’re building a middle class, they’re building infrastructure to keep their economies growing, and we can help create jobs here in America and jobs there,” Mr. Hochberg said.
He added that the U.S. must also address domestic problems like education, health care and infrastructure to remain competitive in the global economy.
Mr. Hochberg visited Atlanta in February. Read more about the bank and its work with Suniva in this GlobalAtlanta interview: Ex-Im Bank Chairman Visits Atlanta to Increase Georgia Exports
Visit www.exim.gov for more information.