Kentucky’s Billion Dollar Industry
The U.S. export-import bank conducts 80 percent of its transactions with small to medium sized Kentucky businesses, underscoring the importance of rural exporting initiatives

LAST September, over 150 people gathered in Somerset, Kentucky to take part in a momentous commerce event, the first conference held in the U.S. to address exporting for rural areas. The 1999 "New Tools for New Markets" conference, sponsored and hosted by The Center for Rural Development, brought together exporting experts from Washington D.C.’s Small Business Administration, the Office of the Comptroller of the Currency and the Export-Import Bank of the United States to discuss export readiness with small to medium-sized banks and businesses from rural pockets of the state.

But why Kentucky? Why rural Kentucky? And why now?

Current status of exporting in Kentucky

With over $8.8 billion dollars worth of goods sold to foreign markets in 1998, Kentucky ranks 22nd out of the fifty states in the value of goods exported. This constitutes 1.3 percent of the national exports for the year.
According to conference speaker Senator Mitch McConnell, Kentucky has experienced 129 percent growth in exports during the past five years alone.

The materials and types of goods exported by our old Kentucky home are vast, but high value-added products clamor the greatest demand from foreign markets. Approximately 94 percent of Kentucky’s 1998 exports were manufactured goods, about $8.3 billion of the total revenues. These exports, ranked by descending percentages, are comprised of transportation equipment, industrial machinery (including computer equipment), chemicals and allied products and, finally, agricultural and mining products. Although manufactured goods comprise the majority of Kentucky’s exports, agricultural products and coal are important segments of the state’s international economy. Kentucky is actually the number one state in livestock exports.

Distribution of Kentucky exports

Who is buying all of these Kentucky products? NAFTA partners, Canada and Mexico, top the list of those importing Kentucky products, generating $1.3 billion in revenues, or over 35 percent of the state’s total exports. Canada itself is the largest single Kentucky export market, making up almost 30 percent of our foreign market alone.

Western Europe and the Pacific Rim countries make up the second tier of the state’s export customers. In Western Europe, the top importers are France ($735.9 million), the United Kingdom ($695.8 million), Germany ($340.9 million) and the Netherlands ($279.3 million). Japan is the single largest Pacific Rim importer ($669 million) and the number one Kentucky export market for food products, stone, clay and glassware.

Latin America and the Caribbean countries consume 13 percent of Kentucky’s export market, with apparel being the largest export to Honduras, the Dominican Republic, El Salvador and Guatemala. Brazil, the greatest Kentucky market in South America, imports primarily transportation equipment, industrial equipment and chemicals.

Of the remaining Kentucky importers, the Middle East makes up 2.2 percent, and Africa, Eastern Europe and the former Soviet Union countries share 3 percent of the market.

Why the push for rural Kentucky exports?

Although the Export-Import Bank of the United States helps support 41 businesses in the state, most all those businesses are located in the state’s higher population centers like Louisville, Lexington, Paducah, Florence and Bowling Green. The first step in bringing rural pockets of the state up to export readiness and securing the future of small businesses in rural communities is to build awareness. This philosophy of educating and preparing rural areas is crucial not only for Kentucky, but all of her sister states as well.

The need for rural exporting has become so pronounced that the U.S. Department of Commerce is addressing it with the Rural Export Initiative. Sara Melton, international trade specialist at The Center for Rural Development’s Export Assistance Center, has been named national team leader for this program of bringing rural trade and electronic commerce together.

"Big cities sometimes get more attention when it comes to exporting, because there is plenty of business in the big cities," said Melton. "In the big picture, it doesn’t matter where you are or what you make, you are competing in the world market. Companies that don’t realize that won’t be around in the future."

By reaching out to rural companies, the Rural Export Initiative team is seeking to do three things: increase the number of businesses who export by offering easier access to export assistance programs and services, create supportive partner networks and promote new technology-based services to provide information and access to foreign markets. Of the more than 4,800 manufacturing establishments in Kentucky, 811 are active exporters and 170 of those are in the 54-county region of the Somerset EAC. Melton says she is encouraged by the numbers in her service area, even though they are below the national average.

Conferences for small business owners, co-sponsored by The Center for Rural Development and the Somerset EAC, have already been held to promote trade in Canadian and Mexican markets, two of the most important markets for beginning exporters because of the ease of cultural understanding and lack of strong language barriers that can further complicate trade with other foreign countries.

In fact, Kentucky growth potential for rural exports is phenomenal, as only about 16 percent of the potential exporters statewide are currently sending products abroad. Since about 95 percent of the world’s consumers are outside the U.S., there is a vast market out there for our homegrown products. Bob Chadwick of the Export-Import Bank of the United States encouraged rural banks and businesses at the New Tools for New Markets conference to help lead the way in this new push, saying in part, "We want to see more applications from companies here in rural Kentucky… more small lenders, more community-based lenders."

To support this goal, Ex-Im has put its money where its mouth is. According to Jackie Clegg, Vice President of the Export-Import Bank of the U.S., in recent years over 80 percent of Ex-Im’s bank transactions are with small to medium-sized businesses, making up 25 percent of the total dollar volume for the bank.

Transactions like these create jobs for Kentucky, jobs crucial to the vitality and sustainability of our rural communities in the future. The biggest growth in the economy since 1992 has not been created by Fortune 500 companies, but by small businesses. Keeping those businesses alive and providing support for their growth is instrumental in bolstering our rural economies in the 21st century.

Addressing an age-old Kentucky problem, Hilda Gay Legg, Executive Director & CEO of The Center for Rural Development and member of the Ex-Im Bank Advisory board said, "It’s time we stopped exporting our people and started exporting our products."

Possibly the best bet for Kentucky’s rural economies are technology-based businesses. Though it seems a well-kept secret to many, already Kentucky has one of the finest technological infrastructures in place anywhere in the country, and taking advantage of this network offers promise for the entrepreneurs of tomorrow.

Congressman Harold Rogers, a great supporter of the Commercial Service and the Export Assistance Centers, espoused this viewpoint at the New Tools for New Markets conference. "The growth of exports in Kentucky is telling me one simple thing – that we’ve only scratched the surface of opportunity that lays before us. The growth of new technology is putting us on an even footing with manufacturers across the nation for the first time in the history of the region."

Should my company be exporting?

Identifying the products is certainly an important step, but assessing your company’s export readiness is the initial and most crucial step down the exporting road. Even the greatest athlete in the world will fail unless he or she is prepared. To help prepare potential exporters, the Somerset-based Export Assistance Center goes through a series of questions to ascertain a business’s overall preparedness to enter the export trade. Company leaders need to assess the following questions:

1. What do we want to gain from exporting?
2. Is exporting consistent with other company goals?
3. What demands will it place on the company resources such as management and personnel, production capacity and finances?
4. How will these demands be met?
5. Are the benefits worth the cost, or are company resources better used for developing new domestic business?

If answers to these questions are all satisfactory, then a company would get a green light for beginning to export. Otherwise, it might be wiser to re-assess and look at exporting as an option a little farther into the future.

Navigating the waters of foreign trade

While the exporting payoffs for a company can be substantial, the paperwork can be daunting and the process complicated. However, Kentucky businesses don’t have to go it alone. Several organizations stand ready to help navigate the waters of foreign trade.

The Ex-Im Bank plays a role in a good bit of the growth in Kentucky’s exports through working capital guarantees, export credit insurance, guarantees of commercial loans to foreign buyers of U.S. goods or services and direct loans. Ex-Im does not compete with commercial lenders but assumes risks they cannot accept. With 41 corporate clients in 19 communities in the state, the Ex-Im Bank has helped to create and sustain 2,014 jobs and financed a total of $138.9 million in Kentucky exports.

The Export Assistance Center in Somerset serves 54 counties in Southern and Eastern Kentucky with market research, trade leads, international trade data and contacts. While there are over 100 EACs nationwide, only one exists in a rural area, and it is this one in our home state. Kentucky’s other EAC is located in Louisville.

Aside from the resources for potential exporters already mentioned, The Kentucky World Trade Center, headquartered in Lexington, provides trade and marketing assistance to both exporters and importers. Through its NETWORK system it offers electronic trade leads and communication on a worldwide scope.

Another in-state resource is the Kentucky Cabinet for Economic Development, offering various programs and assistance including export consulting, export marketing, education and training and foreign offices.

With the spotlight on exporting for the future, Kentucky stands poised to take its place as a leader in global economics. In time, "My Old Kentucky Home" may be a tune businesses all around the world start humming.

Editor’s note: exporting statistics derived from the University of Massachusetts Institute of Social and Economic Research, "Origin of Movement"series and The Center for Rural Development Planning & Policy Department.

David L. Sloan is a freelance writer from Monticello, Kentucky.

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