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What You Don’t Know Can Hurt You: Insufficient State Data Makes Global Planning Difficult

Published on Monday, November 01, 2004

While the majority of trade in the United States is done by large companies, it is no secret that their small and medium sized cousins (SMEs hereafter) are also eager to take advantage of the many opportunities offered by international activities. One defining aspect of SMEs is that their operations are generally located in one state, though they may have activities in several.

SMEs’ particular location within the U.S. immediately takes on significance for one simple reason. When it comes to international trade and trade assistance, no two states are alike. Few SMEs take these regional facts into consideration but could benefit greatly by learning more about the international activities and programs of their home states.

State Data Is Difficult To Obtain

The typical SME has ample national information available to it. It is easy to find government sources that together provide a wide array of domestic national and state information, from wages and employment to income and sales. It is also pretty simple to find U.S. international information. The government publishes a wide variety of data and analysis about immigration, imports, exports, capital flows, exchange rates, and more.

But what is more difficult is locating information about state international transactions. It is tedious, costly, or next to impossible to find information about many of the above international transactions for a given state or group of states.

How many workers produce exports in Louisiana? How many foreign born workers in Florida are from Argentina and Brazil? What is the value of the business services exported from New York? Can I get an accurate accounting of agricultural exports in Kansas? How much business services does North Carolina import?

Why State Data Is Essential

Why would a company want these kinds of state-oriented data on international transactions? There are several reasons why any company should be interested. First, international trade is becoming more important. If other companies in your state are engaged in more international business, then you might want to know why.

Second, international threats and opportunities are a constant source of change in the business environment. Because of the special supply chain that typifies your state, the impacts in your area may differ significantly from those in other states. To be well informed, you need to know what is going on around you.

Third, state governments have international policy tools that complement or sometimes may substitute or compete with national programs. A business doing international deals needs to know what its state is doing to promote trade.

Fourth, not all states are equal when it comes to assisting internationally-minded businesses. Knowing what other states do is important. A company that sees better support and opportunities in other states can lobby its state government, and failing a good resolution, can always locate to a more supportive place.

What You Can and Can’t Learn

Knowing what you can and can’t learn about a state’s international transactions is equally important. You can find information about a state’s manufacturing exports relatively easily. The U.S. Census publishes state level information for each state’s manufactured exports. This data is very rich, with breakdowns by country destination and industry. You can get monthly or quarterly data, and you can choose between data that is organized by North American International Classification (formerly Standard Industrial Code, SIC Code) industries or by Schedule B Commodity codes.

These sources of data for a state’s manufactured exports can be useful for seeing growth patterns in exports of, for example, pharmaceuticals. You can see how fast your state’s pharmaceuticals exports are growing by country. And you can compare your state’s growth to another state or to the nation.

One weakness in this data is its inability to measure “indirect” exports. For example, if you live in a state that produces steering wheels and some of those steering wheels are assembled into automobiles in another state, you might never know how many of your steering wheels are being shipped to foreign countries. Your steering wheels are indirect exports, but the government statistics are silent about that.

A second problem with the measurement of manufactured exports at state level is that some goods get commingled with others at ports. This problem is especially significant for very homogeneous products that are often stored at ports before being shipped. This means that these products lose their “state identities” and gain the identity of the state of the port of exit. This problem arises because the last party to ship the goods incorrectly completes a form called a Shippers Export Declaration Form (SED).

This form asks for the address of the shipper, as well as the state from which the majority of the value of the item was produced. The last shipper may simply put his own address and state on this form. Thus, states that have a major port often get credited for more exports than they really produce. Other states are credited less.

This problem is especially important for agricultural products. For example, while the U.S. Census Bureau reported Indiana agricultural exports in 2000 to be $289 million, our estimates suggest a range of between $700 million and $3 billion.

State Service Export Data Vital

We all know a preponderance of U.S. employment and a majority of output are classified as services. Plus, manufacturing has become a smaller share of U.S. business for many decades. While most U.S. trade is in manufactured goods, it is also true that trade in services is growing—and at a much faster pace than manufactured goods.

Although we have a large trade deficit in goods, the U.S. has a surplus in services trade. As such, the whole issue of outsourcing relates to the importing or exporting of business services. But the truth is that we know little about the state origins of business and personal services exports.

Even though the U.S. government publishes data at the national level, it publishes no information about the state breakdown. This means we are in virtual information darkness when a state’s firms sell any of the following services to foreigners: shipping, travel, insurance, banking, recreation, entertainment warehousing, health, education and various specific business services (e.g. accounting, consulting, drafting).

If there are regional patterns of change that present international opportunities or threats to specific states, we are unable to find out about them through regularly published official data.

Exports and Employment

The U.S. government used to publish periodic special reports about exports and export-related employment in states. These reports, based on the Census of Manufacturing, were discontinued several years ago.

By studying the production and sales relations of many companies, the Census Department was able to identify the relationship between export sales and export employment. They also made separate estimates of direct manufacturing employment and supporting employment, where the latter included estimates of employment necessary to support the export of a directly exported good (e.g. shipping, warehousing, advertising).

Discontinuing these reports means that anyone interested in understanding more about how much of the state’s labor force is involved with an export supply chain must do the original work himself.

Information on Imports Missing

If you are interested in the number of immigrants, foreign-born persons or U.S. subsidiaries of foreign companies in your state, this information is available, but well concealed in various places in the U.S. Department of Labor and U.S. Department of Commerce. But what you can’t find anywhere are any state breakdown of imports.

The U.S. government makes no attempt to track and publish where goods or services go when they enter the U.S. If, for example, you are sensing more foreign competition for a particular local industry in your state, you have to use your own research time and effort to find out where it is coming from.

Information Is Power

The upshot of this: we identify with states. We mostly live and work in one state, and likely compete in several states. But as of today, we have very little regularly published information about the international economic activities and international policies of our own state or others. We need more information to make sound business decisions. And we need to know if our state governments have the best knowledge about current international changes and opportunities. This kind of information will help us to know if our states are doing the best they can to offer business services and assistance that will support the most conducive environment for international growth and change.

Lifelong Worker Education is the Right Response to Globalization

Published on Monday, November 01, 2004

We are witnessing one of the greatest periods of transformation in history. The convergence of powerful technological, political, economic and cultural forces are shaping the 21st century. For many manufacturers and workers, adapting to this reality is proving difficult—but necessary.

Technological advances in microelectronics, computers, telecommunications, biotechnology and other fields are changing the way we live and work. The fall of Communism, which added one-third of humanity to the capitalistic ranks, is sharply boosting global competition and creating new markets.

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Money Laundering, Terrorism and Global Business: How To Protect Your Company and Country

Published on Monday, November 01, 2004

Since September 11, 2001, the U.S. government has significantly increased efforts to combat illegal financial operations and money laundering. With the passage of the U.S.A. Patriot Act and new legal requirements financial institutions must follow, money laundering is fiercely being fought. This effort is not only attempting to curtail criminal activity, but is working to disarm and deter terrorist organizations.

But what does this mean for businesses and the world economy? What kind of businesses are most at risk? And how can companies protect themselves against money laundering? To answer these questions it is first necessary to understand the size and scope of money laundering and how this illegal activity occurs.

Money Laundering Is Complex

In short, money laundering occurs when individuals or organizations seek to disguise or place illegally obtained funds in the stream of legitimate commerce and finance. Most commonly associated with illegal arms sales, smuggling, and the activities of organized crime, such as prostitution and drug trafficking, money laundering also often lies at the heart of embezzlement, computer fraud schemes and insider trading.

For example, when criminal activities produce large profits, those involved must look for ways to control the funds generated without drawing attention to themselves. This is usually achieved by disguising the sources, changing the form of the funds (i.e. from cash to money orders or traveler’s checks) or by moving the funds to a location where they will draw the least attention.

Traditionally, money launderers have targeted banks, since banks accept cash and facilitate domestic and international funds transfers. However, the U.S. securities market may be a growing target of criminals looking to hide and move illicit funds.

The Scope and Size

Anyway one looks at it, money laundering is a significant problem—in terms of size and scope. According to the Organisation for Economic Co-operation and Development (OECD), money laundering could equal two to five percent of the world’s gross domestic product, and based on 1996 statistics, money laundering ranges from $590 billion to $1.5 trillion. The smaller number is roughly equivalent to the value of the total output of an economy the size of Spain!

How Is Money Laundered?

After the funds are generated, the first stage of money laundering takes place when the launderer places his illegal proceeds into the financial system. This is usually accomplished by breaking up large amounts of cash into smaller sums and then depositing those less conspicuous amounts into bank accounts. Or, the cash is used to purchase a number of smaller monetary instruments that are then, in turn, deposited into bank accounts.

The second stage of money laundering is to convert or move the funds after they have been deposited into the financial system. For instance, the launderer may choose to convert the funds to investment instruments or wire them through a series of bank accounts across the globe. Another way to move the illegal funds is to disguise them as legitimate payments for goods or services.

After the second phase is complete, the final stage occurs. Referred to as integration, this involves re-entering the funds into the legitimate economy. At this point, many criminals choose to invest the funds into real estate or business ventures.

Effect of Money Laundering on Businesses and Society

Financial institutions are leading the way in the fight against money laundering. These institutions recognize the potential macroeconomic consequences and damage that could occur in their industry. They also understand the effect money laundering can have on publicly and privately held companies, regulatory authorities, capital flows, exchange rates, and international trade, as well as on national economies and workforces.

Money laundering also has steep social and political costs. If organized crime is allowed to infiltrate financial institutions, gain control of large sectors of the economy via investment, or even bribe public officials and governments, a country’s entire society, ethics and social framework could be at risk.

Protecting Your Business

A company’s first and most important step is to establish sound anti-money laundering policies and procedures across the board. For starters, this means placing an emphasis on “knowing your customer.”

Imperative to the success of an anti-money laundering effort is the full support of senior management and all employees. In fact, compliance to anti-money laundering policies and procedures should be part of a company’s code of ethics or basic employment standards/expectations. In addition, non-compliance with anti-money laundering strategies could be sufficient cause for employee dismissal.

A very clear anti-money laundering training program and a commitment to on-going training are two additional necessities. All employees who have customer contact (directly or indirectly) or who have occasion to see or handle customer transactions and activity, should be required to take the training, including all new hires. Furthermore, a policy should be in place that states what form of annual training will be given and who will take it.

Very importantly, the company needs to be concerned about protecting against fraud, money laundering and reputation risk, as well ensuring compliance with laws and regulations.

Ignorance Is No Excuse

Any company, knowingly or unknowingly, that facilitates the exchange of ill-gotten goods for legitimate assets may be vulnerable to money laundering charges. And, any company that provides a way to move dirty money from one source to another, or to many other end points is highly susceptible to money laundering charges. Consequently, almost any company, financial institution or organization can be a potential candidate for fraud.

Another concern is doing business with companies who either operate out of countries known for their high risk of money laundering or who are from countries known as “tax haven” countries.

Yet, not all companies operating in high risk lines of business or countries considered high risk need to be shunned. If they have the appropriate controls in place to ?“know their customers” and detect, deter and report unusual or suspicious transactions, they should be considered normal risk companies.

Legitimate companies also must be aware that if they become investment recipients of laundered money, knowingly or unknowingly, their assets may be confiscated by the authorities. In addition, the public relations damage can be disastrous. And, since a corporation’s reputation and integrity can be among its strongest assets, protecting them is imperative.

Impact of the Internet

Over the years, sophisticated criminal organizations have leveraged the accessibility, speed and relative anonymity of the internet and web-based financial programs to better perform and hide their money laundering activities. In fact, instead of having to run the risk of physically transporting currency gained from illegal operations out of a country, criminals often now are concealing the currency by transforming it into a digital format. This way, dirty money is unable to be distinguished from legal currency.

On a positive note, the internet also is being used by banks, law enforcement and other interested parties as an investigative tool for research of people, companies, transactions and countries.

A Joint International Effort

Today’s global fight against money laundering includes a combined effort involving the U.S. government and several international institutions. Without a doubt, money laundering is an international problem that affects virtually every country. And to protect your company, you must be especially vigilant.

Midline Managers Must Look Higher and Go Deeper

Published on Friday, October 01, 2004

How’s the pace of your business? Most leaders would respond with the word "Accelerating." "Too much to do" is a universal complaint. Leaders find ourselves constantly trying to squeeze out slices of incremental work. So much to be accomplished.

Speed encourages leaders to move quickly along a midline path, to scramble to react to developing situations, to be available to people’s requests and needs, and to try to keep up with ever-deepening piles of work to be done. Technology also encourages this. We can be connected to work 24/7.

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