Chapter 2: Resource Allocation The essence of a strategic approach to export promotion is to allocate resources so as to maximize goals. In this era of fiscal constraint, government must spend its limited funds wisely. That means that the government must: o Allocate its resources strategically, through a unified budget process, to activities that will return the greatest benefit to the US economy; o Deploy resources to those areas of the world where the demand for US goods and services is increasing, and to those sectors which are best positioned to exploit new opportunities; and o Create performance measures, and constantly measure performance to make sure that export promotion programs are effective and efficient. Regrettably, the export promotion programs of the US government have not been initiated or constructed around the single goal of export promotion. They never have been subject to a single cross-cutting budgetary review that would clearly ask which programs deserve more or less funding -- or none at all. Instead, programs have been established at different times, in response to different concerns, and housed in different agencies. Recently, the General Accounting Office specifically criticized the lack of an export promotion budget: . . . although the US government devotes significant funds to export promotion programs, the programs are not funded on the basis of any government-wide strategy or set of priorities. That must change. As the Vice President explained earlier this month when he unveiled the National Performance Review, We must develop budgets based on outcomes. And Congress has demanded change. The Export Enhancement Act requires the TPCC to create a unified budget for export promotion for the federal government that will be consistent with priorities established by the TPCC export promotion strategy. In addition, the government never has attempted comprehensively to prioritize resource allocation by geographic target markets, or by different industrial sectors. This is needed to determine where the US government can make the biggest difference. The highest priorities may not necessarily be the largest potential markets for US exporters, or the most likely industry sectors to increase exports over the coming years, or those countries which are currently the largest importers of US goods, or those companies which are now our largest exporters. As in the budget context, some US export industries -- and some regions, countries, and types of firms (especially large ones) -- are better served by private export promotion activities than others, so fewer government resources may be needed for promotion. In other words, government should focus its efforts on activities that would otherwise go unsupported by the private sector. It is not the best use of federal resources to engage in activities that, absent governmental action, would be carried out by the private sector. Rather, the government should carefully consider whether its programs provide the most bang for the buck. In establishing priorities, the Administration should consider the following: o The expected increase in the dollar volume of exports. o The expected increase in the number of export-related jobs. o The expected increase in the number of firms exporting. o The extent to which successful exports will establish a long-term presence in the market. o The existence of spillover benefits to other sectors from the increased export activity. o The extent to which successful exporting will bestow technological advantage on the United States. It has been argued by some, for example, that exports of certain US industries may have more strategic value than others (e.g., computers, software). Some industries have been called the industries of the future (e.g., biotechnology) and are considered building blocks or markets for a whole range of other industries (semi-conductors, consumer electronics). Others may have stronger linkages providing markets for other industries (e.g., autos, aerospace, and chemicals). In the geographic context, "prioritizing" means that we must carefully assess the potential of, for example, the emerging markets of Southern Asia and South America, which have explosive growth rates and rapidly rising standards of living. These are the kind of issues that will be further explored by the unified budget process coordinated with OMB, the National Economic Council, and TPCC in the FY 1995 budget cycle. Resource deployment does not, of course, require that some areas receive all of the available resources, while other markets for US exports receive none. A balanced approach, seeking to maximize export sales over the longer run, may require diversification, much in the same manner that a private investor would maintain a mixed portfolio to secure the greatest overall return on investment. Finally, government must measure performance, not just activities but results. In the past, export promotion programs either have been judged by the number of activities (e.g., meetings held, contacts made, documents delivered) or not at all. A failure to evaluate properly may mask failure, cloud the fact that government programs are not necessary to fill a gap in the activities of the private sector, or obscure the means by which a program can be improved. By contrast, well-crafted performance measures permit a strategic vision to be realized by: o Strengthening management accountability. o Ensuring common objectives and priorities. o Assessing results accurately. The creation of performance measures is not simple. The link between the export service provided and the outcome obtained can be difficult to measure. That is especially true when intervening macroeconomic events, such as the fluctuation of currency exchange rates, may be the dominant explanation for shifting patterns of trade. Nonetheless, the existence of other factors need not lead to performance measures that focus only on the quantity, but not the quality, of government action. In creating performance measures, therefore, the TPCC must focus on the specific results of investing government resources and the linkage between government action and export success. Three kinds of performance measures deserve particular attention: Microeconomic Impact: For example, what specific results did the client get in terms of export orders or the number of new markets successfully entered? Demonstrable Impact on US Exporters: Did the program facilitate private firms in increasing exports? For example, did the program lead an exporter to begin to market overseas, even if orders have not yet been received? Product/Service Quality: Was the client satisfied with the timeliness, accuracy, and quality of the service provided? GOALS 1. Create a unified, cross-cutting trade promotion budget beginning with the FY 1995 budget. 2. Develop a process to set geographic and sectoral priorities, which will inform the budget process. 3. Develop performance measures for all export promotion programs, which also will inform the budget process and guide management decisions. RECOMMENDATIONS/ACTIONS 1. Create a unified budget for export promotion in FY 1995. o A TPCC budget group has been formed, and key agencies have agreed to work together to develop a budget cross-cut. o OMB, the National Economic Council, and the TPCC will each play key roles in the agreed-upon process: a. The TPCC, working with OMB, will collect information regarding all existing export promotion programs and current resource allocation. They will analyze and evaluate programs. The results of this process will be used to set trade promotion priorities. b. An NEC interagency group will make basic policy decisions concerning trade promotion priorities. Such priorities might include regions of the world to emphasize, sectors of the US economy to highlight, and types of export promotion activities to encourage. This interagency group also will seek to ensure that trade promotion policy is well- integrated with the US government's overall trade policy. 1/ (Footnote 1: The integration of trade policy and export promotion initiatives is especially critical. For example, whenever the US government is able to lower a tariff or nontariff barrier in a target market, export promotion efforts will be directed toward maximizing US exports to that country, to take maximum advantage of the new environment. USTR and Commerce will work closely together to achieve this objective.) c. The recommendations of the NEC interagency group will inform the regular budget process of OMB. This process will produce a unified trade promotion budget that reflects the priorities set by the interagency group. d. The budget cross-cut will detail categories of export promotion activities and geographic focus across agencies. The cross-cutting budget process will be based on the Federal Coordinating Council for Science, Engineering, and Technology (FCCSET) model. A preliminary FY 1993 budget cross cut is being prepared, although information was incomplete at the time of publication of this report. This will be refined over the next month, in preparation for the FY 1995 budget cross-cut process. 2. Complete by December 31, 1993, an analysis of the current expenditures of US export promotion efforts by geographic and industrial sectors. The TPCC will develop criteria, guided by the NEC working group, to be used by each agency to help deploy resources in a manner consistent with the strategic plan. 3. OMB will chair a TPCC performance measurement coordinating network to: o Devise uniform performance measures for export promotion programs. o Evaluate export promotion activities by geographic area and industrial sector rather than by government agency. o Develop a consolidated TPCC semi-annual performance report. o Ensure that agencies carry out the required performance measures.