Thursday, April 19, 2018
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Trade missions: good policy or just good politics?

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Gov. Tim Pawlenty is leading 218 delegates on a trade mission to China. The seven-day trip includes events in Beijing, Shanghai, and Hong Kong. Some wonder whether such trade trips are more flash than substance. (MPR Graphic/Jeff Horwich)
Friday night Governor Tim Pawlenty leads more than 200 Minnesotans on the third and largest trade mission of his administration. It is also the biggest trade mission ever sent to by a U.S. state to China. Pawlenty is hardly alone. In the past two years, at least 15 other states have sent trade delegations to China. California Governor Arnold Schwarzenegger leads another mission next week. Trade missions are popular with politicians, and heavily covered by the news media. But are they also helpful for the state's economy?

St. Paul, Minn. — There's not much question trade missions are great photo opportunities for both the politicians and businesses involved. This was perhaps never more true than with former Gov. Ventura, whose celebrity status brought massive media attention to his missions to Mexico and Asia.

Gov. Pawlenty has led more modest trade trips so far, to Canada and Eastern Europe. Both showcased the governor promoting Minnesota companies and their exports, touring cultural sites, and shaking hands with local officials. Tomorrow's China trip will be more of the same, though on a much grander scale.

The economic purpose of a trade mission, of course, is more trade. Tim Wilkinson studies economic development at the University of Akron, and is one of the few people to research the value of state trade missions.

"I've looked at various export promotion activities, and [whether] they increase exports," Wilkinson says. "There's not a lot of evidence that they have that impact. However, that doesn't mean that they're not effective."

Wilkinson says some strategies for promoting trade are more immediately effective than others. He says state-sponsored international trade shows, for instance, where companies display their wares, are statistically linked to an uptick in deals done and goods sold.

"Trade shows are designed for people that are ready to do business, who are ready to actually sell their products. Whereas trade missions -- at least what we see as the ideal use of trade missions -- it's more for companies that are just becoming involved in international markets," Wilkinson says.

On the governor's trade mission, most companies have little or no experience with China. The insight they gather and relationships they build could take years to turn into new business. Wilkinson says this situation makes the results of the trips hard to quantify.

Experts say building business in China can take an especially long time. That was a key message last month at a pre-mission briefing at the headquarters of Best Buy in Richfield. As delegates applied their chopsticks to a buffet lunch that one charitably described as "authentic Minnesota Chinese," they were digesting the warnings and wisdom of China experts like Shanghai-based consultant Kent Kedl.

"You're not going to meet the person of your dreams here, the partner of your dreams -- you're not going to do that," says Kedl, executive director of Technomic Asia. "You're going to meet someone who introduces you to someone, to someone, to someone, to someone. Success in China is a long, long process."

You're going to meet someone who introduces you to someone, to someone, to someone... Success in China is a long, long process.
- Kent Kedl, Technomic Asia

While Kedl is convinced trade missions give companies a good start, international business consultant Jock O'Connell says in his experience the trips are more effective politically than economically -- describing them as mostly "schlock and awe."

"There is a very large credibility problem with these gubernatorial junkets that doesn't seem to be recognized very often," says the former economic development advisor to the state of California, who continues to write and run his consultancy in Sacramento.

O'Connell says politicians invented trade missions in the 1980s, eager to be seen doing something about the growing U.S. trade deficit. "Since then it's become more or less an obligation for a state governor to lead one or two trade missions to satisfy a public expectation," he says. "Unfortunately there is very little evidence that these trade missions result in any tangible accomplishments."

O'Connell believes the presence of governors in the process distorts the international commerce that would occur naturally. As he puts it, "business is the business of business, not the business of the governor."

"If you're serious about doing business, especially in a country like China, you come on your own. You establish contacts. You don't have to have [the] chief executive of your state kick down some doors for you," O'Connell says.

Others say trade missions provide opportunities that might not be available otherwise.

"You just don't knock on the door as Average Joe Citizen and say, 'Hi, I'm from Minnesota, I'd like to talk to these government officials, I've got some questions for them,'" says Rich Weiner, an attorney with the Minneapolis corporate law firm of Fredrickson and Byron. This will mark his fourth Minnesota trade mission, but his first visit to China.

Weiner says his clients demand that he go, precisely because traveling with a governor can grant unique access, especially in a state-controlled economy. "I have sets of questions from different companies in the Midwest -- companies that are already doing business in China, that are thinking about doing business in China -- that want me to get answers right from the source," he says.

Governor Pawlenty's trade mission last year to Poland and the Czech Republic also focused on economies still dealing with legacies of central control. Brad Beale went on the trip representing Minneapolis-based Comtrol Corporation, which makes systems for networking devices and computer systems.

"We are a global company, but we are small global company," Beale says. "And we would not have been able to get meetings with officials, be it the Chamber of Commerce, ambassadors and people like that. We wouldn't be able to meet these people on our own."

Comtrol closed its first big business deal in Poland within a year of the governor's mission. Beale says he was introduced to the Polish customer in a one-on-one meeting arranged for him as part of the trip.

Much of what happens on Minnesota trade missions happens off the official agenda, and away from the governor. Beale chose to pack his days in Poland with extra meetings. "From my perspective it was a miserable trip because I got to do no sightseeing," he says. "But it was very successful from a business perspective."

Attorney and trade veteran Rich Weiner says it is possible to follow a less rigorous agenda. But few business delegates do. "Sometimes you hear, 'Oh, you went shopping one day, and sightseeing one day.' It would be nice to think we do that. But especially with Governor Pawlenty, he is 'boom, boom, boom, boom.' It's exhausting, 12 to 14-hour days. It's just meeting, meeting, meeting. There's no fooling around."

Even if the flurry of activity and connections is good for business, it may be of questionable value to the state. China's relatively cheap labor, for example, raises the spectre of companies going on the trip with an eye toward moving jobs overseas.

One company considering manufacturing in China is SJE Rhombus, a Detroit Lakes maker of parts for the water treatment industry. CEO Laurie Lewandowski says many of her company's customers manufacture in China, and have suggested it would be more efficient if she did so as well.

She says the idea is still in early stages, and the Chinese jobs it would create are jobs the employee-owned company would have a hard time filling in Detroit Lakes.

"We're in a rural area where maybe four years ago we had a really hard time finding employees," Lewandowski says. "We know that the trend is for there to be less people for us to bring into our business on the manufacturing side."

State officials say on the whole, and over time, the relationships engendered by the trade mission will be a boon to Minnesota. Minnesota Trade Office Director Tony Lorusso says beyond the companies involved, there is an incalculable benefit from drawing Minnesotans' attention to the world's emerging economic powerhouse.

"I don't know how to measure that in terms of financial impact, or whether the $100,000 we're putting toward this as a state is meaningful or not," Lorusso says. "But I happen to believe in my heart that it is, or I wouldn't be spending 16 hours a day, seven days a week to put together a mission like this."

There's also the possible long-term benefit of exposing more Chinese people to Minnesota. The trip may lead some Chinese companies to consider expanding here, but developments on this front could also be slow and difficult to trace. As Lorusso suggests, at the heart of any trade mission is a certain amount of faith.