Human Stories with Karyn Page and Kimberly Benson
May 22, 2019
Scott Miller: I'm Scott.
Bill Reinsch: I'm Bill.
Scott Miller: And we're The Trade Guys.
Bill Reinsch: And we're The Trade Guys.
Andrew Schwartz: You're listening to The Trade Guys, a podcast produced by CSIS, where we talk about trade in terms that everyone can understand. I'm H. Andrew Schwartz and I'm here with Scott Miller and Bill Reinsch, the CSI Trade Guys.
Scott Miller: In this episode The Trade Guys welcome two special guests who represent medium and small-size businesses. Karen Page is the CEO of Kansas Global Trade Services, which helps companies and cities reach a global audience.
Scott Miller: We met Karen at one of our live shows earlier this year and we could not wait to have her on. We are also excited to welcome Kimberly Benson, who heads an export management and advisory firm in Santa Fe called Zenaida Global. Kimberly is the primary vice chair of the Industry Trade Advisory Committee on Small and Minority Businesses, or ITAC 9.
Scott Miller: So how does international trade affect small and medium-size businesses? How is the administration's trade agenda affecting our guests? We'll discuss that and much more on this episode of The Trade Guys.
Bill Reinsch: Welcome to The Trade Guys, everybody. I'm Trade Guy Number Two, Bill Reinsch. Our chaperone, Andrew Schwartz is not with us today. We're not, however, on our own, because we also have two guests, which I'm very excited about. We've been looking forward to this one for a long time. We had to wait for them to come into town for other reasons.
Bill Reinsch: And our guests today are Kim Benson, who is the president of Zenaida Global, which is an export management and advisory firm based in Rancho Santa Fe, California. In 2007 she was appointed by the US Trade Representative and the Secretary of Commerce to serve on the ITAC, the Industry Trade Advisory Committee, in this case, number nine, for small and minority business. And that's why she's in town, because the ITAC's having a meeting and she's serving currently as the committee's primary vice chair. Sounds like the committee has a lot of titles. How many vice chairs are there?
Kim Benson: Well, we usually have two.
Bill Reinsch: Okay. And the chair. Which is what we're getting to next. Karen Page is the president and CEO of Kansas Global, a full-service trade advisory firm helping companies and cities leverage their capabilities and global reach. And she's the chair of ITAC number nine.
Bill Reinsch: So welcome to both of you
Kim Benson: Thank you.
Karen Page: Thank you.
Bill Reinsch: We're both glad you're here. Usually we talk about the events of the week, and last week was a momentous one on trade, so we may get there. But we want to take advantage of your expertise. So maybe we can begin by telling us a little bit about what you guys do as essentially trade facilitators, and what kind of work you have, and how's the trading system treating you these days?
Karen Page: Kim, you want to take it?
Kim Benson: Sure, happy to. Well, in my case, I've had well over 25 years of experience in international business. I'm currently running a small company in San Diego that serves as an export department for US companies. And in that realm I'm involved in products and services. So on the product side, of course, any of our clients that are engaged with sourcing products from China or exporting to China are affected, obviously, by the tariffs.
Kim Benson: But I also spend a good deal of energy and time these days selling services into Middle East. So I'm able, somewhat, to avoid the tariffs and the complications.
Bill Reinsch: So what do you actually do? You make contact with prospective buyers on behalf of clients?
Kim Benson: Yes. For example, with my airport client, it's a client in, airport in, southern California. They are looking to increase their private jet traffic. So my job is to go over to the Middle East regularly, get that-
Bill Reinsch: Oh, I see.
Kim Benson: ... get those private charter jet flights into the airport, or diplomatic flights or VIP flights into that airport. And that becomes, quote/unquote "the export of the service."
Bill Reinsch: Right. We've talked about services before and-
Scott Miller: Fascinating, that's a-
Bill Reinsch: That is a service.
Scott Miller: That is a service that's exported, and it's a unique kind.
Kim Benson: Yes.
Scott Miller: That you're providing there, so ... Now, Karen, you have Kansas in the name, but I notice you're a .org and not a .gov. So tell us about your firm and what you do?
Karen Page: We are .org. We actually started out as a World Trade Center, and in 2012 we stopped being a World Trade Center. Wasn't a good business model fit for us. So what we do is we help, primarily Kansas companies, export and import. Our whole [inaudible 00:04:32] is on educated and professional crowd and international trade. We help companies internationalize.
Scott Miller: Got it.
Karen Page: Most of the companies are in Kansas, but we do have clients outside. And we really try to make sure that the company is well connected. So we built an ecosystem that supports exporters in the state of Kansas, with public and private sector resources. And then we make sure we connect the companies to those resources, so-
Scott Miller: Kansas is well-known as a farm state, but also Wichita is famous for its expertise in aviation.
Karen Page: Yes.
Scott Miller: So what else is involved? Who are some of the other firms or industries that are part of your business plan?
Karen Page: So that's a really great question. A lot of people are familiar with us as being farm country, but it's really aerospace country. It's one of the five aerospace clusters in the world. So within a hundred mile ... Probably actually much less, radius, of the city of Wichita, we have over 350 aerospace suppliers. So people who concentrate on building aerostructures in particular.
Karen Page: So the aerospace industry actually makes up more than half of the total exports coming from Wichita Metro area. And the Wichita Metro makes up almost half of the state's total exports. So it's a big exporter.
Bill Reinsch: So how did that happen? I mean, this is a study in location economics, I think. Is this a case where one or two came and then all the rest of them-
Karen Page: Yes.
Bill Reinsch: ... congregated?
Karen Page: Yeah, so we used to have Boeing Commercial and Boeing Defense, but we have a couple of companies you might have heard of, Cessna Aircraft Company-
Bill Reinsch: Heard of them, yes.
Karen Page: Beechcraft and Learjet.
Scott Miller: So way back there were some inventors, who actually created [crosstalk 00:06:10]-
Karen Page: 80 to a hundred years ago, yeah.
Scott Miller: Yeah, right.
Karen Page: And there's a debate on how that actually happened, and I will tell you it happened, in my opinion, organically. It developed, the aerospace industry developed organically from folks who had capital. From folks who were innovators and folks who really understood flight and engineering. And you put all those together and you get aerospace companies.
Bill Reinsch: Oh, this is interesting, because we're doing some other work on this hear at CSIS. Was there any government role? Did the municipal government, or the state government, have anything to do with it? Or did they just watch as it happened?
Karen Page: The local government in particular has been a great partner to the aerospace industry. You know, were they part of the conception of the aerospace industry? I don't really know. But I'm sure not. But as the companies are expanding or as they're needing workforce or as they're looking at getting enough water to build aircraft, they're working with the local government.
Karen Page: So I think that definitely a partner in the 80 to a hundred years' history.
Scott Miller: It's amazing, these geographic areas of expertise are quite remarkable. Quite durable, I mean, whether it's the Motor City, or Silicon Valley. I mean, these things have a reason for being there. And a lot of the reason is you make something that's quite complicated. Complicated manufacturing requires coordination. And up until very recently, coordination required face-to-face interaction.
Scott Miller: And so being close to your customers was an essential element of being an effective supplier. So these nodes ... It's one of the more interesting things to me about American commercial geography, is finding these things and trying to understand them better. But I hope our readers will think differently about Wichita in the future, our listeners, if they didn't know that already.
Scott Miller: But before we go on, could you talk to the audience about what the ITAC is? That this is actually a committee, an advisory committee, created by a statute, and operates under official US Government imprimatur. So talk about where the ITACs came from, and what your role is in advising the government?
Karen Page: The way I often explain it is, ITAC is a partnership between the private sector and the US Trade Reps Office, as well as US DoC, Department of Commerce. And is fairly unique. So our job as ITAC advisors is to voluntarily give advice to the trade negotiators that represents our constituency, in our case, ITAC 9 is small, medium and minority business.
Karen Page: And so there's some things that we have to do by statute. For example, US MCA, so once a free trade agreement is negotiated, once it's announced that it's finished we have 30 days to provide a statutory report. But we also voluntarily provide letters of recommendation, or priority letters, or opinion letters, I suppose, is a good way to put it, on a number of US trade actions.
Bill Reinsch: So the key question is, does anybody pay attention to your advice?
Kim Benson: I'd love to answer that. When I first started getting involved in ITAC, I got what I think was some very good advice, which was, "Go ahead and give input, and just recognize that sometimes whatever administration will pay attention and sometimes they won't." And you sometimes won't know for years. As we all know, with trade policy, we won't know for years whether the advice or input was taken.
Bill Reinsch: When I was in the government, I was on the opposite side of this, I was the Undersecretary of Commerce, and I had ITACs that reported to my bureau. And I occasionally would go to some of the meetings, and I found them very helpful. I think our technical people found them very helpful. In my case, these were people that, a lot of engineers who wanted to talk about the characteristics of new products, because we were controlling them. It was a little bit different than the purpose of your ITAC.
Bill Reinsch: But the committees functioned in the same way. They were providing advice. I think what I learned from the companies, and maybe you can tell me that this is right or wrong in your experience, was the ones that came in, or were the individuals, that came in trying to reform the whole system and turn everything upside down, didn't get very far. But the ones that understood that their role really was incremental, and to suggest that, "Maybe you should do this a different way", "Here's something you should look at that you haven't looked at", ended up having a lot of success and a lot of impact, as long as they understood sort of the inherent limitations of the system that they were part of.
Karen Page: I agree. Since we're all volunteers, and even the leadership is voluntary, so we're elected, so Kim and I have been elected by the ITAC 9 committee members. As the chair, I have made it part of my platform that each time that we criticize we also try to come up with a solution. And so by the very nature of us saying, "We have an issue with this" or "This is maybe having a negative impact on small, medium and minority businesses", but we also make a commitment to try to provide a suggested solution. Then just by nature of doing that, by making that commitment, we're doing incremental work.
Karen Page: But I have to say that, in the 13 years that I've been doing this, I experienced something similar to Kim. It's quite overwhelming at first, when you first come on. There's no orientation or onboarding process, so you just kind of find your way. Or someone mentors you or coaches you. But over this period of time, I think we've seen some pretty phenomenal movements forward.
Karen Page: So for example, we now have a small business negotiator. When I started, we didn't ... When we started, when Kim and I started, we didn't have Christina Sevilla with USTR, who represents small, medium and minority business across all platforms. We didn't have small business chapters. There wasn't mention of the needs of small businesses in the government procurement chapter of the new free trade agreement.
Karen Page: So those are very significant movements forward for our committee work. And things that we've all worked on, requested, over time. We had to wait.
Scott Miller: That's a big step forward. And of course, the number of small traders seems to be growing exponentially. I think certainly digital commerce has benefited sort of one and two and really microfirms, and gotten people who were trading on eBay to have international customers. So this seems like an amazing growth area for trade policy, given that 30 years ago we thought about ... You had to be big to trade. You had to be big to be able to hire a customs broker or a freight forwarder or have some foreign office operation to be able to settle the contract terms.
Scott Miller: And now, this is all part of the digital space, and the scale has changed dramatically. Are you finding that in your ... Are you hearing that from your members?
Kim Benson: Oh, absolutely. I think ... I love the term micromultinational, which I think it really describes a lot-
PART 1 OF 3 ENDS [00:13:04]
Barbara: I love the term micro-multinational, which I think really describes a lot of companies now, and it also underscores the fact that the issues and the challenges of a small company would also be the same as for the large ones, generally speaking, although 98% of the people doing trade now are in the small business realm. So, I agree.
Scott Miller: With posse changes like de minimis particularly important to your small business clients and other advisors on the committee, what are some of the things that you look at in that area from a policy standpoint that are particularly important?
Speaker 1: Yes, and you know the de minimis issue is something your committee has been working on for a number of years, and we have made some headway in the USMCA, where they raised the de minimis levels quite significantly. But it's only for express shipments. We actually asked for all shipments.
Scott Miller: Now, this is a point where Andrew would coach Bill and I to tell the audience what de minimis is, instead of using a term that's somewhat foreign. De minimis is basically the dollar value of the export or import, under which the customs authorities essentially don't pay any attention to it. Is that a fair summary of it?
Speaker 1: Yes. That's fair. Absolutely.
Scott Miller: Where was is in the US and where is it now for US customs?
Barbara: We had asked for a higher de minimis I think of 2500-
Speaker 1: We asked for 2500.
Barbara: ... but we got [crosstalk 00:14:29].
Speaker 1: It's currently 800 now.
Bill Reinsch: It's 800 now, but it used to be, what, 200?
Barbara: 200, right, right.
Bill Reinsch: I think, yeah.
Scott Miller: So the move from 200 to 800-
Speaker 1: It's a big help.
Scott Miller: ... is really important-
Scott Miller: ... if you're a small retailer, with customers, say, in one foreign country.
Barbara: Jewelry or something, yeah.
Scott Miller: [crosstalk 00:14:42] or something like that. All right? The most important aspect of it is not only is your paperwork streamlined, but one of the very common practices in retailing, you have to have good returns policy to be a retailer, and the returns basically simplify life for your customer, who also has to deal with customs on the return if it is above the de minimis threshold.
Speaker 1: Right. And you're making some important points. It's not just about the level at which you have to pay taxes and tariffs. It's also the ease of the movement.
Scott Miller: Right.
Speaker 1: So for a small business, if you do less paperwork, that's going to be a real great boon to your company if you have to spend less time doing something. I mean, more time spent on sales.
Andrew Schwartz: Yeah. There's been a backlash about this, from the security side, a concern about more stuff getting in unexamined, or unchecked. Also the fraud issues of larger things being broken down into multiple small packages in order to avoid duties. Have you run into those kinds of things? Do you think there are security issues here? And do you see, as your committee addressing the question of rumored rollbacks, that the administration might propose reducing it below 800 and going back to a smaller number?
Speaker 1: I think that's a fair question. I think it's something that needs to be examined. But is it a de minimis issue? Or is it an export control issue? And an education issue regarding export compliance?
Speaker 1: In our business at Kansas Global we do a fair amount, with all those airspace companies, we do a fair amount of export compliance consultation, where we're working really hard to make our contribution that the borders are secure, and the nation is secure. I don't see that as a de minimis issue, but as a export compliance, and a defense issue.
Scott Miller: Certainly a small package security is something, whether foreign or international, or domestic packages, that companies in the express package business spend a lot of time on and focus their systems, and are quite concerned about the routine transport of small items which we all, you know, at my house we seem to get, like, three packages a day, all small deliveries, which, if they were international packages, would be affected by the de minimis laws.
Bill Reinsch: Yes, my wife does that. She no longer shops in reality. She always shops online.
Scott Miller: It's way more convenient.
Bill Reinsch: We buy our dog food online, 50 pound bags, these enormous boxes show up. It's a real difference.
Scott Miller: As I explain to my wife, I don't shop. I buy. Shopping I find exhausting.
Speaker 1: I agree with both of you.
Scott Miller: Just, here's what I want, I'm going to buy it.
Speaker 1: Bill, you sound like my husband. He said to me a couple of years ago, "Why do we get so many shipments? And they're always heavy." And I said, "Well, I figure it's better for you to move it than me, when I buy it from the grocery store."
Scott Miller: Fine division of labor.
Speaker 1: It is, right?
Barbara: There you go.
Bill Reinsch: The real disappointed party in our house is the dog, because when I had to go buy dog food, he could go to the pet store, and pet store welcome at the pet store. So he could go in and visit with all the other dogs, and the occasional cat. And he could check out the collars and check out the dog beds, and he had a wonderful time. And now it shows up on delivery, and he doesn't get to go to Petco anymore.
Scott Miller: Well, maybe this is a good time to [crosstalk 00:18:02].
Bill Reinsch: Maybe we should turn to...
Speaker 1: A sad state of affairs.
Bill Reinsch: [crosstalk 00:18:03].
Scott Miller: I was thinking that it was a big week on trade. There was the US-China dispute which has been going on for over a year now. It seems to have gotten further from a solution rather than closer. The parties seem to be settling in. At the same time, there was finally a solution to another big irritant for many small and large members, that was the steel and aluminum Section 232 tariffs on products from Canada and Mexico, which resulted: if you weren't in that business and affected by steel or aluminum, you may have well been affected by the retaliation.
Scott Miller: So, what's been the response either from your members or your business partners, or people on the committee, to China look like it's settling in and going to be difficult to solve, but at least some things are getting resolved?
Andrew Schwartz: And the things that are getting resolved are giving a boost to USMCA I think-
Speaker 1: Yeah, I agree.
Andrew Schwartz: ... and would certainly affected retaliation, and I think, for the farmers in Kansas, the Canadian-Mexican tariffs are going to go away.
Speaker 1: Yeah, and the removal of the Section 232 aluminum is still tariffs on Canada and Mexico only.
Andrew Schwartz: Yes.
Speaker 1: But there's still out there. I think that's significant and has really, I mean, it was obviously related to USMCA, which I'm pleased with. And the farmers, it's good, but I mentioned earlier about the aerospace industries, so aircraft is made out of aluminum and steel.
Speaker 1: Also, agricultural equipment is made out of steel. So in Kansas, we're big machinery manufacturers, and equipment manufacturers, and aerospace manufacturers, so removal of the Section 232 tariffs on aluminum and steel will actually help with manufacturing input cost.
Scott Miller: That makes sense. I mean, it's kind of back to a status qu [inaudible 00:19:56], because those industries, steel and aluminum producing industries were integrated across the borders in North America before the tariffs.
Speaker 1: The only thing that could still be a problem is that it's not just Canada and Mexico that the tariffs are on.
Scott Miller: Right.
Speaker 1: And even if a company was not importing aluminum and steel, which is kind of difficult not to do, but even if they weren't intentionally doing that, the prices of aluminum and steel were increased across all areas. We had companies in Kansas tell us that it was anywhere from 12% at the beginning, before they were announced, to 40-some percent in the last time they talked to us about it a few weeks ago. So, all prices for aluminum still have increased. So that obviously affects a small business' ability to compete, as they're selling across the world.
Barbara: We have a client that is a high-end barbecue manufacturer in California, at-
Bill Reinsch: But [Barbara 00:20:49], you mean the equipment, not the [crosstalk 00:20:50].
Barbara: Yeah, equipment. Equipment. Yes.
Bill Reinsch: All right. Yeah, okay.
Barbara: They have been producing some of their line in China. Not all of it, but some. But of course, importing steel, same thing, to make their US manufactured products, that are then shipped to Europe, and now the European distributors are screaming because the products are now 25% more expensive. So, yeah, this is a new sample of a company that's being hit on all sides, right? There's no easy answer for the future for them.
Bill Reinsch: It's good to know that Europeans barbecue.
Barbara: They do! They do.
Bill Reinsch: Warms my heart.
Scott Miller: But unfortunately they barbecue European beef and pork, not American beef and pork.
Andrew Schwartz: But that's another problem.
Bill Reinsch: Certainly European chickens, and not American chickens. We've talked about chickens on this show in the past.
Speaker 1: It's interesting, the China tariffs. I actually don't have as much of an issue with the tariffs on Chinese imported products as I do with Section 232. But still small businesses are being impacted by that. There was a little company that I work with up in McPherson, Kansas, which is sort of in North Central Kansas, and expanding his company, and needed a machine, a new plastic line machine, and ordered it. It was and the water, and he got hit with the tariff. So it cost him 70,000 more, which that doesn't sound like a lot of money. It is a lot of money, but it doesn't sound as big if you're a big corporation.
Bill Reinsch: Sounds like a lot of money to me.
Speaker 1: But it means two jobs for him.
Scott Miller: Right. Yeah, that cuts into payroll.
Speaker 1: He didn't hire two people. Right.
Scott Miller: Yeah, it's one of those things. Small businesses don't have that many places to get $70,000 extra.
Speaker 1: Right. Right.
Scott Miller: You can get it from your customers if you can raise prices, which most can't. You can get it from your shareholders, if you have them, or your employees. You got [crosstalk 00:22:29] employees.
Speaker 1: In this case it was expansion, so he was buying the machine to expand his product line, so he could grow his business, so he paid the tariff, the extra $70,000 he hadn't budget for, and what happened was he didn't hire the two employees, because he had to pay the tariff. So the growth has slowed.
Scott Miller: Sure.
Speaker 1: Stymied because of the tariff.
Scott Miller: And no government statistic will ever find the two people he didn't hire, because that never gets reported.
Speaker 1: Right.
Scott Miller: It's one of the more remarkable parts of the past year, and in any case it's reassured my faith in the sophistication and ability of American supply chain managers, that, after a year of tariffs you have to squint pretty hard to find any numbers at the macro level that would indicate it's a problem. And yet, it's great to have your voice in this because everybody's business is affected. You're distracted. You're making choices, you're not making investments. You're not hiring people when you're trying to deal with the kind of difficulty, operational difficulty, that these tariffs have produced.
Scott Miller: So I think it's so important that you're still talking about this on a human level. Even if you can't find in the numbers, it matters.
Speaker 1: It does matter, because, I mean, when it comes down to it, it's humans that are making these decisions, and dealing with the consequences, negative or positive, of the tariff actions. And the small businesses, not only is it happening, they don't know who to talk to. They don't know who, where to go to find solutions. They don't know what they don't know, so they don't even know how to deal with this. For example, Kim and I were talking earlier about the product exclusion process, which is also something we monitor. We're grateful that there's a product exclusion process for the tariffs, working with the same gentleman. He's applied for an exclusion.
Speaker 1: My role has simply been to almost like act as an interpreter. And I'm not an attorney, but having had the privilege of working with USTR and USDC all these years and trade policy, I can understand their language. He is a business owner and an entrepreneur, a really smart guy, very successful, and he says to me all the time, "I'm so glad I have you because you're so smart." I'm not that smart, but what he's really saying is: I don't know how to read the instructions. I don't understand the federal register notice. I don't know what this language means, and how it applies to me.
Speaker 1: So we have some tools that are supposed to be available for everyone or are available for everyone. And small businesses I don't think are availing themselves of it as much as they probably could, because they don't even want to deal with how the tool works.
Scott Miller: Sure.
Bill Reinsch: This is a perennial problem. If you're Boeing, you can have five people who don't do anything but that.
Speaker 1: Right.
Bill Reinsch: And their job is compliance, and their job is checking the regulations that come out. If you're not paying attention, these things can get very, very expensive. When I was at commerce, I had an enforcement branch that had to deal with people who were not compliant with the law, and I was the appeals person, so if they were fined, they were unhappy with the fine, these things ended up on my desk. And I remember we had one, which it consisted of a... I mean, I felt very sorry for the company. They had been shipping an item to another country for 20 years, without any difficulties.
Bill Reinsch: And then thanks to a multilateral decision, the item they were shipping, which had not been controlled for export, suddenly was controlled for export, because all the countries decided it needed to be controlled. It was an ingredient. And apparently what happened is, trying to piece it together, I think-
PART 2 OF 3 ENDS [00:26:04]
Bill Reinsch: And apparently what happened ... [inaudible 00:26:02] trying to piece it together. I think whoever it was in the company who was in charge of reading the federal register most have gone on vacation that week, because they missed it. Then they proceeded for six months to a year to continue to ship this product once a month. They had a schedule. When the department caught up with them, they were fined. I think it was a year. They were fined for 12 months of illegal shipments.
Bill Reinsch: Thinking about it, I realized ... Then they want the penalty mitigated and I was thinking, "One person made one mistake. He or she didn't read the federal register on the one day that it mattered." If you're Boeing, you have redundancy and you have people that's their job and if they go away, they make sure someone covers it. If you're a small company, you're up the creek.
Karen: Right and this gentleman said ... I'm so glad you told that story, Bill, because I remember when this gentleman first called. Actually, his local economic development partner called me and said, "Can you help with this?" And then got this gentleman, his name is Mark, on the phone and he said, "Karen, how was I supposed to know that that was going to happen?" Which leads me to another thing. I just talked to him actually yesterday. He said he's thinking about ordering another machine because he wants to expand, right? He has more work to do. He's on the cusp of getting a big new customer.
Karen: He's said, "Now, at least I know who to call to help me with the process, if I need to pay the tariffs." But he was saying, "If I didn't know to watch for a federal register notice ..." I think all of us know to look at federal register notices, but this gentleman, he's just trying to grow his business. I don't even know if he knew about a federal register until I told. "Oh, it came in the federal notice in August." But he can't pivot, because he's only this entrepreneur startup. I think when we talk about in the media or with our political friends, they say, "Oh, well a small business can pivot to a different supplier." Yes, maybe with time.
Bill Reinsch: Well, maybe, maybe not.
Karen: Maybe with time, right?
Bill Reinsch: Right.
Karen: That's what this gentleman said. It was already in the water. "I didn't know I shouldn't order from China, because I didn't know it was coming."
Bill Reinsch: Right, and finding a new supplier is not exactly falling off a log.
Karen: No, it's not.
Bill Reinsch: It requires effort.
Karen: It takes time and investigation.
Bill Reinsch: And qualification and right.
Andrew Schwartz: Yeah, this is classic. We've done some work here at CSIC on export control issues and compliance and enforcement issues. You've really hit on the biggest problem. The compliance problem really is not for aerospace companies like Lockheed Martin or Boeing or General Dynamics. They have fleets of people whose job it is is to make sure that the company adheres to the law and these are people that know the law very, very well and they're on other [itax 00:29:01] and are regularly interacting.
Andrew Schwartz: The problem in the high tech end is the proverbial three guys in a garage in California someplace and they come up with some cool new app or some new piece of equipment and the next thing that happens is some Chinese guy shows up, because they're paying attention, and offers them $50 million for their company and they don't know that they need permission to do that from the government under CFIUS. They don't know that they need permission to transfer technology even if they're not being acquired. There's also the question of whether they would care even if they did know, but they don't know. How they find out is complicated usually.
Bill Reinsch: Usually the hard way.
Andrew Schwartz: Well, yes, exactly.
Karen: [crosstalk 00:29:49].
Bill Reinsch: [crosstalk 00:29:49] investigated. They got to [inaudible 00:29:49] the arrest warrants. It's a problem.
Karen: I think that for the work that Kim and I do in our professional lives, not the volunteer iTech life is largely tries to get at solving that problem. In Kim's work at [Zinata 00:30:05], she's basically functions as an export department. She has the knowledge and she takes on a client, functions as the export department, so she has all that knowledge. We do similar things for our clients where we understand the export regs around defense. Our experience, Bill, is pretty interesting is that most of the companies that we work with, when we explain to them why export controls exist, which is for the protection of the nation, they actually become more enthusiastic.
Bill Reinsch: That makes sense.
Karen: Once they're aware, but that's us actively and proactively going out, reaching out to companies and saying, "You're an aerospace company. Are you good? Let's take a look at this. Can we do a spot check?" Kind of a thing. How do we make that better? How does the US government and all its agencies get the word out better? I've thought about that quite a bit. Is there better and more marketing and communications that could be done and how would that work? I don't have a solution to that.
Andrew Schwartz: Well, there's a lot of outrage. There are organizations ... When Kim arrived, we talked about an old one, CCI, the California Counsel of International Trade, which is I think now part of the California chamber, but at the time it was independent. Back a long ... We're showing our age when we talk about this, but they did a lot of work, simply a lot of members who were small people helping them to just understand what the landscape was and what the climate is, doing collectively what you do. Some agencies in the enforcement business, when I was in the enforcement business, we did a lot of outreach, both large scale, big conferences that people could come to. BIS has one big one here. They have one big one on the west coast every year and I think for the west coast, it'll be 500 or 600 people on a good year that show up.
Andrew Schwartz: There's an awful lot of visiting that goes on. The law firm that I'm also associated with in addition to CSIS, we have a client that's an academic institution. Nothing got them excited as when they got a notice from the commerce department, they were coming to pay a visit.
Bill Reinsch: Oh, the wonderful world of deemed exports, yes.
Andrew Schwartz: Well, it turned out to be a benign visit. It turned out to be the government wanted to just show up and tell them what was going on and what they were doing. It was a signal, which is sort of, "We're paying attention."
Bill Reinsch: Yeah, we're from the government. We're here to help.
Andrew Schwartz: Yes. It was an institution that had a large number of federal contracts, research contracts and did a good bit of overseas activity. In my experience, some of the worse people in this area are academics, because first of all, they don't like to be told what to do. Every professor has his own little empire and he has his own little [inaudible 00:32:55] stream and he doesn't want the university administration come in and telling him, "You can't accept that money," or "There's all these strings attached that we're imposing on you." They don't like that. Plus, you get into this. It's not an export. It's research.
Karen: Right. It's not an export. I just had a conversation. But that could very much be an export.
Bill Reinsch: Right. It could be.
Andrew Schwartz: Well, sometimes it's tangible. One of the famous cases that occurred before my time was when the CDC in Atlanta was exporting anthrax to various countries around the world, and-
Bill Reinsch: Because they needed specimen samples.
Andrew Schwartz: Yeah, samples. The authorities came in and said, "What are you doing?" And they said, "Well, we're helping them do research." Finally, somebody pointed out, "Well, under the law, you've shipped product A from the United States to country B. That's an export. You can call it whatever you want. It's an export." They got that under control, but for universities, they tend to think, "Sure, I'm having a conversation. I'm helping the greater good. And it may be a joint project." Now, do you guys have academic clients, or is this not something that [crosstalk 00:34:00]?
Kim: I do, a university in San Diego that develops executive education programs for young executives. I bring those programs to the Middle East, because they're going through so much change.
Andrew Schwartz: Oh, that-
Bill Reinsch: [crosstalk 00:34:13] cool, sure. Plus, you do SRI, which is basically a think tank, like we are.
Bill Reinsch: Fascinating.
Karen: We work with Wichita State University quite a bit. Wichita State University has a very active aviation program, both engineers and all kinds of stuff. They have an arm called The National Institute for Aviation Research. We work with them quite a bit. They have their own compliance department now, but when we first started working with them over 10 years ago, we made a couple of calls to make sure that they had the information that they needed. They're good now, good to go.
Bill Reinsch: Okay, that's great.
Karen: Whole department of folks.
Bill Reinsch: Perhaps we could close with some advice from successful entrepreneurs. The two of you are.
Andrew Schwartz: From you to us, not from us to you.
Bill Reinsch: More importantly, I'm pleased to be in the business of raising a couple of millennials, at least participating in their being raised. When I have the occasion to meet their friends, I'm stuck by how many people of their [inaudible 00:35:07] say, "Well, now I'm doing this job, but what I really want to do is start my own business." There's this interest in entrepreneurship that I'm certain was not present in my generation, but it just surprises me how that's a very typical response. What would you say to young people, people in their 20's and 30, under 30, let's call it, who want to get started in their own business. Since you've both succeeded in this space and internationalized the business, what would you advise them?
Kim: I'd advise them to, of course, follow their dreams, as we always say, but more importantly or equally as important is to find a need and meet that and focus on that aspect as opposed to just ... Yes, we all want to do what we love, of course. We're fortunate enough to do that, that's great. To sustain a business, you have to be meeting a need that exists, so it becomes more of a science of figuring out exactly where this needs are and focus on that.
Bill Reinsch: Dreams need a business plan.
Kim: That's right.
Karen: I would caution anyone who wants to start their own business, whether they be a younger person or not, that being an entrepreneur doesn't just mean starting a business, but intrapreneurship and entrepreneurial thinking within a company is actually absolutely integral to not only a success of a business, but the success of a nation.
Karen: If we don't continue to increase our productivity through innovative concepts, which you can almost synonymously look at with entrepreneurship, usually people looking at some sort of innovation fulfilling that need, but that can happen inside a company, inside a small business. Sometimes, if you're thinking a young person, you can cut your teeth with the security and the infrastructure of an established business think as a entrepreneur, so it's intrapreneurial work, help that company grow and expand, get some capital as you're, experience, and then start your own business. I just want to caution and say it doesn't have to be starting your own business. You can be very satisfied if you're an entrepreneurial thinker within an established organization, whether it be a business, a for-profit business or a non-profit organization.
Bill Reinsch: That's terrific. Karen and Kim, thank you so much for being part of the program and we wish you well and are grateful for your efforts on behalf of all small businesses.
Kim: Thank you.
Karen: Thank you. Pleasure to be on the Trade Guys.
Andrew Schwartz: To our listeners, if you have a question for The Trade Guys, write us at email@example.com. That's firstname.lastname@example.org. We'll read some of your emails and have The Trade Guys react to it. We're also now on Spotify. And see what it might take to get back in the game here, or maybe not get back in the game.
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Andrew Schwartz: That's great. Thank you, Trade Guys.
Bill Reinsch: Thanks, Andrew.
Andrew Schwartz: Thank you.
Bill Reinsch: You've been listening to The Trade Guys, a CSIS podcast.