Business Briefing: The New Economy's Troubling Trade Gap

Keywords: Trade Deficit, New Economy, Globalization, Economic Policy, Export Strategy
Source: Harvard Business Review
Link: Read the full article on HBR.org
Author: Eamonn Fingleton
Published: November 1999
Est. Read Time (Original): ~15 minutes

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The Core Idea

Eamonn Fingleton presents a stark, counterintuitive argument: the celebrated shift to an information-based "new economy" is a primary cause of the rapidly widening U.S. trade deficit. He posits that, unlike traditional manufacturing, information and service industries (like software, internet services, and finance) are inherently poor exporters. Citing examples like Microsoft and AOL, he demonstrates that factors like piracy, high costs of localization for language and culture, and the need for overseas subsidiaries mean that a surprisingly small fraction of foreign revenues ever returns to the U.S. as a true export.

Why It Matters for Business Today

This article from the height of the dot-com boom serves as a timeless and critical examination of the economics of globalization in a digital world.

• The Myth of Weightless Exports: It's a common assumption that digital goods are easy to export. Fingleton exposes this as a myth, highlighting the significant, often-overlooked costs of adapting software and services for local markets. Much of the value-added work happens, and the revenue stays, in the foreign country.

• Foreign Revenue is Not the Same as Export Value: The article provides a crucial lesson in financial interpretation. A company can boast significant global revenues, but after deducting the costs of local operations (salaries, marketing, etc.), the actual contribution to the home country's balance of payments can be minimal.

• A Contrarian View on Economic Strength: Fingleton's analysis makes a powerful case for the enduring economic importance of "hard industries" (manufacturing) as engines of export-led growth. It forces a strategic re-evaluation of which industries truly create national wealth in a globalized economy.

The Strategic Question for Leaders

The article argues that a company's true export performance is often much lower than its top-line foreign revenue suggests.

How does your 'new economy' business measure its actual export contribution after accounting for the costs of local adaptation, the expenses of overseas offices, and the value captured by foreign partners and subsidiaries?

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