Global Trade Brings Opportunities and Optimism to U.S. Businesses
Optimism abounds when it comes to the future of global trade, both with U.S. companies trading internationally and other countries trading with the U.S. According to a survey conducted by the Economist Intelligence Unit on behalf of American Express, which polled 531 executives at companies worldwide, two-thirds of survey respondents (66 percent) expect their company's trade with the U.S. to rise over the next five years and 43 percent expect an increase of more than 10 percent. I spoke to several U.S. business owners to find out their expectations and challenges when it comes to global trade. (Those interviewed for this story did not participate in the survey.)
Stephen Chipman is the CEO of Radius, a Boston-based business that provides services and solutions supported by its proprietary software to help U.S. businesses establish and maintain global operations (including cross-border trading). According to Chipman, he expects growth to be gradual in the next year or two, following “strong protectionist rhetoric" from U.S. political parties and their supporters, and developments such as Brexit. But, he says, we live in a global economy, and that presents significant possibilities for business growth for companies of all sizes. “Taking advantage of global markets will always represent the greatest opportunity for ambitious companies that want to grow their businesses, and that very much includes small and medium-sized enterprises," says Chipman. “The great majority of consumers and capital lie outside U.S. borders, and that fact will not suddenly be lost on companies, investors or policymakers."
Chipman and the other business owners I interviewed reported a high level of confidence in what lies ahead, in agreement with the survey.
Growth Appears to Be on the Horizon
Just as the survey found that 66 percent of those outside the U.S. expect an increase in trade with the U.S., those business leaders interviewed in the U.S. also expect to see leaps in global trade. Carlos Rivera, president and CEO of Vysnova Partners, Inc., which is a Washington, D.C.-based provider of professional and technical services to U.S.-funded health sector projects around the globe, has seen a rapid growth in its international project support area, and he expects that to continue. In order to maintain that growth, he says it's important to establish relationships with countries that are welcoming to global trade. “One thing that is most important to us is working in countries with business-friendly environments where we can find it easy to set up and operate, while ensuring full compliance with all local laws," he says.
Dave Bolotsky, founder and CEO of UncommonGoods, an online and catalogue retail company based in Brooklyn that works with international customers and international suppliers (as well as domestic), expects to increase trade with other countries at a rate of higher than 10 percent in the next five years. He says that UncommonGoods' international purchases are small—less than 1 percent of its business is directly imported from international suppliers (while nearly half of the company’s sales come from product made overseas, the vast majority is brought in to the U.S. by other companies)—but he aims to change that. “We are beginning to attend international trade shows and are beginning to focus on the large potential of this market," he says. He adds that he recently attended a trade show in Europe with a buyer, and found a number of products that the company will be introducing soon.
Is Exchange Rate Volatility a Concern or Advantage?
According to the survey, 41 percent of respondents said that exchange rate volatility poses a challenge, followed by transport costs (32 percent), trade-related infrastructure (32 percent) and making payments (32 percent). According to Chipman, CEO of Radius, exchange rate volatility will always be a concern when trading or operating abroad, but there are ways businesses can confront that. “Companies can use hedging strategies to mitigate or minimize risk," says Chipman. “They should also stand ready to take advantage of currency discrepancies, which means that company strategies need to be flexible and companies themselves need to be nimble. For example, a strong dollar may cut into profits made abroad, but a U.S. company may decide to purchase assets (such as warehouses or office buildings) in countries with relatively weak currencies, and those investments could really pay off in the long run." Chipman adds that businesses shouldn't let exchange rate volatility deter them. “Probably the worst thing a company can do is decide to sit on the sidelines due to exchange rate volatility," he says.
For Bolotsky, of UncommonGoods, that volatility has worked in his company's favor when it comes to buying. “The fact that the dollar is currently very strong against the Euro makes importing far more attractive than it's been in recent years," he says.
Trade-Related Infrastructure Can Be Vital
The survey found that respondents are satisfied with trade-related infrastructure in the U.S., with 69 percent rating it “very good" or “excellent." Businesses said they most rely on services such as digital communication technology (42 percent), port facilities (31 percent), road networks (26 percent), cold transport and storage facilities (25 percent), warehousing (26 percent) and more. For U.S.-based companies, the infrastructure used abroad is as varied as the businesses themselves, and is indispensable to the work they do. Rivera says Vysnova Partners, Inc. partners with the U.S. government and relies on the Department of Commerce and its network of trade offices around the globe, which can help with many aspects of in-country operations (such as performing financial and background checks, for a small fee, on local firms his business is considering partnering with). He says his business also relies on efficient customs operations, road networks, rural electrification, cold storage, rail networks and/or airlinks and other infrastructure. He adds that a “robust" communications network (telephone and internet) is needed to support all aspects of a project.
Bolotsky says UncommonGoods relies mainly on email to communicate and uses either air or sea transportation in its international purchases. He says the quality is “generally fine," but at times there are delays at the port or airport. And, he adds, there's that ongoing challenge that all companies seem to face, whether domestic or international: “The paperwork can be burdensome."
A summary of the survey results can be found here.
The findings are based on an executive survey of 531 companies that trade with the US, conducted by The EIU in March and April 2016, as well as desk research and interviews with experts.
The survey sample is global, spanning Asia-Pacific (49%), Europe (22%), North America (19%) and South America (9%). Nearly half of those surveyed are C-level executives, and another 40% hold senior executive positions (SVP, VP, director, head of business unit, head of department). The firms in the survey are split almost evenly between those with an annual revenue of US$250m-500m and those with US$500m-1bn in annual revenue. Of the 23 sectors covered, the best-represented are financial services, manufacturing, consumer goods and services, IT and retail.