In the past 6 years, Midwestern companies with high international sales and operations were about three times more profitable than their more domestic peers, according to a new report by HSBC Bank USA, N.A. (HSBC).
Findings from the report ‘HSBC Spotlight on U.S. Trade: Midwest’ show that highly international Midwestern companies had an average profit margin of nine percent while their less international peers had an average profit margin of about three percent during a six-year period between 2007 to 2012. Furthermore, highly international Midwestern companies demonstrated more consistent performance over the six years. Following the onset of the recession, these companies maintained healthy profit margins that never fell below seven percent, while profit margins at low international Midwestern companies dipped into the red before recovering in 2009.
“The report clearly shows that a diversified geographic customer base or operations have an impact on business performance,” said Steve Trepiccione, Senior Vice President and Managing Director, Head of Midwest Region, Commercial Banking at HSBC. “Highly international Midwestern companies were able to insulate themselves from domestic market fluctuations throughout the past six years and remain consistently profitable.”
The HSBC report analysed the level of overseas sales and operations at leading U.S. publicly listed companies based in the Midwest and across the nation to understand the impact of internationalization on business profit margins by region and select sectors, including consumer goods, healthcare, industrials, and information and communications technologies (ICT). Companies examined in the Midwest report included leading public companies in Indiana, Illinois, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota and Wisconsin.
According to the report, Midwestern companies had the second highest average profit margins and the third highest level of internationalization compared to companies in other U.S. regions. Companies in the Midwest also had the highest average percentage of international sites (50 percent) compared with other regions. Still the region takes a backseat to other parts of the country in sheer export terms. The national export average is 12 percent of GDP while exports in the Midwest range from 12 percent of Michigan’s economy to just 4.5 percent of South Dakota’s, according to the Business Roundtable.
Consumer Goods Lead Midwest Growth Potential
Companies in the consumer goods sector, which dominate the Midwest sample in the report (nearly 52 percent), have benefited from global trade. In fact, highly international consumer goods companies were twice as profitable as their domestically-oriented peers (eight percent vs. four percent).
According to the latest HSBC Global Connections Trade Report, U.S. business leaders see Latin America as the most promising region for export trade growth in the near term, followed by China.
“The buying power of emerging economies holds great potential in not only buffering consumer goods companies from the fluctuations of the market, but also in satisfying an appetite for U.S. brands and goods abroad,” said Trepiccione. “More Midwestern companies may want to consider expanding abroad, and with the help of HSBC’s global footprint, heritage and expertise in connecting customers to international opportunities, they will find the support they need to build their cross-border trade activity and business.”
In July 2013, HSBC announced a $1 billion, 18-month dedicated loan program for small and medium size U.S. businesses looking to export or expand internationally, to help companies find global growth opportunities and to boost U.S. economic growth.
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