2013 International Trade Survey of Connecticut Businesses
The Connecticut Business & Industry Association is pleased to bring you the results of our fourth biennial international trade survey of Connecticut businesses.
This year’s survey was sponsored by HSBC and McGladrey, two companies solidly engaged in trade support services. It was also made possible by the U.S. Department of Commerce (Middletown office) and the Connecticut Department of Economic and Community Development (DECD), who assisted in the survey’s development and/or distribution, together with local chambers of commerce.
This survey aims to:
- Get a clear picture of Connecticut’s exporters: what types of companies they are, their level of involvement in international trade, and the benefits and challenges exporting presents for them
- Identify trends in exporting from pre-recession levels in 2007 (when we first began surveying Connecticut businesses on international trade) until today
- Determine what proportion of non-exporting businesses have considered entering foreign markets and what incentives or support they would need to get started
- Raise awareness among the public, the business community, and policymakers about the opportunities for economic growth that exporting presents for Connecticut
Overview of Connecticut Exporting
Connecticut is truly a global state, and export success is vital to our economy.
We rank eighth in the United States in exports per capita and fourth for exports to the euro zone.
Nearly 2,000 Connecticut manufacturers—and many non-manufacturers—are engaged in exporting, and their products and services are shipped to more than 200 countries around the world.
Roughly 87% of our state’s exports are manufactured goods. Specifically, transportation equipment, machinery, and computer and electronic equipment account for 63% of Connecticut’s exports.
Between 2000 and 2011, Connecticut’s exports more than doubled, rising from $8 billion to over $16.2 billion.
Export share of GSP also rose from 4.9% in 2000 to 7% in 2011, directly and indirectly supporting an estimated 500,000 jobs in Connecticut, including 24% of the state’s manufacturing jobs.
For every $1 million in additional exports, DECD estimates that 13 net new jobs are created.
Level of Involvement
Nearly three-quarters of the companies we surveyed (71%)1 are engaged in international trade, and most are not newcomers to the global marketplace: 41% have been exporting for more than 20 years, and 29% have been exporting for 10–20 years.
Most respondents (87%) entered foreign markets to increase their company sales and profits. More than half (52%) entered to follow their clients, up considerably over previous years, and significant numbers say diversifying their business (51% of respondents) and exploring emerging markets (37%) have been the impetus for exporting.
Exports account for a sizable share of companies’ revenues: 28% of exporters attribute at least 26% of their revenues to exports. (Of those, about 44% say exporting accounts for more than 50% of their company’s gross revenues.)
Another 27% of exporters attribute 11–25% of their gross revenues to exporting, and 20% attribute 6–10% of their gross revenues to exporting.
Nearly half (44%) of respondents acknowledge that the recession resulted in a reduction in new orders for exported goods.
An equal number also experienced buyer defaults and/or significant delays in receiving payment for international sales; 16% have had difficulty securing long-term orders as a result of the recession.
More than a third (35%) of respondents, however, say the economic downturn had no impact on their exporting business.
In fact, 56% agree that their exporting activities have helped them weather the recession and position their businesses for a stronger recovery.
The largest foreign markets for Connecticut exporters are, in order, North America (Canada/Mexico), western Europe, and northern Asia/Pacific Rim—China, Japan, and Taiwan.
But that distribution is expected to shift over the next three years, putting northern Asia in the top spot. Only 17% of Connecticut businesses surveyed anticipate doing the majority of their exporting within North America in the next three years, down from 31% currently.
Western Europe will also see a decline, from 30% of respondents today to 25% in three years. On the other hand, Connecticut companies plan to sell more of their goods and services in northern Asia: 29% of respondents in the next three years, up from 20% today.
Other markets with moderate growth potential for Connecticut exporters over the next three years include South America and South Asia—and, to a lesser extent, the Middle East and Central America.
Resources and indicators used to determine or establish new international trade markets include agents/trade representatives (58% of respondents), Web inquiries and cold calls (51%), trade shows and meetings (50%), and recommendations from business colleagues.
Despite the risk of late payment and buyer default, intense competition for overseas markets requires that exporters be flexible when negotiating payment terms with prospective customers. Methods of payment, therefore, are most often decided on a case-by-case basis (56%) or determined by an exporter’s relationship and history with a particular buyer (35%).
Sixty-four percent of respondents use open accounts, 54% require payment in advance, and 41% use letters of credit—among the most secure instruments available to international traders.
Over a third (34%) of Connecticut exporters surveyed accept payment in currencies other than U.S. dollars. Most commonly used is the euro (91% of respondents), followed by the Canadian dollar (39%), British pound (39%), renminbi (36%), and the yen (21%).
In addition to exporting, 26% of respondents have facilities abroad, and 31% have employees outside the U.S.
The primary reasons for investing in overseas facilities and/or personnel are to be closer to major customers and suppliers (cited by 78% of respondents) and to forge stronger international relationships (51%). Lower business costs were also cited as a reason for having facilities and/or employees outside the U.S., but not by a majority of businesses (37%).
Barriers to International Trade
Doing business abroad is not without its risks or hurdles.
Cost competition is the greatest challenge for Connecticut exporters (57% of respondents), followed by trade/regulatory barriers (46%) and lack of knowledge about foreign markets (33%).
These have ranked consistently at the top of exporters’ challenges in the three most recent international trade surveys (2009, 2011, 2013).
Unfair trade practices (31% of respondents) administrative costs (29%), and loss of intellectual property (25%) are identified as barriers as well.
Weak foreign economies (55% of respondents) and transportation costs (51%) dominate respondents’ immediate concerns about international commerce, although future concerns are more diffused (45% of respondents say weak economies will be a major concern for them in the future, and 42% say transportation costs will be a future concern).
More respondents believe political unrest in foreign countries will be a concern in the coming years (31%), up from 22% who say it poses an immediate concern. The same holds true for changes to foreign trade agreements: 21% find these problematic now; 29% believe they will be in the future.
Successful exporting efforts require a mix of financial, logistical, technological, and legal resources. We asked Connecticut businesses what types of tools and services they use, and to what effect. We also asked them what was lacking, and where government and the private sector could do better to support their efforts.
Banks. Most Connecticut businesses that have sought financing for their exporting efforts characterize banks and other financial institutions as “friendly” or “somewhat friendly” to their exporting needs (74%)—a view more favorable than what we’ve seen in our general credit availability surveys.
Trade shows. When it comes to finding new customers or marketing products or services, participation in domestic and international trade shows often delivers results. A majority of respondents are involved in domestic trade shows—74% of respondents in 2013, up from 68% in 2009—and 52% participate in international trade shows, up slightly from 47% in 2009.
Cost is the greatest barrier to participating in international shows (cited by 57% of respondents), followed by lack of time and other resources (48%), and limited staffing (37%). In past surveys, lack of knowledge was a significant deterrent to participation in international trade shows; this year, only 20% of respondents said that was the case.
Trade intermediaries. Fewer than half of our survey respondents say they are knowledgeable about free trade agreements, which give U.S. exporters a competitive advantage in certain markets.
As recently as 2009, 60% of Connecticut businesses surveyed had no knowledge of the services provided by trade representatives; of those who were aware of such services, only 36% made use of them. Today, 62% of companies surveyed are familiar with trade representatives, and 48% are using them. In fact, industry reports and international trade consultants were identified as the resources most helpful in identifying overseas markets and increasing companies’ presence in those markets.
Seventy-four percent of respondents use international freight forwarders for international trade support, up considerably from 59% in 2011 and only 50% in 2009. Thirty percent use legal advisors for exporting (up from 16% in 2011), and 15% use accounting services for exporting (up from 9% in 2011).
Internet. Connecticut businesses are not using the Internet to its fullest potential to support their international trade efforts, and Internet readiness and capability among the state’s exporters have not statistically improved over the past two surveys.
Despite widespread use of the Web to communicate with international customers/clients (72% of respondents), market their goods or services globally (65%), and receive product/service inquiries (63%), the majority of respondents (75% ) acknowledge that their company website is not capable of processing international orders. Only 20% have their online content translated into foreign languages.
Government assistance. Not every company with an exportable product or service has entered the global marketplace. Over a quarter of those not engaged in foreign trade (27%) would like to be, and 23% believe their current staff capacity would make it possible. From their perspective, the greatest barriers to exporting are a lack of knowledge about foreign markets and licensing concerns.
Thirty-eight percent of respondents overall are aware of federal or state government services to help smaller businesses get into international trade. In an open-ended question, recommendations for ways the state could facilitate companies’ exporting activities included:
- Seminars and webinars with practical, step-by-step export assistance and guidance
- Tax relief for income and assets tied to demonstrated export activity (e.g., waiver of income tax on export sales); tax credits for market development or attending international trade shows; and similar incentives
- B2B meetings in Connecticut and abroad with top international OEMs to raise awareness of Connecticut’s strong manufacturing supply chain
- Consistent duties for imported and exported products
Overwhelmingly, however, companies surveyed said the best help the state could offer would be to lower the cost of doing business in Connecticut.
Exporting has become an integral part of doing business for many Connecticut companies and is vital to the state’s economy and long-term prosperity.
Since the release of our first international trade survey in 2007, we have seen a steady (and at times acute) increase in the number of export-capable Connecticut companies doing business abroad—from 35% to 71% over a six-year-period. The role that exporting played in buoying Connecticut companies during a deep recession and slow recovery is not lost on the business community and should help guide state and federal public policy and regulatory decisions.
In the near term, the economic slowdown in Europe and Asia poses new challenges for exporters but also underscores the need for Connecticut’s business community to expand its access to growing markets and marshal the full resources of state and federal government export assistance programs. Indeed, there remains tremendous untapped potential for the state’s chief job creators—small and midsize businesses—to enter new markets, increase their share of U.S. exports, and compete for the 95% of customers in the world who live outside the U.S.
1 We surveyed companies most likely to be involved in exporting, i.e., manufacturers; companies engaged in technology, research and development, or natural resource exploration; wholesalers; retailers; agricultural businesses; and larger insurance and financial services providers. A broader survey of companies of all types and sizes would have revealed a smaller proportion of Connecticut’s overall business community engaged in exporting.
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