COLUMBUS, Ohio, Sept. 15, 2016 /PRNewswire/ -- The most important international markets and opportunities for U.S. middle market companies lie within the Americas, according to a new report from the National Center for the Middle Market (NCMM). This finding, detailed in the NCMM's "Winning in the Americas" report, runs contrary to common sentiment that the greatest opportunities for international expansion tend to lie within Europe and Eastern markets such as China.
"Building on existing relationships with Canada and Mexico, middle-market companies have a strong basis for significant expansion in this hemisphere," said Thomas A. Stewart, Executive Director for the National Center for the Middle Market. "It's noteworthy that the middle market runs a trade surplus--that is, it exports more than it imports--throughout the region. So expansion in the region would probably add jobs as well as revenue."
Developed by the NCMM in collaboration with FedEx and Nextrade Group, LLC, the report's findings are based on a survey of 400 C-level middle market executives from companies engaged in international markets. The report is coauthored by Kati Suominen, Founder and CEO of Nextrade Group, LLC and Trade Up Capital Fund, adjunct professor at UCLA Anderson School of Management and adjunct fellow of the Center for Strategic and International Studies (CSIS).
Creating Growth in the Americas
Middle market businesses identify market expansion as a target goal for their exporting of goods. While a quarter of middle market exporters sell to five or more foreign markets, 43 percent reach just one or two foreign markets and are therefore not highly diversified in their efforts. Canada and Mexico are the first and second most important trade partners for the middle market, with 63 and 39 percent of firms respectively exporting goods to these countries.
"While more than half of U.S. middle market businesses engage internationally, the fact remains that 46 percent are domestic players only," said Stewart. "Those not taking advantage of opportunities abroad are leaving money on the table. Internationalized middle market companies are earning an average of more than 16 percent of their overall revenue from the Western Hemisphere."
Looking across all sales by internationalized middle market companies, just one-third (33 percent) come from outside the United States. Exactly half of that amount--22 percent--came from North, Central and South America, whereas sales to Europe and China – two regions generally considered as priority targets for exports – netted only six and four percent of total sales, respectively.
"With global demand slowing and labor costs rising in China, and with Brexit likely to have negative impacts on U.K. and Continental growth, middle market leaders have as much reason to look north and south as they have had to look east and west for new pockets of growth and supply chain efficiencies," said Souminen.
Heavy Exporters a Cut Above in Revenue Growth
One-third of companies with 10 percent revenue growth or more are heavy exporters, deriving more than half of their sales from overseas markets. Outperforming middle market companies are hungrier for new and emerging markets – with Latin American countries considered to be the easiest new markets to enter.
Up to 92 percent of executives surveyed expect to conduct business in new international markets in 2017, with 55 percent expanding within the Americas and particularly South America. A tempered outlook for economic growth in Latin America is doing little to dissuade them, though the region's GDP is expected to contract by 1.1 percent over the course of 2016. Just 5 percent believe expansion to China is likely next year.
Looking Ahead to the TPP
With 58 percent of middle market firms participating in two-way trade (both importing and exporting goods), the freedom to import and export goods efficiently is essential to organizational growth. Executives ranked the North America Free Trade Agreement (NAFTA) as their most important tool for international activity and will be keeping their eye on the Trans-Pacific Partnership Agreement (TPP). Six in ten expressed familiarity with the proposal's effects on trade relations with Mexico, Chile and Peru, and strongly felt that, if approved, it would ensure significant growth in foreign sales while lowering supply chain costs.
"Winning in the Americas" Methodology
Partnering with FedEx and Nextrade Group, LLC, the National Center for the Middle Market surveyed 400 middle market C-suite members about their international trade activity. All participants are active influencers in the financial decision making process, and all of their organizations participate in international markets. The survey was self-administered and completed between June 20, 2016, and June 27, 2016. Conducted by RTi Research on behalf of the National Center for the Middle Market, the survey can be found here.
About the US Middle Market
A major driving force in the United States economy, the middle market delivers above its own expectations year over year. Middle market companies – those with annual revenues between $10 million and $1 billion – provide roughly one third of the United States' total employment and GDP. As an individual market segment, it is comparable to the economies of Germany and Japan.
About the National Center for the Middle Market (NCMM)
The National Center for the Middle Market is a collaboration between The Ohio State University's Fisher College of Business, SunTrust Banks Inc., Cisco Systems, Inc., and Grant Thornton LLP. It exists for a single purpose: to ensure that the vitality and robustness of Middle Market companies are fully realized as fundamental to our nation's economic outlook and prosperity. The Center is the leading source of knowledge, leadership, and innovative research on the middle market economy, providing critical data analysis, insights, and perspectives for companies, policymakers, and other key stakeholders, to help accelerate growth, increase competitiveness and create jobs in this sector.
Housed at The Ohio State University's Fisher College of Business, the National Center for the Middle Market is the first center of its kind in the nation. The Center serves middle market firms, students, academic researchers, policy makers, the media and other key stakeholders with interests in the health and well-being of the middle market. The Center is fully committed to funding and distributing the most credible open-sourced research, dynamically creating new knowledge, providing programs that drive value for middle market companies, and offering a well-informed outlook on the health and future of the middle market via the Middle Market Indicator.
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SOURCE National Center for the Middle Market (NCMM)