Despite Weak Global Economy, U.S. Companies Still Turning to International Markets for Growth
May 03, 2016 (Business Wire) Wells Fargo releases 2016 International Business Indicator; finds slightly more optimism.
SAN FRANCISCO--(BUSINESS WIRE)-- Despite concerns about exchange rates and global economic conditions, a majority of U.S. companies expect an increase in non - U.S. revenue over the next 12 months as they continue to pursue business opportunities in international markets, according to the latest Wells Fargo International Business Indicator. Recognizing ongoing value in doing business globally, 47 percent of U.S. companies expect profits from international business activity to increase this year, compared to 39 percent in 2015. Additionally, 87 percent of U.S. companies agree that international expansion is needed for long-term growth, with emerging markets providing the greatest opportunities (69 percent).
Released today by the International Group of Wells Fargo & Company (NYSE: WFC), the 2016 International Business Indicator1 registered a positive score of 65, up modestly from 63 in 2015. The Indicator tracks the strength and direction of the international outlook of U.S. companies, surveying more than 260 U.S. companies with annual revenue of $50 million or more that conduct at least some international business.
“The latest indicator results show that, even with global volatility, U.S. companies remain optimistic about international growth opportunities,” said Richard Yorke, head of Wells Fargo International Group. “While some U.S. companies may be reevaluating certain factors of their international strategy – such as timing and specific markets – they are not retreating from pursuing global business opportunities as a core part of their business strategy.”
The U.S. Factor
Indicating a dampened outlook for the U.S. business market, less than half (48 percent) of survey respondents expect the U.S. market to improve over the next 12 months, down from 64 percent in 2015. Concerned about growth prospects in the U.S., more than a third (36 percent) expects economic conditions in the U.S. to negatively impact their international business plans, up from 24 percent in 2015. At the same time, a majority of companies agree that low interest rates (66 percent) and depressed energy prices (61 percent) have benefitted their business.
With the U.S. presidential election taking center stage, a majority of U.S. companies agree the campaigns are not sufficiently addressing issues of importance to international business. According to the Indicator, while U.S. companies are somewhat divided on whether the election outcome will impact their international business (45 percent agree, 53 percent disagree), 59 percent of companies surveyed do agree that many issues of importance to international business, including corporate taxes, are not being adequately addressed by the presidential campaigns.
Western Europe Moves to No.1
Surpassing China, the 2015 Indicator’s most-mentioned market, Western Europe is now viewed as the most important international market for U.S. companies, according to 33 percent of survey respondents. While the region continues to experience a mild economic recovery, Western Europe moved from No. 4 in 2015 to the top spot in 2016, while Canada and Mexico fell from the top three. China follows Western Europe with 23 percent, as Asia Pacific, excluding China and Japan (20 percent), and Latin America, excluding Mexico (15 percent), round out the top four.
For the second consecutive year, as companies look ahead two-to-three years, China remains the top “hot spot” for longer-term future growth, followed by Mexico and Brazil. Citing its growing market and large population, 42 percent of U.S. companies say China is important to their business success today and/or in the future. However, the region does present a challenge in the short term, with nearly 65 percent executives reporting that China’s economic slowdown has affected their companies’ international business.
U.S. Companies Continue to Invest in Global Marketplace
The survey found that U.S. companies remain confident about the future of the global marketplace. Six in 10 companies expect their international business activity to increase, while 54 percent believe the international component of their business will become more important in the next 12 months. Forty four percent expect to increase the amount of products/resources they source from outside the U.S., up from 31 percent in 2015. Planning for international growth remains a priority for most U.S. companies, as 63 percent say they expect to increase long-term international business development planning in 2016.
Issues Impacting International Business Decisions
According to the Indicator, corporate taxes and the Trans-Pacific Partnership (TPP) agreement are two issues important to U.S. companies. Six in 10 executives say corporate taxes play a significant role in their companies’ international business decisions. While 56 percent of survey respondents say the TPP will open new opportunities for their companies in the Pacific Rim, 19 percent state it is too early to tell whether it will have a positive or negative impact.
When assessing international markets, U.S. companies indicated several key factors that are likely to have a negative impact on their international business plans, including political stability outside of the U.S. (59 percent), currency fluctuations or exchange rates (51 percent), and general economic conditions outside the U.S. (51 percent).
For more information on the Wells Fargo Indicator, including a complete report of the findings and a video overview with Richard Yorke, visit https://www.wellsfargo.com/indicator.