State’s Export Firms Focus on European, Latin Markets
Faced with declining markets in Asia, a growing number of California companies are gearing up to shift exports to Latin America, Europe and other more promising regions. But no one thinks that will take up the slack, and analysts say the shift for many California exporters will be slow and risky because of higher shipping costs, lack of certain foreign banks in the region and other geographical and historical factors.
Moreover, export companies based in California and the rest of the United States are certain to confront tougher competition globally, as Asia bolsters its exports in a desperate bid to strengthen its battered economies.
The most attractive export markets for California appear to be in Latin American countries, whose economies, with the exception of Brazil, are expected to grow more rapidly this year than any other region in the world. Although Mexico is the state’s No. 3 export country, California companies last year shipped only about 2% of the state’s total goods in dollar value to the top five South American markets, compared with almost 40% to the top five Asian export nations.
But that could change, as the cold trade winds from Asia have prompted some companies in California to consider diversifying. Hirsch Pipe & Supply Co. in Van Nuys, which has long relied on Asia’s booming demand for plumbing and heating products, is now considering opening a warehouse in Miami, for quicker shipment of its goods to Brazil and Argentina.
Greg Mariscal, Hirsch’s export manager, says he is also pursuing opportunities in the Middle East, Eastern Europe and possibly Africa. Asia currently makes up 75% of Hirsch’s international sales, which account for a quarter of the company’s overall annual revenue of $30 million. But with sales to Asia likely to fall off 30% to 40% this year, Mariscal says he will have to chase new markets.
“The more markets we’re in, the better,” he said.
Whether companies like Hirsch succeed has significant repercussions for the state’s economy, which relies more on exports than other states. California’s merchandise exports last year have been estimated at $110 billion, much of it electronics, computers and industrial equipment. Adding foreign sales of motion pictures, software and engineering services, which are not tracked precisely, economists say California’s exports account for as much as 16% of the state’s economic output, compared with less than 11% for the nation as a whole.
*
While U.S. exports to Asia are almost certain to decline further in the next year or two, the magnitude of the drop is unclear. California currently sends about 54% of its total exports in dollar value to Asia, whereas about 30% of all U.S. exports go to Asia.
“You’re not going to offset a Japan,” said Ted Gibson, chief economist at the state Finance Department. Japan is by far California’s top export market, but the state’s shipments there fell 9% to $9 billion in the first half of last year, the latest data available. But Gibson added: “By refocusing attention on Latin America and Europe, there is some scope for offsetting weakness in Asia.”
Few California companies, big or small, are pulling out of Asia because of the financial turmoil there. And even before Asia’s troubles emerged, many businesses had been exploring new markets, although the recent problems have accelerated those efforts.
“Asia has been a great run, and in the future there will be another great run,” said Charlie Oliver, a group president at Fluor Daniel, the main unit of the giant engineering services firm in Irvine, Fluor Corp. But in an interview from his office in London, Oliver said the company has already begun to pursue new ventures in growing markets like the former Soviet Union and Venezuela.
“As a given area slows down, we’ll take resources and refocus them elsewhere,” he said.
That’s not as easy for smaller companies, with their limited budgets and staff, especially those businesses that have long focused solely on Asia. “We have to have money first, then we can think about other countries,” said Ted Kim, managing director at Sunrise Industries in Pomona, a recycled-paper exporter that for nearly 20 years has been shipping goods principally to South Korea.
But other companies aren’t waiting. Gordon Murrey Jr., vice president of Murrey International Inc., a bowling equipment and pool table manufacturer in Gardena, says he has postponed plans to open a sales office in Shanghai. Instead he took a 17-day global business trip, stopping off in Singapore; Frankfurt, Germany; London and Bombay, India.
Murrey says he is pursuing deals in Germany and Russia as well as in Western Europe. Murrey’s 60-year-old company, which has annual sales approaching $10 million, much of it exports to Asia, also makes indoor recreation games such as shuffle board. Murrey thinks there could be growing demand for such products because of Europe’s aging population. “There is a demographic shift in industrialized countries,” he said.
Even so, Murrey holds no illusions that Europe, or any other market for that matter, could replace Asia. “We’ll go ahead and nurture some new markets,” he said. “But my best guess is that it won’t be enough. We need Asia.”
California already does a fair amount of exporting to Europe, particularly computers and other electronic goods. Britain is California’s seventh-largest export market, and Germany is No. 9, followed by the Netherlands. France is No. 12. Combined, exports to those four countries totaled about $7.3 billion in the first half of 1997. That compares with $9 billion for Japan.
California’s exports to Europe overall have been growing faster than to Asia as of late, and economists say that Europe’s modest economic growth is picking up somewhat. Sheldon Engler, a Bank of America senior economist who specializes in Europe, also expects the dollar to weaken relative to European currencies, further helping U.S. exporters.
But Engler added: “This is not a region that grows at gangbuster rates. These are mature economies.”
Indeed, Tim Garrity, head of Hamilton International Group, a Pasadena firm that sells vaults and other security products, said, “They’re not building any new banks or financial institutions there, so there’s very little for us in Europe.”
Garrity says he has not seen a drop-off in his Asian business, but he recently sent his manager in Mexico City to explore new markets in South America.
In a report this week, Bank of America economists said Latin America presents significant growth opportunities for California exporters of industrial, agricultural and consumer goods. With the notable exception of Brazil, which is going through a major slowdown, the economies of Latin American countries are expected to grow between 4% and 7%--compared with about 2.5% for Europe.
California exports to Mexico grew 25%, to $5.2 billion, in the first half of last year as Mexico’s economy has roared back from its financial turmoil in 1995. Much of those goods were industrial equipment for manufacturing plants in Mexico, including the U.S.- and other foreign-owned border factories known as maquiladoras.
Ralph Clumeck, a trade consultant in Laguna Niguel, thinks Mexico will offer even more opportunities for California companies, because in 2001 imports to Mexico from non-NAFTA countries will come with duties.
California companies have barely made a dent in regions south of Mexico. Carlos Valderrama, formerly California’s trade representative in Mexico City who is now a consultant for a law firm, says it won’t be easy for businesses to shift exports to South America.
*
For one thing, he said, there is only one South American bank, from Brazil, in California. “When you don’t have a banking system in your own region, businesses don’t go to those countries,” he said. More significant, he said, is the mindset of California businesses and those in South America, whose relations are focused on the East Coast, primarily Miami.
“You have this mentality in both the U.S. and Latin America that doesn’t include California in between,” said Valderrama, who directs Latin American operations for the Los Angeles firm Carlsmith Ball. “I think we need to do more education. California companies need to pay more attention to what is Venezuela, what is Chile. They look to Mexico as the big market but don’t want to go farther south.” Perhaps, he said, that will now change.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Trading Places
As a result of the financial crisis in Asia, California’s exports to the region are expected to decrease as exporters shift their attention to markets in Latin America and Europe. But the state’s exports to several Asian countries had already started to slide in the second quarter of 1997. The state’s top 20 export markets from April to June last year:
*--*
Exports in second Percent change quarter 1997, (2nd quarter ’96 Rank Country in billions to 2nd quarter ‘97) 1 Japan $8.99 -8.90% 2 Canada 5.73 3.28 3 Mexico 5.24 25.29 4 S. Korea 3.76 -18.11 5 Taiwan 3.06 15.49 6 Singapore 2.79 -10.43 7 Britain 2.57 4.33 8 Hong Kong 2.05 19.91 9 Germany 1.20 0.57 10 Netherlands 1.55 30.16 11 Malaysia 1.35 -27.00 12 France 1.21 -0.29 13 Thailand 1.19 -0.51 14 Australia 1.18 16.82 15 Philippines 1.02 -1.35 16 China .992 11.05 17 Switzerland .631 -0.89 18 Belgium .585 19.84 19 Italy .564 -4.57 20 Brazil .560 -0.30
*--*
Source: California Trade and Commerce Agency; U.S. Commerce Department
Researched by JENNIFER OLDHAM / Los Angeles Times
