Emerging growth markets tempt Hoosier companies

If there’s just one reason Indiana companies might think hard about doing business overseas, it’s an alarming trend in the form of X-shaped line chart.

The U.S. share of global consumption is projected to nosedive to about 24 percent in 2015 from 37 percent just 15 years earlier. In contrast, consumption in so-called emerging markets will soar to 44 percent, from just 23 percent in 2000, according to Morgan McGrath, J.P. Morgan’s head of international banking.

“Ninety-five percent of the world’s consumers are located outside of the United States. That in and of itself is such a driver,” said McGrath, who moderated the Global Indiana program Thursday morning at downtown's JW Marriott, presented by Chase Bank and IBJ.

Hoosier companies have been embracing the going-global gospel in recent years, with exports rising from $28.8 billion in 2010 to $34.2 billion in 2013, according to the U.S. Department of Commerce.

That was down 1 percent from 2012—the first decrease since a 14-percent tumble in 2009 amid the financial crisis.

The number of Indiana companies exporting is on the rise—now about 8,000 companies, and many of them small- to medium-sized firms, McGrath said.

McGrath, whose bank has financed the overseas ventures of many U.S. companies, said incentives for doing business overseas are many, beyond pursuing higher-growth markets. For example, many of those markets also provide a buffer to downturns in the U.S.

In China, gross domestic product is expected to grow 7.4 percent in 2014, compared to 2.9 percent in the U.S. And China’s growth rate for this year is even considered low, compared to double-digital GDP rates in recent years. “In China,” McGrath said, “it feels like a recession right now,” comparatively speaking.

It’s a growth rate the U.S. would love to have.

In some cases, having an operation overseas exposes a firm to additional innovation and best practices and, as is often the case in manufacturing, reduced labor costs.

One reason Bloomington-based medical device maker Cook Group Inc. set up overseas operations over the years was to be close to the experts in minimally invasive surgical techniques in countries such as Sweden, noted Dan Peterson, vice president of industry and government affairs at Cook.

Indianapolis-based Marian Inc., a maker of die-cut parts, initially resisted the idea of setting up an operation in China to support a client. The reluctance later cost Marian its relationship with the client, said President Eugene Witchger.

When Marion later picked up a Singapore plant after acquiring another company, there was little choice but to embrace the challenge. But at first, “we just didn’t know what to do. We didn’t know how to get started,”  Witchger said.

Such a deer-in-the-headlights position isn’t uncommon for newcomers. Besides language and cultural barriers that can be formidable—just crossing one’s leg and exposing the bottom of one’s shoe is considered an insult in parts of Asia—there are unforeseen threats. Consider how the recent earthquake and tsunami in Japan devastated the global automobile supply chain for months.

“It’s nervous [inducing], crossing those borders, crossing those lines,” said Larry Gray, CEO of Westfield-based IMMI, which makes safety equipment for the transportation industry.

“Our customers said we need you to move globally. We resisted initially,” Gray said. “You don’t want to underestimate the difficulty.”

Executives recounted their early steps to gain a foothold in a foreign market, such as by hiring expatriates of a country to return home to help get an operation going.

Indeed, finding people who understand Western business practices and were educated in the U.S. has been a big help for Indianapolis-based cutting-machine maker Hurco, said chief financial officer John Oblazney.

McGrath said companies are wise to make sure that senior managers of a company spend time overseas to help build relationships. Given the disruption that can cause in an executive's schedule, Cook has learned to rotate senior management team visits, Peterson said.

“It’s a different way to do business, but you get used to it. You have to work a different schedule,” said Gray, whose children instinctively hand him the phone when it rings late in the evening.

McGrath noted that many companies have decided to enter foreign markets with a joint-venture partner in the country. In some countries, in fact, that’s a requirement, although less so today.

But some Indiana companies have resisted that, wanting a greater degree of control.

“You’re always concerned about secrets walking out the door,” said Witchger. A potential price for that is slower growth in the early years. But, “we felt the need to have control,” he said.

A number of companies that set up operations overseas did so to support a client with operations in that country. Often those products then are shipped back to the states. But companies are now finding that there’s real money to be made selling product within that country, particularly in fast-growing countries such as China, India and Brazil.

Indeed, China is now about 50 percent of Hurco’s market, Oblazney said.

Oddly, increased regulations that ordinarily would be a turn-off for companies actually hold new promise for Indiana companies. China, for example, is imposing new safety rules for car seats that could be a boon to IMMI. “We just have to be poised and ready to go with them,” Gray said.

The panelists universally agreed that finding the right people when doing business overseas is key, particularly in their knowledge of business climate, culture and government. “You’re on their turf and you need to play by their rules," Peterson said.

The two largest categories of Hoosier exports grew modestly last year, with transportation equipment shipments up 3 percent, to $9.8 billion.  Chemicals, which includes pharmaceutical products produced in Indiana, rose 1 percent to just under $9 billion.

Among the biggest gainers were agricultural products, which grew by 20 percent, to $128.3 million.

While China gets the headlines these days, the top five destinations for Indiana goods are Canada, Mexico, Germany, Japan and France.