Companies with strong international mix vastly outperformed localized competitors
HSBC study shows firms with oversees offices or revenue doubled the profit-margin spread of companies with limited international exposure.
NEW YORK—Highly international companies based in the Northeast had robust average profit margins while companies in the same region with low levels of internationalization had considerably lower levels of profitability, according to a new report commissioned by HSBC Bank USA, N.A. (HSBC).
The report, HSBC Spotlight on US Trade: Northeast shows the average profit margin in the Northeast for highly international companies was 7.7 per cent from 2007-2012, while companies in the same region with low levels of internationalization were, on average, unprofitable during the same time.
The HSBC report analyzed the level of overseas sales and operations at top US publicly listed companies based in the Northeast and across the nation to understand the impact of international sales and operations on business profit margins by region and select sectors.
Northeast companies with high levels of internationalization posted profit margin spread of 10 per cent—double the average national profit margin spread of five per cent. Companies by sector—consumer goods, healthcare, industrials and information and communication technologies (ICT)—also followed the trend.
“The findings underscore the impact a diversified geographic customer base can have on the profitability of a business,” said Paul Cronin, executive vice-president, Northeast Corporate Banking for HSBC Commercial Banking in the US. “With sluggish domestic growth expected and increased global competition, more Northeast companies might want to consider global trade opportunities to grow.”
HSBC Bank USA, N.A. recently announced a $1 billion, 18-month dedicated loan program for small and medium size businesses looking to export or expand internationally, to help companies find global growth opportunities and to further accelerate global business growth by US enterprises.
Highly international Northeastern companies also had a stable upward trend in their average profit margins, growing robustly from 2007 to 2009, before settling at an average profit margin of 9 per cent in 2012. By contrast, profit margins for companies in the Northeast with lower international exposure were extremely volatile, swinging from high levels of unprofitability in 2007 to 2008 before climbing back to profitability in 2009 and reaching an average profit margin of 6.5 per cent in 2012.
Such companies in the Northeast with a limited international mix never outperformed their more internationally-oriented peers.
“By taking advantage of the international opportunity, highly international Northeast companies were able to insulate themselves from domestic market fluctuations and remain profitable,” said Cronin.
For this report, the Northeast region included Massachusetts, New Jersey, New York, Connecticut, Pennsylvania, Maine, Maryland, Vermont, New Hampshire, Rhode Island, Delaware and Washington D.C.
In 2012, the region increased the value of goods it exported to $226.7 billion, according to the US Commerce Department’s International Trade Administration. This represented growth of nearly 17 per cent over the six year period.
Last year, the region’s largest export markets were Canada, the UK and China. Additionally, the region is poised to benefit from even greater access to overseas markets through several free trade pacts currently under consideration, including the Transatlantic Trade and Investment Partnership. Furthermore, it benefits from proximity to some of its largest trading partners, Europe and Canada. The region’s highly technical, IP-protected products also create unique demand for its exports.
“Companies in the Northeast have a tremendous base on which to build, including a highly skilled workforce and market leading brands and capabilities,” said Cronin. “Northeast companies that continue to diversify their sales and operations in international markets will strengthen their businesses in the long-term.”