Global Engagement

Despite the worldwide recession, new growth opportunities are waiting in international markets

Story by Sean Fitzgerald

WITH THE NEARLY 2-YEAR-OLD U.S. RECESSION creating historic challenges for area businesses, those firms catering more widely to the global marketplace have found they can mitigate some of their domestic losses with gains abroad.

Exports out of Wisconsin had continued to be a ray of sunshine during 2008 as global sales from Wisconsin firms grew for the tenth consecutive year and reached a record high $20.5 billion. That’s up from $17.1 billion in 2006, and nearly double the state export sales total of $10.6 b illion recorded in 2002.

Even though the global recession is beginning to show signs of wear on exports of some Wisconsin products, state exports to various regions are continuing to show promise. In fact, despite the international recession, Wisconsin exports to Latin America during the first half of 2009 are running 33 percent above the same level from a year ago.

International markets open up substantial opportunity for Wisconsin businesses to grow. There’s a number of ways in which area firms can exploit international business opportunity, and there’s a substantial number of resources available to help.

When opportunity knocks

MARCHANT-SCHMIDT INC. HAS HAD A GOOD RUN since taking a sustained strategy in the global market beginning in 2005. The Fond du Lac-based designer and manufacturer of stainless steel products and equipment for food and dairy processors recorded just 2 percent of its overall sales in export markets – primarily Canada and Mexico – as of 2005. By 2006, that figure grew to 27 percent, and as of 2008, Marchant-Schmidt found as much as 45 percent of its orders coming from abroad, said Jeno Thuecks, general manager of Marchant-Schmidt.

A substantial contributor to the growth has been an increasing European appetite for packaged cheese products that are already sliced or shredded. The processors distributing such cheeses to supermarket shelves – like Costco and Wal-Mart, which are quickly gaining market share in Europe – use products such as those made by Marchant-Schmidt to develop innovative food products for consumers in those countries. The company tapped into the market after attending food industry trade shows in the United Kingdom, Germany, Australia and New Zealand during 2005.

Since then, it’s enhanced its expertise in selling to foreign markets. During 2008, the small Fond du Lac manufacturer opened a sales office in the United Kingdom to establish a closer presence with its European customers. Thuecks said the company additionally hopes its tangible European presence can help it better identify other manufacturers to partner with and produce lower-end versions of Marchant-Schmidt products, which are custom-designed and built equipment typically costing between $500,000 to $750,000.

Admittedly, this year has seen a downturn in sales abroad, Thuecks said. Through the first nine months of 2009, international receipts account for just 19 percent of Marchant-Schmidt’s overall business for the fiscal year. Thankfully, domestic sales during 2009 have helped buoy revenues for the year.

It’s that diversification of customer base between U.S. food processors and those abroad that has allowed Marchant-Schmidt to better weather economic storms affecting certain region around the globe.

“It gives us that added customer base potential to draw from,” Thuecks said.

Along the way, Thuecks and Marchant-Schmidt found helpful direction from the state Department of Commerce. The international bureau has a team of consultants who provide updates on regulatory changes and offer advice on how to use an international letter of credit. A grant from the Wisconsin Trade Project Program helped finance participation in the 2005 industry trade show in Germany.

For its successes, Marchant-Schmidt Inc. was named the 2007 Governor’s Export Achievement Award winner for Wisconsin.

 Developing global interest

TAPPING INTO THE GLOBAL MARKETPLACE could prove to be one of the greatest unfound sources of new customers for Wisconsin manufacturers who’ve sat on the sidelines and maintained solely a domestic sales presence. Unfortunately, few have ventured out of the safe and familiar waters of home.

Marchant-Schmidt’s Thuecks noticed such reluctance himself. Of two recent events in which he was invited to speak and share the company’s exporting lessons and successes with other manufacturers in northeast Wisconsin, one was canceled due to a lack of registrants and a second had what Thuecks described as a small audience.

The 2008 Wisconsin Next Generation Manufacturing Study surveyed more than 500 manufacturers across the state and revealed more than 60 percent said global engagement was either of average importance, somewhat important, or not important at all to their success over the next five years. More over, a majority of those manufacturers surveyed said they’ve made “little or no progress” toward becoming a world-class global player. Only 4 percent of state manufacturers responding to the survey ranked themselves world-class.

Those firms that don’t at least keep an eye on the global horizon are ignoring a portion of their growth potential, said Mike Klonsinski, executive director of Wisconsin Manufacturing Extension Partnership, the state organization who commissioned the study. He said the results of the global engagement portion of the Next Generation Manufacturing study weren’t necessarily surprising because WMEP knows many of the state’s smaller manufacturers, in particular, just haven’t taken the time and expended the resources to investigate export markets for their products.

To make the jump into the global arena less daunting, WMEP launched a new partnership with the state Department of Commerce last month aimed at encouraging manufacturers to dip their toe into the world market to investigate if there’s even the slightest demand for their products. Export development managers from the state’s International trade staff can work with exporters to determine feasibility of selling their product in a foreign market, evaluate freight options and import regulations for shipping products abroad, as well as issues such as collecting on accounts receivable.

A number of Wisconsin manufacturers earned their start by producing a product which was used by local consumers, or produced a component part sold to another local manufacturer. Because of freight costs, logistics and good customer relations, proximity to customers mattered. Expanding customer base geographically – whether moving outside the community, outside of the state or outside of the Midwest – was often a big step forward and quite a departure from the traditional model of doing business for many small Wisconsin manufacturers.

“We’re interested in having manufacturers at least look into the possibility of global markets,” said Klonsinski. “(In recent months) There has been a notable increase in the amount of interest from manufacturers to learn more about global opportunities.”

 And despite economic conditions here and abroad, Klonsinski said many of those opportunities remain ripe. An additional finding from last year’s Next Generation Manufacturing Study revealed 77 percent of Wisconsin manufacturers surveyed reported sales outside the U.S. have grown by less than 25 percent during the last three years. International exports from Wisconsin as a whole grew by 38 percent during that same period, according to data from the state Department of Commerce.

 Global business stateside

GLOBAL TRADE DOESN’T necessarily have to mean exporting a product across borders and through customs.

U.S. manufacturers do billions of dollars in contract manufacturing for foreign firms selling goods in U.S. markets. With the often exorbitant cost of shipping heavy, bulky or potentially hazardous product across the Atlantic or the Pacific oceans, European and Asian manufacturers have found the cost to produce in the U.S. for product sold domestically can be just as much when considering freight costs. Factor in a weak U.S. dollar – which faced a currency exchange rate that was nearly $1.50 to one Euro as of late October – and the production cost can fall decidedly in favor of American factories.

Opposite from the kind of partnerships Marchant-Schmidt is seeking with British manufacturers, Oshkosh-based Blended Waxes is working on the final touches of a partnership with a European blending business looking for a Western Hemisphere firm to make product for its North American customer base. For years the company produced product at its own European manufacturing facility and shipped it across the Atlantic to its customers in the U.S. and in Canada, said Bob Coglianese, chief executive officer of Blended Waxes.

As the value of the Euro has continued to rise on the U.S. dollar in recent months, the opportunity cost for this European manufacturer to shift production overseas became too great to ignore. 

“Their cost to manufacture, along with the cost of shipping and the currency exchange, became just too much,” Coglianese said. 

Under the agreement Coglianese is looking to forge, Blended Waxes would make the blended ingredients for this European firm and then ship it directly to the firm’s customers in North America. Such manufacturing partnerships further expand opportunities to Wisconsin firms, which can prove to be a true value to foreign companies looking to enhance their brand reputation in the U.S., Klonsinski added.

“Wisconsin manufacturers have a rich history of quality, reliability and innovation,” Klonsinski said.

Perhaps it’s time the rest of the world discovered as much.