U.S. manufacturers should prepare for increase in foreign competition
- The United States is currently the top destination for foreign investors worldwide
- Despite higher perceived risks, non-U.S. companies plan to embrace an increasingly global mindset.
Non-U.S. manufacturers are showing more appetite than their U.S. counterparts for pursuing new international markets. “This appetite may be due to the size and location of a company’s home market,” says Steve Menaker, partner with RSM US LLP, “but it reflects a growing willingness among companies to pursue opportunities globally, and that the challenge of achieving top-line growth is more difficult due to both global and local economic and political issues.”
While U.S. companies currently are more active in pursuing international sales, more than twice as many non-U.S. companies plan to start selling outside their borders this year1. Moreover, “The United States is currently the top destination for foreign investors worldwide, ahead of China, and has been for a couple of years,” says Frank Le Bihan, principal with RSM’s international services office.
Similarly, while U.S. and non-U.S. manufacturers alike purchase the majority of their goods and materials domestically, by the end of the year, most intend to be doing at least some of their sourcing internationally. Again, acceleration in this trend is faster outside the United States. Non-U.S. companies plan to pursue new international sourcing relationships at more than twice the pace of U.S. respondents.
A divergence in global approaches
In general, non-U.S. companies are more aggressive in their international plans and in the variety of investments they are willing to make and the variety of activities they are ready to undertake to pursue them.
According to a recent report on global trends, the United States is the leading destination for foreign direct investment, which has reached record levels. Based on market, local talent and cost efficiency, states with particularly strong investments include Texas, North and South Carolina, Tennessee, Ohio and Virginia.2
“Given Europe’s economic challenges, healthy European companies are looking at the United States as one of the few opportunities for growth, or simply as a hedge against risk,” notes Le Bihan.
Chinese companies, too, are looking to the United States according to Frank Ji, RSM’s China desk leader. “Chinese companies are entering the U.S. market both through green field investments and by buying existing companies,” says Ji. “I can point to a few trends driving that investment. Some Chinese investors see U.S. real estate as a safe haven for their wealth. Chinese companies sometimes buy U.S. targets in order to acquire advanced technologies. Finally, because of food-safety issues in China, Chinese companies are setting up shop in the United States as purchasing agents for U.S. agricultural products.”
Going global despite concerns
In 12 out of 16 metrics, non-U.S. companies report higher concerns about various factors that might inhibit their international growth, while a higher percentage of U.S. companies report that there are no inhibitors to international growth. These factors include currency fluctuations, the global economy, safety and security, and lack of financing.
Yet, despite foreseeing more obstacles, a higher percentage of non-U.S. companies plan to increase their international sales efforts and their international sourcing activities, and they plan to pursue a wider range of global growth strategies.
“U.S. companies need to think holistically about growing their business, both in terms of expanding globally and in protecting their domestic market share,” says Karen Kurek, a partner in RSM’s manufacturing practice.
U.S. companies should be bracing themselves for a determined increase of foreign investment and competition. Favorable interest rates, energy costs and other factors are making the United States a preferred destination for foreign capital.
That’s great news for the U.S. economy, but not always great news for U.S. businesses. Foreign competitors hungry for a bigger slice of the world’s biggest economy are investing in U.S.-based operations, taking advantage of favorable conditions to grab a share of the market. Given the United States’ strong economic position, foreign investment is likely to increase, possibly sharply.
1 2015 RSM Manufacturing & Distribution Monitor
2 “Global Location Trends 2015 Annual Report,” IBM Institute for Business Value