Connecticut Companies Survey World Markets
The U.S. economy is picking up and the Eurozone’s out of a recession, but emerging markets are now slowing down. In this new economy, companies find it takes more than one market to fuel growth.
Think of the global economy as a large pizza pie worth nearly $75 trillion. Each country adds more dough and toppings, and the pie keeps growing. But downturns change that.
The last few years have been rough, starting with the U.S. financial crisis and the Eurozone recession. During the time, emerging market economies led much of the growth. Now, the U.S. economy is starting to turn around.
GE chairman and CEO Jeff Immelt spoke to analysts at the second quarter earnings call in July. "Emerging markets remained resilient," he said, "while Europe stabilized. Orders in the U.S. were the strongest we’ve seen in some time, with 20 percent growth. Overall, our orders grew by four percent and backlog increased to $223 billion."
U.S. markets are strong enough that overseas companies are also investing here and not just in high-tech industries. Last month, for instance, French food company Danone bought yogurt toppings company YoCrunch in Naugatuck to grow its American yogurt market share, currently at about 30 percent.
Danone’s Michael Neuwirth said, "Americans today eat yogurt very infrequently – less than one cup of yogurt per person per week. In France or Spain, the average Frenchman eats yogurt at least one cup per person per day." There’s only so much yogurt people can eat in France and Spain, so in addition to the U.S., Danone is growing its market in China.
Up until two years ago, emerging markets played catch up with the U.S. and Europe, growing at a rapid pace. The majority of the world’s population lives there, and they needed goods and services that people in advanced economies already had: roads, healthcare, energy, and retail. Now, growth is slowing down sharply.
Still, there are pockets of revenue opportunities for companies like Danone, and Praxair in Danbury, specializing in industrial gases. Its packaged gas business depends on construction spending.
Speaking to analysts at the second quarter earnings call in July, Praxair chief financial officer James Sawyer said growth in China somewhat made up for public spending cuts in the U.S. and Europe. "Now with cuts and discretionary spending," Sawyer said, "public spending on construction is falling. Europe public spending on construction has been falling continuously as a result of the austerity programs. By comparison our volumes in China have risen by three-fold."
The Eurozone economies are emerging only slowly from recession. But even here, Connecticut can find opportunities with its concentration on financial services. Financial software firm SS&C Technologies in Windsor is expanding. Last month, it opened a new office in Luxembourg.
CEO Bill Stone said, “It’s the largest domicile for regulated funds in Europe and we think that’s going to be a really good place for us to be. We have some great opportunities in Luxembourg.”
Still, about 60 percent of revenue for SS&C comes from the U.S. The firm also opened an office in Los Angeles to tap into investment funds in Silicon Valley. Julia Coronado, chief U.S. economist at BNP Paribas in New York, says companies are being very cautious in planning their growth strategies because it’s a tough economy everywhere. "Emerging markets boomed," said Coronado. "They look ripe for a slowdown, or even a recession, in some cases. The U.S., on the other hand, has been through a very, very long, slow recovery. Yes, the U.S. has healed a lot, but it’s a gradual process; it’s not a boom time. And in Europe, some of the worst is behind us in terms of the European recession. But we’re talking about 0.3 percent growth rate for Europe, which is very subdued.”
Coronado says this is not an “either-or” story. Economies need each other to grow, and Connecticut continues to woo companies overseas to invest and form alliances with local firms. Trade missions by government officials and executives include trips to China, Germany, Australia and Israel. Also, cash-rich U.S. companies are expanding abroad through acquisitions in emerging and high-growth markets. According to the consulting firm KPMG, U.S. companies made 116 acquisitions in the first half of this year. Key regions include China, Brazil and India.