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U.S. firms look to sell wares in emerging markets

As sales wither at home, manufacturers see China, India and Brazil as a customer base of new affluence.

October 04, 2009|Don Lee

WASHINGTON — With debt-burdened American consumers cutting back in response to the recession, many U.S. companies are increasingly looking outward, toward fast-developing countries such as China, India and Brazil.

But instead of seeing these nations primarily as cheap producers of goods to sell to Americans, U.S. corporate leaders see them as potential customers for American products and services.

That shift, which has been underway for several years but has intensified sharply during the downturn, comes as vast numbers of families in these emerging economies are moving into cities and spending like never before to improve their living standards.

The trend could be a source of new jobs and investments in the United States, but it is unclear how large that benefit may turn out to be. Many American companies are investing in production and other facilities near the new customers instead of shipping goods from U.S. plants to the overseas markets.

The size of these potential markets dwarfs the domestic markets of most of the economically advanced nations. China, India and Brazil have a combined population of more than 2.6 billion people, many of them young and increasingly affluent, in contrast to the aging and far smaller populations of Western Europe, Japan and the United States.

The push overseas is taking place among small American manufacturing firms as well as giant multinational corporations. And it reflects what may be the beginning of a shift in the global economy, a rebalancing in which the world relies less on U.S. consumers and more on consumer spending in places such as China.

Almost no one doubts that Americans will reap some benefits. Stronger U.S. exports certainly will boost the domestic economy, as they have over the last decade.

Without their foreign customers, businesses such as Power Curbers Inc., a small construction-equipment maker in Salisbury, N.C., probably would have gone bankrupt in the recession.

"We're fortunate that infrastructure development is going on in other countries," says Dyke Messinger, Power Curbers' president. He says 75% of his sales this year is international, compared with 25% two years ago.

Leaders of General Electric Co., believing that the U.S. and other advanced economies face a prolonged period of slow growth, say they are banking more than ever on emerging economies.

John G. Rice, GE's vice chairman, insists that it's not a zero-sum game.

He cites a locomotive assembly plant that the company just opened in Kazakhstan, in Central Asia. The trains' diesel engines and related parts are made in Grove City and Erie, both in Pennsylvania, he says.

And consider GE's low-cost, portable ultrasound machine that is targeted for rural China. Although the device is produced in a city near Shanghai, Rice says, engineers in Waukesha, Wis., among other places around the world, are benefiting from its growing sales in China and elsewhere.

Rice couldn't put precise figures on jobs and profits that fed back to the U.S. from these projects, but says the launch of new products in budding markets overseas is clearly adding to employment at home, not taking it away.

Heading to markets

Yet over time, he says, more and more of the development and production of international goods will be transferred to local markets, such as with the locomotives in Kazakhstan, because of shipping costs and other factors. In fact, GE's chairman, Jeffrey Immelt, argues that the shift in the balance of consumption power -- from wealthy countries to the emerging giants -- calls for a different business model for companies like his to succeed.

As populous nations such as China and India become a greater force in driving demand, the old way of developing products at home and distributing them worldwide won't cut it, Immelt writes in the October issue of the Harvard Business Review.

Instead, he says, more of the products of the future need to be designed, built and marketed in those local markets, with decision-making power placed in local hands.

Immelt does not address the implications of this for American employment, but the trend line may be apparent from his own company's annual reports: In 2004, GE had 165,000 employees in the U.S. and 142,000 elsewhere. By the end of last year the preponderance had been reversed: 152,000 in the U.S. and 171,000 outside.

Such statistics underlie the rising overseas investment of U.S. corporations, and are almost certain to rekindle politically sensitive issues: outsourcing, as well as U.S. tax and currency policies and other incentives tied to overseas investments and the repatriation of profits.

A weaker dollar, for example, will help U.S. exports and might encourage American companies to invest a little more at home, says Sheldon Engler, a global economics expert and consultant in San Francisco.

At the same time, he notes, it would be a mistake to see things as simply either/or.

"A decision to build a plant in China doesn't alternatively mean it would have been built here," Engler says.

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