March 18, 2013

Bay State Manufacturers Suffer Drop In Exports

Although Massachusetts exporters have made significant efforts to spread their products around the globe, the fact that the United Kingdom is suffering from a weak economy and, yet, is the state's second-largest export partner hurt the commonwealth's manufacturing business last year.

While the United States as a whole saw a 4.5-percent increase in exports in 2012, Massachusetts exports were down 8 percent. Much of the pain came from double-digit percentage drops in exports to Europe. For example, shipments to the U.K. were down nearly 20 percent, but nationally, only about 2 percent.

The story is the same for several other European nations whose imports from Massachusetts declined at disproportionate rates compared to the U.S. Those with the biggest disparities included Germany, Italy, Switzerland and France.

André Mayer, senior vice president of communications and research at Associated Industries of Massachusetts, said the Northeast was hurt by declines in European exports, but it was worse for Massachusetts.

"The situation in Europe is one where if there were a huge financial crisis and the economy collapsed and all that, everybody would feel that," he said. "If instead they stagger along … that hurts the states that export to Europe. "

Meanwhile, exports to Asian markets were down nearly 6 percent, while those to Canada declined 10 percent. But the U.S. saw growth in each of those regions.

Julia Dvorko, the regional director for the Massachusetts Export Center, said she believes the state's export decline is a combination of its focus on regions that aren't so pivotal for the country as a whole and that the types of exports are different than what's in highest demand.

She noted that Massachusetts is growing in areas where the commodities and markets are growing for the U.S., but at a smaller pace. However, of the state's top 10 exports, pharmaceuticals and seafood were the only growth areas.

"I think we're just having a slightly different profile as compared to the U.S. and we don't have some areas that are growing strongly," Dvorko said. Massachusetts isn't a player in some of the largest export industries of the U.S., including oil and aircraft.

Mayer said this also has to do with the state exporting many capital goods, rather than consumer products, so exports won't pick up until businesses feel confident to invest again.

And he cited another issue: industries that go through natural cycles of ups and downs being at a lull.

For example, much of the state's investments are in technology, and Mayer said Bay State exporters send a lot of quality control instruments. But, he added, that industry is on the downside of a business cycle. Yet when the there's a new innovation in the industry, those types of exports will be in demand again.

One Firm’s Growth Via Exports

The whole picture isn't bleak, though.

Lester Hensley, president and CEO of Westborough-based Emseal Joint Systems Ltd., which makes expansion joints that allow large buildings like stadiums to adjust to geological shifts without being damaged, said exports account for roughly 8 percent of company revenue and it's grown an average of 20 percent over the last three years. He said Emseal has projects around the world, including in Panama, the Caribbean, Saudi Arabia, Iraq and New Zealand.

After recovering from a post-recession sales drop, the company rebounded to break its sales record in 2012.

"The reason for that is our products are as well suited to (retrofitting), as (they are) to new construction," Hensley said. "So we basically shifted feet after 2009 from a predominantly new-construction portfolio to a predominantly retrofit portfolio." The company also expanded to new markets, such as the Middle East, Latin America, the U.K., New Zealand and the Caribbean.

"There will be (market ups and downs) but it never means there is zero spending," he said of Emseal's success amid global economic woes. "There's always someone building a building or redoing the building they're in."

Mayer expects overall Bay State exports to those regions of the world where Emseal expanded to improve.

"It's not a coincidence that the governor has led trade trips two years in a row to Latin America," he said. "Latin America is next on the agenda, presumably, and is likely to be a growth area." He said where companies export to is historically more important than what they're exporting, and he noted ongoing growth in such locales as Mexico (12 percent in 2012), Vietnam (43 percent) and Pakistan (146 percent).

"We're certainly remaining very tied to Europe but absolutely companies need to look at where the growth is now and where it's likely to be," Mayer said. But the importance of Europe going forward is not to be downplayed.

"The most important thing for us is going to be which way Europe goes," Mayer said. "They could continue to grow or they could (run) themselves into the ground" by enacting government austerity programs.


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