Exports rebound as globalization expands

Vermont Business Magazine, Aug 01, 2006 by Simos, Evangelos Otto

Globalization. is a complex process of blending domestic and foreign products, resources and technology in international markets. Although globalization, measured by different indicators, increased in the second half of the 20th century, it really took off in the past twenty years driven by worldwide deregulation policies, regional trading blocs and the new role in business activity played by advancements in information and communications, especially the transformation of doing business by the Internet revolution.

Globalization provides new opportunities for companies as they take advantage of additional markets which may also be expanding faster than the domestic market. Companies that globalize their business operations become more competitive than the rest, because their exposure to worldwide competition compels them to make every effort to become efficient so that they take advantage of all universal opportunities opened to them.

Several studies have shown that exporting companies enjoy higher and faster-growing productivity, generate more jobs, pay higher wages, and grow their overall business bigger than comparable companies which export to a lesser extent or do not sell their products abroad.

The benefits that companies derive from globalization have an impact on overall economic development and job creation at the national and state level. A key indicator in measuring globalization is the exportratio that gauges the percentage of domestically produced output which is destined to foreign buyers.

Using the latest statistics for the country as a whole, in the first quarter of this year the US export-ratio was 7.6 percent. In other words, national exports of goods accounted for 7.6 percent of the nation's output, measured by gross domestic product (GDP), which hit the $13 billion annual mark in the first quarter.

The state counterpart of the national index of globalization is the stateexport ratio, the ratio of state exports of goods to the state's overall output. In Vermont the state-export-ratio hit the 16 mark in the first quarter of 2006. This means that 16 percent of Vermont's gross state product (GSP) is shipped abroad to foreign buyers. Vermont's economy is twice as open as the nation as a whole.

Has the degree of globalization changed for state companies over the last twenty years? In the first quarter of 1987, twenty years ago, Vermont's export ratio was 5.9. In other words, the degree of exposure of state companies to international markets has significantly increased from twenty years ago by a factor of 2.7.

According to the latest international trade numbers, foreign sales of goods made in Vermont rose in May by 3.2 percent, after falling 0.7 percent in April. Vermont's exporters sold overseas $317.2 million in goods in May, adjusted for seasonal variation B a statistical technique that B like with national numbers smoothes out monthly fluctuations for factors such as the number of working days in a month and thus portrays a lucid picture of monthly trends.

May's numbers suggest that state exports may have entered a recovery phase following a 10-month long downward trend. Compared to a year ago, Vermont's exporting companies this May surpassed their export performance in May of 2005 by $15.3 million, or 5.1 percent.

Vermont's overall exports in May reflected the mix of trends in the foreigners' demand for goods made by different industry groups. Overseas shipments from Vermont's manufacturers - which accounted for 63 percent of all exports climbed to $198.4 million, seasonally adjusted, 5.4 percent more -than April's level of shipments.

Exports of non-manufactured goods went down 0.4 percent in May to $118.8 million, adjusted for seasonal variation. This group of foreign sales consists of agricultural goods, mining products, and re-exports which are foreign goods that entered the state as imports and are exported in substantially the same condition as when imported.

At the national level exports of goods rose by 2.9 percent in May to an all-time high of $84.2 billion, seasonally adjusted. So far this year, national exports of goods grew by an impressive annual rate of 13.3 percent from the same period a year ago.

How does Vermont match up to the 50 states in export growth in 2006? In the first five months of the year, foreign sales from Vermont's companies seasonally adjusted - decreased by an annual rate of 3.6 percent compared with the first five months in 2005.

In view of the year-to-date performance in foreign sales, Vermont ranked forty seventh among the fifty states in export growth.

Reflecting strong global growth, leading economic indicators point to good prospects for exporting companies in the next few months. According to a recent business survey conducted by the Institute of Supply Management, the nation's supply executives continue to be optimistic about foreign demand in export markets.

The Tempe, AZ, based research institute reported that their export orders index grew in June for the 43rd consecutive month. The recent reading also indicates that incoming export orders from foreign buyers grew in June at a slightly slower pace than in May.