U.S. firms cast wary glances overseas

As finance crisis expands, exports become a focus

October 12, 2008|By Andrea K. Walker and Jamie Smith Hopkins | Andrea K. Walker and Jamie Smith Hopkins,andrea.walker@baltsun.com and jamie.smith.hopkins@baltsun.com

As U.S. financial markets imploded and credit dried up in recent weeks, there seemed to be a haven abroad. But with financial turmoil spreading beyond America's borders, businesses and investors are likely to face daunting challenges as they tap into the global economy.

Towson-based Black & Decker Corp. has seen tool sales slow in Europe and is reducing costs. McCormick & Co., the Hunt Valley-based spice maker, has seen a similar slowdown and is responding by marketing new products to cash-strapped families.

Meanwhile, investors who diversified into international mutual funds are losing ground. For example, T. Rowe Price Group's Emerging Europe and Mediterranean fund dropped in value by 26.3 percent last week, and international equity funds have lost 45 percent for the year as of Thursday, according to mutual fund tracker Lipper Inc.

At the same time, though, some companies are pushing to find new business overseas.

"Our client base is just growing - literally - daily," said Nancy Wallace, director of business development for High Street Partners, an Annapolis firm that helps companies with administrative and financial details of international expansion. "I've definitely seen the shift in the past few months, people saying, 'We need to diversify.' "

A worldwide financial meltdown last week sent shares plummeting in the Asian and European markets. American stocks continued diving, with the Dow Jones losing nearly 2,400 points in eight days for its worst week ever. Even a coordinated effort by the world's central banks to lower interest rates could not completely steady the markets.

Yesterday in Washington, President Bush met with officials from the Group of Seven industrialized nations, as well as members of the International Monetary Fund and World Bank, the Associated Press reported, to discuss efforts to combat the unfolding global financial crisis. The officials reiterated their pledge to find ways to stem investor panic and provide relief to frozen credit markets.

A global financial crisis is bad news for U.S. exporters because companies and consumers in other countries will have less ability to buy, economists say. Foreign banks once eager to lend to American companies are pulling back. And the dollar is strengthening against some other major currencies, dulling the competitive edge that a weak greenback offered.

"I do not see exports buoying the U.S. economy for much longer," said Roger Staiger, a fund manager who is an adjunct professor of capital markets at the Johns Hopkins University's Carey Business School.

An early sign of a slowdown appeared Friday, when the government said the value of U.S. exports fell $3.4 billion in August.

"Exports were a bright spot in the economy, but now with the Asian economies feeling the effect, with the European markets ... either going to be stagnant or contracting - put those things together and exports have to slow," said Peter Morici, an economist and professor of international business at the University of Maryland's Smith School of Business.

Maryland companies that depend heavily on worldwide sales are watching closely.

Black & Decker generates about 40 percent of its sales outside the United States. It's monitoring international markets and has been cutting spending as conditions change, spokesman Roger Young said.

A stronger dollar also hurts the company's exports, Young said. "The trend would increase the cost of product being sold in Europe, for example."

At McCormick, 40 percent of 2007 sales came from international operations.

"The global economy is one we're watching as closely as everybody else," said Alan D. Wilson, McCormick president and CEO. "It's very volatile, and we're watching the screens just like you are."

Despite the slowdown in Europe and less favorable currency rates, the impact on the business has been small, Wilson said. Interest rates on short-term borrowing have also risen.

Wilson is confident because the company has little debt and steady cash flow. He also said McCormick has introduced products such as $10 meal solutions for consumers on tight budgets.

Morici, a former director of economics at the U.S. International Trade Commission, thinks that most of the recent actions by the Federal Reserve and other central banks around the world "can't have an effect because the banks are dysfunctional."

Staiger expects even more tightening of credit availability for American consumers and businesses. Despite the climate, some exporters will probably continue to do well, Staiger said. Those in medical fields may be more protected, he said, but "on the whole, you're going to see a global drawback of growth."

William Burwell, director of the U.S. Commercial Service's Export Assistance Center in Baltimore, said it's too soon to tell how the global troubles will affect exporters. "There's a great opportunity in the Middle East and other markets where there's a lot of building and expenditures and money that is seeking to buy U.S. products."

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