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Foreign Trade February 2005

No Borders,
No Bother

Global competition crippled
some businesses while others adapted and thrived. How'd they do it?

By Lawrence Bivins
Nucor, now the largest maker and recycler of steel in the country, did very well last year focusing on domestic business. Just ask Nucor stockholders, who saw their shares surge in value by over 90 percent in 2004.

But the global economy affects all manufacturing companies these days. An explosion of Chinese demand for infrastructure helped keep the pressure on steel prices and firmed the international market, says Bob Johns, director of marketing for Nucor Corp.’s sheet mill group. Johns says Nucor is far from bullish on global trade, considering Chinese currency manipulation and the dauntingly lopsided U.S. balance of trade, among other factors. But the Charlotte-based company is expanding in Brazil and pursuing opportunities in Australia and Trinidad, primarily focused on helping the company control more of its raw materials.

And, while meeting domestic orders limited Nucor’s foreign trade last year, the steel maker considers its North American neighbors of Canada and Mexico “much like domestic customers. Our most consistent export markets are Canada and Mexico,” says Johns.

Global trade, it is true, has shuttered plants and shattered communities across North Carolina. But international commerce is creating jobs here as well. Nucor’s success in exporting to other North American nations is consistent with the state’s larger trade picture, according to Peter Cunningham, director of the international trade division at the N.C. Department of Commerce. Canada and Mexico comprise the top two foreign markets for North Carolina products, he says. And their receptiveness to our goods is growing thanks to a three-year decline in the value of the U.S. dollar.

“Canada accounts for 24 percent of our total market,” says Cunningham. Technology gear, computers and computer parts and transportation equipment led the list of exports by dollar value. Japan, a consistent buyer of North Carolina chemical products, food and tobacco, ranks third on the list. Great Britain, which purchased $668 million in North Carolina-made goods in the first ten months of 2004, is the state’s 4th most lucrative trading partner. It is followed by Honduras, a voracious consumer of cotton, yarn and fabric produced here, according to Cunningham’s data.

Behind the numbers, companies prosper in a marketplace that knows fewer and fewer frontiers. Those that saw the trend coming early appear to be the ones who’ve weathered globalization best. A few are symbolic of the benefits firms that think globally derive. At Bernhardt Furniture Co. in Lenoir, a prime example, employment has remained stable in recent years even as the industry shed jobs in the wake of fierce competition from low-wage labor markets abroad. That’s largely because North Carolina’s oldest furniture company began cultivating international opportunities in 1983. That’s when company leaders first sensed an appetite among North American consumers for eclectic styles and materials in home furnishings.

“We’ve continued to grow our overall company as our business has become more global,” explains G. Alex Bernhardt Sr., chairman and CEO of the privately-held firm. While 1,900 of the company’s 2,000 workers remain based in North Carolina, the company has employees permanently stationed in China, Thailand, the Philippines and Vietnam. Many of the company’s products originate in those and several other foreign nations — Germany, Brazil and Italy among them, though it continues to manufacture some pieces in North Carolina, just as it has for four generations. “These opportunities allow us to offer some different design looks because of raw materials and craftsmanship that are not easily available here,” Bernhardt says.

Bernhardt, whose company is a licensee for the Martha Stewart Signature furniture line, says being savvy about global sourcing has enabled the company to thrive amid overall deflationary trends in the furniture industry. “Any piece of furniture you can think of for the home is probably selling for less than it was a decade ago,” he says. While that’s great news for consumers, “from the manufacturer’s standpoint it’s difficult to deal with.”

Yet, while foreign-made supply has transformed the company’s business model, demand for its furniture abroad also has opened new doors. “We sell in about 40 foreign countries,” says Bernhardt. Canadian buyers comprise its largest non-U.S. market, and a steady stream of orders comes in from Europe, Australia, New Zealand and the Middle East. “They like American styles and American brands,” Bernhardt says. Additionally, the steadily falling greenback has made American furniture a bargain around the world, another factor operating to Bernhardt’s advantage.

Despite Bernhardt’s success, he doesn’t sugar-coat the challenges free trade has brought companies like his. “There’s no denying that globalization has cost some jobs at our company and in this industry,” Bernhardt says. “But we feel our first obligation is to our shareholders — to keep our company strong and make as many good jobs as we can.” He notes that the firm’s foreign offices employ U.S. citizens as well as native workers who are knowledgeable about the host country and fluent in its native language. As to the first objective, Bernhardt Furniture’s business is on solid footing, coming off a record year in 2004 when it saw sales increase in the “low double digits,” according to Bernhardt. “Yes, we’re growing,” he says.

Foreign demand is similarly boosting the fortunes of North Carolina tobacco products, another of the state’s oldest industries. About 30 percent of the output leaving Philip Morris USA’s 2.4-million-square-foot production facility in Cabarrus County heads to buyers in Japan, the Middle East and other foreign destinations through the company’s global counterpart, Philip Morris International (PMI). “That’s about 27 billion cigarettes a year,” says Bill Phelps, a company spokesman.

The company’s sprawling Cabarrus site now employs 2,600, having added 500 workers since 2000. The 20-year-old plant has begun a $200 million series of upgrades that will crank up output by as much as 16 percent, according to Phelps. “We’re purchasing 12 high-speed production modules that will be replacing 18 older modules,” he says. The company is also installing automated storage and retrieval systems that will boost operating efficiency and enhance safety. State-of-the-art temperature and humidity control technologies will extend the shelf-life of supplies. The three-year schedule of improvements support the company’s goal of increasing the plant’s shipments to PMI, which is based in Lausanne, Switzerland. Currently, PMI holds a 14.5 percent share of the international cigarette market, with its familiar brands — Chesterfield, Marlboro and Virginia Slims among them — now sold in 160 countries.

North Carolina remains America’s leading exporter of tobacco, according to the N.C. Department of Agriculture and Consumer Services (NCDACS). The state also is a leader in poultry exports, currently ranking third, and of cotton, where it is the seventh largest exporter nationally. Strong demand abroad for these goods, as well as apples, sweet potatoes and other food products, makes North Carolina agriculture a $1.4 billion export business. “In a lot of emerging economies where there is increasing wealth, American-made food products enjoy a good reputation,” says Charles Hall, assistant director for marketing at NCDACS.

Hall says his department works assertively with the state’s agribusiness industry to cultivate markets around the world. “We do a number of things, depending on the product itself,” he says, noting that some industries such as poultry and pork have national marketing organizations that generically promote products overseas. “For the guy trying to market sweet potatoes, there’s no association doing that,” Hall says. “That’s where our office comes in.” He and his colleagues connect N.C. suppliers with foreign buyers on a case-by-case basis. More broadly, they organize outreach missions and trade shows as well, Hall says.

As in the case with manufactured goods, free trade has its advantages and disadvantages for N.C. agribusiness, says Hall. Qualitative restrictions on some food items have made it difficult for meat suppliers to penetrate European markets, for example. And while the Central American Free Trade Agreement (CAFTA), now being negotiated between the U.S. and six Latin American nations, will expand opportunities for N.C. blueberry and strawberry growers, it will mean new competitive pressures for Tar Heel peanut producers, Hall suggests.

Suppliers of processed food items also reap the benefits of global trade. In a 20,000-square-foot space at the Raleigh Farmer’s Market, employees of Ford’s Gourmet Foods work diligently to fill orders bound for Canada, Britain and the Caribbean. “About 20 percent of our total product is now going abroad,” says Patrick Ford, vice president and international marketing director at the company, a unit of Ford’s Produce. “Hopefully, we’ll see that number jump to 30 percent over the next two years.” Among its most popular items: Bone Suckin’ Sauce, ubiquitous in North Carolina grocery stores, but also increasingly visible beyond U.S. borders.

Ford’s odyssey into international trade began in mid-1994, when the company rented a 100-square foot booth at the International Fancy Food Show in New York City in order to introduce its product to 50,000 prospective buyers from around the world. It was there that a representative from Harvey Nichols, a prominent gourmet retailer in London, became interested in the firm’s product line. “They are to locals what Harrods is to tourists,” Ford says. Soon thereafter, Bruno’s Fine Foods began offering the Ford’s label at its four stores in Toronto. “We’re now exporting to 16 countries,” Ford says.

In establishing itself in the global marketplace, Ford’s relied on assistance from several state-supported entities. An export outreach program sponsored by Wake Technical Community College helped the company navigate the technicalities involved in selling and shipping across borders — and getting paid. “We learned about letters of credit,” Ford recalls, “primarily that we didn’t like them.”

“Every $67,000 worth of exports results in one new job in North Carolina,” says Wayne Loots, dean of business and industry services at Wake Tech. Loots works closely with state officials and leaders of the World Trade Center of North Carolina in helping small firms like Ford’s, whose workforce now totals 75, understand foreign market opportunities. “If a business is seeing foreign competition with their products here at home, they’ll likely find very frequently that there is a potential market for them in those countries where the competing product originates,” Loots explains. “We encourage them to check that out.”

This month, Loots will join a group of small business owners on an outreach mission to Mexico City, where they will meet with U.S. and Mexican trade authorities and private business leaders. The trips are part of a regular series; later this year, they will lead delegations to Canada, Europe and, potentially, China, Loots says. Attendees are typically business people who are unsure of what it takes to sell to global customers. Not everyone is encouraged by what they learn, adds Loots. “Some people turn away; others are now exporting.”

Loots hails the Commerce Department’s permanent trade offices in Mexico, Hong Kong, Korea, Japan, Toronto and Germany as the unsung heroes of N.C. exporters. “They are one of the best tools we have,” says Loots. “They are very diligent and enthusiastic about helping our companies export.”

In the last fiscal year, Commerce’s international trade unit helped connect 230 N.C. firms with overseas buyers, according to Peter Cunningham. “That assistance generated more than $50 million in actual export sales,” he says. The unit’s 25-person worldwide staff works largely in the field; only 10 are based in Raleigh, Cunningham says. Their work is augmented by partners such as Wake Tech’s Loots and trade-savvy experts at UNC’s Small Business and Technology Development Center. The N.C. State Ports Authority and World Trade Center are also valuable resources to businesses of all sizes, adds Cunningham. Federal agencies like the Small Business Administration and the U.S. Department of Commerce International Trade Administration play a key part, too.

North Carolina, however, can do better in the international marketplace, suggests Rep. Danny McComas (R-New Hanover). “Surrounding states take a broader view of international trade than we do,” he says. Statewide economic development strategies in Georgia and South Carolina, for instance, integrate closely with port complexes there, McComas points out. “When you look at BMW in South Carolina and the development of the retail distribution cluster around Savannah, you see we’re not quite there yet,” he says. “Our international infrastructure is not viewed as well as it could be or should be.”

Greater emphasis should be placed on port facilities in Wilmington and Morehead City, McComas says, and North Carolina’s highway and railroads are more oriented toward domestic, not global, commerce. But the state’s status as an international financial center is an asset competing states lack. It should be leveraged more effectively to wire N.C. businesses into the global economy, he adds. International airports in Charlotte, the Triad and Raleigh-Durham could be used to grow international commerce. “I know people in North Carolina who fly to Germany or London for a dinner meeting and turn around and return the next day,” McComas points out. “That was unheard of ten years ago.” 

McComas speaks not simply from the standpoint of a legislator. He is also a businessman whose company, MCO Transport, Inc., is facilitating trade between N.C. firms and those in other nations. The company does a brisk business shuttling cargo via truck to and from ports in three states. McComas founded MCO in 1976 with three trucks and six employees. Today, its 200-person workforce includes 160 drivers. MCO is now seeking a site near the Port of Jacksonville, Fla., for its latest expansion. The new outpost will complement the company’s presence in Savannah and Brunswick, Ga., Charleston and Wilmington, the firm’s headquarters.

“We handle imports, but our forte is with exports that are time sensitive,” McComas explains. Most goods originate in Georgia and North Carolina, and MCO’s client list includes industrial legends such as Georgia Pacific, Abbott Laboratories, Anheuser-Busch Companies and Dupont. “Destinations can be anywhere from Israel to Thailand, South Korea, Russia, Britain and Belgium,” says McComas.

Another of the company’s longtime customers is International Paper, whose massive mill at Riegelwood supplies market pulp to buyers worldwide. The product, large sheets of thick paper pressed into tight bales, journeys from the mill to the Wilmington docks via special trucks designed by MCO in collaboration with International Paper. “We run IP market pulp 363 days a year — every day except Christmas and Thanksgiving,” McComas says. “It’s basically a pipeline on wheels.”


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Last Modified: February 17, 2005
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