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Doing business abroad
Global Growth on the Horizon for Manufacturers and Distributors
More than 70 percent of manufacturers and distributors in CliftonLarsonAllen’s annual survey of industry leaders say that 10 percent or more of their revenue will be from sales outside of the United States in the next three years. Most say the increase is either one part of a well-defined growth strategy, or the result of customers requesting or demanding it.
Of the more than 350 survey respondents, 65 percent indicated they currently source component parts or sell products outside the United States. The majority of these (55 percent) say that global sales currently accounts for more than 10 percent of their revenue.
Manufacturing and Distribution Outlook
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The percentage of business leaders reporting revenue from foreign sales has jumped in the past year from 78 percent to 95 percent.
“The global business activity we are seeing is consistent with the major shift in the world middle class from North America and Europe to Asia,” says Samantha Metcalf, manufacturing and distribution principal with CLA. “Some estimate that by 2030 more than half of the world’s middle class will be located in the Asia Pacific. This is significant because approximately 70 percent of economic consumption is driven by the middle class.”
The global supply chain
Metcalf says most manufacturers and distributors begin participating in the global supply chain by sourcing products from outside the United States, and gradually selling globally to support their existing customers.
“This trend may continue in certain industry niches that are experiencing the greatest pricing and margin compression,” she says.
Judging by survey results, sourcing and selling products globally continues to increase, and many are seeing tremendous potential in off-shore growth.
Pros and cons of global trade
In the CLA survey, company leaders that do not sell outside the United States continue to see cost and uncertainty as key deterrents. The majority of non-exporters feel there is enough domestic growth opportunity to fit their current needs. According to Metcalf, “This may be a reflection of current thinking that does not consider future growth in domestic opportunities or more cost-competitive and reliable suppliers overseas.”
While there may be cost advantages to cross-border sourcing, there is also additional risk. Many factors outside of company control (issues with logistics, currency fluctuation, customs, ports of entry, natural disasters, politics) can interfere with reliable, cost-effective parts supplies. This could create difficulties for customers if a backup plan is not in place.
A change in the balance between flexibility and cost is part of a resurgence in U.S. manufacturing of components previously produced overseas.
Every opportunity carries risk
Three of the past manufacturing and distribution surveys have shown increases in the number of companies selling outside the United States, and the increase is more than the number indicating they had plans to export.
"This isn’t surprising since many exporters are ‘opportunistic’ — they begin supporting global sales when requested by an existing customer," says Metcalf. "This can be a highly effective approach, but it comes with risk."
Taking the time to understand the business culture and develop a basic plan that addresses the risks associated with global sales greatly improves the chance of success.
How we can help
Global expansion should never be considered because it’s “the thing to do.” There must be a strong business case for overseas growth; we can help you explore the options and opportunities, from markets and facilities, to tax laws and employees, through our independent membership in Nexia International. We are also experienced at working with foreign companies wishing to enter the U.S. marketplace through our Global Concierge Services.
Learn more about global growth trends and opportunities in Manufacturing and Distribution Outlook.