As a nano-technology conference got under way in Akron, the Cleveland Bar Association’s International Law Section was examining a different facet of the region’s future, “Northeast Ohio’s Global Challenge.” At the heart of the event was a recently completed study examining company involvement in international trade and potential barriers to growth.
Industry “clusters” such as technology and healthcare get a lot of attention from economic development executives trying to attract companies to their region, but the legal community in Northeast Ohio led a close examination of some of the underlying strengths and challenges facing any regional economy that has targeted international trade as a growth area. A survey conducted for the Cleveland Bar Association’s International Law Section by the Cleveland State University College of Urban Affairs and Cypress Research Group provided a baseline view of the degree of involvement area businesses have in global markets, their plans for growing that aspect of their business and the challenges that could prove barriers to entry into or expansion of global trade.
The Cleveland Customs Service Port, which covers Ohio and parts of Indiana and Kentucky, accounted for $21.4 billion in exports in 2006, noted David Yen, executive director of the World Trade Center Cleveland. The district ranked 14th of all U.S. customs districts on exports.
Imports to the region reached nearly $56 billion in 2006, Yen continued. This made the Cleveland Customs Service Port the ninth largest importing district and the seventh fastest growing district.
For a region that is struggling to shake off its “rust belt” image and a reputation for declining manufacturing, Yen offered a partial explanation for its significant role in global trade. Half of the U.S. population is within a one-day truck drive of Northeast Ohio, he pointed out and $681 billion of imports move to within 500 miles of the region.
Yen’s comments set the stage for the introduction of a study of regional businesses “International Business in Northeast Ohio.” Screened for their likelihood to be directly involved in international trade, the study reached out to nearly 6,000 companies. The response rate of 9% was considered adequate to examine key issues and trends among those companies engaged or potentially engaged in international trade.
Manufacturing companies accounted for 40% of the sample and a like number (41%) of the respondents said they had fewer than 50 employees. Fully two thirds fell in the category of under 100 employees.
Nearly all of the companies had been in business more than 10 years (90%) with 83% in business over 15 years. And a majority, nearly two thirds, said they had been engaged in at least some international business activity. More than half of those had been doing business internationally for over 15 years.
Not surprisingly, importing and exporting were the leading international business activities (though the survey did cover companies engaged in business services). Canada and Mexico remain the top international business partners, with China, the United Kingdom, and Germany following in the rankings.
What makes the region a good place to conduct international business? Survey respondents said location, good transportation infrastructure, skilled labor force and a good industrial base/good supply chain.
What support services did those businesses receive to assist them in international trade? Shipping and logistics services, legal support, banking and government support led the list.
Most companies responding to the survey wanted to begin or expand international business, but there were barriers they felt would limit their ability to do so. Open-ended responses on what those barriers are could be summarized in six categories:
Language and cultural differences.
Too costly in time and money.
Trade barriers and regulations.
No sales representation in other countries, lack of market presence or no distribution channel.
Shipping costs and logsitics.
And, currency fluctuations and banking intricacies.
Factors affecting the companies’ willingness to engage in international business mirrored some of these concerns. Asked to rank factors for impact, the top-scoring factors included:
Lack of personnel.
Lack of knowledge about foreign markets.
Difficult to maintain quality control.
Difficult to find qualified/reliable partners overseas.
Unfamiliarity with language/culture.
Lack of public sector assistance/incentive programs.
Lack of financial resources to support international activity.
Lack of understanding of where there is demand for products or services outside the United States.
And, local business support services lack expertise in international activities.
Responding to some of the concerns raised in the study, Ron DeBarr, CEO of the Northeast Ohio Trade and Economic Consortium (NEOTEC), pointed to the area’s foreign trade zone (FTZ 181) and support for export development offered by NEOTEC and its counterpart organizations in the region as well as the NEOTEC logistics committee. He cited over $300 million in capital investment that had brought 4,000 jobs to the area.
Ricky D. Smith, director of airports for the Cleveland Airport System, added to the discussion, offering examples of expanded services at the local airports and noting the airport group was developing a cargo plan that would address issues raised by carriers and international shippers. Among the challenges facing the airport, he said, was the need to reorganize the layout of the airport to support cargo operations. Currently, he said, cargo operations take place on both sides of the airport. Those operations need to be consolidated or reorganized to be handled more efficiently.
On the port side, Stephen Pfeiffer, vice president of marine services for the Port of Cleveland, explained that 95% of global trade to and from the United States moves by water. Referring to David Yen’s earlier comment about a strong destination market nearby, the Northeast Ohio region could provide a viable opportunity for container traffic arriving on the Atlantic Coast, passing through the St. Lawrence Seaway and into the Great Lakes. To that end, Pfeiffer pointed out the Port of Cleveland had joined with the H2O Highway, a group of ports from the St. Lawrence River to Duluth, Minn. served by the Great Lakes and St. Lawrence Seaway, to develop further capabilities in global trade.
Container trade has been growing at 8% per year, continued Pfeiffer. The Ports of Los Angeles and Long Beach now handle 45,000 trucks and 60 trains per day, he pointed out. Building on that point, the area hosts intermodal facilities along railroad mainline tracks. Within easy access of the Great Lakes port, additional intermodal ramps are at Neomodal (Navarre, Ohio) connecting to the Canadian National and a facility operated by Schneider National in Marion, Ohio which connects to Kansas City and provides access to the Kansas City Southern to Mexico and directly to West Coast ports.
Though most firms covered by the international business survey were smaller and derived a small part of their total revenues from international trade, 74% said they would like to grow the level of their international business—mostly in exporting. Survey developers Ziona Austrian, Cleveland State University, and Patricia Cirillo, Cypress Research Group, noted they could not find similar surveys from other regions to compare, so they were unable to conclude how the experience of these firms might differ with those based in other regions. Based on the figures offered by the Cleveland Customs Service Port, the top countries for trade with the larger region don’t vary much from the experience of Northeast Ohio firms. On both lists of imports and exports, Canada, Mexico, China, Japan, France, the United Kingdom and Germany were typically among the top 10. Fast growth in trade with India and Vietnam also offered some indication of where new opportunities were developing.