A report out this morning confirms what many Greater Des Moines companies know from firsthand experience: International trade can greatly boost profit margins. It also found that companies active in international markets weathered the Great Recession better than those without strong international trade activity.
Findings from the report "HSBC Spotlight on U.S. Trade: Midwest" conducted by HSBC Bank indicate that Midwestern companies that are highly active in international trade had an average profit margin of 9 percent, while their less-international peers had an average profit margin of about 3 percent during a six-year period between 2007 to 2012.
Additionally, highly international Midwestern companies demonstrated more consistent performance during that six-year period, the report concluded. Following the onset of the recession, these companies maintained healthy profit margins that never fell below 7 percent, while profit margins at Midwestern companies with less international trade dipped into the red before recovering in 2009.
"The report clearly shows that a diversified geographic customer base or operations have an impact on business performance," said Steve Trepiccione, senior vice president and managing director of commercial banking for HSBC's Midwest Region. "Highly international Midwestern companies were able to insulate themselves from domestic market fluctuations throughout the past six years and remain consistently profitable."
Companies examined in the Midwest report included leading publicly traded companies in Iowa as well as Indiana, Illinois, Kansas, Michigan, Minnesota, Missouri, Kansas, North Dakota, Ohio, South Dakota and Wisconsin.
According to the report, Midwestern companies had the second highest average profit margins and the third highest level of internationalization compared to companies in other U.S. regions. Companies in the Midwest also had the highest average percentage of international sites - 50 percent - compared with other regions.
Last month, the Greater Des Moines Partnership released results of a yearlong export initiative it has undertaken with the Brookings Institution that recommended specific strategies for Central Iowa businesses to increase their export activity. Click here to read a Business Record article about that initiative.
Iowa derived an estimated 11.7 percent of its gross domestic product from export activity; total exports were approximately $12.74 billion in 2012, according to the report.