Business Leaders express concern over elimination of trade pacts
Despite uncertainty regarding trade and the potential impact of Brexit,
U.S. companies are bullish on international business and emerging market
opportunities, according to the fourth annual Wells
Fargo International Business Indicator. Citing a number of
macroeconomic factors, including a strong U.S. dollar and U.S. economic
conditions, 81 percent of U.S. companies expect their international
business activity to increase during the next 12 months, up from 64
percent in 2016. Capitalizing on a positive international business
environment, a majority (68 percent) of U.S. business leaders also
expect their international revenue to increase, up from 58 percent last
year.
Released today by Wells
Fargo & Company (NYSE:WFC), the Indicator registered a score of
74 —marking the highest result since the Indicator’s inception in 2014
and a nine-point increase since last year. The Indicator tracks the
strength and direction of the international business outlook of U.S.
companies and is based on a survey of more than 280 business leaders who
represent U.S. companies engaged in international business that have
annual revenue of at least $50 million. The 2017 wave also marked the
first year the Indicator was conducted during a U.S. Presidential
election cycle, with fielding beginning after the Election and
concluding just after Inauguration Day.
U.S. Companies Continue to Invest in the Global Marketplace
Anticipating an increase in international activity, 81 percent of U.S.
companies also believe the international component of their business
will become more important in the next 12 months, up from 54 percent in
2016. To support their international business growth, companies also
expect to increase global marketing activities (79 percent), volume of
imports (63 percent) and volume of exports (55 percent).
As U.S. business leaders look to international markets for long-term
growth, they also overwhelmingly (95 percent) agree that identifying and
targeting emerging markets is critical, as those markets are perceived
to offer the greatest revenue growth opportunities. According to the
Indicator, additional factors impacting a company’s international
strategy include foreign exchange rates (97 percent), U.S. corporate
taxes (91 percent), and the low U.S. interest rate environment (86
percent).
“As factors including trade, currency and exchange rates, and corporate
tax rates shape a company’s international strategy, U.S. business
leaders continue to recognize the ongoing value in doing business
internationally and are confident in pursuing global business
opportunities as a core part of their long-term growth strategy,” said
Sanjiv Sanghvi, Middle Market Banking West Region head.
The Trade Factor
Despite an increase in overall optimism, the Indicator found that U.S.
companies are concerned about trade and potential changes to existing
trade pacts, with 86 percent of survey respondents agreeing that the
failure of trade pacts will impact their business somewhat/a great deal.
Seventy eight percent of U.S. business leaders were somewhat/very
concerned about the growing negative attitudes towards trade agreements
that were portrayed during the 2016 Presidential election cycle.
Additionally, when asked about the importance of specific trade pacts to
their international business, the Trans-Pacific Partnership was listed
as the most important (80 percent), followed by the North American Free
Trade Agreement (74 percent), the Transatlantic Trade and Investment
Partnership (73 percent), and the Dominican Republic-Central American
Free Trade Agreement (56 percent).
“There has been a definite surge in optimism since the election. The
durability of that optimism will be tested as key issues like taxes and
regulation are addressed. Outcomes around trade policy and negotiations
are critical to firms with international business and will determine the
sustainability of that optimism,” added Chris Barnes, managing director
Financial Services for Market Strategies International, the research
company that led the survey activities on behalf of Wells Fargo.
“Wait and See” with Brexit
Following the U.K.’s vote to leave the European Union, business leaders
across the globe have been examining the potential impact Brexit may
have on their international strategy. While 68 percent indicate business
relationships in the U.K. and across Europe are important, a majority of
U.S. companies don’t expect Brexit to impact their business in the
region, with only one-third (32 percent) saying Brexit would affect
their business. When discussing the factors that would impact their
international business a great deal as a result of Brexit, respondents
listed increased regulations of transactions (38 percent), less
favorable tax policies (26 percent), U.K./EU recession (23 percent),
weakening British pound (21 percent), additional regulatory complexity
with a separate U.K./EU system (15 percent), and protectionist trade
policies (13 percent).
The majority of U.S. business leaders say they are taking a “wait and
see” approach before developing plans post-Brexit. Fewer than 10 percent
of respondents indicated they would explore alternative markets as a
result of Brexit, with the majority setting their sights on Canada (35
percent), Japan (29 percent), and China (23 percent).
China Remains No.1, Canada and Mexico Move Up
For the fourth consecutive year, as companies look to the future, China
remains the top “hot spot” for future growth. Citing its rising consumer
spending power, 41 percent of U.S. companies say China will be important
to their future business success. Canada, which had fallen out of the
top three in 2016, is now tied with China at 41 percent, followed by
Mexico with 32 percent. It is also likely no coincidence that the top
three countries also have the largest trading relationships with the
U.S. — equal to about $1.9 trillion in imports and exports with the U.S.
over the past year. Rounding out the top five markets are Japan and
Germany. Likely due to its economic growth in late 2016, Japan jumped to
fourth, from 15th in 2016, with 21 percent of U.S. companies
citing it as a key market for future growth.
Events Impacting International Business Decisions
When assessing international markets, U.S. companies indicated several
events that would negatively affect their international business plans,
with the majority of companies (91 percent) listing cyberattacks as the
top concern. Political stability outside of the U.S. was also a top
concern (83 percent, up from 58 percent in 2016), followed by potential
interest rate increases by the Federal Reserve (80 percent, up from 42
percent in 2016).
For more information on the Wells Fargo Indicator, including a complete
report of the findings, please visit Wells
Fargo International Business Indicator.
About the Wells Fargo International Business Indicator
On behalf of Wells Fargo, research firm Market Strategies International
conducted 281 telephone interviews between Nov. 14, 2016, and Jan. 24,
2017, with executives at U.S. companies that do business internationally
and have $50 million or more in annual revenue. Participants were
associate vice president and director level or above, and had either
primary responsibility or at least some influence over the company’s
international business plans or strategies. The margin of error on the
total is 6.8% with a 95% confidence level.
Wells Fargo operates from 42 countries and territories outside the U.S.,
including branches in Beijing, the Cayman Islands, Dubai International
Financial Center (DIFC), Hong Kong, London, Seoul, Shanghai, Singapore,
Taipei, Tokyo, and Toronto.
About
Wells
Fargo
Wells Fargo & Company (NYSE: WFC) is a diversified, community-based
financial services company with $2.0 trillion in assets. Founded in 1852
and headquartered in San Francisco, Wells Fargo provides banking,
insurance, investments, mortgage, and consumer and commercial finance
through more than 8,500 locations, 13,000 ATMs, the internet
(wellsfargo.com) and mobile banking, and has offices in 42 countries and
territories to support customers who conduct business in the global
economy. With approximately 273,000 team members, Wells Fargo serves one
in three households in the United States. Wells Fargo & Company was
ranked No. 27 on Fortune’s 2016 rankings of America’s largest
corporations. Wells Fargo’s vision is to satisfy our customers’
financial needs and help them succeed financially. News, insights and
perspectives from Wells Fargo are also available at Wells
Fargo Stories.
About
Market
Strategies International
Market Strategies International is a research-based consultancy with
deep expertise in the financial services industry. We work with the
largest and most prestigious wealth, banking, payments and insurance
firms. We help our clients grow their businesses and their brands. The
company was founded in 1989 by six market research executives. Since
then, it has grown to more than 300 market researchers, marketing
scientists and project managers, as well as 800 market research survey
interviewers. It conducts qualitative and quantitative research in over
75 countries across eight regions. Over the years, it has developed an
extensive global network that allows it to integrate its research
professionals with data gathering teams anywhere in the world.