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Texas Companies with High Internationalization Levels Enjoy Higher Profit Margins
HSBC Spotlight on US Trade: Texas highlights correlation between global activity and stronger financial performance
11 July 2013
New York, NY - Texas companies with high levels of global sales and operations generally outperformed less internationally-focused Texas companies in the last six years, according to a new report by HSBC Bank USA, N.A. (HSBC).
Findings from the report, 'HSBC Spotlight on US Trade: Texas,' show that highly international Texas-based companies in the years 2007 -2012 had five times higher average profit margins (five percent) than their low-international counterparts (one percent). This was even more dramatic than the national average which showed that highly internationalized companies outperformed low international companies nearly three to one. Companies in four sectors - consumer goods, healthcare, industrials, and information and communications technologies (ICT) - also followed the same trend.
The HSBC report analysed the level of overseas sales and operations at top US publicly listed companies based in Texas and across the nation to understand the impact of internationalization on business profit margins by region and select sectors.
When comparing profit margins just in terms of international sales, the difference between Texas companies with higher international sales and those with low international sales is even more striking. The findings show Texas companies with high international sales had an average profit margin of seven percent in the last six years, compared with less than one percent at Texas companies with low international sales.
"This report highlights what we see consistently with our clients, that there is a positive correlation between international trade and higher profit margins," said Lori Vetters, Senior Vice President, Texas Area Director, Middle Market, for HSBC Commercial Banking in the US. "Clearly, many Texas companies have benefited from international commerce and are seizing global trade opportunities to thrive."
Texas is the nation's leading export state for the 11th year in a row with over $265 billion in merchandise exports in 2012, and more than one-quarter (28 percent) of all manufacturing jobs in the state are export-dependent, according to the US Commerce Department. However, the HSBC report shows that compared to other regions, Texas companies had the least internationally oriented operations. Only 31 percent had operations abroad and only 19 percent had employees abroad.
Greater international business leads to increased resiliency
The report also found that higher internationalization rates contributed to greater profit margins for Texas businesses during the recession and following, and were correlated to faster rebounding and sustained profit margin increases.
In 2007, Texas-based companies with high internationalization rates had just slightly higher average profit margins (six percent) than their less-internationalized peers (four percent). However, by 2011, in the wake of the recession, profit margins at highly internationalized companies in Texas rose to eight percent, while profit margins at their less international peers stayed in the red until 2012.
"Many globalized Texas companies avoided the worst of the recession because they had diversified their end markets, some to higher growth economies. This can help insulate a company's viability during challenging economic conditions," said HSBC's Vetters. "With US domestic growth still sluggish, more Texas businesses might want to look for opportunities to capture the benefits of overseas markets."
For example, HSBC client Fossil, the Richardson, Texas-based watch company, used global demand to carry itself through the recession. Sixteen percent of its sales in 2012 were from Asia. Fossil began acquiring distributors in Taiwan in 2005, and later forming subsidiaries in Shanghai, India, and Korea.
Major Sectors Show Same Positive Impact of Internationalization
Texas is dominated by companies in the industrial and ICT sectors. According to the findings, highly internationalized industrial companies across the nation had an average profit margin of six percent, or nearly double the average profit margin of low international industrials (three percent). In the ICT sector, companies with a high level of internationalization had an average profit margin of nine percent, seven times higher than those with low level of internationalization (two percent).
About the HSBC Spotlight on US Trade
Conducted by the Economist Intelligence Unit, the HSBC Spotlight on US Trade is a series of reports and analyses of 259 publically listed US companies, in four sectors and five regions, across the US. The reports look at the relationship between international activity - operations and sales - on company performance for the years 2007-2012. For more information or the full report, please see us.hsbc.com/spotlight.
Notes to editors:
HSBC Bank USA, National Association, with total assets of $183.9bn as of 31 March 2013 (US GAAP), serves 3 million customers through retail banking and wealth management, commercial banking, private banking, asset management, and global banking and markets segments. It operates more than 250 bank branches throughout the US. There are over 165 in New York State as well as branches in: California; Connecticut; Delaware; Washington, D.C.; Florida; Maryland; New Jersey; Pennsylvania; Oregon; Virginia; and Washington State. HSBC Bank USA, N.A. is the principal subsidiary of HSBC USA Inc., an indirect, wholly-owned subsidiary of HSBC North America Holdings Inc. HSBC Bank USA, N.A. is a member of the FDIC.
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