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Highly International Northeast Companies Outperform More Domestic Counterparts

Latest 'HSBC Spotlight on US Trade' highlights correlation between level of internationalization and profit margins

Northeast companies have widest profit margin spread of all regions, double national spread

24 July 2013

New York, NY - In the last six years, highly international Northeast based companies had robust average profit margins while companies in the same region with low levels of internationalization had considerably lower levels of profitability, according to a new report commissioned by HSBC Bank USA, N.A. (HSBC).

The report, 'HSBC Spotlight on US Trade: Northeast' shows the average profit margin in the Northeast for highly international companies was 7.7 percent over the period examined (2007-2012), while companies in the same region with low levels of internationalization were, on average, unprofitable during the same time.

The HSBC report analyzed the level of overseas sales and operations at top US publicly listed companies based in the Northeast and across the nation to understand the impact of international sales and operations on business profit margins by region and select sectors. Northeast companies with high levels of internationalization had the widest profit margin spread of all regions (10 percent), and double the average national profit margin spread of five percent. Companies by sector - consumer goods, healthcare, industrials and information and communication technologies (ICT) - also followed the trend.

"The findings underscore the impact a diversified geographic customer base can have on the profitability of a business," said Paul Cronin, Executive Vice President, Northeast Corporate Banking for HSBC Commercial Banking in the US. "With sluggish domestic growth expected and increased global competition, more Northeast companies might want to consider global trade opportunities to grow."

HSBC Bank USA, N.A. recently announced a $1 billion, 18-month dedicated loan program for small and medium size US businesses looking to export or expand internationally, to help companies find global growth opportunities and to further accelerate global business growth by US enterprises.

Not Just Higher, But More Stable

Highly international Northeastern companies also had a stable upward trend in their average profit margins, growing robustly from 2007 to 2009, before settling at an average profit margin of 9 percent in 2012. By contrast, profit margins for low-international companies in the Northeast were extremely volatile, swinging from high levels of unprofitability in 2007 to 2008 before climbing back to profitability in 2009 and reaching an average profit margin of 6.5 percent in 2012. Additionally, low-international companies in the Northeast never outperformed their more internationally oriented peers.

"By taking advantage of the international opportunity, highly international Northeast companies were able to insulate themselves from domestic market fluctuations and remain profitable," said Cronin.

For this report, the Northeast region included Massachusetts, New Jersey, New York, Connecticut, Pennsylvania, Maine, Maryland, Vermont, New Hampshire, Rhode Island, Delaware and Washington D.C. In 2012, the region increased the value of goods it exported to $226.7 billion, according to the US Commerce Department's International Trade Administration. This represented growth of nearly 17 percent over the six year period. Last year, the region’s largest export markets were Canada, the United Kingdom and China. Additionally, the region is poised to benefit from even greater access to overseas markets through several free trade pacts currently under consideration, including the Transatlantic Trade and Investment Partnership. Furthermore, it benefits from proximity to some of its largest trading partners, Europe and Canada. The region's highly technical, IP-protected products also create unique demand for its exports.

"Companies in the Northeast have a tremendous base on which to build, including a highly skilled workforce and market leading brands and capabilities," said Cronin. "Northeast companies that continue to diversify their sales and operations in international markets will strengthen their businesses in the long-term."

International Effect Carries Over to Healthcare Sector

The Northeast region has a strong base of healthcare companies. According to the findings, highly internationalized healthcare companies had an average profit margin of 10 percent, while low international peers were, on average, unprofitable.

The Northeast report is the third in the 'HSBC Spotlight on US Trade' series of reports and analyses investigating the impact of international trade on publicly traded companies in key regions across the U.S.

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 publicly-traded 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 to download the full report, visit: https://globalconnections.hsbc.com/us/en/articles/northeast-report

Notes to editors:

HSBC Bank USA, National Association, with total assets of $196bn as of 30 September 2012 (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 United States. 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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