Colorado’s manufactured exports don’t make the grade

By Karen Gerwitz | Jul 16, 2016

In a recent study by Conexus Indiana and the Ball State University Center for Business and Economic Research, Colorado received a D grade when it came to our manufacturers' global reach. While this grade certainly "smarts" for those of us working in the field of helping manufacturers export on a daily basis, it is not that surprising to us as we have ranked 35th for years among all states in exported commodities, right around Nebraska and Nevada.

In this particular study, Nebraska received a D as well and Nevada received a C. The study took into consideration the per capita exported manufactured goods and the growth of manufacturing exports, as well as the foreign direct investment of manufacturing income received and the state's exporters' ability to adapt to changing demand. While we know we are the top state in our geographic region for attracting foreign direct investment, we do tend to export about twice as many services from our state than goods, and a significant amount of those goods are agricultural commodities as opposed to manufactured goods.

The paradox is that we know that 95 percent of the market opportunity is outside of the United States, yet less than 5 percent of U.S. companies are exporting. Why is this the case? There are numerous resources to help, such as grants, classes, coaching, research, and personal connections. For those who have already taken the plunge and started exporting, they are in it for the long haul and see a significant portion of their revenue come from international distribution.

Those success stories are not all large companies as many may imagine. Of the 5,700 manufacturing firms in Colorado that export, 88 percent are small or medium-sized employers (SMEs) with fewer than 500 employees. In 2015, Colorado manufacturers exported $8 billion of merchandise and were responsible for creating an estimated 43,615 jobs.

After reaching a record value in 2013 of $8.7 billion, Colorado manufactured exports have declined in 2014 and 2015, due to several challenges. The strong U.S. dollar continues to be a drag on Colorado manufactured exports, as has a slowdown in global demand. These factors, coupled with ongoing volatility in China, Russia, and Latin America, as well as a flat recovery in Europe, did not create strong incentives for Colorado manufacturers to expand to new markets. Global economic volatility has caused Colorado businesses to focus instead on domestic opportunities, a strategy that many SMEs in the state adopt. Domestic-only sales strategies can hurt Colorado's economy and can have long-term consequences, including limited innovation, reduced risk diversification, and a potential market share loss to global competitors.

U.S. states with larger manufacturing firms have fared better than Colorado in global markets during recent years, as larger manufacturers tend to serve international customers differently than SMEs. Large firms primarily sell to foreign clients via foreign affiliates rather than through direct exports, while SMEs serve foreign clients primarily through direct exports, which can often take more time and resources to make sales.

Becoming an exporter can unlock many opportunities for SMEs, but also requires overcoming new challenges. SME exporters are likely to report difficulty managing the challenges of international operations because they often lack the resources and expertise available to larger firms. To help close this gap, government agencies at the federal, state and local levels and several non-profits offer trade education, export incentives and financial services to SME exporters.

An example of a public/private sector initiative is a partnership between Manufacturer's Edge (MEP) and the World Trade Center Denver. Together we launched the Manufacturer's Export AdvantEdge Program, designed specifically for manufacturers, both large and small, to access their level of international expertise and what can be done to mitigate risk, identify new customers or streamline processes realizing cost savings. The goal is to increase manufactured exports from Colorado, which are key growth drivers in the near term. Given that SMEs that successfully become exporters tend to grow faster and invest more than their non-exporting counterparts, the more export-oriented Colorado's SMEs become, the larger the upside for overall economic growth.

Let us come together as a community and improve this grade for the next study that comes out. We can't be hitting on all cylinders in Colorado from our diversified economy to our real estate prominence and miss out on our global reach. If we do, this local success bubble we are riding will certainly be short lived.

Karen Gerwitz is the president of the World Trade Center Denver, a nonprofit trade association facilitating global business growth to and from the Rocky Mountain region for 30 years.