The Nuts and Bolts of Linking FDI and Exports

Highly export-oriented industries and regions face unique challenges and opportunities. Exports are influenced by many factors outside our control including government policies, economic growth in other countries, and exchange rates. Keeping an ongoing pulse on these developments help identify which of your region’s or city’s businesses need the most support, where new opportunities could be harnessed and the linkage between foreign companies and exporters activity.

The nuts and bolts of things - GraphicAreas with an abundance of international trade connections tend to attract more FDI. And FDI in the form of mergers and acquisitions, the most common type of FDI, tends to focus on firms that are already exporters. The Brookings Institution/JP Morgan Chase Global Cities Initiative has explicitly put these two pieces of the puzzle together, expecting their participants to create linked export and FDI strategy plans and highlighting best practices. But how can Gazelle.ai help in more effectively pinpointing where to investigate further, topics of interest for companies in your backyard, and why it matters (big time) for your FDI efforts?

Digging into Gazelle.ai’s Industry Profiles, the top 15 export growth sectors since 2014 show an expected surge in oil and gas. Favorable price developments, increasing US production and feeling the effect of Year 2 in the removal on restrictions on US oil exports has been driving these industries.

But other, less “news-worthy” industries have seen robust annual growth in US export values as well. Two related fabricated metal sectors, bolts and nuts, and hardware show up in the Top 10 export growth sectors. So what pearls of wisdom can Gazelle.ai’s Industry Profiles share?

Keep an eye on developments of the end user markets

Bolts and other fasteners manufacturing, a key supplier to the transportation equipment sector as the supply chain chart indicates {link}. US industries in this cluster have seen solid revenue and profit growth, but just like the fasteners industry, with declining profit margins, keeping an eye on their input costs even closer and might put additional pricing pressures on the fastener markets in the domestic market, making it even more important to support companies’ export activities.

Get a sense of import pressures and export opportunities

Export values have grown by over 25% since 2014, with NAFTA countries receiving about 60% of the trade. Export prices in US dollars have experienced an increase over the past years for fabricated metal products [ref bls], so the growth is not just due reflecting higher end products. It still confirms a strong market demand for US products, not only from NAFTA countries but also increasingly from automotive and construction demand in China and Brazil.

Import competition from Taiwan and China for the lower value market segments still create pressure for domestic products, as do uncertainties about key input prices: US steel mill product prices, an indicator of commodity steel costs for hardware and fastener manufacturers, rose by almost 20% between January 2018 and January 2019 (BLS, Producer Price Index).

Attracting foreign companies in this sector to the US means therefore that companies with a more diverse or advanced material use have a competitive edge and can supply the stronger growth high-end customer bases in the US, such as new alloy fasteners for aerospace.

Is the industry structure changing?

Since 2014, the industry has experienced decreasing profit margins [[link to our industry profile]] while at the same time we see fewer establishments but more jobs. This could either signal a consolidation of the industry towards fewer larger companies needing the scale of production to compete. Another trend is the move of US manufacturers to foreign production facilities in lower-cost countries, often exporting back to the US. Fewer domestic competitors make it more important to support the niche competitiveness of your existing local companies, their export potential, as well as focusing FDI targeting on companies with an already existing customer base in the US.

There is no shortage of export data available. However, figuring out what data is the most important and how to link FDI and exports is no walk in the park. Let Gazelle.ai show you the way!

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