International trade is considered the healthiest sector of the Florida economy, growing by double digits even during the Great Recession. So where does Northwest Florida fit in the picture? About 4.5 percent of the exports leaving the U.S. come from Florida — and the state’s technology exports are growing faster than the rest of the country. Northwest Florida hasn’t been that big a player, but changes are on the horizon as the region’s new international airport and changes at its seaports affect the Panhandle’s export hopes.
Northwest Florida businesses thrive on their international connections By Linda Kleindienst Originally published in the Aug/Sept 2011 issue of 850 Business Magazine
During the Great Recession, a small Panama City business called DeTect never had a layoff. Its sales grew by 30 percent in 2010. Sales for 2011 are up 200 percent and the company expects to break the $30 million sales mark by the end of this year.
What brought about this phenomenal growth during these gloomy economic times? Foreign trade.
“It hasn’t been the easiest economy,” concedes Gary Andrews, DeTect’s general manager and CEO. “The business has been doing well, but it’s not because of the U.S. It’s all foreign.”
Indeed, during the toughest economic years since the Depression of the 1930s, international trade was the only segment of Florida’s economy to enjoy robust growth — double digits’ worth.
Florida is the fourth largest exporter of state-origin goods and services in the U.S. — totaling more than $81 billion a year — and the third largest exporter of high-tech goods. Its location has helped establish the state as a pre-eminent global hub with especially easy access to emerging economies in Latin America and the Caribbean.
Florida’s top 10 markets in 2010 were Switzerland, Brazil, Canada, Venezuela, Colombia, Mexico, Chile, Dominican Republic, Paraguay and Peru. And the impact of international business was evident by the fact that:
• International business accounted for almost one-sixth of Florida’s economy.
• One of every six jobs in Florida was dependent on international business (1.3 million).
• More than 50,000 Florida companies export (second-largest cluster in the nation).
• International companies pay 18 percent higher wages in Florida.
“All business is global. I don’t think it can be overstated,” says Wayne Stubbs, executive director of Port Panama City. “The world has gotten smaller and smaller, shrinking into a single, huge marketplace. International trade is the future for all business.”
Through March of this year, Florida’s growth in exports was outpacing the U.S., boosted in part by double-digit gains in exports of medical instruments, telecommunications equipment and integrated circuits.
In late May, Florida companies that attended Hospitalar, Latin America’s premier heath care tradeshow held this year in Brazil, collectively generated a record sales total of $1.26 million, more than double the 2010 tally.
“Over the next five to 10 years, the developing economies will drive growth,” says Manny Mencia, senior vice president of International Trade and Business Development for Enterprise Florida. “An international footprint will be essential to growing a company.”
While Northwest Florida lags behind other regions of the state, accounting for about $1 billion worth of foreign exports a year, Mencia said a significant number of local companies are now pursuing an international marketing plan. And, during a recent international trade session sponsored by the Bay County Economic Development Alliance, Enterprise Florida, Port Panama City and the U.S. Department of Commerce, Mencia told local business owners that an expansion of the Panama Canal to accommodate super freighters will be a “game changer” for Florida, opening the door to an unprecedented era of Asian investment in the state and its products.
Ideas Go Global
Throughout Northwest Florida, there are businesses that are thriving on selling goods and services to overseas clients. Their products range from bird detection radar systems to humane traps used to collect small mammals for research to computer security technology.
Founded in 2003, DeTect began by manufacturing and selling bird radar systems to protect aircraft from damaging bird strikes that can result in crashes and fatalities. The company’s first customer was the U.S. Air Force, which purchased eight systems that have saved more than $4 million in damage costs. Even NASA has used the system during shuttle launches. The same technology is being used to protect birds flying into wind farms (by shutting down the turbines when flocks arrive and restarting them when the birds leave) and warning birds away from toxic industrial waste ponds (a system being used in Canada). Other products developed by DeTect include security and surveillance radars and wind speed measurement technology.
Its headquarters and 14,000-square-foot main manufacturing plant are located in Panama City, where there are about 65 employees. The average wage is $45,000 and the company is now looking to add another 20,000 square feet of space.
Despite contracts with U.S. government agencies, including the National Weather Service, DeTect has begun to rely more on trade with foreign governments and companies as its line of offerings has expanded and Washington’s budget crunch leaves federal clients unsure of what they can afford. As an example, DeTect invested $2 million in a wind speed measurement system for the weather service, which was supposed to purchase 28 units for $50 million — but now, Andrews says, “the agency is trying to figure out what they can afford.”
In contrast, the company recently delivered a weather radar system to Mexico City, got an order for an airport in Nigeria, is waiting on word about a $60 million contract with India, has an office in Mumbai and by the end of the year will open an office in the United Kingdom.
“We’ve got agents selling for us in 80 different countries. That was the smartest thing we ever did,” Andrews said. “In the past six weeks, orders have come in from Nigeria, Portugal, Spain, India, Canada and American Samoa.”
An Import/Export Hub
State, federal and business leaders agree Florida is perfectly positioned to access the ever-growing international market. According to a recent Florida Chamber Foundation study, the state’s pluses include the fact it is located in the fastest growing U.S. business and consumer market — the arc of southern states from Texas to Virginia — and is at the crossroads of growing north-south and east-west trade lanes, with access to more than 1.1 billion consumers in the Western Hemisphere by 2035.
“Florida has the 20th largest economy in the world, and we’re playing on a global stage now,” says Mark Wilson, president and CEO of the Florida Chamber of Commerce. “Our goal is to double Florida exports over the next five years and then double them again over the following five years.”
Gov. Rick Scott envisions Florida becoming the import-export capital for at least the eastern U.S.
“We have 14 ports, and with our location we should be a big shipping capital. We’re looking to build relationships across the world because people want to do business here,” he says.
Northwest Florida may be particularly well situated. Port Panama City in Bay County is the closest, in terms of distance, to the Panama Canal. When the canal expansion is finished in 2014, the super freighters will begin sailing through and head to the larger U.S ports, where they’ll displace smaller vessels. Those smaller ships will be looking for new berths, like Port Panama City and the Port of Pensacola, which provide direct air, rail and road access to the southeastern U.S. as well as the Midwest.
“Our geography from the standpoint of domestic distribution is good,” said Don Kirkman, president of Florida’s Great Northwest, which is working to diversify the region’s economic base. “We’re within a one-day truck haul of major cities in the southeast. Our airports are continuing to evolve, and our port directors have done an excellent job of identifying markets in Latin America for notch opportunities.”
Port Panama City has 100 acres of land, about half of it for cargo, and 36 feet of water, enough to handle most ships in the world. It is one of the primary U.S. ports for copper imports, and it is the port used to transport a half-million tons of energy-providing wood pellets (made from the region’s pine trees) to Europe each year. It also has another big plus — the headquarters of Linea Peninsular, a container ship company.
Linea Peninsular moved to Panama City in 2005, after Hurricane Katrina destroyed its former home at Port Bienville in Mississippi. It has five company-owned vessels that make four weekly voyages to Progreso, Mexico. The port is only 30 miles from the provincial capital of Merida, which has a population of 1 million consumers and provides fairly easy access to the rest of Central America.
“For the last five years, our port has enjoyed the most active, direct shipping to Mexico,” says Stubbs, the port director. “In many cases, it is cheaper to ship to Mexico than to truck to Memphis. That is the low-hanging fruit for our community.”
Goods and Services For Sale
The explosion of modern communication technology, and the growth of the global market have been two big pluses for AppRiver, founded in Gulf Breeze in 2002. It has more than 140 employees and 45,000 customers — and protects about 6 million email boxes around the world. In 2010, it was named by Inc. magazine as one of the nation’s 5,000 fastest growing companies and won the Reader’s Choice Award from MSExchange.org. In 2010, the company’s revenues were $28 million, and this year’s projection is to hit $35 million.
“The market is worldwide because you’re delivering services,” explains AppRiver CEO Michael Murdoch, who co-founded the company with Joel Smith. “This day and age, most companies are connected to the Net. Everyone has email and Web access. But in this day and age you’ve also got to have security.”
The meat of the company’s business is small-to-medium businesses, a big market Murdoch believes has been overlooked and underserved. About 15 percent of AppRiver’s clients are overseas. Several of its clients are multinational corporations.
Explained simply, AppRiver protects its clients by routing all their email through the company’s system. Systems are updated 24 hours a day. The goal is to soon have a physical presence in Europe and then in Asia.
“We’re able to deliver applications via the Net, so we’re not restricted by geography,” Murdoch says. “We serve every continent except Antarctica. These services are needed globally, because there are black hats worldwide, sophisticated cyber criminals.”
While AppRiver focuses on modern technology, in Tallahassee H.B. Sherman Traps is using machines with origins that go back decades, to the original inventor, Harley Sherman. But, like AppRiver, Sherman Traps has a worldwide reach, with its products showing up in places like Nicaragua, Australia, Mexico and South Africa — in all, 89 different countries. About 38 percent of the business involves export.
Sherman Traps are used for research by universities, governments and groups like the World Health Organization. They’re designed to humanely trap small animals, mainly rats.
In some cases the traps have been used to catch animals thought to carry deadly viruses, like the hantavirus, Ebola and Bubonic Plague. In California, if a construction or renovation project is occurring where the endangered Kangaroo Rat lives, a Sherman Trap must be used to catch the especially long-tailed critters so they can be relocated. In South Africa, the government has mandated that each university use humane traps, which pretty much limits them to Sherman traps.
“We’ve had more orders than ever this year,” says Sandra Screws, director of overseas operations and Sherman’s granddaughter. In April, 9,500 orders were taken. On average, the company ships out 4,000 traps a month, most of them in specially made wood containers that protect the traps in shipping.
Harley Sherman, a mammalogist who invented his product to do his own research and then sold some to the U.S. Navy in the 1940s, began exporting to Hohtoshoji, Japan, in 1961. Since then, the overseas business has grown by word of mouth and the Internet.
“This is just a little place,” says Gerald Phillips, owner of the company as well as Sherman’s son-in-law and Screws’ father. “But last year our total export sales were $499,000.”
His advice for others thinking about getting into foreign trade? Have the buyer pay in U.S. dollars.
“We used to let them pay in other currencies. What a disaster,” he says. “The Japanese, for instance, are very honorable. But they’d wait for a favorable exchange rate. Now we require they all pay in U.S. dollars.”
Yet another popular Florida export is its agricultural products. From citrus to tomatoes to peanuts, the state is marketing its fruits and vegetables to 120 markets worldwide, including more than 42 grocery chains and 11,000 stores.
“With tourism and construction struggling, agriculture is the strongest pillar of our economy,” says Florida Agriculture Commissioner Adam Putnam. “Florida exported $3 billion in agriculture products last year — a 48 percent increase since 2005. ‘Fresh from Florida’ is an international brand.”
Here’s Where To Get Help » Trade Information Center, a U.S. Commercial Service resource: export.gov
» Enterprise Florida, Inc.: eflorida.com
» Florida Export Directory: floridaexportdirectory.com
» Office of International Trade, Small Business Administration: sba.gov/oit
» Official Export Promotion Magazine, U.S. Department of Commerce: thinkglobal.com
Some Financial Tips » Before you decide to export your goods or services, consider payment terms.
» Can you afford the loss if you are not paid?
» How long have the buyers been operating and what is their credit history?
» Are there reasonable alternatives for collecting if the buyer doesn’t pay?
» If shipment is made but not accepted, can alternative buyers be found?
» How will the payment terms affect your cash flow?
Source: SunTrust Bank You Don’t Have To Go It Alone
When Enterprise Florida organized a trade mission to Panama, AppRiver’s Murdoch had his “feet on the street” during three days of appointments arranged by the U.S. Department of Commerce. He brought home thousands of dollars in business.
When an Australian distributor of professional trapping supplies contacted Mike Higgins, director of the U.S. Export Assistance Center of the U.S. Commercial Service, U.S. Department of Commerce, Higgins told him about Sherman Traps. (Higgins happens to work out of Tallahassee.)
In short, state and federal agencies are more than willing to help businesses expand their global footprint by organizing trade missions to countries around the world and setting up meetings with businesses interested in making a deal.
But exporting isn’t a business anyone can just walk into. It takes time to plan and research, including what is already being exported.
“The first question is, do you have the capacity for exporting? It’s a lot easier to open a market in the Midwest than in Mexico or China,” says Higgins of the U.S. Department of Commerce. “Are your products exportable? Do you have the funding for manufacturing, warehousing?”
If a business is willing to give it a go, Higgins jokes, “I have one of the world’s greatest Rolodexes on my desk.” The U.S. Department of Commerce has a presence in 80 countries. For between $350 and $700, Commerce employees in those countries can do market research for American companies looking to expand globally and set up contacts for one-on-one meetings.
“We do the research, but you have to go meet with the people,” Higgins says.
The meetings can be arranged during trade missions organized by Enterprise Florida, which has 14 international offices and produces the Florida Export Directory, designed to bring buyers together with Florida providers of goods and services. The next big trip is scheduled in October to Brazil, which will host the World Cup in 2014 and the summer Olympics in 2016 and which Mencia likes to call “Florida’s China.”
“Brazil is the seventh largest economy in the world and by 2020 could surpass Germany to become the fourth largest,” Mencia says. “Forty million people in Brazil have joined the middle class and, when Brazil thinks of the U.S., it thinks of Florida. Brazilians are buying everything that isn’t nailed to the wall.”
But while expanding a business into foreign trade is often do-able, Mencia cautions that it will take commitment and developing a marketing plan. “You have to make the effort,” he tells local businesses.
It’s also important to know the risk involved in cross-border sales, says Cynthia Flores, vice president of Global Trade Solutions for SunTrust Bank, which was recently named Export Lender of the Year by the U.S. Small Business Administration for the second consecutive year.
“You need to analyze the commercial risks — can your buyer pay you? — and the political risks,” she suggests. “A lot of companies end up exporting pretty much by accident. They get a hit on their website and someone in another country wants to buy their product. Soon they’re exporting and they’re not aware of all of the risks.”
For instance, getting payment for a product isn’t as easy as it may sound. The biggest question to answer is, can your business afford the loss if you’re not paid?
Despite the risks, however, interest in foreign trade is growing.
David Mann, chairman, president and CEO of SunTrust Bank North Florida, points out that there was a 20 percent increase in U.S. exports in 2010 — and the bank has seen a big jump in North Florida clients seeking Small Business Administration export loans.
“We know about the need to be ready for the expansion of the Panama Canal … and we know it’s an important aspect of our future economic growth in North Florida. I’m no port expert,” he says, “but our customers are very excited about that factor.”
Perhaps most importantly, foreign clients still like the idea of buying goods made in the U.S.
“We assumed that India would want some part of the equipment we’re selling to them to be built in their own country,” said DeTect’s Andrews. “But when the Indian Air Force was here and inspected our units, they said they want everything built in the U.S. because they like our quality.”