Canton Trade Fair’s first foreign exhibitors hint at sea change in global flow of traded goods

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Evidence that the tide is turning in the global flow of traded goods emerged last week when, for the first time, a number of foreign companies exhibited their products to prospective Chinese buyers at the annual Canton Trade Fair. An organizer for the Guangzhou-based exhibition confirmed that this was the first time the Fair had acted as anything other than a venue for Chinese companies to present their merchandise to foreign buyers.

Mainstream US corporations including Microsoft, GE, Qualcomm and PepsiCo represented a highly visible but relatively small portion of the listed foreign companies exhibiting their wares there. Few, if any, private or mid-market US companies were present, despite having been flagged in a number of surveys and research reports as forming the vanguard of a predicted tidal wave of US exports in the not so distant future. One such survey conducted by Deloitte and the EIU earlier this year indicated that the percentage of mid-market companies exporting could double from 35% just after the financial crisis to 65% by 2015.

Expectations of the US mid-market’s latent potential have been underlined by the fact that the Singapore Business Federation has targeted these very same American companies as a leading source of prospects in its ongoing quest to encourage foreign companies targeting the Asian markets to locate their administrative or production operations in the region’s trading hub. The SBF recently signed a Statement of Intent with the US Foreign Commercial Service in support of US export initiatives, with electronics, oil and gas, aircraft and parts, renewable energy, environmental and water resources being among those sectors where US companies were identified as being “compatible to local import demands”.

However, just as mid-market US companies are missing in action at the Canton Trade Fair, the SBF has yet to see much evidence that such companies are eager to establish themselves in Asia. In fact, the momentum has been moving in the opposite direction. According to the SBF’s CEO, Ho Meng Kit, the Federation had received far more interest from Chinese companies that have, or are in the process of, establishing themselves in Singapore with the aim of using it as a base from which to expand elsewhere in the world.

Many of the mid-sized US companies interviewed by this news service in recent months which had expressed a serious interest in exporting their products lacked even the most basic knowledge and tools required to get their products into new, fast-growing markets like those in Asia. This may explain their lack of visibility in places as high-profile as Singapore, with many of them knowing next to nothing about how the products or services they offer would match the specifications of potential local customers.

Evidence of US companies’ focus on foreign markets mounts

Herbert Lee, an MD at the Seoul-based Korea Importers Association, said that the delegation of Korean companies that it had recently sent to Baltimore, Maryland had been surprised by the unusually positive reception it had received from the companies based there. Lee said that the Korean companies that went to Baltimore and other US cities had in the past been used to meeting with companies more focused on their own large, domestic market, with foreign markets like Korea not viewed as a priority. However, on this most recent occasion the interest expressed in Korea as an export market by the Baltimore-based companies had increased significantly, and Lee said that many of the Korean companies that took part in the tour had returned with numerous new American product samples which they were actively studying.

A spokesperson for MOFCOM, China’s Ministry of Commerce, said that the appearance of foreign companies at the Canton Trade Fair represented a clear signal that China’s longstanding trade strategy of exporting consumer goods was undergoing a shift towards imports, as had been written into China’s 12th Five-Year Plan.

Last April MOFCOM, in combination with the National Development and Reform Commission and the Ministry of Finance jointly issued a Catalogue for Encouraged Import Technologies and Products. Around the same time MOFCOM lowered tariffs on more than 600 products before lowering the tariffs on 33 imported energy and raw material products in July. It was recently reported that MOFCOM has planned a further lowering of the tariffs on up to 100 different imported goods, although the proposal had encountered opposition and a planned meeting to discuss the proposal was postponed.

A MOFCOM spokesperson noted at a conference held last week that the tariff reductions introduced so far had yet to result in a significant increase in imports and it was for this reason that China was looking at other ways to encourage imports. This included such initiatives as actively encouraging foreign companies and governments to come to China to sell their goods and services. Other possibilities could include allowing foreign OEMs, based in China for the purposes of low cost production and export, to sell directly to Chinese consumers.

US manufacturing renaissance vs retirement of skilled workforce

Any transition in the fundamental nature of major exporting and importing economies like those of China and the US clearly has a long way to go before any meaningful changes will become visible. Even if the costs of production have been moving in America’s favor in recent years, the process of deindustrialization that the country has gone through have left deep scars that will take time to overcome.

In the region surrounding the city of Buffalo in Upstate New York, for example, local colleges and manufacturers are struggling to address the prospect that 80% of its skilled workforce will be lost to retirement within the next decade. Similarly, in the state of Massachusetts it is estimated that the ageing manufacturing workforce could see 10,000 retirements per year from the sector over the next decade, with students, parents and career advisers showing little interest in filling the gap.

Even in the State of Washington, where the consistent global demand for Boeing’s sophisticated range of aerospace products meant that it never experienced the wholesale migration of factories to lower cost countries, the retirement of baby boomers trained in factory skills has become a critical issue. The loss of so many workers with skills in areas like airframe mechanics, machine tool and industrial manufacturing technology, electronics and composites manufacturing is expected to require the production of 4,500 to 5,000 trained graduates each year. Yet the State is producing only about half that amount.

However, the flexibility of the American workforce is likely to provide the solutions that other countries with more entrenched and restrictive labor practices, and greater demographical challenges, will struggle to come up with. The streamlining of the training process that has taken place in Washington in the face of Boeing’s production demands are typical of what is happening across the country. The two year ‘introduction to composites’ and ‘composites repair’ courses Washington state colleges had previously established have in many cases been reduced to a six month training program. Boeing, meanwhile, is now offering a three month line-workers training program to high school graduates.

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