By Michael A. Fletcher
Washington Post Staff Writer
Wednesday, December 26, 2007
CINCINNATI -- Challenged by a troubled U.S. economy and the steeply falling dollar, a growing number of U.S. manufacturers are making up for slowing domestic sales by expanding them overseas, often with sophisticated products.
Once fingered as a prime culprit in the loss of U.S. manufacturing jobs, global business is shaping up as a bulwark against what some analysts fear is a looming recession. Some forecasters predict that the export boom will allow the United States to cut its huge trade deficit.
An expanding foreign appetite for capital goods such as tractors, medical equipment and electrical machinery is driving much of the boom. Much of that growth is in China, the fourth-largest export market for U.S. goods, where U.S. sales are growing 17 percent this year, according to federal officials. In the first nine months of this year, sales of U.S. aircraft to China are up 30 percent and plastics are up 37 percent.
There also is increased international demand for complex niche products for which "made in the U.S.A." remains shorthand for reliability. "These are the kinds of things for which the U.S. continues to hold a lead in know-how," said Erin Ennis, vice president of the U.S.-China Business Council.
Tedia Co., a business based in suburban Cincinnati that makes chemicals used in laboratory testing, has transformed itself to meet that demand. Not long ago, its small cadre of chemists, lab technicians and stock employees did all of their work for a huge domestic firm that needed high-purity solvents for laboratory use. The business model was crafted by Tedia's late founder Moon Su Park, a chemical engineer who launched the company in 1975. It worked well for 15 years but left the new generation of company executives worried that the firm's fate was in the hands of one big client.
Back in 1990, "90 percent of our business was under someone else's name. That is not the kind of position you want to be in as a company," said Tedia President Hoon Choi. That's when Tedia decided to look abroad. Now, sales are expanding rapidly in China and Brazil -- places where the firm did not even do business 15 years ago. Overall, exports account for half of the company's business, and the company has doubled its number of employees to 70 since 2003.
The chemicals Tedia makes are critical to things such as DNA- and water-testing that require pure solvents to isolate the contaminants in the substances being tested -- quality that company officials say few firms outside of the United States, Canada and Europe can provide consistently.
"As some of these developing economies have grown, the demand for our products have grown as well," said Chris Dendy, Tedia's sales and marketing manager.
Tedia is in the middle of building a new 40,000-square-foot warehouse across the street from the company's headquarters, and the firm is anticipating 20 to 25 percent growth in each of the next two years.
"For a long time people thought of globalization only as the loss of jobs," said Elliott Howard, who fills and labels the brown bottles of chemicals distilled in Tedia's eight large stainless-steel stills. "Now, I think of it as expanding the company."
A similar transformation is evident at another Ohio company, Richards Industries, which makes precision valves.
When Bruce Boxterman made his first visit to a trade fair in China in the late 1980s, he became convinced that the potential for his company in China was vast. "You'd go in a store and see shirts on the shelf without any packaging . . . the general lack of developed infrastructure," said Boxterman, now president of Richards. The companies that manufacture such commodities are the clients who now buy Richards valves.
Two decades later, sales to foreign firms account for close to a third of Richards' revenue -- more than double what it was 10 years ago. The firm projects that exports will account for half of its business in another five years, a shift that is turning heads among the firm's 125 employees.
"It wasn't that long ago that guys looked at globalization like it is going to cause us all to lose our jobs," said Wells Rankin, a supervisor who began as a drill press operator at Richards in 1989. "Now it's probably going to save our jobs."
Nationally, exports grew 12.7 percent between 2005 and 2006. This year, they are on track to increase even more, allowing the economy to continue growing at a healthy clip despite the steep downturn in the housing industry.
Whether this boom is a temporary phenomenon tied to the declining dollar or a harbinger of a fundamental shift propelled by the rapid rise in living standards in developing nations is the subject of intense debate.
"For us, the fact that countries such as China and India are building so much infrastructure is why they are a growth market," said Jason Cooper, a Richards vice president, voicing a view shared by the Bush administration and many Republicans.
The breakneck development transforming such places as China and India mean more business opportunities for Richards. The firm's sophisticated valves, outfitted with special controls at the company's plant, are critical to processes at places including refineries and petrochemical plants, which turn out products from fuel to the plastic used to wrap shirts.
"Businesses are getting behind exports, and we are becoming a major, major exporter," said Commerce Secretary Carlos M. Gutierrez. "We've got to keep that going."
But on the Democratic side, free-trade agreements and other efforts aimed at liberalizing international trade have come under fire. Earlier this month, Congress approved a relatively small free-trade agreement with Peru, but larger deals with Panama, Colombia and South Korea are in doubt because of concerns that they would cost U.S. jobs.
Sen. Sherrod Brown (D-Ohio), who made trade deals a signature issue in his campaign last year to unseat Mike DeWine (R), has called for a pause in the agreements while the United States develops a new model that pays greater attention to worker conditions abroad and their impact on jobs at home. "We want trade and more of it," Brown said. "But we want trade that grows our economy, rather than undercutting it."
Leading Democratic presidential candidates have been cool toward free-trade agreements, with suggestions that range from a "timeout" on new deals (Sen. Hillary Rodham Clinton) to a renegotiation of the 1994 North American Free Trade Agreement (Sen. Barack Obama), and a bid for NAFTA to be "reworked" with stronger environmental and labor standards (John Edwards).
Much of the public also sees free-trade agreements as bad for the country. Forty-six percent of people polled in March by NBC News and the Wall Street Journal said the United States is being harmed by them, while 28 percent said the nation is benefiting. Only 31 percent said they were being personally hurt by the global economy.
Ohio, home of Richards Industries and Tedia, is at the center of this swirling debate. The state's unemployment rate of 5.9 percent is 25 percent above the national average. More than 200,000 manufacturing jobs have disappeared in the state since 2000, and one in three registered voters rate economic conditions as "poor," according to the latest Ohio Poll.
Little noted amid the pervasive gloom, however, is that Ohio is the only state in the nation where exports have expanded in each of the past eight years.
"I think that the average Ohioan would view trade as losing jobs to other countries," said Lt. Gov. Lee Fisher, who heads the state's economic development efforts, with 13 offices around the world aimed at attracting foreign business. "But there are other aspects of trade that are less understood."
Richards' Boxterman agreed. As far as he is concerned, exporting has saved his company. "I remember when people asked, 'How are we supposed to sell valves in China?' " Boxterman said. "Now, foreign sales are a huge part of who we are and what we are and why we've been able to survive as a small company."
The growth in exports has meant just a handful of new jobs. But in its employment listings Richards notes that it has never laid people off or reduced work weeks under 40 hours -- a proud record that at times has been kept intact by having workers come in to paint and clean the plant. Besides job security, the firm also offers full benefits, including a company-funded 401(k) plan and profit sharing. Entry-level jobs start at $12 an hour.
To remain economically competitive, Richards, which does about $30 million a year in sales, began buying component parts overseas about a decade ago. China, India and Italy were the places to go for low-cost, basic valves that Richards customizes -- a reality that company executives acknowledge must have cost jobs in some other U.S. plant, even while saving them at Richards.
"When I interviewed here, I was asked: 'Do you think you can get us globally sourced?' " said Charles Page, the firm's vice president for customer service and a minority owner who began working at Richards in 1996. "I said 'yes, sir,' even though I didn't know exactly what that meant."
Now, Page sees outsourcing as "a necessity." He also knows that cannot be good for U.S. makers of basic valves and other components used by Richards. But when it comes to custom valves that are controlled by pneumatic or electrical devices and used in such places as sophisticated pharmaceutical or petrochemical plants, Richards officials say U.S. firms have the advantage.
"We sell a niche product. The ultimate irony is that in some of these fast-growing countries, firms don't want to buy their own stuff," Cooper said. "They don't trust it."
Polling analyst Jennifer Agiesta contributed to this report.