Bubble. Bust. Credit crisis. Recession. Rising oil prices. Declining dollar. Makes one wonder if there is a direct correlation between the news and an increase in prescriptions of Prozac.
While the news of the global economy today may seem overwhelmingly negative, and pundits and politicians running for office all warning of a downward spiral, a simple step back and return to the basics allows for a more rational analysis and reveals that all may not be as bad, at least for Wisconsin businesses competing in the global marketplace, as the fear mongers might have the general public believe.
Although the dollar is reaching historic lows, and this has made the cost of travel increasingly expensive, this is providing a competitive advantage for the United States in terms of our exports, particularly when competing against other developed countries.
Over the course of the past five years, the dollar has been steadily dropping against many of the world’s major currencies, including the Euro, Japanese Yen, British Pound, Brazilian Real, Singapore Dollar, and Canadian Dollar. Yet, Wisconsin exports have continued to increase at an average of 10.5 percent per year since 2002, with 2005 and 2006 seeing increases of 17.5 percent and 15.1 percent, respectively.
Certainly the increase in exports cannot be solely attributed to the decline of the dollar, but it is a contributing factor. In short, Wisconsin products are becoming less expensive for the world to purchase.
While the U.S. currency has taken a dive in the past year, oil prices have been on the exact opposite path, soaring upwards past $100 a barrel. This not only makes the cost of filling up American SUVs significantly more expensive, but has a serious impact on logistical costs. While foreign sourcing in low labor cost countries has been a necessary tool for survival and success for some in the global marketplace, this option is becoming less attractive, particularly for those companies who have to ship components or raw materials from various locations to a central manufacturing facility overseas, then bring the product back to the United States for finishing work (one method of protecting intellectual property). Will rising oil prices lead to a complete cessation of foreign sourcing? Certainly not, but the rising fuel surcharges affecting the manufacturing supply chain will make senior decision makers think twice before setting up overseas production.
The caveat to this is, depending upon the size of the manufacturer, should a company have the capability to set-up manufacturing closer to the customer, thereby reducing final transportation costs, this may become a more viable option. However, the majority benefit of the lower dollar would be sacrificed and due to the lower dollar, setting-up foreign manufacturing will be more expensive than previously.
The latest crisis to hit the global economic scene deals with the credit crisis. Wisconsin is relatively lucky in the fact that many of the banks which operate in this state have not been severely affected. Debt financing will become a little more challenging for companies, but this has been coming down the pipeline for some time. Equity financing may also become more challenging as the smaller private equity and venture capital firms are finding it more challenging to secure financing for new funds or projects.
What does all this mean for the Wisconsin company? Securing capital for growth may become a little more challenging, but it will not become impossible. Company credit history and use of funds will be scrutinized more, and industry sectors may play a part. Business involved in home construction sectors or the automotive sectors may find it more difficult to secure financing, at least at a relatively reasonable rate.
Wisconsin should fare well in the global marketplace in 2008. It may not see staggering growth, but the opportunity for growth is there. Many companies are predicting a flat 2008. Conservative? Perhaps. But this is Wisconsin. And it is one way to balance the opportunities with the challenges. I am slightly more optimistic.
But then again, that’s my job. And perhaps I’ve been taking my share of Prozac as well.