Despite global headwinds, U.S. companies see opportunities abroad

International Business Indicator Despite global headwinds, U.S. companies see opportunities abroad April 2016 65

About the Wells Fargo International Business Indicator The Wells Fargo International Business Indicator is designed to help U.S. business leaders better understand and assess the global business environment. Conducted annually, the International Business Indicator tracks the strength and direction of U.S. companies international business outlook and activity over time. The survey also looks at where companies are planning to expand, what s driving that expansion, and the obstacles that may hinder their plans. On behalf of Wells Fargo, global research firm GfK conducted 262 telephone interviews between Dec. 15, 2015 and Feb. 5, 2016. Criteria for survey participants: Executives at U.S. companies with annual revenue of $50 million or more that conduct business internationally Assistant vice president and director level or above, and involved with the company s international business plans or strategies The margin of error on the total is 7.3% with a 95% confidence level. Key findings Despite global headwinds, U.S. companies see opportunities abroad With a score of 65, the International Business Indicator shows that U.S. companies maintain an optimistic outlook on international business. The majority of U.S. companies continue to anticipate an increase in international business activity, as well as recognize the importance of international business. Business executives continue to believe that international expansion is needed for long-term growth and that emerging markets offer the greatest opportunities. Western Europe overtakes China as the most important international market for U.S. companies today. China remains the top hot spot for future growth, with Mexico, Brazil, India, and Canada rounding out the top five. U.S. economic outlook cools for 2016 Expectations for the U.S. business outlook in the next 12 months are down this year. U.S. companies are divided on whether the outcome of the U.S. presidential election will impact their international business and there is a sense that issues of importance to international business are not being adequately addressed by the campaigns so far. In spite of economic slowdown, China cannot be ignored About two-thirds say that China s economic slowdown has impacted their company s international business strategy at least somewhat. China s growing population and demand make it the #1 future growth hotspot for U.S. companies. Fully 42% of companies cite China as important to their business today or in the future. Page 1

Despite global headwinds, U.S. companies see opportunities abroad At 65, the 2016 Wells Fargo International Business Indicator lands in solidly positive territory for third consecutive year Wells Fargo Indicator score 100 68 63 50 65 65 0 2014 2015 2016 The indicator ranges in score from zero to 100, where zero indicates an absolute negative outlook, 50 indicates a neutral outlook, and 100 indicates an absolute positive outlook. Source: Q2: Still thinking about the next 12 months, generally speaking, to what extent do you see the international component of your business becoming more or less important to your company s financial success? (Much more important, somewhat more important, about the same, somewhat less important, much less important.) Q3: And over the next 12 months, do you expect your company s international business activity to...? (Increase a lot, increase a little, stay about the same, decrease a little, decrease a lot.) Most U.S. companies expect the level of their international business activity to increase in 2016 The level of importance of international business is holding steady over the next year. 100% 50% Percent expecting level to increase 69% 54% 64% 54% 49% 54% 0% 2014 2015 2016 Internationl business activity Importance of international business Source: Q2: Still thinking about the next 12 months, generally speaking, to what extent do you see the international component of your business becoming more or less important to your company s financial success? (data shown: Much/ more important) Q3: And over the next 12 months, do you expect your company s international business activity to...? (data shown: Increase a lot/a little). Page 2

Despite global headwinds, U.S. companies see opportunities abroad The majority expect long-term international planning and non-u.s. revenue to increase during the next year More companies expect to increase sourcing from abroad in 2016. Expected for the next 12 months (% expecting increase) Long-term international business development planning 2016 2015 63 60 Company s international, or non-u.s., revenue 52 58 Sourcing of products or resources outside of the U.S.* 31 44 Source: Q6: Over the next 12 months, do you expect each of the following to increase, decrease, or remain about the same? * Statistically significant difference between the 2015 and 2016 survey waves at the 95% confidence level. In spite of turmoil, most U.S. companies see international expansion as necessary for long term growth, with emerging markets representing the greatest revenue growth opportunity Nearly two-thirds of executives agree that the Export-Import Bank of the U.S. benefits U.S. companies. 87% agree that U.S. companies should consider expanding internationally for long-term revenue growth 69% agree that emerging markets represent the greatest revenue growth opportunity 56% agree that the recent economic slowdowns in emerging markets have made our company rethink our international strategy Source: Q6a: Next please tell me how much you agree or disagree with each of the following statements. Source: Q17. Next, please tell me how much you agree or disagree with each of the following statements. Note: The term emerging markets was open to respondent interpretation. Page 3

Despite global headwinds, U.S. companies see opportunities abroad Western Europe overtakes China as most important international market today Improving economic conditions in Europe are a key factor driving international business to increase Director, retail trade company Most or second most important 2016 2015 Western Europe 33% 19% China 23% 23% Asia-Pacific countries, excluding 20% 16% China and Japan Latin America, excluding Mexico 15% 12% Canada 13% 22% Central and Eastern Europe 13% 7% Mexico 13% 23% Middle East and Africa 10% 3% Japan 5% 3% Which of the following countries or regions are most important to your business? 65% 33% 23% say that China s economic slowdown is impacting their companies international business somewhat, if not a great deal Note: The data for the United States (43% first most important/10% second most important/53% combined importance) is excluded from this chart. Source: Q12a/b: Which of the following countries or regions is most or second most important to your business? Eyes are on China as a future hot spot, followed by other developing markets: Mexico, Brazil, and India What two or three countries are you watching as future growth hot spots? % 1st mention % 2nd mention % 3rd mention % total mention 2015 ranking China 21% 8% 1% 30% 1st Mexico 14% 4% 3% 20% 2nd Brazil 9% 9% 1% 19% 3rd India 9% 6% 2% 16% 3rd Canada 6% 8% 0% 14% 5th 14% 20% 19% 16% 30% One in five mention China as their #1 area for future growth Source: Q13: Looking ahead two to three years from now what are the top two or three countries you are watching as future growth hot spots for your company and why? Page 4

Despite global headwinds, U.S. companies see opportunities abroad U.S. companies see new opportunities stemming from the Trans-Pacific Partnership A sizable share say it is too early to tell how their business will be impacted say that the Trans-Pacific Partnership will open up 56% new opportunities for their companies in the Pacific Rim What type of impact do you expect the Trans-Pacific Partnership to have on your company s international business? 19% 8% 69% 43% 29% Positive impact No impact Negative impact Too early to tell Source: Q17. Next, please tell me how much you agree or disagree with each of the following statements. (Data shown: agree strongly/somewhat.) Source: Q16. Please let me know what type of impact you expect each of the following to have on your company s international business. Page 5

Factors affecting U.S. companies international business Volatility in commodity prices is having a notable effect on U.S. companies; majority are profiting from low energy prices While most have benefited from the low U.S. interest rate environment of recent years, fewer see a possible rise in rates as having a sizable impact 60% say that volatility in commodity prices is affecting their companies international business 66% say that the low U.S. interest rate environment of recent years has been beneficial to their companies international business 61% say that low energy prices are benefiting their companies global business 43% expect potential increases in U.S. interest rates to affect their company s international business But... The fall of the gas price is not being addressed [by the U.S. presidential campaigns], and it s causing my company to go down miserably and causing our business to be affected terribly. C-Suite, energy company But... What happens with interest rates is a big factor; our business is very sensitive to rates. Deflation is horrible for us. I would say the Federal Reserve s policy would probably have the biggest impact. President, other industry company Source: Q15. Please let me know how much each of the following impacts your company s international business Source: Q17. Next, please tell me how much you agree or disagree with each of the following statements (Agree strongly/somewhat) Source: Q15. Please let me know how much each of the following impacts your company s international business? Source: Q17. Next, please tell me how much you agree or disagree with each of the following statements. (Agree strongly/somewhat) Page 6

Factors affecting U.S. companies international business Most say currency and exchange rates affect international business decisions, although there is no consensus on the type of impact Concerns about currency fluctuations and political stability and economic conditions abroad are expected to negatively affect international business plans 12% 72% agree that currency exchange rates play a role in international business decisions What type of impact does a strong U.S. dollar have on your company's international business? 2% 39% 47% Factors likely to negatively impact international business plans (% saying very or somewhat negative) Level of political stability outside of the U.S. 2016 2015 39 59 51 Currency fluctuations or exchange rates* 51 Economic conditions outside of the U.S. 51 44 The regulatory environment here in the U.S. 46 Competitive environment 43 37 57 The regulatory environment outside of the U.S.* 40 56 Positive impact No impact Negative impact Too early to tell Source: Q6a: Next please tell me how much you agree or disagree with each of the following statements. Source: Q16. Please let me know what type of impact you expect each of the following to have on your company s international business. Source: Q7b: And what type of impact do you expect each of the following to have on your company s international business plans? * Represents statistically significant difference between the 2015 and 2016 survey waves at the 95% confidence level. Page 7

U.S. economic outlook cools for 2016 Outlook on business in the U.S. is down, while the international business outlook is more stable Percent expecting business conditions to become much or somewhat better 100% 50% 65% 53% 64% 37% 48% 34% 0% 2014 2015 2016 International business U.S. business Source: Q1: Thinking about the next 12 months, do you see each of the following becoming much better, somewhat better, somewhat worse, much worse, or do you see things staying about the same? Page 8

U.S. economic outlook cools for 2016 More than a third of U.S. companies in 2016 say U.S. economic conditions will negatively impact their international business plans, up from a quarter in 2015* Percent of U.S. companies expecting a somewhat or very negative impact from U.S. economic conditions 24% 36% 2015 2016 Source: Q7b: Please let me know what type of impact you expect each of the following to have on your company s international business plans. Would you say a very positive, somewhat positive, somewhat negative, very negative impact or, will it have no impact on your company s international business plans? * Statistically significant difference between the 2015 and 2016 survey waves at the 95% confidence level. U.S. presidential campaigns largely seen not to be addressing key international business issues Companies divided on whether the election outcome will impact their international business. Attitudes toward the U.S. presidential election (% strongly or somewhat agree) 59% 45% Issues that matter to my company s international business are not being sufficiently addressed by the U.S. presidential campaigns so far The U.S. presidential election will likely have a big impact on my company s international business Source: Q17. Next, please tell me how much you agree or disagree with each of the following statements. (Data shown: agree strongly/somewhat.) Page 9

Spotlight on China Many U.S. companies are watching China for future growth in large part because of its growing market and population [China, because of] the massive population. There is a better opportunity for business transactions. Senior Vice President, insurance, real estate company 42% say China is either important to business today or a hotspot for future growth Why is China a hotspot? (% mentioned) Growth Market or demand 34 Country size or population 28 36 Economic growth or potential 20 Already do business there, or customers there 15 Source: Q12a/b: Which of the following countries or regions is most/second most important to your business? Q13: Looking ahead two to three years from now what are the top two or three countries you are watching as future growth hot spots for your company and why? U.S. companies watching China are more optimistic about international business In next 12 months, companies expecting to increase International operations International marketing Percent saying that during the next 12 months, international business is expected... To become better 34 48 To become more important to my company 54 63 Companies saying China is important today or a hot spot All U.S. companies 40% 32% 50% 59% Companies saying China is important today or a hot spot All U.S. companies Source: Q1.Thinking about the next 12 months, do you see each of the following becoming? (Shown for international business.) Q2: Still thinking about the next 12 months, generally speaking, to what extent do you see the international component of your business becoming more or less important to your company s financial success? (Data shown: much/ more important.) Q6: Over the next 12 months, do you expect each of the following to increase, decrease, or remain about the same? Page 10

Spotlight on China Yet companies watching China are more likely to link their futures with their outlooks on China China s economic slowdown will impact business 82% Re-thinking international strategy due to economic slowdowns 65% 64% 56% Companies saying China is important today or a hot spot All U.S. companies Source: Q15. Please let me know how much each of the following impacts your company s international business? Q17. Next, please tell me how much you agree or disagree with each of the following statements. Companies focused on China are also more likely to expect an effect from issues such as the Trans-Pacific Partnership and the U.S. trade deficit Type of impact (% mentioned) Trans-Pacific Partnership will have a positive impact 52 31 58 U.S. trade deficit will have a negative impact 44 Companies saying China is important today or a hot spot All U.S. companies Source: Q16. Please let me know what type of impact you expect each of the following to have on your company s international business. We hope you have found this information valuable. Additional International Business Indicator resources can be found on wellsfargo.com/indicator. For specific questions regarding the Wells Fargo International Business Indicator, or inquiries about our international solutions, please contact indicator@wellsfargo.com. To learn more about our international products and services, visit wellsfargo.com/international. Page 11

Appendix Survey population firmographics All numbers shown in % unless otherwise noted Base = Total respondents unless otherwise noted (N=262) A dash (-) signifies 0% An asterisk (*) signifies less than 0.5% Company revenue % Industry % Position/Title % $50M to less than $100M 20 $100M to less than $150M 20 $150M to less than $200M 12 $200M to less than $500M 24 $500M to less than $1B 5 $1B to less than $5B 9 $5B or more 10 Consumer goods 8 Energy 2 Food/agriculture 6 Finance/insurance/real estate 10 Healthcare/pharmaceuticals 5 Lodging/personal services/ business 4 services Manufacturing 26 Mining/construction 3 Technology 12 Transportation/communications/ 8 utilities Retail trade 4 Other 13 Owner 3 C-suite: CEO, CFO, CIO, CCO 12 President 8 Managing director 9 Executive vice president 4 Senior vice president 8 Vice president 17 Associate vice president * Director 38 Role in company s % international business Primary decision maker 23 Have considerable influence, but not 44 the primary decision maker Have at least some influence 33 Nature of international % business Sell to customers located outside 92 the U.S. Have offices or operations located 68 outside of the U.S. Import from countries outside the 67 U.S. Export to countries outside the U.S. 65 Number of years operating % internationally 1 2 4 3 5 9 6 10 16 11 20 20 More than 20 years 50 Don t know, refused 1 Page 12

Appendix Annotated questionnaire All numbers shown in % unless otherwise noted Base = Total respondents unless otherwise noted (N=262) A dash (-) signifies 0% An asterisk (*) signifies less than 0.5% Q1. Thinking about the next 12 months, do you see each of the following becoming much better, somewhat better, somewhat worse, much worse, or do you see things staying about the same? Much better better About the same worse Much worse Don t know/ refused Overall business outlook 6 44 35 14 1 - International business outlook 4 29 34 26 7 - U.S. business outlook 7 41 36 14 2 - Your industry s outlook 9 36 34 18 2 - Q2. Still thinking about the next 12 months, generally speaking, to what extent do you see the international component of your business becoming more or less important to your company s financial success? Will it be... Much more important 17 more important 37 About the same 34 less important 9 Much less important 3 Don t know/refused * Q3. And over the next 12 months, do you expect your company s international business activity to...? Increase a lot 15 Increase a little 50 Stay about the same 23 Decrease a little 11 Decrease a lot 1 Don t know/refused - Page 13

Appendix Annotated questionnaire continued Q4. What would you say is the key factor driving your company s international business activity to (increase a lot, increase a little, stay about the same, decrease a little, decrease a lot)? (Open-ended) Q5. You just told us that you expect the international component of your business to become (much more important, somewhat more important, about as important, somewhat less important, much less important) to your company s financial success in the next 12 months. At the same time, you expect your company s international business activity to (increase a lot, increase a little, stay about the same, decrease a little, decrease a lot). Can you explain why you feel this way? (Open-ended) Q6. Over the next 12 months, do you expect each of the following to increase, decrease, or remain about the same? Increase Decrease Remain the same Does not apply Don t know/ refused Your company s international, or non-u.s., revenue 58 10 29 3 - The share of company profits stemming from international business activity 47 14 36 3 1 The number of employees located outside of the U.S. 33 10 43 13 1 Sourcing of products and/or resources outside of the U.S. 44 4 44 8 - Your company s international acquisitions 18 6 51 23 2 Volume of imports 28 7 38 26 * Volume of exports 38 9 30 24 * International operations (for example: non-u.s. staff or facilities, or direct foreign investment) 32 7 42 19 - International marketing activities 50 8 35 7 - Long-term international business development planning (for example: supply sources, potential partnerships, licensing deals, or acquisitions) 63 3 30 4 * Page 14

Appendix Annotated questionnaire continued Q6a. Next, please tell me how much you agree or disagree with each of the following statements. Currency and exchange rates play a major role in my company s international business decisions For long-term revenue growth, U.S. companies should consider expanding internationally Emerging markets represent the greatest revenue growth opportunity Strongly agree agree disagree Strongly disagree Don t know/ refused 32 39 23 5 1 37 50 13 1 * 18 51 24 6 1 Q7b. And, what type of impact do you expect each of the following to have on your company s international business plans? Would you say very positive, somewhat positive, somewhat negative, or very negative impact? Very positive positive negative Very negative No impact Economic conditions here in the U.S. 7 33 31 5 23 * Economic conditions outside of the U.S. 5 27 44 7 17 * Level of political stability here in the U.S. 9 23 24 5 38 * Level of political stability outside of the U.S. 3 17 47 12 20 1 The regulatory environment here in the U.S. 9 17 34 12 28 - The regulatory environment outside of the U.S. 3 22 33 7 35 * Currency fluctuations or exchange rates 5 19 36 15 22 3 Changes in international supply chain and logistics 3 31 15 2 46 3 Labor costs outside the U.S. 6 30 30 5 30 * Competitive environment 5 29 37 5 23 1 Key trends in your industry (for example: material costs, technology, etc.) Don t know/ refused 9 42 25 3 21 - Changes in customer requirements 8 35 23 2 32 * Note: Questions 8 through 11 were not asked in the 2016 survey. Page 15

Appendix Annotated questionnaire continued Q12a. Which of the following countries or regions is most important to your business? Q12b. And, which of the following countries or regions is second most important to your business? First most Second most United States 43 10 Canada 1 12 Latin America, excluding Mexico 5 10 Mexico 3 10 Western Europe 12 21 Central and Eastern Europe 5 8 Middle East and Africa 5 5 Asia-Pacific countries, excluding China and Japan 12 8 China 12 11 Japan 1 3 Don t know/refused - 3 Q13. Looking ahead two to three years from now what are the top two or three countries you are watching as future growth hot spots for your company and why? China 30 Mexico 20 Brazil 19 India 16 Canada 14 Germany 10 United kingdom 7 United States 6 Europe 5 Australia 4 Singapore 4 Latin America 3 Saudi Arabia 3 Vietnam 3 Japan 3 France 3 Mentions with less than 3% not shown Note: Question 14 was not asked in the 2016 survey. Page 16

Appendix Annotated questionnaire continued Q15. I m going to read a list of issues that have been in the news recently. Please let me know how much each of the following impacts your company s international business? A great deal Not too much Not at all Too early to tell China s economic slowdown 28 37 18 15 2 - A U.S. bear market 25 41 16 15 2 * Potential interest rate increases by the Federal Reserve Don t know/ refused 13 29 29 23 5 * Volatility in commodity prices 23 36 15 22 3 * Political and social unrest in places around the world 18 40 23 15 4 - Q16. Please let me know what type of impact you expect each of the following to have on your company s international business. Would you say very positive, somewhat positive, somewhat negative, very negative, no impact, or too early to tell? Very positive positive negative Very negative No impact Too early to tell The U.S. trade deficit 1 6 29 2 57 4 1 The Trans-Pacific Partnership agreement Don t know/ refused 4 25 6 2 43 19 1 A strong U.S. dollar 21 25 28 12 12 2 - Page 17

Appendix Annotated questionnaire continued Q17. Next, please tell me how much you agree or disagree with each of the following statements. The recent economic slowdowns in emerging markets have made our company re-think our international strategy Strongly agree agree disagree Strongly disagree Don t know/ refused 20 36 28 14 2 Low energy prices are benefiting my company s global business 19 43 17 17 4 The Trans-Pacific Partnership will open up new opportunities for my company in the Pacific Rim Issues that matter to my company s international business are not being sufficiently addressed by the U.S. presidential campaigns so far The U.S. presidential election will likely have a big impact on my company s international business The U.S. low interest rate environment of recent years has been beneficial to my company s international business 11 44 22 12 10 19 40 25 10 6 17 27 35 18 3 23 43 23 6 5 The Export-Import Bank of the U.S. benefits U.S. companies 22 43 20 5 10 U.S. corporate taxes play a significant role in my company s international business decisions 24 36 24 14 2 Q18. You just told me that issues that matter to your company s international business (if agree strongly or somewhat: are not / if disagree strongly or somewhat: are ) being sufficiently addressed by the U.S. presidential campaigns so far. Which of these specific issues do you feel will impact your company s international business the most? (Open-ended) Page 18

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