Despite high volatility in the global currency market, U.S. firms have accelerated investment in emerging markets with hopes of keeping up their growth rate. According to the latest Wells Fargo International Business Indicator, U.S. companies are expecting an increase non-U.S. revenue over the next 12 months.
Overall, 47% of U.S. companies said they expect profits from international business activity to increase this year, compared to 39% in 2015. Additionally, 87% of U.S. companies agree that international expansion is needed for long-term growth, with emerging markets providing the greatest opportunities (69%). In partiular, businesses are seeing “longer-term future growth” for their investment in Mexico and Brazil.
This international focus could be due to many U.S. firms turning pessimistic about growth in the U.S. consumer market. Less than half (48%) of survey respondents expect the U.S. market to improve over the next 12 months, down from 64% in 2015. And more than a third (36%) expects economic conditions in the United States to negatively impact their international business plans, up from about a quarter (24%) in 2015.
This Wells Fargo indicator tracks the strength and direction of the international outlook of U.S. companies, surveying more than 260 firms with annual revenue of $50 million or more that conduct at least some international business.
“The latest indicator results show that, even with global volatility, U.S. companies remain optimistic about international growth opportunities,” said Richard Yorke, head of Wells Fargo International Group. “While some U.S. companies may be re-evaluating certain factors of their international strategy — such as timing and specific markets — they are not retreating from pursuing global business opportunities as a core part of their business strategy.”
China is no longer the favorite for U.S. businesses. Western Europe is now viewed as the most important international market, according to 33% of survey respondents.
Western Europe moved from No. 4 in 2015 to the top spot in 2016, while Canada and Mexico fell from the top three. China follows Western Europe with 23%, as Asia Pacific, excluding China and Japan (20%), and Latin America, excluding Mexico (15%), round out the top four.
The survey found that U.S. companies remain confident about the future of the global marketplace. Six in 10 companies expect their international business activity to increase, while 54% believe the international component of their business will become more important in the next 12 months.
Forty-four percent expect to increase the amount of products/resources they source from outside the U.S., up from 31% in 2015. Planning for international growth remains a priority for most U.S. companies, as 63% say they expect to increase long-term international business development planning in 2016.
When assessing international markets, U.S. companies indicated several key factors likely to have a negative impact on their international business plans, including political stability outside of the U.S. (59%), currency fluctuations or exchange rates (51%), and general economic conditions outside the U.S. (51%).
According to Wells Fargo, while U.S. companies are somewhat divided on whether the election outcome will impact their international business (45% agree, 53% disagree), 59% of companies surveyed do agree that many issues of importance to international business, including corporate taxes, are not being adequately addressed by the presidential campaigns.