Iowa Businesses Carve Out Global Opportunities, Look at the Future

June 1, 2018 | Iowa businesses carve out global opportunities, look at the future

Businesses all across the globe are becoming more connected, and Iowa businesses are playing an important role in that global picture.

In an ever-changing international scene, 41.9 percent of Iowa executives say their companies conduct business overseas, according to an ABI poll completed in April. The majority of those executives — 66.6 percent — say they do their global business through partners/distributors/business agents. Just 20 percent of survey takers say they have facilities and employees in other countries.

In the last decade, Iowa leaders have noticed a substantial increase in the number of Iowa companies doing business overseas.

“I think the market has become more open,” said Todd Sommerfeld, chairman at Kreg Tool in Huxley. “The flow of goods, logistically, it’s a flatter world. The internet has opened up communication to companies and customers all over the world.”

Agriculture and manufacturing

Iowa’s exports outside of the country rely heavily on two industries: agriculture and manufacturing. And the two aren’t mutually exclusive.

The state’s top exported good is corn, which accounts for 9 percent of Iowa’s exports, according to 2017 United States Census Bureau stats. Soybeans and soybean-based products litter the top 25 list of Iowa’s exported goods.

On the manufacturing side, many of the top exported products are agriculture-based. Tractors, for example, are second on the list, accounting for 5.6 percent of Iowa’s exports.

“I think most Iowans don’t realize how export-dependent we are as a state, not just in our agricultural products, whether it be protein-based or grain-based products, but in our manufacturing products,” said Dave Zrostlik, president and CEO of Garner-based Stellar Industries, a manufacturer of hydraulic truck-mounted equipment. “[Stellar Industries] doesn’t have a huge export presence, but there are a lot of companies in Iowa that do. I’m talking about John Deere, Vermeer and other larger and smaller companies that do a lot of export work.”

Vermeer, based in Pella, produces equipment for a wide range of industries, including agriculture. Jason Andringa became Vermeer’s president and CEO in late 2015. At the time, the company’s international sales had dropped from a peak of about 30 percent a few years earlier to about 20 percent. But, in 2017, Andringa said Vermeer saw a bounce back in its global sales. Vermeer now employs about 600 people because of its exports.

The company owns a small facility in China with about 100 people that helps the company serve its increasing footprint in China, India and the Southeast Asian markets. Vermeer is also ramping up its footprint in Europe. The company has a regional office based in the Netherlands and is trying to improve distribution channels across the region.

“We aspire to get to a point where 50 percent of our sales are outside the United States,” Andringa said. “For the past five years, we have not made progress in that goal. We sell proportionally less of our volume overseas now than what we did five years ago. But it is our desire not only to continue to grow domestically, but to grow internationally at a faster pace.”

A chance to grow

Vermeer isn’t alone. Many Iowa companies want to see a growth internationally. According to the ABI survey, more than half of Iowa executives say less than 20 percent of their sales come from outside the United States. Only 6.4 percent of survey respondents say 40 percent or more of their business comes from outside the United States.

Sommerfeld, a second-generation owner of his family business Kreg Tool, said between 6 and 7 percent of his company’s business comes from overseas, but he sees more opportunity in the future. Kreg Tool primarily sells its products internationally through distributors. The biggest challenge globally has been how to market the product.

In the United States, Kreg Tool sells about 80 percent of products direct to consumer, with the other 20 percent going to professionals, like carpenters, cabinet makers, woodworkers, etc.

Internationally, about 20 percent of the company’s products go to consumers, with the rest going to the professionals.

The company would have to alter its marketing and sales plan overseas to accommodate that disparity from its U.S. sales.

“For us to be the same brand internationally as we are domestically, it’s going to take additional investment, it’s going to take more discussions and relationships,” Sommerfeld said. “We’re going to have to own those relationships.”

At Stellar Industries, Zrostlik said about 10 percent of the company’s business comes from outside the United States. But the company will be rolling out some new products later this year, which will bump that percentage up.

Zrostlik believes some opportunities for the future lie in developing nations that are starting to maintain a stable economy.

“The rest of the world is developing,” he said. “Those underdeveloped countries have companies that are starting to build up their infrastructure and build up their nations. We’re seeing requests for those products from those nations now that we never would have imagined hearing requests from in the past. So the world is starting to grow and starting to see some economic growth in other nations, which is good for the world economy.”

The good and the bad

As has always been the case, politics and business are deeply intertwined. But in light of recent political discourse, especially in terms of foreign policy, politics have been a large talking point among Iowa business leaders.

Following the 2017 tax reform passed by the U.S. Legislature and signed by President Donald Trump, Iowa business confidence domestically and internationally was high. Andringa credits the tax reform and other deregulation measures by the U.S. government as one of the reasons for Vermeer’s resurgence in international sales in 2017.

“It was a phenomenal bounce-back year,” Andringa said. “There were a lot of positive things happening in terms of deregulation and tax reform and just a lot of business confidence. We saw nice improvements globally.”

But Andringa said recent foreign policy discussions by the Trump administration have made it difficult for Iowa businesses. He specifically pointed out tariffs on steel and other products and the trade war with China, which is among the United States’ top importers of pork and soybeans, both a large part of Iowa’s economy.

Andringa said Vermeer has seen a 50 percent increase on steel prices this year.

“This year has been frustrating,” Andringa said. “These discussions so far would be disproportionally damaging to the state of Iowa. The past two years have been kind of amazing in the ups and downs that we’ve already taken.

“I actually consider external geopolitical risk to be probably our biggest risk factor now. The lack of clarity on foreign policy is a significant issue. At the same time, I give the current administration a lot of credit with regards to the positive business climate that continued to build all last year with regulatory reform and tax reform.”

Zrostlik said the increase in steel prices has forced Stellar Industries to increase prices on all its products. He said the growing trade tension internationally has an effect beyond the bottom line. Many of Zrostlik’s employees farm in addition to working at Stellar Industries, and the increasing pressure from China has an effect on his employees and their families.

“If there’s something negatively happening to our agricultural economy here in Iowa, it’s having an impact not just statewide but also locally here with some of my employees at Stellar Industries,” Zrostlik said. “It really is a trickle-down effect.”

Looking beyond the state

Zrostlik, chair of the 2018 ABI Taking Care of Business Conference Committee, chose this year’s conference theme — Iowa’s place in the global economy — before many of the aforementioned issues were a factor. But now the theme is as important as ever.

It’s also a passion for Zrostlik, who has an educational background in international business.

“This year, I wanted to take a step outside of Iowa and look at how Iowa fits into the national and the global scheme of things,” Zrostlik said. “I’ve always been passionate about that, and bringing that to the conference was important to me personally.”

The keynote speakers for this year’s conference are Marc Goodman, who focuses on transnational cyber risk and intelligence, Peter Zeihan, a geopolitical strategist, and John Anderson, a global supply chain expert.

All three of those topics relate to many of the recent headlines and could have a direct effect on Iowa businesses. “Our keynote speakers are very timely to talk about a number of those geopolitical issues,” said Kelly Barrick, managing director of CIBC Bank in West Des Moines. Barrick is also a part of the conference commi ee and is the sponsorship subcommittee chair.

“ABI is Iowa companies coming together, but those Iowa companies are impacted by what goes on throughout the world. The goal of the conference is to think about how can we come together to better prepare the companies for different uncertainties that are coming up in the world economy.”

The location for this year’s conference, in the Coralville/ Iowa City area, comes 10 years after the flood that sent ripples throughout the area, particularly Cedar Rapids. The ABI conference was actually held in Coralville in 2008 when the floods came.

“The last time we were there, that entire community had experienced some significant flooding and some weather challenges,” said Kathy Anderson, vice president of member development and programs for ABI and one of the conference organizers. “Coming back 10 years later, most of the Iowa River Landing that’s there now wasn’t even there.”

The June 5-7 conference will hold events at Kinnick Stadium, home of the University of Iowa football team, and will bring attendees to some of the great spots within an area that has grown in the 10 years since the devastating flood.

And beyond the sights and sounds, attendees will find that they’ll learn a thing or two about just how big the state is in the global picture.

“It’s just good for us to stay on top of what’s going on in the world and really figuring out how Iowa fits into that global economy,” said Donna R. Popp-Bruesewitz, communications manager at Stellar Industries and a chair of the conference committee.

“Technology has made such an impact on how we do business and how easy it’s become to do business around the globe. I think as Iowa companies, we need to know how we fit in, and how to play in that marketplace.”