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July 29, 2014

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Home » Business » Economy

American firms pursue growth in foreign markets

Source: Agencies | July 29, 2014, Tuesday | Print Edition

MAJOR American firms are starting to reap their most rapid growth in fertile lands of opportunity far from home.

Technology trendsetters Apple, Google, Facebook and Netflix all mined foreign countries to produce earnings or revenue that exceeded analysts’ projections in their latest quarters. Prodded by the steadily rising demand for Internet access and online services in developing countries, these technology companies will likely be wading even deeper into overseas markets for years to come.

“The philosophy is to start your growth in the States, then take your fight overseas,” said BGC Financial analyst Colin Gillis.

“That’s what the big guys are doing.”

The intensifying international focus extends beyond technology. Century-old companies such as Coca-Cola and Ford also are hoping to make more money in countries like China and India.

Few United States industries are tying their fortunes to overseas markets as aggressively as the tech sector, where new sources of revenue are often just a matter of equipping people with a computing device and an Internet connection.

Soaring sales of iPhones in China, Russia, India and Brazil during the April-June period helped Apple overcome softening demand for the device in the US and Europe.

Google generated 58 percent of its revenue outside the US in its second quarter, the highest level yet for the Internet’s most powerful company.

Facebook already gets 55 percent of its revenue overseas, and the growth in those markets is outpacing what’s happening in the US.

Netflix’s Internet video service added 1.1 million international subscribers, nearly doubling the number it gained in the US in the April-June quarter. The company expects the trend to continue as it enters six more European markets in September.

Corporate profits will probably need to keep rising to sustain the US stock market’s record-breaking run. The Standard & Poor’s 500 index has already climbed nearly 8 percent this year, well above its historical pace, while analysts expect earnings to rise 8 percent this year.

Low interest rates and an improving economy have helped create a climate of optimism, said Brad McMillan, chief investment officer at Commonwealth Financial.

“Everything is going well. That’s what’s driving the market up,” he said.

But McMillian isn’t convinced companies will be able to live up to investors’ high hopes.

Overall sales have been slow, and profit margins are at record levels after years of cost cutting. Those factors will make it tougher for companies to find ways to ratchet their earnings even higher.

Less lucrative

The natural response for many companies? Look abroad because that’s where most of the customers are. The US population accounts for less than 5 percent of the world’s roughly 7.2 billion people.

The US, though, still boasts the world’s largest economy with a market of consumers who can afford more products and services than people in most other parts of the world. That means growth in other countries often isn’t as lucrative.

Apple is discovering this as it sells more devices overseas. For instance, the iPhone’s average selling price fell to US$561 in its most recent quarter, a 3 percent drop from a year ago and a 13 percent decline from two years ago.

Google’s growth in foreign markets outside Europe is one of the reasons its average advertising prices have been falling for nearly three years.

Advertisers so far haven’t been willing to pay as much to peddle their wares to consumers who don’t have as much disposable income as people in the US.

Facebook is experiencing a similar phenomenon. It reaped an average of US$6.44 per user in the US and Canada during the second quarter, compared with just US$2.84 in Europe, US$1.08 in Asia and 86 cents in the rest of the world.

While Netflix remains profitable overall, it isn’t making money on an international expansion that began nearly four years ago.

Its international losses have exceeded US$800 million so far.

Most public companies are willing to endure short-term financial pain in return for long-term gain in growth. That’s one of the reasons Ford is building four plants in China and two in India.

Coca-Cola is looking abroad for growth largely because it’s becoming tougher for beverage makers to increase revenue in a US market already awash in soda and other refreshments.

An increasing thirst for Coca-Cola products in China, India and the Middle East helped boost the company’s international sales by 3 percent in the second quarter, while volume remained flat in North America.

 

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