Looking for a way to expand the market for your products and services? Many companies in the hydroelectric industry have discovered how exporting beyond the borders of the U.S. and Canada diversifies their risk, improves their financial positions and creates jobs.
By Elizabeth Ingram
The companies that provide products and services for the hydropower industry in the U.S. and Canada have valuable expertise that can be expanded outside the boundaries of their countries. After all, 95% of all consumers live outside the U.S., according to the U.S. Department of Commerce, making the rest of the world a prime market for expansion. And with a Canadian population of 33.5 million and a world population of 7.1 billion, an even greater percentage of the global customer base lives outside of Canada.
What is the bottom line benefit of increasing exports to the economies of these two North American countries? Income and jobs.
In the U.S., for example, President Barack Obama has a goal of doubling exports and adding 2 million export-supported jobs by the end of 2014. In 2012, U.S. exports hit an all-time record of $2.2 trillion. Exports for the first quarter of 2013 were nearly $555 billion, the highest quarterly total on record. In addition, American jobs supported by exports increased to 9.8 million in 2012, up 1.3 million since 2009.
Several hydropower companies based in the U.S. and Canada are actively working to expand their business outside of this market. This article will discuss their efforts, the markets they are pursuing, and the challenges to be overcome.
|Two gates supplied by Obermeyer Hydro are operating at the 3.2-MW Lakatnik hydro project in Bulgaria. This is just one example of how the Colorado-based company exports its product.|
Understanding the export situation
In May, President Obama launched a government-wide strategy to promote exports from the U.S. The goal is to strengthen America’s economy, support additional jobs in the U.S., and ensure long-term, sustainable growth. One essential component of this strategy is the National Export Initiative, launched in January 2010.
The Obama administration has made it a priority to improve the conditions that directly affect the private sector’s ability to export, working to remove trade barriers abroad, help firms of all sizes and farmers overcome hurdles to entering new markets, and assist with financing.
Support is strong for U.S.-based companies selling their goods and services abroad. Some of the ongoing efforts in this area, spearheaded by the U.S. Department of Commerce, include:
– Building trade advocacy and export promotion efforts through such initiatives as the Doing Business in Africa Campaign;
– Educating companies about markets opened by free trade agreements, such as South Korea, Colombia and Panama in 2012; and
– Negotiating new trade agreements, such as the Trans-Pacific Partnership agreement, to address existing and newly emerging obstacles to U.S. exports.
The structure is such that even relatively small businesses can get in on the export markets. In the U.S., nearly 300,000 small and medium-sized enterprises exported goods in 2011, accounting for 98% of all identified exporters. In 2011, these companies accounted for 33% of the overall value of U.S. merchandise exports.
In Canada, exports of goods and services accounted for 30% of the country’s gross domestic product, according to Foreign Affair, Trade and Development Canada. This division of the government manages diplomatic and consular relations, encourages the country’s international trade, and leads its international development and humanitarian assistance.
Another important agency is Export Development Canada, the country’s export credit agency, tasked with supporting and developing the country’s export trade by helping Canadian companies respond to international business opportunities. The agency provides insurance and financial services, bonding products and small business solutions to Canadian exporters and investors and their international buyers.
Since it was founded in 1944, EDC has facilitated more than $1,041 billion in exports and foreign investment by Canadian companies. In 2012, the agency helped more than 7,400 Canadian companies do business in 187 countries. EDC customers’ export sales and investments totaled $87.4 billion. The agency estimates this helped generate $52.7 billion on Canada’s gross domestic product and helped sustain 573,773 jobs.
Tools are available to help Canadian companies expand their export capabilities. For example, the Canada Border Services Agency offers a guide to help small and medium-sized enterprises export goods. To help companies assess their export potential, the Canadian Trade Commissioner Service offers a step-by-step guide. The agency also provides free services to exports and offers a knowledge center that provides information on global value chains, industry sectors and other practical guides and tools.
Many companies have taken advantage of the business growth potential offered by markets outside North America. The three companies featured in this article are based in the North American hydroelectric market but are actively exporting their goods and expertise overseas.
Thordon Bearings Inc. in Ontario, Canada, was an early adopter, setting up a global distribution network in the mid-1980s to export its water-lubricated bearings to the hydroelectric turbine market, says Greg Auger, business development manager for renewable energy. The company’s main focus at the time was water-lubricated bearings to be used for ship propulsion (rudders, propeller shafts, etc.). But after some initial success in North America, the company realized hydro plant operators around the world were facing the same challenges, Auger says. The company has a Thordon Distributor network that allows it to communicate in the same language and provide coordinated support globally. Thus, it seemed logical to expand into this new market for its products, he says.
When asked what makes Thordon’s products unique in the global market, Auger cites three key issues. First, the self-lubricated polymer used in the bearings means no pollution risk. Second, the use of this polymer results in long bearing wear life, meaning lower life cycle costs. And third, full technical support is available to consumers of Thordon’s products, including system design, machining, installation and after-sales service and support.
What is the financial bottom line for the company? Thordon is looking for strong sales growth of 20% annually in global markets, Auger says.
Obermeyer Hydro Inc., based in Colorado, has been exporting its product since the late 1990s. The company manufactures pneumatically operated spillway gates, called the Obermeyer Spillway Gate system. This patented bottom-hinged spillway gate is essentially a row of steel gate panels supported on their downstream side by inflatable air bladders. By controlling the pressure in the bladders, the pond elevation maintained by the gates can be infinitely adjusted within the system control range (full inflation to full deflation) and maintained at user-selected setpoints, the company says.
The system has been used on a variety of dams in North America, including Condit, Friant, Holtwood, Horseshoe (in Alberta, Canada), Veazie and more.
As this product reached technical maturity in the 1990s, Obermeyer Hydro began seeking foreign markets. One significant reason for this was the need to diversify the company’s seasonal delivery dates, says President Henry Obermeyer. In North America, these delivery dates were concentrated in July and August.
For Obermeyer Hydro, long-term financial gains from expanding into world markets include ownership of foreign subsidiaries, repatriation of profits, diversification of the currency risk, and maintaining the company’s position in its product category.
A third company, Ohio-based Worthington Products Inc., made the decision to grow internationally in 2004, says President Paul S. Meeks. This decision was made to allow the company to tap into potential new growth markets. With the value of the U.S. dollar losing strength against other currencies, the cost to foreign clients was lowering every time the U.S. dollar slipped. With an expectation that it would take about three years to see results, the initial decision was backed by a financial and personnel commitment to support a three-year campaign.
The decision to move internationally required a new thought process and an entire change in the company’s marketing mix, Meeks says. Company literature had to be produced in key foreign languages, the website had to be translated into multiple languages, and participation in trade shows outside of North America was critical.
An additional important factor was the ability of personnel to handle inquiries and respond in foreign languages. Personnel had to familiarize themselves with terms of sale on international projects, shipment and logistical issues, as well as understand the risks involved with foreign currency fluctuations.
Finally, the company had to consider the exposure to political and other changes that could leave Worthington overly exposed to risk.
Clients have told Worthington that its products, made in the U.S., are of high quality and reliable. Although this is a strong point, it does not make it easier for the company to obtain a contract to work on any particular hydro project, he says. There is significant competition in the international hydropower market, so beyond providing a high-quality product the company has a goal of offering exceptional customer service, before, during and after the sale, Meeks says. Worthington views every project as an opportunity to develop long-term relationships that will sustain future growth, he says.
Today, international business accounts for more than 65% of Worthington’s total transactions, and the company sees that share continuing to grow. “We do not view ourselves as a USA company. Rather, we are an Ohio-based corporation with a global presence,” Meeks says.
The U.S. Department of Commerce says the top emerging markets for export of U.S. goods are Brazil, China, India, Russia and South Africa. In fact, U.S. exports to Brazil, India, China and South Africa have brown by 60% since 2009. How does this jibe with the hot markets some North American hydropower companies are pursuing?
Worthington is continually evaluating and refining specific markets, Meeks says. Entering new markets presents net challenges and market perceptions that need to be overcome. In addition, economic conditions – particularly in BRIC countries (Brazil, Russia, India and China) – play a large role. Worthington currently sees the most growth opportunities in areas such as Latin America, Africa and India, Meeks says. Russia is attractive but Worthington says this country presents large cultural, language and trust barriers that must be overcome. The above-mentioned countries are growing rapidly, expanding their hydropower capacity and being developed by well-established international consortiums that reduce the exposure for a small company like Worthington, Meeks says.
With regard to markets, Obermeyer says it is most interested in the Asian Rim, India and South America because of the need for electrical generation and water supply infrastructure development in these regions.
Thordon doesn’t limit itself to specific hot markets, saying instead it is interested in every country where turbine manufacturers, utilities, and repair and overhaul facilities are interested in clean power generation eliminating the need for oil and greased bearings. The company has authorized, factory-trained distributors in more than 100 countries, offering a wide range of business opportunities to pursue at existing and developing hydroelectric plants, Auger says.
Meeks says there are many challenges to working outside of North America, among these being the challenge of overcoming existing perceptions and educating customers regarding the benefits of Worthington’s products.
Logistical and language issues might seem significant, but Meeks says they are easily overcome and have not presented tough barriers. When working in countries outside North America, Worthington partners with companies that specialize in logistics, freight handling and related items.
In addition, it is crucial to have a strong relationship with bankers who are knowledgeable regarding international transactions, Meeks says. For example, Worthington recently worked on a project in the remote jungles of Brazil that involved shipping 400+ ocean containers from the U.S., plus another 50 or so from China, to a port on the Amazon River. The containers were offloaded to barges and moved another 1,000 miles upriver to a small town, then trucked three hours to a remote site for final assembly. Coordination of this massive project, with its logistical and financial challenges, would not have been possible without the support of logistics, freight handling and banking advisors, Meeks says.
The biggest challenges of doing work internationally as a North America-based company come with regard to import duties and the challenges of patent enforcement, Obermeyer says. He says examples of countries with onerous import duties include China, Brazil and India. On the other hand, countries such as Mexico, Canada and South Korea offer zero or low import duties.
Thordon feels one of the biggest challenges lies in developing new markets where this type of technology (grease- and oil-free bearings) does not currently exist and where hydro plant operators are reluctant to be the first to adopt a new technology in their countries. Most like to see references from their own countries, Auger says. To help overcome this objection, Thordon leverages its global experience to try to provide customers with references from the nearest geographical area in which the products are already installed.
Markets outside North America hold significant potential to improve a company’s bottom line through increased sales. They also can help the local economy through job creation, something that is sorely needed in today’s environment of 7.6% unemployment in the U.S. and 7.1% in Canada in June 2013.
The companies featured in this article are successful examples of exporting North American technology and knowledge to the global hydropower market. Hopefully following their example will help you venture into this new arena and be well-equipped to deal with the challenges that arise.
Elizabeth Ingram is senior editor of Hydro Review.