T e n n e s s e e a n d t h e I n t e r n a t i o n a l E c o n o m y

Vol. 20 No. 4 Spring 2015

GlobalCommerce

IBM’s Institute of Business Values ranked Tennessee first among the American states in its 2013 new foreign

investment-related job commitments. That was going to be hard to top. Yet in 2014, the state’s announced employment from new foreign investments was even higher. New or expanded foreign-owned operations led to 6,327 jobs (as opposed to 4,607 in 2013). Sixteen foreign firms either initiated new operations or significantly expanded existing ones in 2014. Another (ArcelorMittal) reopened its Harriman operations. The total number of new investments was down slightly from 2013, from 20 to

16 (17 if we wish to include the ArcelorMittal reopening) but the dollar value of the investment, like the number of jobs, was significantly higher.

The expansion of the Volkswagen plant in Chattanooga was the single largest investment ($600 million), and it is expected to produce about 2,000 new jobs. It was one of three new German investments last year. At over $200 million, the next-largest-valued investment was the Bridgestone headquarters relocation and expansion in Nashville. It was one of four new Japanese investments. The second-largest investment in terms of employment, however, was by the Korean-owned SL Tennessee. It announced last July that it will employ 1,000 in its expanded Clinton operations. The accompanying map indicates the location and size of the year’s foreign

2014 Foreign Investment into Tennessee

by Steven G. Livingston

continued on page 2

s

1Business and Economic Research Center • Jones College of Business • Middle Tennessee State University

2014 Tennessee Foreign Direct Investment

2

Trends: JobsTrends: Number of Investments

Author: Steven G. LivingstonEditor/Designer: Sally Ham Govan

MTSU is an AA/EEO employer.

Business and Economic Research Center

1301 E. Main Street, Box 102Murfreesboro, TN 37132www.mtsu.edu/berc • 615.898.2610

In Tennessee, new or expanded foreign-owned operations led to 6,327 jobs in 2014.

s

investments. As can be seen, the investments were concentrated in the Chattanooga and Knoxville areas along with middle Tennessee. Exactly half of the new investments were in automotive-related facilities (and to this we could add the Bridgestone investment).

Japan and Canada were the biggest sources of investing companies. No surprise there. Each accounted for four new investments. Germany, home of three investing companies, was the only other nation that was the source of more than one investment. We might note the $100 million Chinese Microport Orthopedics investment in Arlington. The global increase in outbound Chinese investment is certainly one of the bigger stories in the global economy, and we should expect to be seeing more such investments in Tennessee.

The annual dollar amount of announced investment can be volatile because of the impact of one or two very large investments in a given year. That happened in this state in 2009 when two billion-dollar-plus polycrystalline silicon investments occurred in the same year. But if we take into account these exceptional investments, the clear upward trend in foreign investment in Tennessee that we have seen in recent years continued in 2014. The dollar value of investment was up about $300 million over last year. The trend in employment growth also continued. Last year’s new employment was more than a third higher than 2013 and three times that of 2010 or 2011. The rate of increase in employment stemming from foreign investment again exceeded the state’s overall employment growth rate.

By just about anyone’s accounting, Tennessee was very successful in attracting foreign investment last year. Once again, the bar for 2015 has been set pretty high. n

Investment continued from page 1

Where It Came From

20

10

0

5

15

2K

4K

2008 2009 2010 2011 2012 2013 2014

6K

1,000

0

2,000

1,500

500

2008 2009 2010 2011 2012 2013 2014

2008 2009 2010 2011 2012 2013 2014

Trends: Value of Investments

3Business and Economic Research Center • Jones College of Business • Middle Tennessee State University

T E N N E S S E E I N T E R N A T I O N A L T R A D E

State exports were essentially flat for the fourth quarter, growing a miniscule 0.1% to $8.233 billion, pretty much in line with the national experience. American

exports grew just under 1% for the quarter. For the past two years, Tennessee exports forged ahead primarily because of robust gains in automotive shipments. This slowed sharply in the third quarter and virtually came to a halt in the fourth. The end of these gains revealed the anemic export growth of most other state (and national) industries. Without doubt the strengthening dollar was a factor. But because the dollar’s strength was not yet fully incorporated into fourth-quarter sales and purchase orders, we can’t blame all of the slowdown on its rise. The continuing sluggish global economy seems the major problem facing state exporters.

The biggest change for the quarter was the slowdown in the automotive sector. The continuation of the rotation from trucks and large SUVs to smaller vehicles was evident. Exports of the former dropped substantially ($424 million to $301 million), while the latter increased sizably ($258 million to $307 million). This netted to a loss of about $24 million in vehicle shipments. Motor vehicle part exports performed better, gaining $57 million, which led the entire sector to a combined 2% growth for the quarter (to $1.16 billion). While shipments within NAFTA held up (Canada was up over 20%), there were significant declines almost everywhere else. Automotive industry exports fell about $20 million in the E.U. almost $30 to the Middle East, $33 million to Latin America, and $46 million to Australia. The only two non–North American markets that performed well were Korea and Russia. The large recent gain in sales to Korea (from $16 million to $43 million in the third quarter) suggests the positive impact of the 2012 free trade agreement with that country.

It was inevitable the automotive export spurt would slow at some point. From mid-2012, the state’s car and SUV exports have risen from $136 million to $675 million. We could not reasonably expect that remarkable performance to continue without cease. For Tennessee exports to continue to grow, other industries, sooner or later, would have to contribute.

Even with its slight 2% growth, the automotive industry still fared best among the state’s large export sectors. Though medicament shipments were solid, the medical instrument sector, the state’s other largest export sector, declined from $568 million to $511 million. Medical exports to Japan dropped by a quarter, while those to the E.U. were off 10%. Several related industries, including medical needles and surgical catgut, also experienced significant losses.

No sector was more volatile than aircraft (and parts). But the bottom line is that its foreign shipments were down significantly, making it the state’s poorest-performing major export industry. Very large sales in Mexico, the U.K., and Japan could not make up for even larger declines in Turkey, France, Colombia, and Egypt. As a result industry exports fell nearly $90 million for the quarter.

Among the state’s other large export sectors, the computer industry barely budged. It gained $4 million for the quarter, as growing laptop shipments barely exceeded falling desktop exports. The plastics industry was off slightly, due to a steep fall in cellulose acetate shipments. Cotton continued to shrink (from $115 million to $75 million, pun intended!). Mowers and excavation equipment sales both fell by nearly half. And aluminum shipments declined by around one-third (to $55 million). One large product alone could claim to have had a pretty good quarter, internal combustion engines (and their parts). Its combined exports rose from $343 million to $431 million, a gain of 54%.

Geographically, it was pretty bleak outside of North America. While exports to Canada and Mexico were up about $200 million, exports elsewhere were down about equally. Mexico did particularly well, mainly due to a huge increase in laptop shipments, though engines and kraft paper also contributed. But state exporters saw lower numbers in every other global region except the relatively small markets of South Asia (resulting from large aircraft sales to Pakistan) and sub-Saharan Africa (aircraft purchases again). In East Asia, exports to China grew a modest 2%, and those to Korea a solid 27%, but the gains were drowned by a very large decline in Japan. A fall in car sales and aluminum shipments led the Middle East market to a 10% decline. The Eurozone dropped slightly, from one billion dollars in the fourth quarter of 2013 to $978 million in the fourth quarter last year, though exports to the U.K. managed to buck the trend. With exports to Brazil and Colombia both down markedly, shipments to South America also fell by 10% (to $505 million). In this context, the state’s performance in Southeast Asia, where exports fell by “only” $15 million, almost looks good. However, the sad truth is that in Southeast Asia cotton exports had fallen so much earlier in the year there simply wasn’t much further for things to fall in this textile-intensive region.

Early 2015 reports suggest the picture is not changing. Tennessee’s foreign shipments are hardly crashing, but growth remains difficult. Based on early returns, the year may turn out to be a tough slog for state exporters. n

4 t h Q u a r t e r 2 0 1 4

s

4 Business and Economic Research Center • Jones College of Business • Middle Tennessee State University

T E N N E S S E E ’ S L E A D I N G T R A D E P A R T N E R S

(Exports in millions)

Canada

Mexico

China

Japan

Belgium

United Kingdom

Singapore

Netherlands

Germany

Brazil

$300$600

$900$1,200

$1,500$1,800

$2,100$2,400

4th Quarter 20144th Quarter 2013

T E N N E S S E E T R A D E - W E I G H T E D D O L L A R I N D E X

s

January 2010 = 100

120

110

100

90

Mar - 10

Mar - 11

Mar - 12

Mar - 13

Mar - 14

Mar - 15

5Business and Economic Research Center • Jones College of Business • Middle Tennessee State University

-10%

T E N N E S S E E M O N T H L Y E X P O R T S

s

Real Exports in $ Billions Nominal Growth Rate (%)

T E N N E S S E E M O N T H L Y I M P O R T S

In $ Millions

$7,000

$200,000

$160,000

$120,000

$6,000

$4,000

$5,000

$3,000

Dec - 09

Dec - 10

Dec - 11

Dec - 12

Dec - 13

Dec - 14

U.S. Imports in $ Millions

Tennessee ImportsU.S.

4.0

3.5

30%

3.0

2.5

2.0

1.5

1.0

Dec - 04

Dec - 06

Dec - 08

Dec - 10

Dec - 12

Dec - 14

(Seasonally adjusted, expressed in 2014 dollars)

s

6 Business and Economic Research Center • Jones College of Business • Middle Tennessee State University

4 t h Q u a r t e r 2 0 1 4

4 t h Q u a r t e r 2 0 1 4

4 t h Q u a r t e r 2 0 1 4

Value of Exports Gain Decline

Countries with the Greatest Growth

Pakistan $34,636,975 482.6%Jordan $9,898,479 210.7%Russia $96,413,246 111.6%Greece $5,896,905 109.7%Trinidad & Tobago $12,651,612 86.3%

Countries with the Greatest Decline

Luxembourg $176,327 -99.3% Honduras $10,788,415 -61.7%Turkey $40,160,275 -61.0%Egypt $15,483,998 -54.8% Saudi Arabia $59,851,435 -44.8%

F A S T E S T - C H A N G I N G E X P O R T D E S T I N A T I O N S *

W H A T ’ S H O T A N D W H A T ’ S N O T *

T E N N E S S E E ’ S L A R G E S T E X P O R T S E C T O R S Value of Change from Change from

Exports Last Year Last Quarter

Medical Equipment $803,832,433 -9.1% -7.4%Motor Vehicle Parts $747,556,309 5.0% 4.3%Motor Vehicles $680,958,142 -3.4% 6.6% Computer Equipment $602,500,295 3.0% 8.5% Basic Chemicals $520,000,204 -1.2% -2.7%Synthetic Fibers & Filaments $432,350,901 0.6% -10.6%Auto, Industrial, & Electromedical Instruments $424,434,440 3.2% 6.0%

Value of Exports Growth Decline

Sectors with the Greatest Growth

Turbojets with Thrust > 25 kN $11,534,907 1,086.8%Semi-Chemical Fluting Paper $23,815,526 419.1%Passenger Cars $60,992,911 290.5%Misc. Instruments & Measuring Apparatus $13,678,567 168.0%Precious Metal Waste & Scrap $61,088,614 156.4%

Sectors with the Greatest Decline

Lawn Mowers $9,129,743 -48.3%Nonwovens between 25 and 70 g/m2 $8,452,211 -42.6%Automotive Regulating Instruments $25,179,630 -40.0%Cotton $74,984,364 -35.0%Otherwise Unclassified Computers $59,653,158 -33.9%

*Among Tennessee’s top 100 exported goods

*Among countries averaging > $5m sales/quarter