Central Mass. Firms Keep Watchful Eye On European Economies
Europe and Massachusetts may be separated by an ocean, but that's not so far in the business world, as Central Massachusetts business owners are watching the economic woes on the other side of the Atlantic.
"There is a fair amount of hesitancy in the marketplace," said Arthur Hicks Jr., president and chief operating officer of fitness machine manufacturer Cybex International Inc. of Medway. "I think there's some questioning about how strong the European economy is going to be going forward."
In addition to economic recessions in the United Kingdom, Spain and Ireland, the Organization for Economic Cooperation and Development in Paris expects the continent's three largest economies — Germany, France and Italy — to shrink 0.4 percent during the first quarter of the year, while the U.S. rebounds with 2.9-percent growth.
"Half of Europe is either in recession or not growing," said Richard Spurgin, associate professor of finance at Clark University's Graduate School of Management in Worcester.
Hicks called Europe's situation "a tale of two parts of the continent." He said about 20 percent of Cybex's business is European. It's seeing Spain, Italy, Portugal and Greece struggle, while things look good in Scandinavia, Germany and Benelux nations (Belgium, The Netherlands and Luxembourg).
"There are certainly bright spots within Europe," Spurgin said. "It's not that the European economy is going away."
The U.K. is the state's second largest export partner, exceeded only by Canada. China, Germany and Japan round out the top five. Exports to the U.K. fell by 1 percent from 2010 to 2011, while German-bound goods rose 9.5 percent, according to the Massachusetts Export Center.
Regional Strength
Spurgin and Julia Dvorko, Central Massachusetts regional director of the Massachusetts Export Center, said specific industries in Europe remain strong, and companies in those particular markets see value in doing business there. Central Massachusetts exports in pharmaceuticals and high-tech products remain in demand, they said.
"Europe is still a major market that has a high demand for higher value products from Massachusetts companies," Spurgin said. "Despite all the negative buzz, there's still some growth."
For Cybex, which sells mainly to fitness clubs in 86 countries, diversification in sales regions has helped lessen the impact of Europe's instability.
France-based building materials company Saint-Gobain, which has a large presence in Worcester, takes a similar stance. Brad Johnson, vice president and general manager of Saint-Gobain Abrasives North America, said sales to Europe from the Worcester plant have slowed slightly.
"Our European operations have seen a little bit bigger of a slowdown, but right now it's not really having any impact on our business because our business (in North America), especially in Worcester, is driven mostly by domestic markets," he said.
He said strong domestic aerospace and auto manufacturing have offset the North American division's small decline in European sales.
But things have been more painful for other companies.
"Sales have really fallen off the cliff for some companies," Dvorko said. "The bulk of the companies we work with are smaller. They have limited resources and they want to go to places with potential."
Spurgin agrees. "Most companies looking to expand are looking to Asian markets. That's where the growth is, that's where the growth is going to be in the next decade. European economies aren't growing very quickly and they're not likely to grow much in the next 10 years."
He said the European population is aging and not growing, whereas the opposite is true in many Asian and South American nations.
"If you're looking for a place where you really want to grow sales and you expect to find new demand, you wouldn't just be looking in Europe," he said.
Looking Beyond
Ellen Ferri, president of Vaccon Co. Inc. of Medway, which produces vacuum pumps for robotics equipment, said European buyers are "very price conscious" but still have a demand for Vaccon's products. The company has its eye on expanding elsewhere too though, into Russia and South America, mainly due to growing food manufacturing industries.
"We are always looking for new distributors," Ferri said. "We are not trying to replace the existing ones. We are looking in other areas beyond Europe."
Dvorko said companies are generally choosing to expand into Canada and emerging markets like Brazil, Chile, Colombia and Asia. There's also new interest in trade with South Korea, thanks to a free trade agreement that took effect March 15.
Tough times don't mean companies are necessarily leaving Europe though.
"A lot of companies (have) developed strategies for years. Maybe sales aren't what they used to be, but they want to tough it out," Dvorko said. "In many cases, (companies) continue selling to their partners. I'm more likely to hear that people are not going into (struggling) markets in Europe or put Europe on hold rather than leave it."
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