Jackson County International Impact Study

As Jackson County’s economy increases in its size and capacity, so too does the county’s impact on the global economy. U.S. international business is often attributed to only highly developed metropolitan areas, however, the impact of traditional economies such as that of Jackson County’s can still make a significant difference in the international marketplace. An examination of the county’s industrial base illustrates its level of international business activity.

This study is an attempt to gage Jackson County’s current international economic impact and predict future trends in international business that will impact the county. This study focuses on both exports and education via local institutions. The international economic impact study does not account for international service from the county because of the difficulty in tracking such transactions. The study also does not attempt to gage the impact of foreign subsidiaries or franchises abroad.

Jackson County has been faced with many economic challenges in regards to its exports. The current slowdown in the domestic economy, especially in the manufacturing industry, and current political events have challenged the ability for Jackson products to be exported, and international students to enter the United States. Jackson County seems to be weathering these challenges well however, and its emphasis on finding new developing market and its strong education institutions have let the county continue to benefit from the international perspective. Local firms and educational institutions that are flexible, versatile, and able to leverage past export experience across a range of markets are likely to succeed in the international marketplace.

Covering 707 square miles in the south central part of Michigan, Jackson County is the thirteenth largest county in the state. As of July 2003, the U.S. Census Bureau estimates that Jackson County has a population of 162,321. The City of Jackson is the largest city in the county with a total population of 36,700 for 2002. The county grew 2.5% in size since 2000.[i]

As of 2002, Jackson County has an active labor force of 80,900 with an unemployment rate of 5.3%, lower than Michigan’s unemployment rate in 2002 of 8.7%. According to the Bureau of Labor Statistics, in 2003 there were approximately 10,200 employees in the manufacturing industry, down from approximately 12,400 in 1999.[ii] The U.S. Census Bureau defines the manufacturing sector as the "comprised establishments engaged in the mechanical, physical, or chemical transformation of materials, substances, or components into new products." Establishments in the manufacturing sector are described as "plants, factories, or mills, and characteristically use power-driven machines and materials-handling equipment."[iii]

In terms of international trade, Jackson is one of the largest exporting areas in Michigan with export values totaling over $160 million in 1999.³In 2000, the State of Michigan boasted $51.6 billion in export sales of merchandise, giving it fourth highest export total of any state.[iv] Out of a total of 351 manufacturers in the most recent and available study in the 1997 U.S. Economic Census, 30% or 102 firms are known exporters.[v] These numbers are higher than the average for both Michigan (20%) and all firms nationally (8%). Part of Michigan and Jackson County’s high level of exporting comes from the unique pull through effect of the large automotive presence in the area.

The Ypsilanti U.S. Export Assistance Center wishes to recognize the efforts of the Jackson County Exporters. The Presidents "E" Award was created in December of 1961 by Executive Order, to afford suitable recognition to persons, firms, or organizations which contribute significantly in the effort to increase United States exports. The Presidents "E Star" Award, which began in August 1969 by the Secretary of Commerce, affords continuing recognition of noteworthy promotion efforts. There have been two companies in Jackson County who have received these awards. Dawn Products, which makes donut manufacturing equipment, has received The Presidents "E" Award, and Aeroquip Engineered Systems Group, which makes products for the commercial aerospace industry, has received both The Presidents "E" Award, and The Presidents "E Star" Award.

The top Jackson County export markets consist of the traditional industrial manufacturing sectors, including automotive parts and machine tools, metalworking and general industry equipment. According to the U.S. Ypsilanti Export Assistance Center database, machine tool and metalworking firms make up the largest number of exporters with 32 firms, automotive parts manufacturers have a total of 20 exporters, and general equipment industry has 11 exporters.

The top export markets for Jackson County tend to reflect countries in which U.S. automotive manufactures and suppliers have active operations. As the automotive industry continues to expand abroad, Jackson County exports consistently follow automotive manufacturers into new international territory. While exports from Jackson County go overwhelmingly to Canada and Mexico, recent expansion into Brazil and China has resulted in Jackson County exports going to less traditional automotive destinations as well.

Brazil has the 11^th largest economy in the world and represents a substantial market opportunity for United States exporters.[vi] Brazil and the United States share strong business relations with an expanding market. In 2003, estimated U.S. exports to Brazil reached $11 billion and estimated Brazilian exports to the United States reached $17 billion.[vii] Brazil is also one of the top three locations for U.S. foreign direct investment (FDI). In spite of economic stagnation, the United States has remained Brazil’s largest single trading partner, with nearly one-quarter of its products exported to the U.S.[viii] Brazil is one of the most attractive markets in the world for automotive parts, which is Jackson County’s number two exporting sector.[ix] The Brazilian automotive sector is the 13^th leading sector for U.S. exports. In 2002, U.S. auto part exports to Brazil totaled $454 million and $480 million in 2003, a 5.7% increase.[x] In regards to machine tools & machinery, total sales in Brazil in 2003 were $ 11.8 billion, a 2 % increase over 2002. This growth of this industry is primarily attributed to Brazil export-led economic recovery, however. Brazilian imports of machine tools and metalworking reached $4.9 billion in 2003, an astounding 33.5% over the previous year.[xi] Despite the vast opportunities Brazil has to offer, there are still substantial obstacles for U.S. exporters. These obstacles include, high tariff barriers, a difficult customs system, an overwhelmed legal system that is unable to enforce business law, and high taxes. Further, doing business in Brazil has prove challenging if one does not have intimate knowledge of the local environment. [xii]

The bilateral relationship between the United States and Canada is the largest economic relationship that has ever existed between two nations.[xiii] In 2002, two-way trade in goods and services between the United States and Canada amounted to US$432 billion, or over $1 billion a day. In fields ranging from environmental cooperation to free trade, the two countries have set the standard by which many other countries measure their own progress. In 2003, over 85% of Canadian exports went to the United States and over 72% of Canadian imports came from the United States. In 2003, U.S. imports into Canada (goods and services) totaled approximately $195.3 billion, up from $188 billion in 2002. On a local level, Michigan leads all states in exports to Canada, totaling over $27 billion in 2003; Michigan is Canada’s 2^nd largest trading partner, next to the United States. Further, more than 8% of U.S. exports to Canada come from Michigan.[xiv]

Jackson County exports find a welcome home in Canada. Automotive parts is the number one potential market in Canada for U.S. exports. The auto parts market in Canada was valued at $32.4 billion in 2002, a 6.8% increase from 2001; the value of the industry is projected to be nearly $41 billion for 2003. According to industry experts, the auto parts industry is expected to expand by over 10% per annum by the end of the decade. U.S. auto part exports to Canada totaled approximately $30.183 billion in 2003, up from $24.135 billion in 2002.

Jackson County and U.S. exports are slated to have continued success in Canada due to the NAFTA influenced decrease in tariffs, the increasing openness to foreign investment, deep cultural and historical ties, strong awareness of business and technological developments in the U.S., and general proximity.

The relationship of the United States with Mexico is of utmost importance for both countries. A mixture of mutual interests, shared problems, economic disparities, a 2,000 mile border, and cultural relations shape the relationship between the U.S. and Mexico.[xv] The Mexican economy, after facing a recession, has shown positive growth in the past 2 years and Mexico’s recovery will continue to be inextricably linked to U.S. economic performance. In 2002, the United States accounted for $143,059 million, or 88%, of Mexico’s exports and provided $106,660 million, or 63%, of Mexico’s imports.[xvi] Mexico is now the second most important U.S. trading partner after Canada and U.S. exports to Mexico are greater than U.S. exports to the rest of Latin America combined. Due to NAFTA and the fact the Mexico remains committed to the path of economic integration, Mexico is increasingly the destination for Jackson County exports. The after-market automotive part industry is considered one of the top three leading sectors for U.S. exports in Mexico and in 2002 Mexico imported $16,671 million in auto parts.[xvii]

China’s accession to the World Trade Organization (WTO) in 2001 marked a new direction for China’s economy. With its new membership and integration into the world economy, China is slowly transitioning from a planned economy to a market based economy. After China’s entrance into the WTO, American exports grew 15% (2002) and since 1990, U.S. exports to China grow approximately 12% annually. In 2002, China imported $27 billion from the U.S., or 3.3% of total U.S. exports. China is America’s sixth largest export market.[xviii]

Although the Chinese market is one of great potential, it remains medium-sized and unpredictable. China lacks both transparency and a consistent body of laws and regulations. China’s membership in the WTO will hopefully continue to help open Chinese markets to foreign firms, lower tariffs, and provide for stronger protection for intellectually property rights. Unfortunately, many Chinese firms have remained relatively small, under-capitalized, and are poorly managed. Furthermore, with a population of $1.3 billion and a GDP of USD $1.24 trillion, there is little disposable income for Chinese citizens. Pockets of economic success have started to grow in China, however, and with China’s participation in the WTO, American companies will have growing access to Chinese markets.[xix]

Jackson County has and will continue to benefit from the Chinese market especially with China’s entrance into the WTO and successful bid for the 2008 Olympics. Automotive parts is in the top ten leading Chinese sectors for U.S. exports, coinciding nicely with Jackson County’s number two export industry. In 2002, China imported approximately $80 million in U.S. automotive parts. Jackson County automotive part exporters can look forward to the reductions in automotive tariffs, making it much more cost effective to export. Further, U.S. automotive part businesses have a good reputation for quality and reasonable prices and many American firms are well known in China.[xx]

From 1993 to 1999, the Jackson County area saw its value of exports increase 67%, from roughly $95.5 million per year to $159.7 million per year.[xxi] The estimated employment attributable to exports is 4,562 jobs, based on the U.S. Department of Commerce’s assessment of $35,000 in export sales supports one U.S. job. This increase in exports is credited to the general expansion of the automotive industry into foreign markets, as well as increased understanding of international sales.

Firms in Jackson County who are known international exporters were asked to participate in an International Economic Impact Study developed by the Ypsilanti U.S. Export Assistance Center, U.S. Department of Commerce. The sampled firms were asked to respond to a series of questions pertaining to international business. The top three industries responsible for international trade in the county include Machine Tools and Metalworking, General Industrial Equipment and Supplies, and Automotive Parts, and were therefore the sampled industries.

Firms were first asked to respond to the impact that international trade has on their businesses on a 5-point sliding scale: no impact, little impact, some impact, strong impact, and very strong impact. The firms responded equally with some and strong impact. One firm responded with very strong impact. Responding firms indicated that anywhere from 5%-25% of their international business is attributed to international sales, however one firm indicated all of their business comes from international sales.

The firms were then asked to respond to the impact of the following events on their business’s international trade:

· September the 11^th:Firms responded equally with no, little, some, and strong impact. One firms responded with very strong impact.

· Fluctuation of national security levels: Firms responded heavily with no impact.

The firms generally commented that current economic and political conditions do not have a direct effect on their business, but they do have an indirect effect. The firms experienced a slowdown of shipments due to extra paperwork, holding of goods, and additional costs of security charges. International trade have an impact on Jackson County companies, however, it is not extremely strong.

The firms were asked if the news of potential threats to American interests abroad has influenced or inhibited international business travel by their firms (trade show attendance, meetings, etc.). The surveyed firms mostly responded that the threats have not affected their business travel, although a couple did respond in the affirmative.

The surveyed firms were then asked to assess their outlook for international business. The survey asked, “How do you feel about your company’s potential for international business in the future?” On a 5-point scale ranging from very pessimistic to very optimistic, the firms responded equally with neutral, somewhat and very optimistic. On firm responded as being very pessimistic. The survey also asked, “How do you feel about your company’s future success for exporting to new markets?” On the same 5-point scale, the firms’ responses weight towards somewhat optimistic and neutral, although one firm responded with somewhat pessimistic and another as very pessimistic.

The following information was gathered from a series of questions about international business activities:

· 29 % of the surveyed companies exported to new markets in the past year. The specific countries are as follows: Finland, China, and Germany.

· 43% of the surveyed companies exported to new distributors or channels of distribution in the past year. These new channels/countries include: Finland, Australia, China, and Germany.

· 0% of the firms are planning on entering an new international market in 2004.

· The responding firms, approximately 5% of the known exporters in Jackson County, employ an estimated 7 people whose jobs are directly related to exporting. One firm indicated all of their positions are related to exporting, but did not disclose the number.

· None of the firms responded as having experienced difficulty in obtaining visas for overseas visitors of the company to visit the U.S.

· The estimated total number of days that overseas guests visited the surveyed businesses was 72 days. With an estimated travel expense of $150 per day for Jackson County, the international visitors to the surveyed firms brought in approximately $10,800.[xxii]

The firms were then asked a series of questions about the United States’ international trade policy. On a 5-point scale ranging from great decline to great increase, the firms were asked, “Since the signing of NAFTA in 1992, what changes have you seen in your export sales?” The most frequent answer was no change, although one firm responded with some increase and another with great decrease. In response to supporting additional Free Trade Agreements such as FTAA (Free Trade Area of the Americas) or CAFTA (Central American Free Trade Agreement), 14% of the firms supported these additions.

A weak U.S. dollar is expected to have a positive impact on exports. While U.S. consumers feel the negative pains of a weak U.S. dollar, goods and services are less expensive for foreign consumers and businesses making U.S. products more attractive. Jackson County’s wealth of manufacturing firms, however, will continue to be sensitive to the fluctuating domestic and world economy.

While there are a limited number of statistics to track the effect of dollar value on exports, the Institute for Supply Management (formerly the National Association of Purchasing Management), the largest supply management association in the world, does provide economic outlooks for both the manufacturing and non-manufacturing sectors. In 2004, purchasing and supply executives reported to the ISM that manufacturing business activity continued to increase at a steady but slow rate over the past year. Within the manufacturing sectors, businesses reported a mixed feeling of business strength, and energy prices “remain a major concern for purchasers, as prices are at or near record highs.”[xxiii] ISM also reports that in 2004, New Export Orders for manufacturing products are increasing.[xxiv] Further, according to the Michigan Manufacturers Association (MMA), motor vehicles, parts and accessories account for 43.8% of Michigan’s exports, a positive fact for Jackson County.[xxv]

In terms of Michigan’s industries’ contribution towards state growth, the State of Michigan has posted positive numbers due to both the manufacturing and non-manufacturing sectors. From 1992 to 2000, the average real GSP (Gross State Product) growth rate for Michigan was 3.8%, the average manufacturing real growth rate was 4.7%, and the average real GSP growth excluding manufacturing was 3.1%. Manufacturing’s contribution to real GSP growth during this time period was 32.1%.[xxvi]

While economic outlooks continue to indicate a strong future for Jackson County exports, export success will continue to be sensitive to current events, and the state of the domestic and world economy. With its main exporting sectors in the manufacturing and automotive markets, Jackson County exporters will look towards new developing markets for international sales. International markets will also become increasingly important as Jackson County’s manufacturing base diversifies into non-automotive sectors. Nonetheless, Michigan and the United States have benefited greatly from Jackson County’s export success and strength in manufacturing sales.

Although focusing on traditional exports, such as automotive parts, when accessing Jackson County’s international economic impact is standard, educational institutions also contribute to the county’s global influence and local economy. The U.S. Department of Commerce’s International Trade Administration ranks international education as the United States fifth largest service sector export bringing in over $12 billion to the U.S. economy.[xxvii] Michigan ranks number eight in international students hosting 22,873 students for the 2002/3 school year and they added an estimated $430.8 million to Michigan’s economy. Asian students comprise 51% of international students studying in the U.S. and the top countries of origin are India, China, and South Korea.[xxviii] Universities and colleges in Jackson County bring in a considerable amount of economic revenue through international students, which in turn benefits businesses that would not normally profit from international sales. Industries such as retail trade, real estate, accommodation and food services, entertainment, and recreation all profit from this unique form of exporting.

Jackson County has two educational institutions with international students, a private Methodist school, Spring Arbor University, and one community college, Jackson Community College. According to the 2004 survey conducted by the Ypsilanti U.S. Export Assistance Center and the 2003 Open Doors Report, the annual report on international education published by the Institute of International Education, these educational institutions had a combined enrollment of 54 international students for the 2002/2003 school year. Spring Arbor had the largest enrollment with a total of 29 international students and Jackson Community College was not far behind with an international student population of 25.[xxix]

The total money spent by international students (including tuition, books, and living expenses) at all educational institutions in Jackson County totals an estimated $1,048,800 for the 2002/2003 school year. In Open Doors’ financial calculations, financial support that the U.S. gives to international students is taken into account, an important notation that if disregarded, could seriously inflate the net contribution to the U.S. economy. International students in Michigan received financial support from the U.S. for almost 1/3 of their school and living expenses.[xxx] Open Doors also takes into account the living expenses of

international students’ dependents. 14% of international students in Michigan were married with 85% of their spouses living in the U.S. during the 2002/2003 school year.[xxxi]

The average cost of one-year total spent at Spring Arbor was estimated at $21,700 per international student for the 2004/2005 school year, making it the most expensive education institution in the county. Open Doors reports that the estimated total contribution by Spring Arbor international students was $713,700 for the 2002/2003 school year. Jackson Community College came in second with a financial contribution to the county of $335,100. While the bulk of that money goes directly to the educational institutions in the form of tuition, an average of 40 % goes into the local economy.[xxxii] As for the countries of origin, international students attending educational institutions in Jackson County overwhelmingly come from Canada, although there are students attending from diverse backgrounds and many different countries ranging from Africa to the Middle East.

The economic impact of international students is significant in Jackson County because it connects businesses that would not normally have international perspective. International sales can be difficult if not impossible to small retailers and service providers. Yet, the substantial number of international students enrolled in Jackson County educational institutions provide an opportunity for increased business through existing sales channels. Additionally, most money coming from international students into the county comes from offshore, which means the money spent was not generated inside of Jackson County.

The large number of international students also has a positive effect on Jackson County employment. Although the number of international staff is difficult to pinpoint due to the staff working in a variety of departments and that some staff devotes only part of their time to international students, the U.S. Department of Commerce estimates that every $35,000 worth of exports creates one job. While it is difficult to estimate the impact of international students’ additional expenses outside of tuition, the high level of total impact suggests international students support a number of workers in fields that conventionally do not benefit from exporting.

According to Open Doors, after 5 years of steady growth, the number of international students in the U.S. grew only by .06% in 2002-03 over the previous year totaling 586,323 students.[xxxiii] Similar trends occurred in the State of Michigan and enrollment was actually down less than one percent bringing the number of international students in Michigan to 22,873, for the 2002-03 school year.[xxxiv]

For more than 50 years, U.S. educational institutions have been required to maintain data about their foreign students and exchange visitors. Government records of the data was previously inefficient and paper driven. Due to heightened security in the U.S., however, Congress mandated that by August 1, 2003, all foreign students and exchange visitors be entered into a central and automated system called the Student and Exchange Visitor Information System (SEVIS). Under SEVIS, schools are required to submit basic information about their international students such as address, degree program, and expected date of graduation.[xxxv]

Another registration program that affects international students in Michigan is the National Security Entry-Exit Registration System (NSEERS). The Department of Homeland Security describes NSEERS as “…a national registry for temporary foreign visitors (non-immigrant aliens) arriving from certain countries, or who meet a combination of intelligence-based criteria, and are identified as presenting an elevated national security concern.” Students from the following countries are subjected to special registration, fingerprinting & photographing upon entering the U.S.: Afghanistan, Algeria, Bahrain, Bangladesh, Egypt, Eritrea, Indonesia, Iran, Iraq, Jordan, Kuwait, Libya, Lebanon, Morocco, North Korea, Oman, Pakistan, Qatar, Somalia, Saudi Arabia, Sudan, Syria, Tunisia, United Arab Emirates, and Yemen.[xxxvi]

As expected, enrollment numbers from the aforementioned countries have notably decreased. Enrollment from the Middle East was down 10%, Indonesia down 10%, Thailand down 15%, and Malaysia down 11%. Of the top 20 sending countries, 13 experienced a decrease in sending numbers.[xxxvii] These decreases however have made way for some major sending countries to increase their enrollment numbers in U.S. educational institutions. India, China, and South Korea, the top three sending countries, saw increased enrollment numbers of 12%, 2%, and 5% respectively.[xxxviii] Jackson County does not follow these enrollment trends, however, and its international students primarily come from Canada.

The impact of SEVIS and NSEERS may present itself in the future despite Jackson County’s main sending country being Canada; prospective international students may choose not to apply to educational institutions in the United States due to application difficulty and entrance discomfort. Respondents from the educational institutions have found some of their students to be opposed to these systems as they feel their anonymity and rights are being infringed upon. According to the respondents, international students have also expressed discomfort at the borders when entering the United States, specifically when re-entering following a vacation or home visit. These policies could therefore create a financial impact on the educational institutions of the county. The respondents of the survey however, noted that in most cases, domestic students would simply fill the spots that international students once held.

Despite any effect from new visa policies, Jackson County schools will continue to advocate for their institution as a higher learning opportunity for international students. Many of the universities and colleges belong to or are planning on joining educational consortiums such as NAFSA: Association of International Educators to promote their institution abroad. Further, many of the schools have partnerships with education institutions abroad to exchange students.

[ii] Bureau of Labor Statistics. www.bls.gov.

[iii] U.S. Census Bureau.

[iv] Trade Promotion Authority. International Trade Administration. U.S. Department of Commerce. .

[v] U.S. Census Bureau.

[vi]

[vii] U.S. Census Bureau. http://www.census.gov/foreign-trade/balance/c3510.html#2003.

[viii]

[ix] Strategis Trade Data Online. http://strategis.ic.gc.ca.

[x] U.S. International Trade Administration. http://www.ita.doc.gov/td/auto/UPDATE03.PDF.

[xi]2004 Brazil Country Commercial Guide. U.S. Foreign Commercial Service and U.S. Department of State.

[xii]2004 Brazil Country Commercial Guide. U.S. Foreign Commercial Service and U.S. Department of State.

[xiii]

[xiv] Strategis Trade Data Online. http://strategis.ic.gc.ca.

[xxi] International Trade Administration.

[xxii] U.S. General Services Administration.

[xxiii] Institute for Supply Management.

[xxiv] Ibid.

[xxv] Michigan Manufacturers Association.

[xxvi] National Association of Manufacturers.

[xxvii] 2003 Open Doors Report. Institute of International Education.

[xxviii] Ibid.

[xxix] 2003 Open Doors Report. 2004 Ypsilanti U.S. Export Assistance Center Survey.

[xxx] 2003 Open Doors Report. Institute of International Education.

[xxxi] Ibid.

[xxxii] Ibid.

[xxxiii] Ibid.

[xxxiv] Ibid.

[xxxv] U.S. Department of Homeland Security. U.S. Immigrations and Customs Enforcement.

[xxxvi] Ibid.

[xxxvii] 2003 Open Doors Report. Institute of International Education.

[xxxviii] Ibid.

*This research has benefited from previous International Impact Surveys of Jackson County.

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FY'04 Jackson International Impact Study