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2005 Washtenaw County International Economic Impact Study

 

 Prepared by:
Kevin Riegle
Summer Intern
U.S. Dept. of Commerce
Ypsilanti Export Assistance Center

For more information please contact:

 Paul Litton, Director
U.S. Department of Commerce
Ypsilanti Export Assistance Center
College of Business
Eastern Michigan University
473 Owen Building
Ypsilanti MI 48197
Voice (734) 487-0259
Fax (734) 485-2396

Summary:

With improved communications systems and the advent of the internet, as well as the erosion of barriers to trade through agreements such as NAFTA and GATT, firms of all sizes are entering the international market.  The world truly is becoming a global marketplace.

International business continues to play a significant role in the economy of Washtenaw County.   Annually, the Ypsilanti Export Assistance Center (U.S. Dept. of Commerce) conducts an International Economic Impact study, with the purpose of gauging the role of international business within Washtenaw County.  The current international economic climate, as well as future trends in international business are looked at. The study focuses on both the traditional exporting of goods/services, while also including the export of education via local institutions. This report does not account for international service from the county because of the difficulty in tracking such transactions. The study also does not attempt to evaluate the impact of foreign subsidiaries or franchises abroad.

Washtenaw County Overview:

Located 40 miles outside of Detroit, Michigan and covering 710 square miles, Washtenaw County is the sixth largest county in Michigan. As of April 2005, the U.S. Census Bureau estimates that the population of Washtenaw County totals 339,191. [1] The largest city in the county, Ann Arbor, has an estimated population of 114,498. [2]

From 1990 to 2000, the population of Washtenaw County grew by 14.1%.  However, more than half of the total population remains concentrated within the City of Ann Arbor and Ypsilanti Township.

As of 2002, Washtenaw County had a civilian labor force of 176,217 with 167,647 people currently employed.  According to the Bureau of Labor Statistics, as of April 2005, Ann Arbor had an unemployment rate of 4.6%, considerably lower than that of the State of Michigan, which was 7.0%. According to the 2000 Metropolitan Area Exports Study conducted by the U.S. Department of Commerce, Ann Arbor is the 4th largest exporting area in Michigan and within the top 100 in the United States with the export value totaling over $1.746 billion in 1999. [3]

According to the U.S. Census Bureau’s most recent and available study from 1997, there are a total of 555 manufacturers and/or software publishers in Washtenaw County. [4] 

Currently, there are 311 known exporting firms in Washtenaw County 199 in Ann Arbor, followed by 24 in Dexter, and 16 in Ypsilanti. Saline hosts 17 exporting firms, and Chelsea has a total of 7. [5] Part of Washtenaw 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 exporting firms in Washtenaw County. 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 a number of Washtenaw County firms who have received both of these awards, including: Mechanical Dynamics (currently MSC software), Pahl Sciences (now Gelman), Terumo Cardiovascular Systems (previously Sarns), and Sycor (purchased by Nortel Networks).  Firms awarded The Presidents "E" Award include American Broach and Machine Company, Whatman (previously Arbor Technologies / out of business), and Buhr Machine Tool Company (out of business).

Export Markets and Industries:

The top five Washtenaw County export sectors are: computer software, computer hardware, medical equipment, machine tools, and laboratory equipment.  Please follow each link for more information on Washtenaw County's export markets.  As of 2005, there are 112 Washtenaw County firms exporting computer software, 39 exporting computer hardware, 28 exporting medical equipment, 22 exporting machine tools, and 17 exporting laboratory equipment.

The top export markets for Washtenaw County expand on the typical markets for the United States and Michigan, which go overwhelmingly to Canada, Mexico, Japan, and other technologically rich countries of the European Union.  Washtenaw County exports to these nations, as well as nations such Australia and China. The reason being the high level of computer technology products exported from Washtenaw County, particularly from Ann Arbor.

Washtenaw County and World Markets

The following countries represent the best markets for exports from Washtenaw County:

Canada

The bilateral relationship between the United States and Canada is the largest economic relationship that has ever existed between two nations. [6]  In 2002, two-way trade in goods and services between the United States and Canada amounted to $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 came to the United States and over 72% of Canadian imports came from the United States. 

For 2004, U.S. exports into Canada (goods and services) totaled approximately $160.5 billion, up from $145.4 billion in 2003. On a local level, Michigan leads all states in exports to Canada, totaling over $21 billion in 2004; Michigan is Canada’s 2nd largest trading partner, next to the United States, with nearly 8% of U.S. exports to Canada coming from Michigan. [7]

Top exports from Washtenaw County such as computer software and computer hardware, rank number three and five respectively for most potential in exporting to Canada, as U.S. companies are the dominant suppliers of computer software to Canada. In 2004, the U.S. exported to Canada approximately $3.1 billion in computer software and approximately $2.3 billion in computer hardware.  [8]  

The prospect for continued growth of trade between Canada and The United States looks positive due to prevailing factors such as longstanding business relationships, cultural ties, and the reduction of trade barriers through NAFTA. 

All figures in US dollars $

       Mexico

The relationship between the United States and Mexico is of the utmost importance for both countries. A mixture of mutual interests, shared problems, economic disparities, and a 2,000-mile border, shape the relationship between the U.S. and Mexico. [9] 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.

Mexico is now the second most important U.S. trading partner after Canada.   The United States exports more to Mexico than to the rest of Latin America combined. NAFTA coupled with their commitment to economic integration, makes Mexico a destination for Washtenaw County exports.

Mexico also has a growing demand for computer software and other technology-based products, suggesting an ongoing market for Washtenaw County.  Currently, Mexico is the number two export market for both U.S computer hardware and software.

China

In 2001 China was admitted to the WTO, allowing for integration into the world economy, and creating a large demand for inexpensive Chinese textiles. China is currently transitioning from a planned economy to a market based economy.  Since 1990, U.S. exports to China have grown approximately 12% annually. In 2002, China imported $27 billion from the U.S., or 3.3% of total U.S. exports, making China America’s sixth largest export market. [10]

The Chinese market represents great potential for U.S. firms, however, it remains medium-sized and unpredictable due to an inconsistent body of laws. Membership in the WTO may continue to help open Chinese markets to foreign firms, lower tariffs, and provide for stronger protection of intellectually property rights.

Currently, many Chinese firms remain relatively small, under-capitalized, and poorly managed. Furthermore, with a population of 1.3 billion and a GDP of $1.24 trillion, many Chinese citizens remain impoverished, with a large income disparity between rural and urban households. While the ratio of average per capita income between rural and urban households was 133.6 to 343.4 (1: 2.57) in 1978, it only slightly declined to 2,090.1 to 5,160.3 (1: 2.47) as of 1997.  [11]

Computer software is the third leading sector in China for U.S. exports.  In 2002, China imported $195 million in U.S. computer software. Also, as of 2003, all tariffs on computer software were eliminated.  However, the concern over intellectual property rights remains, as the rampant spread of piracy hurts U.S. software manufacturers.

According to the Business Software Alliance, China ranks third, behind Vietnam and Ukraine, of the 20 countries with the highest piracy rates. The Chinese use nine bootleg software packages for every legitimate one. The annual loss in sales to the global software industry is estimated to be $3.82 billion. Based on 2002 figures, 91% of DVDs in Chinese homes are pirated. Overall, piracy cost the U.S. home-entertainment industry $168 million in 2002. Pirated Chinese DVDs confiscated internationally by law enforcement amounted to $19.2 million in 2002. [13]

Australia

Recently, Australia has experienced the second fastest growth rate for a developed economy, averaging growth of 4% a year. American companies have strong penetration into the Australian market, and represent Australia’s largest source of investment. Total trade between the U.S. and Australia totaled $47 billion in 2002 and Australia is one of Washtenaw County’s top export destinations. [13] Most barriers to trade have been eliminated by the signing of the Australia- U.S. Free Trade Agreement on May 18, 2004.

Quality communication and transportation infrastructure, stability in the legal and political systems, and the use of English create a positive environment for U.S. firms.  Australia also has a high standard of living, as well as a sophisticated financial system.

Since Australia is an early adapter to technology, and makes wide use of the Internet, Australia is a prime target for Washtenaw County exports. Computer software, computer hardware, and medical equipment are number two, three, and four respectively for leading sectors in Australia for U.S. exports and investment. The Australian software market has grown at approximately 8% in recent years.

France

France is the eighth largest trading partner for the United States, and a top export destination for Washtenaw County. France is a member of the G-8, The European Union, The World Trade Organization and the OECD.  Along with Germany and the United Kingdom, France is a common destination for software exports from Washtenaw County.  As of 2005, 26 firms in Washtenaw County export to France. As France continues to update its technology infrastructure, demand for computer hardware also has increased.

Laboratory Equipment and Medical Equipment are also large markets in France. The forecast for scientific laboratory equipment remains positive and is expected to grow by 15 to 20 percent over the next several years.  France is also considered the best country in Europe for biotech capital investment.

Future and Current Trends in Local Exports - The Survey:

As part of the annual International Economic Impact Study, the Ypsilanti U.S. Export Assistance Center surveys a number of firms within Washtenaw County that are known exporters.  The sampled firms were asked to respond to a 15-question survey pertaining to the impact of international business on their firm.   The top five Washtenaw County export sectors are: computer software, computer hardware, medical equipment, machine tools, and laboratory equipment.  Thus the firms surveyed were those involved in the above industries.

The questions were as follows:

1. As a percentage, how much of your business comes from international sales?

The average for Washtenaw County was 26.9%.  Answers ranged from a low of 5% to a high of 66%.

2. Are you primarily an exporter of Goods, Services, or Both? 

77% of firms answered goods, with the remaining 23% exporting both goods and services.  None to the surveyed firms were solely service based.

3. Has your company entered any new markets in the past year? If yes, which?    

54% of the surveyed firms had entered a new market in the past year.  Typical destinations were countries in Asia, however others included: Brazil, Australia, Argentina, and Europe.

4.  Has your company added channels of distribution in existing markets during the past year?  If yes, which country/channel?   

About 31% of the surveyed firms had added a channel of distribution in the past year. Some answers included: China, France, Spain, Portugal, United Kingdom, Mexico, Canada, and Chile.

5.  Is your company planning on entering any additional markets internationally in 2005? If yes, which?

Again, about 31% of the firms answered yes, naming destinations such as China, India, Australia, Malaysia, The Philippines, China, Japan, and Mexico.

6.  Please estimate the number of employees in your firm with duties directly related to exporting or international trade.     

Typical answers ranged from 1 to 6 employees, although an Ann Arbor based software company answered that 600 employees were dedicated to international sales.  Not surprisingly at all, this is the firm that derived 66% of its sales from abroad.

7.  On a scale of 1 – 10 (1 low, 10 high) please rate your optimism about future growth of international sales for your firm.      

The average response was 7.2. 

8. On a scale of 1 – 10 (1 low, 10 high), please evaluate the effect (or ongoing effects) of the following on your business, both domestically and abroad (in 2005):

  • The War in Iraq -  The average response was 5.7.
  • The War in Afghanistan - The average response was 6.5.
  • Political unrest in the Middle East - The average response was 3.8.  One firm responded with 10, indicated their business in the Middle East had been disrupted.

9. Has the news of potential threats to American interests abroad influenced or inhibited international business travel by your firm (trade show attendance, meetings, etc.)?     If yes, how so?    

Only one of the surveyed firms responded that travel had been disrupted.

10. Have any foreign clients/trading partners experienced difficulty in obtaining visas for visits to the U.S.?  If yes, how so?    

Again, only one firm answered in the affirmative, indicating that Chinese business associates had difficulty obtaining Visa’s.

11. Please estimate the total number of days that foreign guests have spent locally, while conducting business with your firm. If there was more than one visitor on any given day, please take that into consideration.  (Example: 4 visitors for 2 days = 4 x 2 = 8 days)

The average answer was 118 days.  Although it is typical for local firms to pay for accommodation of International business travelers, business trips to Washtenaw County still provide a boost to the local economy with the “trickle down” of money not originated locally being spent on lodging, entertainment, food/hospitality, etc.

12. On a scale of 1 – 10 (1 low, 10 high), how much of an impact has NAFTA had on your sales internationally?  Was the impact positive or negative?                                                                                                                                                       

The average answer was 6.3 in a positive direction.  Only 1 firm answered that NAFTA has had a negative impact, because of the additional paperwork that it requires.

13. Do you support additional Free Trade Agreements such as FTAA (Free Trade Area of the Americas) or CAFTA (Central American Free Trade Agreement)?

An overwhelming majority of firms (93%) answered in support of the above agreements because of the opportunity for increased sales to Latin America.

14. Does your firm have an e-commerce enabled website?

About 30% of the surveyed firms had an e-commerce enabled website, with an average amongst those firms of 20 – 40% of sales coming from the web.                  

15.  On a scale of 1 – 10 (1 low, 10 high), please rate the impact the following items would have on your ability to significantly increase export sales:

  • Better assistance from federal sources in the U.S. -  The average answer was 5.8.            
  • Better assistance from local/state sources in the U.S. - The average answer was 4.6.                
  • Better assistance from U.S. trade and/or business associations. - The average answer was 4.2.                
  • Assistance with locating/qualifying potential foreign customers. - The average answer was 4.8.                
  • Increased international traffic for your website (if applicable). - The average answer was 4.75. 

Education as an Export:

Although we tend to focus on traditional exports, such as computer software, when determining the impact of exporting on Washtenaw County, educational institutions also contribute to the local economy. The U.S. Department of Commerce, 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.

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.  [15]

The University of Michigan, Eastern Michigan University, Washtenaw Community College, Ave Maria, Cleary College, and Concordia University are all institutions of higher learning within Washtenaw County.  The international students studying at the above schools impact the local economy by spending money that typically did not originate locally within Washtenaw County.  Thus firms involved in retail trade, real estate, accommodation and food services, entertainment, and recreation all profit from this unique form of exporting. 

The large number of international students also has a positive effect on Washtenaw County employment. The U.S. Department of Commerce estimates that every $35,000 worth of exports creates one job. Since the University of Michigan is the county’s largest employer with over 25,000 employees, it is likely that a number of jobs in the educational field are supported directly by international students.

Significance of International Students: Educational Export Economic Impact

The economic impact of an international student in Washtenaw County is important because it attracts international dollars that local retailers typically do not have access to.  Most of the money spent by international students in the county comes from offshore, not having been generated inside of Washtenaw County.  What this means is that international students enrolled in educational institutions within Washtenaw County provide an opportunity for increased business through existing sales channels.

According to the 2003 Open Doors Report, produced by the Institute of International Education, financial support from Government for international students must be 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 Federal and State Governments for almost 1/3 of their tuition and living expenses. Open Doors also takes into account the living expenses for dependents of international students. 14% of international students in Michigan were married with 85% of their spouses living in the U.S. during the 2002/2003 school year.

Ave Maria

Ave Maria had 4 international students, all undergraduates.  Three came from Canada, and one from Zimbabwe.  Each had an estimated impact of  $17, 760 adding $71,040 to the local economy.

 

Cleary University

Cleary had 7 international students (6 undergrad, 1 graduate) for the previous academic year. They hailed from nations such as Nigeria, Canada, and The United Kingdom. The estimated total economic impact each student has is $20,943 for an undergrad, and $20,658 for a graduate student. Thus, the international students at Cleary added $146,316 to the local economy.

Washtenaw Community College

Washtenaw Community College has long served as a building block for international students wishing to study at the U of M, and has earned a reputation abroad accordingly.  For the previous academic year, WCC had 486 international students from countries such as Korea (65) Japan (49) China (32) Brazil (31) India (19) Mexico (16) Niger (15) Turkey (12) Canada (10) Romania (9) Nigeria (9) Indonesia (8).  The average economic impact of each student is estimated to be $12,800.  Thus, international students at WCC added $6,220,800 to the economy of Washtenaw County.

Eastern Michigan University

According to the 2004 figures, EMU had 776 international students for the recent academic year, representing 77 different countries.  The top 5 countries represented were: India (147) Taiwan (47) South Korea (44) Japan (39) and Thailand (35)  

The average economic impact for an international student was $15,434.50.  Thus, international students at EMU added $11,771,172 to the local economy. 

University of Michigan

 During the previous school year, the U of M had 1228 undergraduate international students and 3405 international graduate students.  The estimated total economic impact each student has is $37,372 for an undergrad, and $42,168 for a graduate student. 

Thus the total economic impact of international students at the U of M is $189,474,856.  That means international students at the U of M added nearly $190 million to the economy of Washtenaw County.

Total for all Universities

The total impact of international students on the economy of Washtenaw County is quite substantial at over 207 million dollars. 

Future Trends in International Student Enrollment and Educational Exporting

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.

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.

SEVIS: One Year Of Success

The Student and Exchange Visitor Information System (SEVIS) is a web-based system for maintaining information on international students and exchange visitors in the United States. Administered by U.S. Immigration and Customs Enforcement (ICE) and U.S. Customs and Border Protection (CBP), the two Department of Homeland Security (DHS) agencies with primary responsibility for border security. SEVIS is designed to keep our nation safe while facilitating the entry and exit process for foreign students in the United States and for students seeking to study in the United States.

In the SEVIS program’s first year, 8,737 schools and exchange visitor programs, representing more than 9,500 campuses, have been certified to participate in the program. As of July 2004, there are more than 770,000 students and exchange visitors (F-1, M-1, and J-1 visa categories) approved to study in the United States whose data is being managed by SEVIS. In addition, SEVIS maintains records on more than 100,000 dependents of students and exchange visitors.

The process for ensuring compliance once individuals have arrived in the United States is streamlined and timely. Of those foreign students and exchange visitors studying in the United States, there were 36,600 potential student violators reported to the ICE Compliance Enforcement Unit (CEU). Reasons for an individual being considered in violation include a school reporting an individual a ‘no show’ (more than 2,900 students were reported as ‘no-shows’), expulsion, suspension, and failure to maintain a full course of study. The CEU examined the violations using law enforcement databases and referred 1,591 to the field for further investigation. These investigations resulted in 155 arrests. [16]

Conclusion

The world truly is becoming a global marketplace.  Countries like China and the Eastern Block countries of the former Soviet Union, once closed to Western countries, are increasingly becoming valuable trade partners. 

Though trade agreements such as NAFTA, CAFTA, FTAA are often demonized in the media, our survey results indicate that firms within the county generally are supportive of these agreements, and reap the benefits of lower trade barriers through increased sales via exports.

Though the largest exporting markets for the county tend to reflect the manufacturing sector, and the growing global demand for automobiles, exports of education via local institutions also plays a role in the economy of the county.

With the growth of communications systems such as the Internet, reaching greater numbers of individuals globally is becoming a reality for U.S. companies.  Reduced barriers to trade along with growing popularity of U.S. products abroad should help to ensure a healthy export market for years to come.

Footnotes:

* This study has benefited from previous County International Economic Impact Studies 

[1] www.census.gov/popest/counties/tables/CO-EST2004-01-26.xls U.S. Bureau of Census
[2] www.census.gov/popest/cities/tables/SUB-EST2003-04-26.xls U.S. Bureau of Census
[3] Trade Promotion Authority, International Trade Administration, U.S. Dept. of
Commerce. (http://www.tpa.gov/statetpa/MItpa.pdf)
[4] 1997 Economic Census. U.S. Bureau of Census
[5] U.S. Dept. of Commerce
[6] Ibid
[7] Strategis Trade Data Online. http://strategis.ic.gc.ca
[8] http://strategis.ic.gc.ca 
[9] 2004 Mexico Country Commercial Guide. U.S. & Foreign Commercial Service and U.S. Department of State.
[10] 2004 China Country Commercial Guide. U.S. & Foreign Commercial Service and U.S. Department of State.
[11] http://www.iiasa.ac.at/Research/LUC/ChinaFood/data/urban/urban_6.htm
[12] http://www.fas.harvard.edu/~asiactr/haq/199903/9903a010.htm
[13] Motion Picture Association of America
[14] 2004 Australia Country Commercial Guide. U.S. & Foreign Commercial Service and U.S. Department of State.
[15] 2003 Open Doors Report- Institute of International Education "Open Doors" http://www.opendoorsweb.org
[16] U.S. Immigration and Customs Enforcement http://www.ice.gov/graphics/index.htm

Date Updated: March 20, 2007

 

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