Mr. Chairman and members of the Subcommittee, I appreciate the opportunity to testify in today's hearings on the Export-Import Bank (Ex-Im Bank). My name is Gary Groom. I am Vice President for Project Finance for Raytheon Engineers & Constructors International, which is a division of the Raytheon Company. To simplify things, for the rest of my testimony, when I refer to Raytheon I will be referring to Raytheon Engineering and Constructors International.
I am here today representing the National Association of Manufacturers (NAM) and the Coalition for Employment through Exports (CEE). I chair the NAM's Export Finance Working Group. Raytheon is an active member of CEE. Both the NAM and CEE support the prompt reauthorization of the Ex-Im Bank. I am submitting brief background papers from both these organizations that explain in greater detail their policy positions on the Ex-Im Bank.
It seems to me that the best contribution I can make to today's hearings is to try to give members of this Subcommittee an idea of what it is like to compete for major projects in overseas markets. This is something I do for a living day-in-and-day-out. So, I would like to take a few minutes this afternoon to focus on an actual case example of a major overseas project that involved my company and to share with you some of the things we learned from this experience.
International business is very important to Raytheon and to the 16,000 people who work for the company. Approximately 30 percent of our $3 billion in sales each year are international. Not only are we an international company, but we also are an incredibly competitive one. We are a world leader in the design and construction of refineries, processing plants, power projects and major infrastructure projects. If the competition for a major project is based on price, delivery, quality and service, I am convinced that my company can hold its own against anyone.
As an engineering firm, Raytheon does not manufacture the equipment that goes into the refineries and process plants we build. We rely instead on hundreds of other U.S. firms for this equipment. These firms are the invisible exporters that benefit when Raytheon wins a contract to build a plant overseas. I would like to return to the subject of these invisible exporters in a moment.
Right now, let me discuss the building of a petrochemical plant in Thailand by a Raytheon consortium and how the Ex-Im Bank was absolutely vital to helping us win this project. In 1993, Raytheon formed an international consortium to bid on a major opportunity in Thailand to design and construct a petrochemical complex situated in an industrial park south of Bangkok. Besides Raytheon, the consortium included a Japanese company and a Korean company--partnering of this type is a typical arrangement you find today in bid competition for major international projects.
The Raytheon consortium was one of five that had been judged technically qualified by the customer to bid on the project. The other bidders included Raytheon's Japanese and Korean competitors.
All bids for this project had to include firm financing packages from export credit agencies in support of goods and services that were going to be imported into Thailand. This was a requirement placed on us by the customer which was an agency of the government of Thailand. This is not unusual. Evidence of competitive financing is often a prerequisite simply to get in the door to bid on a major project.
While I am on the subject of bidding, let me give you some idea about the amount of money involved. A really modest bid for an international construction project might cost $100,000 to prepare. An average one runs around $250,000. A bid for a plant such as a major refinery costs between $2-4million.
I can assure you that a decision to bid on an overseas project is not taken lightly by any of the firms I know of that compete for large capital goods sales around the world. Putting large amounts of money on the table with no assurance that you will win the project is dicey enough. The situation becomes impossible if we don't have reliable access to fully competitive financing.
So, while our Thai customer was satisfied with Raytheon's technical qualifications and expertise to handle the proposed job, we were faced with the very real problem of putting together a competitive financing package that matched what our competitors were offering with the support of their government export credit agencies. And make no mistake about it. Our competitors are backed by aggressive financing programs. I encourage you to request information on competitor government financing directly from Ex-Im Bank and Commerce Department sources.
The latest statistics available from the OECD show that Japan supports 32 percent of its total exports with some form of official financing, France 18 percent, Spain 10 percent, Canada 7 percent, Germany 5 percent, Italy 4 percent, the UK 3 percent. The U.S. is last on this list of 8 major exporting countries at 2 percent.
These statistics almost certainly understate the competitive challenge from foreign official financing support. Many countries concentrate their official financing on particular geographic regions. Japan on Southeast Asia. France on Northern Africa. Germany on the Middle East. The availability of competitive financing usually is not an issue for our foreign competitors. It is an issue for American exporters that by themselves cannot compete with the finance ministries of other industrial nations.
It certainly was a critical matter for Raytheon in our Thailand project. The question is often asked: Why can't a company as large as Raytheon handle this by itself in the commercial markets? Let me assure you that as someone who manages export financing for a major U.S. company, I use commercial sources of finance whenever possible. Ex-Im financing is not cheap, its fees are high and access to it can be tedious. It is not my bank of preference. But when Raytheon faces official financing offers from other countries, Ex-Im becomes absolutely essential. No company or commercial bank, no matter how large, can compete with the finance ministries of other industrial nations.
For the project in Thailand, the Ex-Im, however, came through. It offered a competitive financing package that enabled us to stay in the running to win the bid and to maximize the level of U.S. content.
In February 1994, Raytheon was awarded this contract. We successfully completed it early this year and the plant is now in operation.
A few minutes ago, I mentioned a network of invisible exporters connected with the building of this petrochemical plant. This project resulted in more than $160 million in U.S. exports exports that would have gone to Japanese or Korean suppliers had Ex-Im Bank not been available. Some of this business, of course, went to Raytheon for its engineering services, but the bulk of it went to 47 suppliers in 21 states around the country.
I have attached a map and a detailed list of these suppliers to my testimony. They range from Fisher Control in Georgia to Goulds Pumps in New York to Westech in Utah. The message here is pretty simple: It is not just Raytheon that has a stake in winning or losing the competition for a project overseas, but hundreds of other firms and their workers.
This network of invisible exporters is not unique to Raytheon, of course. It is repeated time and again across the country. I have also included in my testimony maps showing the networks behind Caterpillar's export of off-highway mining trucks, Voith-Hydro's export of a hydraulic turbine, and Boeing's export of a commercial jet. Billions of dollars in sales and thousands of jobs are involved in this network of invisible exporters.
It is not just the original sale that is important here, but also the follow-on business which is generated by this sale. Remember that the capital goods supported by the Ex-Im Bank -- refineries, aircraft, turbines, construction equipment -- have a life span of 15-20 years. As a rule-of-thumb, follow-on business can equal 10 to 15 percent of the original sale each year over the life-span of the product. That amounts to a lot of exports which create and sustain a significant number of American jobs.
Moreover, while the initial sale may have been backed by official financing, most of the follow-on business in spare parts and service usually takes place without such support.
The Raytheon project in Thailand provides a good example of what I am talking about here. The facility we built produces a product that will be used as feedstock in two other chemical plants under construction in the same industrial park. These sister plants are also using significant U.S. engineering services and manufactured products. They eventually will supply local manufacturing operations in Thailand which in turn will create even more export opportunities for U.S. firms.
Capital goods exports are the equivalent of selling someone a bulldog and then locking in the dogfood sales with that customer for the next 15 years. Our competitors recognize this fact. Their economies depend on exports. That is why they pursue and support exports far more aggressively than we do.
For the past few minutes, I have been talking about a specific case example in which Ex-Im Bank support made the difference in Raytheon's ability to win a major overseas contract. Let me back away from the trees for a second and take a look at the forest.
For the past 10 years, export expansion has accounted for approximately 30 percent of the real U.S. economic growth. Exports support more than 20 percent of the manufacturing jobs in this country. Even more important, these export-related jobs provide significant advantages. Compared to non-exporters, plants that export:
Against this backdrop, it is important to realize that a competitive financing system is an essential ingredient for continued export success and job growth and real wage income growth in the U.S.
While the bulk of U.S. export financing comes from the private sector, official financing provided by the Ex-Im Bank provides a critical link in maintaining the system's overall strength. It is a means of countering the aggressive government-backed programs found in other nations and a way to impose at least some international discipline on the practices of other nations in this area. This is why both the NAM and CEE support the reauthorization of the Ex- Im Bank charter.
Before I conclude, I will raise an issue of critical importance to the exporting community. As you prepare for markup, I urge you to address the severe and growing shortfall in the program budget for Ex-Im Bank. This situation not only jeopardizes $5 billion in pending U.S. exports, it also threatens to undercut U.S. trade and foreign policy in Russia and the other NIS countries, in Latin America and sub-Saharan Africa. While solutions require immediate actions by the executive branch, Congress must take certain steps as well. We have suggested certain measures in letters to Congress and the executive branch.
Ironically, the current situation is a direct product of the competitiveness of American exporters and the Ex-Im Bank's increasingly critical role in helping U.S. exporters in the emerging global markets. In large measure, these markets require the allocation of the Ex-Im Bank program budget. Without Ex-Im Bank participation, these export opportunities and the resulting jobs will go to our competitors overseas. The "ripple effect" will be significant among U.S. small businesses that supply and contract with the direct clients of Ex-Im Bank.
This concludes my testimony. Thank you for inviting me today. I will be happy
to answer any questions.
Home | Menu | Links | Info | Chairman's Page