Atradius Country Report: Czech Republic July 2013

Summary of Report

Low demand from EU partners continues to hit exports

• Austerity measures hit domestic demand
• Export growth is forecast to slow down
• However, budget deficit targets will be met in 2013
• Construction and textile sectors remain in trouble

General Information

• Capital - Prague
• Government type - Parliamentary democracy
• Currency - Czech Koruna (CZK)
• Population - 10.6 million
• Status - Upper middle income country
•  (GDP/capita: US-$ 18,037 in 2011)

Main import sources (2012, % of total)

• Germany - 25.2%  
• China - 11.1%
• Poland - 7.1%
• Slovakia - 6.0%
• Russia - 5.6 % 

Main export markets (2012, % of total)

• Germany - 32.4%
• Slovakia - 9.0 % 
• Poland - 6.1 %
• France - 5.1%
• UK - 4.8 %

After a 1.2% year-on-year contraction in 2012, the Czech economy continued to shrink in early 2013:
by 2.2% year-on-year in Q1 (down 1.1% on the previous quarter), with GDP forecast to decrease 0.8%
in 2013 after its 1.2% decline in 2012.

The continued weak economic performance is partly the result of austerity measures. Tax increases
and public sector cuts have lessened the purchasing power and confidence of both households and
businesses, with a consequent impact on domestic demand. Private consumption is expected to
increase only slightly - by1.2% - this year after a 2.6% decrease in 2012, while lower government
spending will continue to have a negative effect on growth. Industrial production will level off this
year after a drop in 2012, investments will continue to decrease.

At the same time, low demand from EU trading partners will continue to hit exports. At more than
75%, the Czech Republic’ export-to-GDP ratio is one of the highest in the EU, making it especially vulnerable to trade losses.

To download the full report, please click here.

Response to Australia’s position in becoming the food bowl of Asia

The Export Council of Australia (ECA) acknowledges the opportunity increasing global food demand presents to Australia and supports the Australian Government’s initiative to develop a National Food Plan, which will promote a more highly integrated approach to government food policy along the supply chain.

The ‘food system’ is shaped by many factors including population growth, economic conditions and changing food preferences. The value of world demand for food is expected to increase 77 per cent by 2050 with most of this growth occurring in Asia where demand will double. By 2030, Asia’s middle class will reach 3.2 billion people who will be demanding higher quality, protein-rich foods such as meat.

Given Australia’s advanced agriculture sector, which is characterised by cutting edge farming techniques and technologies and sophisticated biotechnology innovations, as well as our vast amounts of arable land and our proximity to Asia, Australia has the potential to be well positioned to meet Asia’s growing food demand.
That being said, the ECA believes there are still improvements that need to be made in terms of reducing red and green tape, as well as reducing the bureaucracy which inhibits companies’ ability to do business efficiently.

Moreover, the ECA encourages the Government to address the shortfalls we will inevitably face in terms of food producers access to technology, skilled labour and the construction and maintenance of important infrastructure.

While the completion of Free Trade Agreements (FTAs) with key trading partners is an important component in increasing Australia’s competitiveness, the ECA believes that significant investment also needs to be made in the following areas:

• Reducing the red and green tape that hinders Australia’s ability to facilitate trade efficiently
• Investment into improving infrastructure across Australia to facilitate trade flows
• Government support to improve areas of productivity and efficiency in Australia’s production capabilities
• Educating Australia’s food export community on how to effectively do business with Asia 
• Building awareness of cultural differences between Australia and each individual Asian market 
• Assisting companies in developing key relationships with buyers and government officials in market

In response to much of the talk about Australia’s position in becoming the food bowl of Asia, the ECA will be launching a national Agribusiness Committee to work with agribusiness exporters in putting a “Voice” to Government on realistically, how Australian can work towards the next “Food Boom.” The first committee meeting will be held in Brisbane in June 2013.

Mexico Market Update

By Stacey Mills, Export Council of Australia

Snapshot

Population: 114.8 million
Nominal GDP: US $1.16 trillion
Nominal GDP p/c:  US $10,146
GDP Growth:   3.9% (2011); 3.8% (2012)
Inflation:   4% (2012)
Unemployment: 4.85% (Feb 2013)
Exchange rate:   AU $1 = 12.93 Pesos (March 2013)
Major industries: construction, metallic products, food and beverages.


Bilateral Trade Relationship

Australia and Mexico share a strong relationship following years of cooperation and collaboration on various foreign affairs and trade matters. In particular, the two countries have worked together multilaterally on forums including APEC, the G20 and the WTO. In 2004, Australia and Mexico signed a Double Taxation Agreement, which aids trade facilitation by clarifying the taxation rights of the two countries and introducing measures to avoid double taxation and prevent fiscal evasion.

Becoming a member of the Organisation for Economic Co-operation and Development (OECD) in 1994, Mexico is one of only two Latin American countries, the other being Chile, to be admitted.

Australia and Mexico’s two-way trade relationship is valued at AUD $2.9 billion. In 2011/12 Mexico was Australia's largest merchandise trading partner in Latin America, with exports to Mexico valued at $1.03 billion and consisting mostly of coal, aluminium and medicaments. In terms of the export of services, education related travel is Australia’s key export to Mexico, valued at $42 million.

Mexico’s imports into Australia are valued at $1.8 billion and consist predominantly of lead ores and concentrates, telecommunications equipment and parts, fertilisers, and passenger motor vehicles. While the countries major service import into Australia is personal travel, valued at $33 million.

Australian foreign direct investment (FDI) into Mexico sits at $3.13 billion, while Mexico’s FDI into Australia is valued at $42 million.

Trade Agreements
Australia does not have a Free Trade Agreement (FTA) with Mexico however, in 2006, Mexico and Australia formed a Joint Experts Group (JEG) which published a report recommending that that Ministers revitalise the Joint Trade and Investment Commission (JTIC). Ministerial meetings of the JTIC were subsequently held in April 2010 and in February 2012. In October 2012 Mexico officially joined the Trans Pacific Partnership (TPP) negotiations which Australia is involved in.

Mexico is one of the WTO members with the highest number of FTAs. It currently has a network of 12 FTAs that cover 44 different countries. One of Mexico’s most significant FTAs is the North American FTA (NAFTA), which includes the USA, Canada and Mexico.

Economic Overview
Mexico came close to economic collapse during the Mexican Peso crisis in 1994/95. Since then however, the country recovered and has gained a reputation for credible macroeconomic policy management, which has led to prolonged economic growth and stable inflation. This can be largely attributed to the high level of integration with its northern neighbours, the USA and Canada, through the introduction of the NAFTA which was signed in 1994.  Over the past few decades Mexico has moved from being highly protected, to engaging in widespread trade liberalisation and welcoming FDI.

Mexico was hard hit by the GFC in 2009 with the decline in industrial production directly impacting on the manufacturing sector. The economy is continuing to recover thanks to renewed, albeit slow, growth in the USA and the rest of the world, and strong domestic demand.

In terms of future economic growth, Mexico faces some longer-term structural challenges including:

• Political structure adverse to reform, particularly referring to reforms needed in the labour and product markets
• Persistent violent organised crime – a widely reported problem
• Business cycles risk, which is strongly linked to the business cycles in the USA
• Corruption–Mexico ranks 105 out of 176 countries in Transparency International’s Corruption Perception Index
• Rule of law, particularly contract enforcement 
• Currency risk

Doing business in Mexico
Mexico has been known to be a difficult place to do business in the past because of the politicised nature of the business environment, the prevalence of large conglomerates and the lack of a robust legal framework. However, the story is not all doom and gloom; both the public and private sector have adopted a more global outlook driven by competition and export opportunities stemming from its wide FTA network. Moreover, the investment environment has been improved by the introduction of more simplified procedures, higher ceilings on foreign equity and great impetus put on the protection of intellectual property.

When it comes to conducting business in Mexico, it is important to be aware of the differences in culture and business practices.  Mexicans are very amiable but are inclined to be more formal than Australians when it comes to doing business.  It is worthwhile to also take note of the following:

• It is likely that accomplishing tasks and completing businesses deals in Mexico will take more time than you initially envisage. 
• Mexican business and social structures are highly hierarchical. All decisions are made by the CEO, or the very top executives of the company, therefore the decision making process can be delayed if they are otherwise engaged. Even in urgent situations, the CEO often still has to make the final decision.
• Mexican business partners appreciate being able to communicate in their native tongue, Spanish, even if they do speak English. For this reason, if you don’t speak Spanish, or only have limited proficiency, it is advisable to use a translator.
• Networking and personal relations are crucial. It is most likely that personal relationships determine business deals, rather than the quality of products or services. 
• Even if it seems obvious, respect for a person is central to business relations. Unintended insignificant actions can damage business relations.  
• Business commonly takes place over meals, often lunch but also breakfast. If you invite someone for a meeting over a meal it is expected that you will be footing the bill.
• Cancelled meetings are common. Err on the side of caution and re-confirm your meeting several times, including on the day of the meeting.
• It is always suggested to arrive on time for meetings, but note that they seldom begin on time. All procedures take longer than expected. It is not polite to look at your watch or appear impatient.   
• In an introductory meeting, it is common and expected to shake hands with the same and opposite genders. People from the opposite gender that know each other already, generally exchange cheek kisses.    
• Industry in Mexico can often be more political than in Australia and the State Government are very influential in regional industries, especially agribusiness. Therefore, an introduction to key officials is beneficial and this is an area where Austrade will be able to assist you.

Opportunities for Australian Exporters
Currently Mexico is actively pursuing a strategy to reduce its reliance on the USA as a trading partner. Moreover, given Mexico’s advancing economy and the rise of its middle class, demand for certain agricultural products, fast moving consumer goods, processed foods etc., is set to increase thus presenting significant opportunities for Australian exporters.

There are two factors, however, that will constrain Australian exports to Mexico, and hence our ability to take full advantage of the current and future opportunities presented by the market. The first is the high transport costs to export goods to Mexico. The second, and perhaps more significant, is  attributed to the tariff advantage which the United States, Canada and countries in the EU and Latin America have against Australian products given they have FTAs with Mexico. Both of these factors affect the competitiveness of Australian products and services but do not discount the fact that Australian businesses can and have successfully done business in Mexico.

Business Opportunities:

 

AEROSPACE

• Engine, electronic and landing system components, plastic injection, heat exchangers, precision machining, airfoil repairs, audio and in video systems, fuselage insulation and interior parts.
• Engineering design and aeronautical components for military and civil applications.
• Machining parts, vacuum heat treatment and chemical processing.
• There is low availability of aerospace grade materials for structural welding.
• Sheet metal fabricators of super alloys, major sub-assembly companies, structure manufacturers, tooling companies and casting companies.
• Special chemical processes and non-destructive testing.
• Environmental solutions for reducing emissions including noise emissions.
• Maintenance, repair and overhaul services.
• Development of commercial and military projects related to high dual technology.

AUTOMOTIVE

• Demand for raw materials used in the manufacture of spare parts and components.
• Components (engineered parts for diagnostic and assembly equipment): Braking systems, electrical components, transmission and engine components, molded plastic section, stamped steel parts steering assemblies, interior trims and light weight alternative metals.
• Opportunities for tier one & two suppliers: OEM parts and components, hybrid vehicle components, materials, stampings, electronic components, equipment and specialised tooling.
• High tech components and the mainstream application of motor sport technology and high-end manufacturing and design automotive engineering.
• Supplies to the automotive after-market with an increasing emphasis on high technology.

CONSUMER GOODS

• Growing demand for designer furniture and interior design goods
• High-fashion merchandise

CREATIVE INDUSTRIES

• Design Consultancy on products and packaging.
• Consultancy on branding and marketing.
• Mexican companies are demanding interactive and marketing content.
• There is a growing cinematographic industry which is demanding consultancy on development and production financing.
• Publications and books written in English.

EDUCATION AND TRAINING

• Export of educational equipment and services.
• Vocational training models. 
• Programme to strengthen higher education institutions.
• Private sector training possibilities -mainly for on-line courses (principally language training, but also other niche sectors and distance learning at an academic level for MBAs)
• English language training (mainly business English) continues to offer serious opportunities.

FINANCIAL SERVICES

• PPP’s consultants/operators. 
• Consortium managers. 
• Contract management specialists. 
• Arbitration. 

ENVIRONMENT

• Waste management and recycling 
• Water on control 
• Air pollution control 
• Contaminated land remediation 
• Environmental monitoring equipment and consultancy
• Energy efficiency 
• Greenhouse gas capture and storage 
• Carbon trading

FOOD AND DRINK

• Niche products such as delicatessen, gourmet, and organic foods. Including natural and dietary products.
• Food and drink products reflecting health concerns, weight loss and a healthy way of living.
• Food and drink products that address the needs of an ageing population including calcium rich and energy specific products.
• Ready to drink beverages and beer. 
• Specialised food and packaging machinery given the need for many companies to renovate existing machinery to satisfy health and safety standards.
• Dairy products and services including refrigeration, packaging and advertising.
• With a young population (the average age in Mexico is 26) and a spread of convenience stores around the country are the two main driving forces creating the growth in the confectionery Mexican market. 32 per cent of Mexican confectionery consumption is imported.

HEALTHCARE

• PPPs (Private and Public Partnerships). 
• Biomedical products. 
• Investment and supply of pharmaceuticals.
• Medical equipment.
• Healthcare promotion. 
• Training in PPP hospital management. 
• Training in geriatrics. 
• Consultancy and training for nurses. 
• Consultancy in institutional reform. 
• Quality assessment and management.
• Accountability. 
• Telemedicine. 
• Medical informatics. 
• GP training in prescribing team building, management.
• Primary healthcare and paramedics. 
• Patient safety. 

INFRASTRUCTURE

• Consulting engineers. 
• Facilities managers 
• PPP specialists.
• Equipment and machinery suppliers. 
• Roads, ports, airports and railways security consultants.
• Sustainable technologies

MINING AND STEEL

Mining

• Mexico has major opportunities in mineral exploration
• Mexico has eleven giant deposits of silver, three of copper, two of molybdenum, five of zinc, one of lead, one of manganese and one of fluorite. These deposits represent opportunities for exploration, machinery, tools, consultancy and new technology.
• Companies with expertise in feasibility studies have also big opportunities in the mining sector in Mexico.

Steel

• The iron and steel industry in Mexico is experiencing intellectual challenges.
• Companies are open to R&D that can provide the know-how and knowledge in different fields such as new technologies, composites material, new applications, demand and price forecasting, among others.
• In the next five years, the ironworks sector in Mexico will invest about US$10,000 million to grow and diversify their products, replacing imports.
• Home supplies such as stoves and refrigerators continue to grow in demand; therefore materials such as steel and copper are being required much more.

OIL AND GAS

• Off shore and onshore platform design and construction
• Decommissioning of productions facilities 
• Design construction, installation and commissioning of pipelines
• Receiving terminals and production facilities
• Exploration and appraisal drilling
• Production operations
• Environmental control
• Regional geographical studies 
• Reservoir appraisal and exploration techniques
• Training and education
• Deep water technologies
• Develop heavy and extra heavy oil recovery technology.

POWER AND RENEWABLE ENERGY

• Combined cycle plants maintenance and reconfiguration.
• Plants modernisation and maintenance.
• Hydroplants reconfiguration. 
• Metering.
• Interconnection projects. 
• Transmission and distribution infrastructure.
• Cogeneration projects 
• Renewable energies (small and large hydro, solar, wind, geothermal, biofuels, wave and tidal)
• Financing and carbon markets. 

Source: UKTI

Tariffs and Taxes

Tariff is based on the Harmonised System. You can obtain tariff rates (approximate rates) for most products from the APEC Tariff Database.

Most duties are ad valorem, assessed on the FOB or CIF value or at specific rates, whichever is the greater.

The General Import Tax Law of Mexico sets out specific, general and mixed tariff rates. The general rates (ad valorem) are mainly 3 per cent, 8 per cent, 13 per cent, 18 per cent, 23 per cent and 35 per cent, while the specific rates are established according to unit of merchandise. Mixed rates are part ad valorem and part specific rates and are applied to some products from sensitive sectors, such as sugar.

Australian Federal Trade Representation

Austrade Mexico City

Australian Embassy  

Ruben Dario #55, Esquina Campos Eliseos 

Col Polanco DF 11580 Mexico

Tel:+52 55 1101 2267 or +52 55 1101 2200  Fax:+52 55 5728 6459

Europe’s internal turmoil yields external opportunities for Australian exporters

With continued bad press on the ‘Eurozone’ are there still market opportunities?  Of course there are precautions that must be taken when stepping into this high risk market. Several things must be considered to effectively assess possible Eurozone opportunities for Australian exporters. 

An internal analysis of the Eurozone appropriately measures the strengths and weaknesses of the market. Due to consistent financial turmoil there are distinct weaknesses presented throughout the European Union.  The weight of debt on European banks is severe while bank lending is at an all time low. Excessive government debt has developed a strain of uncertainty from a policy perspective and created pressure for improvements on regulation or even a possible Eurozone break up.  Constant chaos in the Eurozone has left business and consumer confidence at an all time low from a domestic standpoint. However, despite the Union’s weaknesses there is a sense of strength within European society. Citizens of the Eurozone are ready for change and quite keen for growth. With consistent disappointment from an internal perspective, society is looking elsewhere for financial stability.  

From an external perspective there are several opportunities that exist within the Eurozone. Because all internal help is currently being focused on the banking system, assistance in other regions of the market must come externally. This is where Australian exporters can potentially step in to take advantage of multiple opportunities. Buyouts, outsourcing, mergers and acquisitions are just a few of the opportunities presented in the Eurozone. High skilled European workers are willing to work for lower salaries due to the poor employment market. Companies on the verge of bankruptcy are willing to sellout at extreme costs. European businesses and consumers are now looking internationally for future growth although this can be a problem when they look towards Australia. 

The question is: Can Australian exporters provide the light at the end of the tunnel for the European debt crisis? Hear more on this topic and discussion of several other opportunities for Australian exporters at this year’s Economic Road show hosted by EFIC and the Export Council of Australia. For further details and registration click here

Join the discussion on Twitter #EconomicRoadshow2012

 Follow: @Aussieexport  & @EFIC_AU 

-Melissa Baker, International Project Co-Coordinator, Export Council of Australia 

Disclaimer: The subject matter in the article is for information purposes only. Please refer to the terms and conditions outlined on the blog for further details.

Opportunities override risk in the Middle East: exporting to emerging markets

According to economist Jim O’Neil, the next eleven countries to join the top emerging markets of the world [BRICs] include three countries in the Middle East, Iran, Pakistan and Turkey, making the region a potential hot spot for Australian exporters. Though there has been years of instability and conflict throughout the area, the Middle East is already on its way to becoming a global economic growth engine. 

Imports have increased every year since 2009 to the Middle East, according to the World Bank. The activity creating this level of growth in these nations is three-fold. First, there is the young, fast growing population, with high birth rates resulting in an expanding consumer market and increasing demand. Next, the Middle East is home to the most lucrative oil industry in the world causing a heavy production focus on oil and oil products and strong reliance on these exports. Finally, many Middle Eastern governments have budgeted to increase spending on infrastructure projects to boost the economy further. Government and society alike are agreeably developing a more stable and internationally involved economy.

This shift in focus opens up opportunities for Australian exporters. With a growing middle class opportunities lie in the retail sector. Consumers have more disposable income and are keen to spend more on convenience. The young population realizes the importance of education in today’s society presenting opportunities in the education services sector. Due to the heavy focus on the oil industry there is limited local production of horticulture in the Middle East. Australian agribusinesses should seek to supply the 80-90 percent imported food requirements in the region.  A large Muslim population in the Middle East gives Australian meat exporters a chance to provide to the substantial demand for Halal certified meats and animal products. The plan to build infrastructure networks has already created many opportunities for Australian service companies in management, design and construction. However, the various opportunities favorable for Australian exporter’s presents some challenges that must be known in order to achieve success in the Middle East. 

The Middle East is considered a high risk area and precautions must be considered when entering the market. Perhaps the biggest challenge to face when entering the market is the ongoing political risks including the war on terrorism mainly affecting the tourism and hospitality industries. In order to mitigate the risk, safety measures are a must and business managers should avoid political conversation.  Another discretion Australian exporters may face relate to trade barriers such as the requirements for precise regulation. In order to avoid problems, exporters must be well educated on procedures, documentation, rules and regulations in this region. Lastly, Australian exporters will experience strong competition from other nations including China and India. Exporters must understand the circumstances and formulate a general strategy for competitive advantage. 

Overall, the opportunities presented in the Middle Eastern market outweigh the potential challenges. The Export Council of Australian and EFIC will be hosting an Economic Road Show to discuss the potential opportunities in the Middle East and other emerging markets. To find out more or register for the event click here. 

Join the discussion on Twitter #EconomicRoadshow2012

Follow: @Aussieexport & @EFIC_AU

-Melissa Baker, International Project Co-Coordinator, Export Council of Australia 

Disclaimer: The subject matter in this article is for information purposes only. Please refer to the terms and conditions outlined on the blog for further details.

Hot Trends in the U.S. Housewares Market- Business Success in the US – Blog #7

Despite the economic downturn, North America remains one of the largest markets for ‘housewares’ in the world. According to the most recent estimates, the US and Canada accounted for 25% of global housewares retail sales totaling US$76.7 billion. So what are the latest trends in the market and what opportunities do these present for Australian exporters?

Dollars for Design
The primary, overarching trend in the U.S. housewares market is the move by the consumer toward high design. Whether this trend is manifested through more intelligent functionality or through more eye-appealing construction, the U.S. consumer has begun to appreciate the value that design adds to any product at any price. From $4,000 automatic coffee machines to cleverly designed baking tools, from ergonomic handles to new cooking methods such as induction or sous vide, from more functional cleaning tools to high-powered kitchen appliances, thoughtful design is being rewarded through increased purchases.

Sustainability
Although not as prominent as in years past, the U.S. consumer has not abandoned concerns for the environment and is voicing those concerns through purchasing behavior. Consumers look at country of origin, the uses of materials and the recyclability of the materials that make up the housewares products they purchase.

Constant Change
Another macro-trend is the move to more casual products for the home, somewhat prompted by the generational shifts underway with the aging of the Baby Boom cohort and the rise of Generation Y and the Millennials, who tend to value convenience and change the look of their living space more frequently. This has led to a much broader use of color in home products, to more unique shapes and sizes of kitchen appliances and eventually to greater replacement frequency of home goods by younger generations.

The Power of Celebrity
Perhaps the greatest change for home goods over the past five to 10 years is the emergence of the influence of professional chefs and home remodelers who have come to dominate the cable channels of U.S. television. Celebrity endorsements have become a major driver of business for cookware, cutlery, appliances, tabletop and other home categories. Guy Fieri, Paula Deen and Australia’s own Curtis Stone are leading the way.

Smart Shopping
The internet and digital technologies are having an increasing influence on the U.S. Housewares market. In a year where international retail markets floundered E-commerce displayed resilient growth, with sales increasing 16.1% to US$194.3 billion (in 2011) according to the US Department of Commerce. An explosion of digital innovations, most notably the emergence and rapid adoption of Smartphone and Tablet technology, has transformed the buyer seller relationship. Instead of getting defensive, some stores and brands are embracing the change by creating new personal touches that feature these new innovations in preference to more sales staff. In the future, QR codes and other innovative social shopping services will provide consumers with unparalleled choice. Retailers and vendors alike need to position themselves to take advantage of the huge growth opportunities this offers. 

All of these trends will be on show at the 2013 International Home + Housewares Show in Chicago, USA to be held 2 through 5 March. 60,000 housewares professionals from more than 100 countries will attend in search of the latest in products for homes around the world. More information is available at www.housewares.org.    


“Change is the only constant. Hanging on is the only sin.”- Denise McCluggage

Author:
Perry Reynolds
Vice President, Marketing & Trade Development
International Housewares Association

For more information on accessing the US housewares market or attending the International Home and Housewares Show please contact Ian Smith, CEO of Access USA on 0417020429 or ian@accessusa.com.au

Entering the emerging market as an exporter: Brazil

To weather tough economic conditions, successful exporters are shifting gears to take advantage of developing markets, like Brazil, rather than dwelling on the global financial crisis.  

Brazil has the world’s sixth largest economy while still developing which is why it may be considered the best of the BRICs. The country’s booming economy is said to be up fifth by the end of 2012 and is home to the second largest industrial sector in the Americas. Brazil is internationally involved in several world economic organizations including the World Trade Organisation, G20 and The Cairns Group. With the consistent efforts of the government to maintain economic stability and a 25.7% total trade increase in 2011, Brazil offers a higher opportunity for Australian exporters to do business. 

The benefits of the expanding economy spill over to anyone involved in business throughout the country. Brazilian businesses realize the favorable circumstances for advancement and are making efforts to expand beyond boarders though trade agreements and foreign investments.  Agriculture production carries much of the economic development; therefore Australian exporters should focus on supplying Brazilian farmer’s high demand of equipment, technology and fuel.  

Domestically contributing to Brazil’s growth is the emergence of a new middle class. The new middle class consists of high spending consumers looking for quality finished goods. These Brazilians have an appetite for name brand products and convenience and are willing to pay for it. Take the U.S. Company Wal-Mart for example, currently the third largest retailer in Brazil. Fed-Ex has benefited from the new consumer class as well, despite the country’s poor infrastructure, and has even bought out one of Brazil’s largest transportation and logistics companies. 

Caution: Under Development

Great opportunity exists within Brazil’s boarders for Australian business; however there are still some issues the country faces as a developing economy. The nation relies heavily on commodity exports, particularly from China. In order to maintain economic growth and achieve overall stability without any backlash, Brazil cannot depend on commodity exports.

Perhaps the biggest problem existing in Brazil is the poor infrastructure system. Multinationals have steered away from doing business due to this ongoing issue. Australian exporters have faced logistical and distribution problems due to backed up airports and clogged road ways. With plans to host the 2014 World Cup and 2016 Olympics, there is hope that provided funding for infrastructure projects will resolve this setback and equally create ease for exporting.

Inefficiency is another major issue when dealing with Brazilian business. Poor infrastructure contributes to the problem but business in Brazil is slow in general. It takes over 100 days to start up a business and costs can be outrageous. 

Heavy government involvement has resulted in high taxes and tariffs for trade through Brazil. Duties and taxes on imports could add up to 100% to the price of goods. High tariffs and consumer sales tax on imported goods not only hurts the exporter, but the consumer as well.

Government regulation has also placed strict laws on labor, manufacturing, intellectual property and competition in Brazil. In order to begin business without getting slammed by fines and penalties, it is necessary to require a strong knowledge base in Brazilian law and business practices alike. The best way to this is by building a relationship with a Brazilian partner who has expertise on the stern regulations. 

Target practice

Several strategic choices should be considered when entering the Brazilian market. Targeting key demographic factors are critical to success. The first demographic, as stated above, is the emerging high spending middle class. According to a report from the Getúlio Vargas Foundation, Brazil's middle class has grown to 55% of Brazil's 191million citizens in 2011, up from 38% of the population in 2003. 

The next area to target is Brazil’s average age group. With its economy on the rise, the population is keeping up steadily making Brazil a young country.  According to the Central Intelligence Agency, the median age of Brazil is 30 years compared to average 37 years in Australia. In order to target this segment, businesses should consider popular social media channels for advertising as well as advanced technology for consumer goods. 

Another demographic factor to target is Brazil’s variety of culture. Although it is one country, there is a significant degree of cultural diversity throughout the various states and cities of Brazil. Despite the high diversity throughout the nation, one cultural aspect that is very important in any part of Brazil is making, committing and maintaining relationships. Personal interaction and individual relationships are essential to provide exceptional business performance in the country. 

There are multiple strategies to hedge financial risk as well.  The best way to enter into an unfamiliar foreign market is by partnering with someone who is knowledgeable. A joint venture is a great way to reduce the risk of the unknown and learn from someone who has experience in the country. A partnership with a Brazilian native is another strategy to get to know people and companies you will be dealing with.

All things considered, starting up a business practice can feel like a hassle but once involved in Brazil’s power house economy, the hard work pays off in profit.

Top Tips: Key considerations when exporting to Brazil 

• Country analysis and research
• Who is your competition and what are the competition laws
• Logistics planning, packaging and labeling requirements, payment procedures
• Trade barriers
• Employment laws
• Areas of opportunity: mining and minerals, sports infrastructure, sportswear (textile, clothing and footwear)
• Secure relationships with native Brazilian businesses

 -Author: Meilssa Baker, International Project Co-Coordinator, Export Council of Australia

Event Invitation- Bribery and corruption seminar

The bribery and corruption landscape is changing – the legislation is getting tougher, the prosecutions more frequent and the penalties more severe.   

Australian exporters who understand and proactively manage the risk will go a long way in protecting themselves and the markets into which they export.  Getting it right can have benefits that extend far beyond just ticking the right boxes to satisfy a regulator; the future of your export business can depend on it.

The Export Council of Australia would like you to attend a special FLEX session to discuss the very real risks associated with bribery and corruption, from an Australian and international perspective.  Key Australian trading markets’ laws will be examined, as well as existing UN agreements.

Details

• Sydney: Friday 3rd August 2012 from 12.30-2.00pm at McGrathNicol, Level 31, 60 Margaret Street Sydney NSW 2000. RSVP: If you are interested in attending the above discussion please RSVP to Lisa McAuley at lisamcauley@export.org.auor call 02 8243 7400
• Melbourne: Thursday 2nd August 2012 from 8.00-9.00am at Victoria University, Room 10.48, Level 10, 300 Flinders Street, Melbourne. RSVP: To confirm your attendance please e-mail Collins Rex at collinsrex@export.org.au
• Adelaide: Thursday 2nd August 2012 from 8.00-9.00am at Hunt & Hunt offices, Level 12, 26 Flinders Street, Adelaide. RSVP:To confirm your attendance please e-mail Bob Shepard at bobshepard@export.org.au
• Brisbane: Wednesday 1st August 2012 from 8.00-9.00am at Logan Office of Economic Development. RSVP: To confirm your attendance please e-ail Sam Ow at samow@export.org.au
• Brisbane: Thursday 2nd August 2012 from 9.00-10.00am at Moreton Bay Regional Council. RSVP: To confirm your attendance please e-mail Sam Ow at samow@export.org.au

Despite all of the doom and gloom, you might be surprised to learn that there is one consumer channel in the United States that has experienced double digit growth right through the recession. The US is home to the largest and most sophisticated e-commerce market in the world that presents a plethora of opportunities for Australian companies. According to the US Department of Commerce online sales totaled US$194.3 billion in 2011, up 16.1% from US$167.3 billion in 2010.

Even before the internet gained popularity, the US (unlike Australia) had a very strong home shopping culture. Today more than 70% of households regularly purchase items online or by other virtual means and e-commerce accounts for well over 5% of US retail sales. The advent of the smartphone has only served to increase consumer appetite. According to a new study by Click IQ, 29% of consumers who use a smartphone to research a product while in a retail store end up purchasing the item online.

Amazon.com
Amazon.com is the largest online retailer in the world with over 140 million active customers across the globe. Net sales increased 41% in the 2011 calendar year to US$48 billion, compared with US$34 billion in 2010. North American net sales totaled US$26.7 billion, up 42.8% from US$18.7 billion in 2010. The site has over 65 million unique visitors per month which is more than Walmart.com and Target.com combined. Amazon has built its business on selection, personalisation & customer service and is now ranked as the number 1 brand in the States.

Products of Interest
Amazon provides the largest selection of products in the world with over 40 product categories. Some of the top categories on Amazon include:

• Books   
• Electronics
• Toys               
• Sports & Outdoors
• Home & Kitchen       
• Jewelry
• Beauty               
• Health & Personal Care
• Tools & DIY           
• Lawn and Garden
• Automotive           
• Baby
• Gourmet Food

Secrets of Success
There is a very big difference between just selling on Amazon.com and selling successfully on Amazon.com (or any other website for that matter). Some of the secrets to maximizing exposure and revenue include:

1. Representation: Specialist Manufacturers’ Representatives have established relationships with key buyers at Amazon to get you in the door and best position your product(s) for a multitude of targeted marketing programs which are conducted by category and region. 

2. Brand Exposure: Keep in mind that Amazon.com is now the top retail site where people go to do market research. Taking time to build a strong brand presence on Amazon will have flow on benefits to your ‘bricks and mortar’ business around the US.

3. Amazon Fulfillment: Drop shipping directly to Amazon customers from your US warehouse is generally inefficient and costly. Amazon has fulfillment centres across the States so that orders come directly from the retailer – Saving you time and money.

4. Optimise Product Searches: We all know the increasing importance of search terms and ‘ad words’ in online marketing. Make sure you optimise search terms for specific SKUs to ensure that they are the ones people see when they have a specific need.

5. Customer Ratings: Good customer ratings are key to success on Amazon. Shoppers pay close attention to feedback, as does Amazon for your performance rating. Again, take the time to accurately describe your items and be proactive in addressing any concerns raised.

"The Internet will help achieve "friction free capitalism" by putting buyer and seller in direct contact and providing more information to both about each other."- Bill Gates

Author:
Ian Smith
CEO – Access USA Pty Ltd
0417 020 429
ian@accessusa.com.au
www.accessusa.com.au

Mongolia: Opportunities for Australian exporters

According to the World Bank data, the economy of Mongolia grew by 17.3% in 2011 compared to 6.4% in the previous year. As of the first quarter of 2012, the growth rate was 16.7% and estimated to reach 20% by year end (Eurasia Capital, 2012). Traditionally the country is mainly dependent on livestock herding and agriculture, but in the recent years, due to exploration of large mineral deposits, mining has come to contribute to nearly 20% of the total GDP. Two of the major mining projects, namely Oyu Tolgoi and Tavan Tolgoi, are considered to be part of the five largest copper and gold mines in the world and considered to supply high quality coking coal for over a century (World Bank, 2012).

In terms of foreign investments nearly 70% of the total FDI is invested into the mining sector and about 20% into trade and catering services. In relation to the mining boom and the development in this sector, in the last 3 years the number of service imports in the form of financial and legal services, business consulting firms and human resource recruitment agencies has also increased exponentially. Australian mining and construction companies such as BHP Billiton, Leighton and Rio Tinto have been in Mongolia for many years and hold significant leases to the mineral deposits (FIFTA, 2012).

Diplomatic relations between Mongolia and Australia began in 1972; however it was not until 1990 when Mongolia transitioned to a free market economy that the bilateral engagement was enhanced. According to the customs official statistics report for 2011, the total export trade from Australia to Mongolia was 44 million AUD and the import from Mongolia to Australia totaled 0.5 million AUD. While the trade total is a modest sum compared to Australian trade with other countries, Australian exports to Mongolia have doubled every year since 2009 and has further growth potential (Australian Government, 2012).

A significant portion of the Australian export to Mongolia include heavy machinery, specialized equipment, measuring and analysis apparatus and technologies mainly used in the mining sector. The main exports from Mongolia are cashmere, coal and fluorspar. China is both the principal importer and exporter from Mongolia at 80% of the total export and 40% of the total import (Austrade, 2012).

Austrade has recently opened a permanent office in the capital city Ulaanbaatar with an aim to enhance the commercial ties between Australia and Mongolia and it serves as the gateway for Australian businesses and individuals hoping to expand into the Mongolian market.

With nearly half the small population of less than 3 million living in the capital city, and with a few large companies dominating the majority of the trade, it is easy to find distribution channels and buyers in Mongolia. Growing number of young people are educated abroad exposed to the western way of doing business and thus language barriers and cultural misunderstandings will not be an obstacle.

The Mongolian government policy to promote international trade has created a favorable environment for the traders and the country continues to facilitate trade. In order to overcome the over dependence on imported products and to enhance export, the export duty has been set to 0% and the import duty is one of the lowest at 5% for all commodities with the exception of a seasonal duty increase on vegetables between July and April at 15%. Throughout the country there are a number of free trade zones, free economic zones and bonded construction site and manufacturing areas (Mongolian Customs, 2011).

With an aim to support the small and medium enterprises, current import duty on equipment, machineries, mechanical appliances, reactors, boilers and the corresponding parts for SME purposes has been set to 0% until the 31st of December, 2012 (Mongolian Customs, 2011). Exporters in this sector must not lose the opportunity. Additionally, construction and services sectors and private consumptions are expected to grow for those in the business of exporting construction materials and food products.

Currently Australian export is less than 1% of the total import of Mongolia. With the increase in the average household income and people’s growing conscience toward quality health products, suppliers of food, beverage and snacks may be able to expand their market and increase Australian share in the market. Other main exports from Australia the Mongolians are accustomed to include Australian wine, machinery and mechanical appliances, prepared foodstuff, chemicals or products of the allied industries, and construction materials (Mongolian Customs, 2012).

- Contributing article prepared by Enkhtuul Enkhtuvshin, Export Council of Australia

References:

Austrade (2012), “Mongolia Profile: Current Business Situation”. Retrieved from: http://www.austrade.gov.au/Mongolia-profile/default.aspx [Accessed 10/07/2012].

Australian Government (2012), “Mongolia country brief”, Australian Government: Department of Foreign Affairs and Trade. Retrieved from: http://www.dfat.gov.au/geo/fs/mngl.pdf [Accessed 10/07/2012].

Asian Development Bank (2012), “Asian Development Outlook 2012: Confronting Rising Inequality in Asia”. Retrieved from: http://bcmongolia.org/images/Articles-Reports-Mongolia/ado2012.pdf  [Accessed 11/07/2012].

Eurasia Capital (2012), “Mongolia’s GDP accelerates 16.7% in 1Q2012”. Retrieved from:  http://www.eurasiac.com/mongolia-s-gdp-accelerates-167-1q2012 [Accessed 12/07/2012].

Foreign Investments and Foreign Trade Agency (2012), “Economic Outlook and Major Economic Sectors”. Retrieved from: http://www.investmongolia.com/fiftanew/contents.php?id=1&sId=2&lang=Eng[Accessed 11/07/2012].

Mongolian Customs (2012), “Customs official statistics report – 2011”. Retrieved from:  http://www.ecustoms.mn/index.php?lang=mn [Accessed 11/07/2012].

Mongolian Customs (2011), “Annual report – 2011”. Retrieved from:  http://www.ecustoms.mn/about.php?wmid=102&wmsid=104 [Accessed 11/07/2012].

World ranking slides for Australia’s International Competitiveness

“The fall in Australia’s competitiveness ranking should be taken very seriously by Government & Industry,” said Ian Murray Executive Director of the Export Council of Australia. Today’s announcement in the Australian Financial Review has Australia’s world ranking falling to fifteen, ten places lower than it was two years ago.

Mr. Murray said that “the report by the Committee for Economic Development in Australia (CEDA) and the comments expressed by CEDA Chief Executive Professor the Hon Stephen Martin reflect what the council has seen emerging in export now for the last two years.”

 “Australia’s exports”, he said “are being strangled by the high cost of labour, red tape upon red tape, duplication of Government regulation, the GFC and of course the high Aussie dollar.”

Quoting a recent paper prepared by the Export Council of Australia, where it argued that while resources are booming there was clear evidence that even that sector was being hamstrung by unnecessary regulation, high taxes and massive difficulties in securing labour. The debate on ‘guest labour’ is but another issue that if not handled properly will result in the slowdown of projects vital to Australia’s wellbeing.

“The issue on whether the resources sector will continue to boom while important it is not the only issue on the table. Diversity of exports was a key factor,” Mr Murray said in “assisting Australia handle the GFC and it will continue to be a factor in the future. Those countries that concentrated on the services industry for example were really hurt during the crisis.”

Australia, Mr Murray said “needed to have a strongly balanced portfolio and focus attention on high value high technology sectors.”

“The Export Council,” he said “strongly supported the comments expressed by Professor Martin particularly those relating to the need for an increased investment in skills, particularly in science, research and technology. Despite the high dollar Australian companies in high-tech manufacturing and services to the resources sector, to name just two, remain quite strong.” Mr Murray said.

“On the issue of what should be done,” Mr Murray said “they had no argument at all with Professor Martin. Government needs to promote skills development, focus on skilled migration, including those under Enterprise Migration Agreements as well as promote R&D and most importantly attack over-regulation and trade facilitation costs. Companies must focus on innovation driven by excellence in R&D that will strengthen their competitive advantage and enhance their margins.”

“Being number fifteen is simply not good enough in a country blessed with resources, good education and natural ability.  Australia cannot afford to be apathetic. Government and business,” Mr Murray said “need to work together to realise the potential we have sitting right at our feet even if that means making decisions that some sectors won’t like.”

Ian C Murray AM
Executive Director
Export Council of Australia

Resources….an opportunity of a lifetime, let’s not let it slip

Every time I visit Western Australia I’m reminded of the line from the Aussie movie ‘The Castle’: “It’s the vibe...it’s the vibe” and there certainly is a vibe. All Australian’s are aware of the resources boom, but I’m not sure if everyone really knows what this means to Australia in terms of employment, advances in technology and the impact on companies that service and build infrastructure for the sector. It can, in my view, only be described as a once in a lifetime opportunity which if managed well, will be of enormous benefit to all Australian’s but if managed badly will simply be a wasted opportunity.

In late May, Perth hosted a “Careers in Mining and Resources forum” which was reported in a special feature for “The Western Australian”. One only has to flick though the pages to see its magnitude and the impact it is having on the State and to our export earnings. The Chamber of Mining and Energy of Western Australia (CME) is quoted as saying “Currently the sector has total export income of more than $100 billion and produces a royalty for the WA Government of $4.9 billion”. In 2010/11 the WA resources sector accounted for 95 per cent of the state and 46 per cent of Australia’s merchandise export income and direct employment of over 100,000 people in mining, oil and gas. A Department of Mining and Petroleum report claims there are over $180 billion worth of projects committed or under consideration which will create more than 57,000 construction jobs and 18,000 permanent jobs. When you look at the sheer scope of what’s happening and the impact it is having, you have to wonder why the unions are trying to create havoc for Hancock Prospecting for planning to engage 1700 guest workers when their Roy Hill project is reported to employ 6000 Australians.

The feature also puts a personal touch to this massive industry and tells the story of Christopher Turland, a dump truck driver with Fortescue Metals Group who wanted to become a train driver.  Christopher decided to take advantage of the opportunity and after completing a fifteen month traineeship become Fortescue’s first qualified Indigenous train driver. He is not alone, in May 2012, Aboriginal people comprised 10 per cent of Fortescue’s workforce and the company has awarded $580 million in contracts to Aboriginal businesses across its operations and growth projects. Nobody could argue that this anything but a fabulous outcome and I am sure there are more.

Opportunities of course can be realised and opportunities, even those of a lifetime, can also be wasted. Gina Rinehart, one of our Australian Export Heroes, in her article in Australian Resources and Investment draws comparisons between Australia and Singapore and highlights some clear differences between the two. “Despite the country’s small size, low population and lack of resources and local water supply, Singaporeans benefit significantly from the country’s policies”. “Its neighbour Australia,” she says, “is the complete opposite despite wealth generated from vast resources”. Australian’s, Ms Rinehart says “drown in red and green tape, taxes and government costs that make us less competitive.”  Singapore she says on the other hand “makes a real effort to minimise red tape, has lower tax rates, enables guest labour and has no debt”.  This view is reinforced by a World Bank study which placed Australia as the 34th easiest economy for trade access. Singapore, I understand tops the list.

There are enormous opportunities flowing from the resources boom for all Australian’s. They will not be realised unless we lift our game in cleaning up our act in terms trade facilitation and processes, reducing not increasing taxes and charges, having duplication and waste eliminated and encouraging not discouraging our entrepreneurs. Undertaking these fundamental disciplines will also have positive impact on the other side of the economy that is facing great hardship in this two speed economy.  Failure to address these issues will simply mean the once in lifetime opportunity will be wasted while those exporters in the ‘slower lane’ will be sacrificed.

- Ian Murray, Executive Director- Export Council of Australia

New Directions in Exporting

I had the pleasure to provide a “Getting Started in Export” workshop to a group of current and intending exporters last Friday on the northern beaches, working with the Trade & Investment team from NSW State Government.

There were two case study presenters at the workshop, who in their own way, indicate where export is heading for at least some Australian exporters.  The first presenter was Christelle Damiens, the MD of Exportia.   Chistelle’s focus is on helping Australian companies enter the European markets of France and Germany.  Having this country focus allows Exportia to tailor a strategy for each client, with a strong understanding of the language and business culture and any local barriers in mind. This can, and has helped many companies with the transition into what might otherwise be daunting new markets.

That understanding of how things work on the ground is imperative, and with the change in focus by Austrade in Europe, companies like Exportia are filling the gap and providing that advice and guidance that new entrants really need.

The second presenter was Paul Waddy, CEO of Antoine+Stanley.  Antoine+Stanley are primarily shoe retailers, however have combined the best of shopfront (using David Jones as a stockist) as well as their own on-line site, and listings on sites such as ASOS, The Iconic and Styletread.

There remains the need to develop a brand and following, but using a variety of distribution methods allows greater reach and different audiences. Of course, managing all the logistics is not without problems, and Paul seems to have these sorted.

With the world becoming more of a global village, and speed to market being essential in the fashion industry, the on-line shopping capability in different markets is certainly a good model to follow.

The key point for me with these two stories, is that in most industries now, a company (exporter) often can’t efficiently take on all parts of the process themselves. Managing the bits that really represent the “IP” in the business is vital, and then looking at avenues and partners to take care of the other pieces allows a company to conserve capital, move quickly, and hopefully adapt quickly to continue to grow.

So perhaps it’s time to evaluate the various parts of your business and see what parts may be holding you back, and whether those parts could be better provided by a specialist third party.

- Peter Mace, General Manager- Australian Institute of Export/ Export Council of Australia