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.

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

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

Back in Brazil by BRIC expert David Thomas

It’s great to be back in Rio de Janeiro, despite some unwelcome rain today, and to witness the continuing transformation of Brazil, now the 6^th largest economy in the world, a move from 7^th place which took place as recently as March this year when they overtook my original home country, the United Kingdom. Brazil’s economy grew by 2.7% last year compared to the UK's 0.8% growth, taking it to a total of US$2.51 trillion, compared to the UK, which now stands at US$2.48 tr.

But hang on, how can this be possible? I so vividly recall the Mexico World Cup in 1970 when the two captains, Bobby Moore and Pele, embraced at the end of England’s defeat by 0-1 to Brazil in the qualifying rounds (see photo right) when Brazil was regarded as a very poor country indeed compared to the UK which, whilst in decline from its peak in 1929, was still one of the world’s super-powers in political, economic and fiscal terms.

In 1970, the UK’s GDP was $1.24 trillion and the 5^th largest economy in the world (after US, West Germany, Japan and France) a fall from 2^nd place only 10 years earlier (behind the US). Brazil’s GDP was $0.42 trillion and the 10^th largest in the world (after the top 5 above, plus Italy, China, Canada and India).

Can it really be true that, in only 40 years, not even one lifetime, Brazil could have come from being only one-third of the size of Britain to actually overtaking them?!

It makes me wonder how much more can change in just the next 10 years? Brazil is poised to overtake France ($2.8 tr) in the next few years, with only Germany ($3.6 tr) and Japan ($5.8 tr) between them and the top 2 economies in the world (currently USA and China). India (now in 11^th place at $1.67 tr) will almost certainly outflank them (despite their growth slowing to 7.5% this year) and Russia (now in 9^th place at $1.85 tr) will also climb into the top league.

Can you find a way to ride this wave, before others do?

David Thomas, BRIC Expert

www.davidthomas.asia