Thursday, 08 Nov 2012
The opportunities of exporting to emerging markets
The world’s emerging economies have been fuelled by high growth and bolstered by new middle-class consumer spending power. As a result, they have become attractive markets for UK exporters.
“We shouldn’t get carried away with how big the opportunities are at the moment,” says Dr John Glen, Senior Lecturer Economics at the Cranfield School of Management. “But the prize down the line — because of the growth of these economies — is potentially enormous.”
Although the EU still accounts for around half of all UK exports, British companies are clearly focussing on the opportunities becoming available in the world’s emerging economies. In May, a survey released by The Manufacturers’ Organisation (EEF) and Royal Bank of Scotland (RBS) showed that 70 per cent of UK firms expected overall exports to increase in 2012; and that 90 per cent of those surveyed were exporting to emerging markets. What’s more, half expected their exports to emerging economies to increase this year.
In fact, the EEF noted that exports to the ‘BRIC’ economies (Brazil, Russia, India and China) have grown from two per cent of the total to eight per cent in the last decade. In the next five years, exports to China and India are expected to increase by 46 per cent and 39 per cent respectively.
Leading the way
"These findings resonate strongly with what manufacturers are telling us,” said Peter Russell, Head of Manufacturing, Corporate and Institutional Banking, RBS, on the survey’s publication. “They are accessing new markets and winning export orders, often against strong local competition which is testament to the design, innovation and quality of UK manufacturers.
“However, we should not pretend that exporting is always straightforward, far from it. Determination and persistence are required which, for some businesses who are already resource constrained, can be a source of frustration and delay.
“But the number one positive is that momentum is increasing. I would encourage those manufacturers who are contemplating seeking out new markets to accelerate their plans. The opportunity is out there."
Of course, there are many aspects to consider — including political economic, legal, social and cultural differences — when exporting goods to an emerging economy.
This is why it is vital for any potential UK exporter to thoroughly research any emerging markets they plan to enter, speak to experts who understand the way business is conducted on the ground and develop strong local personal relationships within target countries.
“You also have to make sure that your product is fit for purpose in that particular country,” says Dr John Glen. “It’s not simply about taking an existing product portfolio and expanding it into a new market. Plus, exporters have to overcome some of the issues surrounding entry to those markets.”
Corruption and bureaucratic complexity can be a challenge in emerging economies; yet some governments are proactively pursuing policies and initiatives in order to open their markets and attract interest from overseas exporters.
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For instance, one of the major constraints for exporters to India — until recently — has been the non-availability of 24/7 customs clearance and other facilities at the country’s airports and seaports.
This has meant that import and export cargo, delivered at a time when clearance facilities are unavailable, have to wait till clearance facilities are open to move on to their destination. At airports and ports — which normally operate round the clock — cargo piles up awaiting clearances.
But in August, the Government of India announced that customs clearance is to be made available at identified sea ports and airports 24/7 to facilitate trade services and remove a problem bottleneck for international exporters. This is initially planned for four months after which efforts would be made to expand similar operations at other locations.
Then there is Mexico with its network of Free Trade Agreements, including North America and the EU. As its economy has grown, so has the demand for UK sophisticated goods and services — and its government is actively working to reduce bureaucracy and improve competitiveness. In September, it was reported that China is to offer greater financial incentives to encourage more hi-tech imports to the country. Emerging markets in Europe are also providing incentives for UK exporters: Russia, for example, retains its spot as the UK’s fastest-growing major export market with a modernised economy and a large consumer base hungry for international products. “I think we underestimate how strong the ‘Brand of Britain’ is in emerging economies,” says Dr John Glen. “There still is a cache surrounding British products in, for example, emerging middle classes in India.”
Ease of doing business
Understanding these markets is not always easy: but the World Bank’s Ease of Doing business ranking lists the top countries where “the regulatory environment is more conducive to the starting and operation of a local firm.”
And according to a report released in October by the World Bank and International Finance Corporation (IFC), local entrepreneurs in developing countries are now finding it easier to do business than at any time in the last 10 years, thanks to regulatory reforms such as tax compliance. Many emerging economies in Eastern Europe showed significant improvement in the rankings, with Poland up 19 places; Ukraine 15 places; Mongolia 12 places; Kazakhstan seven places and Russia six places.
“Over the years, governments have made important strides to improve their business regulatory environment and to narrow the gap with global best practices,” noted Augusto Lopez-Claros, Director, Global Indicators and Analysis, World Bank Group.