Small and medium sized enterprises have a lot of help when they look abroad to expand their businesses. Government programs, such as the National Export Initiative (NEI), have helped to remove trade barriers and make it simpler for companies to overcome the challenges of entering new markets overseas.
Free Trade Agreements (FTAs) instituted between the U.S. and partner countries also create a more stable and transparent trading environment which makes it simpler and cheaper for U.S. companies to export their products, essentially lowering the export tariff for those products. The U.S. currently has 14 FTAs in effect with 20 countries, with exports to those countries representing close to half of all U.S. exports.1 Relatively new FTAs with Korea, Columbia and Panama, have opened up additional market potential for U.S. based products. For instance, one of the results of the Korean FTA has been a lowering of tariffs for Agricultural products. Florida orange juice producers saw an opportunity to counteract declining American consumption, which has fallen by 34% over the past decade, by exporting their product to Korea. The demand for orange juice is so high, that Korea has become the number 2 customer for U.S. orange juice this year, up from eighth position three years ago.2
While the growth is enticing, before taking the leap into global exporting, every company – no matter what advantages they believe their product or service will have in foreign markets, should take the time to thoroughly assess market access.
Will there be easy market access?
Market access has as much to do with how your company can move product into the market, as it does with how easy it is to do business in that market. When targeting an international market, particularly an emerging market, the subjects below must be thoroughly addressed.
- What are the implications of domestic production vs. offshore/nearshore production? A couple of considerations come into play here. First, transportation of your product. Does it lend itself to shipping and what method will be best - air, sea, rail, or a combination of methods? How will the cost of transportation affect the final price of your product in your targeted market? Secondly, labor costs. Labor cost arbitrage isn't as great as it has been in the past, and when combined with cheaper and more sustainable energy sources found domestically, many producers are moving production back to the U.S. Even when shipping costs are added in, the cost benefit for domestic production versus offshore or nearshore production may prove to be a valuable strategy.
- Benefits of widening the Panama Canal. Scheduled to be completed by 2015, the increased capacity of the Panama Canal will allow larger ships to move directly from the East Coast of the U.S. to Asia much more quickly. The obvious benefits are faster delivery of product to Pan-Asian countries. The ancillary benefits are that ports on the East Coast have been preparing for this event by investing and expanding their capacities. Eight of the top 20 ports are located in the Southeast, adding to the ease with which your company can access overseas shipping.
- How will your product be delivered to the final market? Emerging markets have vastly different infrastructure which must be considered as your product makes it way to the end user. For commercial products - will your company need a broker or middleman to smooth access with manufacturing or construction companies? Will your product be sold directly to the middle market consumer? Some markets operate through small "mom and pop" outlets, while others trend toward product specific mega-marts (such as furniture marts in China or electronic markets in Thailand) or more traditional modern retail outlets.
- Be aware of infrastructure challenges. Emerging markets vary greatly in standards for roads, rail, ports and even power supplies. Do your research to ensure your product can be delivered to and maintained in your selected market without adding substantial costs to the business.
- Understand the market's business environment. Foreign emerging markets can be quite different from domestic and even most North American and European markets. Cultural differences aside, regulations, corruption and political unrest can also be rife within growing foreign territories. The World Bank's Ease of Doing Business rankings (www.doingbusiness.org/rankings#) provides insight into categories such as getting credit, protecting investors, trading across borders and enforcing contracts. For example within Sub-Saharan African economies, Mauritius, Rwanda and South Africa are ranked highest in ease of business, while the Central African Republic (CAR) and Chad are ranked the lowest (both CAR and Chad are actually ranked last out of all 189 countries surveyed).3
Evaluating market access is one key component of making a good decision about global business. You will likely start with a macro understanding of the factors affecting global business growth today and over the coming years. Next you will need to explore your product’s fit with global markets , and look for resources to help you . When armed with this information, you can select the most profitable foreign markets for your exporting initiatives.
Analyzing all of these factors involves many judgment calls for business leaders. The SunTrust team has deep bench of resources who can help you make those calls. Talk to your SunTrust relationship manager or global trade specialist about your situation. They help many companies like yours make good decisions about global business, and they help provide them with the necessary financial and trade tools.