International trade has traditionally been the purview of large, multi-national companies. A few short years ago, small and medium-sized businesses didn't have access to many of the advanced systems or in-depth information that would allow them to expand overseas and reap the benefits of reaching entirely new markets for their products and services.
Today, 98% of all known US companies who export are small and medium-sized businesses with less than 500 employees, accounting for 33 percent of U.S. exporting value. The largest year over year increase in the number of companies exporting also comes from those companies with 100 to 500 employees. By all indications, that trend will continue as companies look to harness the power of international business.
Trends in Global Consumption
The key source of demand and consumption globally is the middle class. Over the next 15 years, the global middle class will expand exponentially, with estimates as high as 5 billion additional people. While the U.S. and other European markets have traditionally been at the top of demand and consumption, growth of middle class consumption in these markets is expected to be weak over the next few years. At the same time, emerging economies, particularly China and India, are expected to expand dramatically.
In 2009, 82% of the middle class lived outside the U.S. By 2030, that number will increase to 93%.
Asia Pacific shows the most growth from 28% to 63% of the world's middle class population
Middle class consumption is expected to follow suit with the U.S. making up 16% of worldwide consumption in 2009, and only 10% in 2030
Again, Asia Pacific is estimated to grow from 23% to 59% of the world's consumption by 2030
By 2030, 4 of the top 5 countries in terms of consumption will be in Asia Pacific, with the U.S. falling from first to third in global consumption
Source: The Emerging Middle Class in Developing Countries, Homi Kharas, Brookings Institute, June, 2011.
The future role of BRIC countries
"Brazil, Russia, India and China (BRIC) have conventionally been the countries of choice for export, says Susanne Keough, head of the Global Trade Solutions division at SunTrust Bank. "With their huge populations, steady economies and strengthening middle class, BRIC countries have had welcoming business environments for goods and services exported from the United States." As indicated in the figures above, BRIC countries, particularly India and China, will still prove promising in the coming years, simply from a sheer size and consumption growth perspective. However, these countries are experiencing some bumps in the road. According to the "Reaching the Emerging Middle Classes Beyond BRIC" report sponsored by Euromonitor International, "China is at the beginning of a shift to consumption-driven growth, Brazilian growth is fragile and the country has been beset by social unrest, India is suffering from the weak Rupee, and Russia is over-reliant on energy production and has a dilapidated infrastructure." Russia has also most recently become much more challenging in the current geo-political atmosphere.
Even with these challenges, BRIC countries are estimated to contribute close to 60% of worldwide GDP growth between 2013 and 2020. However, the world's fastest growing emerging market economies are not contained within the BRIC countries. Taking information from the International Monetary Fund (IMF), Euromonitor International forecasts through 2020, three out of the top five markets are actually located in Africa while China ranks 15th, India 19th, Brazil 107th and Russia 109th in terms of growth projections for the same period.
"This data simply reinforces the fact that there may be other, smaller emerging markets to explore that show faster and more overall growth promise," explains Keough. Most companies doing business internationally look to exporting as a means for long-term growth, not quick profits. Entering into new emerging markets early, at the beginning of their consumption growth, can support long-term goals by providing your company with less competition and increased brand loyalty.
Researching markets with the best potential for your exports
Globalization and access to world markets continues to accelerate, making it easier for smaller companies to reach overseas buyers and vice versa. In fact, your company may have already received inquiries from foreign distributors regarding your products, which makes selecting markets a bit simpler. Conducting a systematic market search may uncover even more promising foreign markets for your company.
Developing a strategy to start or expand your global initiatives begins with a macro understanding of the market. Next you will need to explore your product’s fit with global markets , analyze local market conditions and look for resources to help you . When armed with this information, you can select the most profitable foreign markets for your exporting initiatives.
"As you are looking to initiate or expand your global efforts," Keough suggests you "talk to SunTrust. Our approach to providing solutions is focused on consultative listening and understanding of clients' needs in order to help them avoid pitfalls while growing their international business." Your relationship manager or global trade specialist can help you access SunTrust’s resources with experience, knowledge of export assistance resources and financial solutions to help you be successful. The SunTrust team, stretching from trade resources to foreign exchange experts, can help you address whether to go abroad, where to start and how best to expand.
1 U.S. Census Bureau, Statistical Abstract of the United States: 2012; released 2014
2 The Emerging Middle Class in Developing Countries, Homi Kharas, Brookings Institute, June, 2011
3 US middle market firms and the global marketplace: Should I stay or should I go?, The Economist Intelligence Unit, September 2012.
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Most business owners agree that today’s marketplace is a fast-growing global stage. Advances in communication, development and trade have opened markets that simply haven’t been accessible to small businesses in the past.