Sluggish growth in the West is prompting many companies to look further afield for export opportunities. Emerging markets are now major importers as well as exporters and are seeing bigger increases in consumption than developed countries.
China’s middle class is expected to increase by more than the size of the UK population in just five years and its demand for high-end goods is increasingly matched by more everyday consumer staples. Latin America, traditionally seen as an exporter, is already a net importer of manufactured goods.
Plugging into emerging-market demand is a key part of UK and US growth strategies
Plugging into emerging-market demand is a key part of UK and US growth strategies. British Prime Minister David Cameron has pledged to double the UK’s exports by 2020. But many Western companies are still adjusting to this new reality. UK exports remain oriented towards traditional markets, with exports to China the equivalent of around 0.4 per cent of GDP, whereas UK exports to the rest of the European Union are equivalent to around 10 per cent of GDP.
Would-be exporters from developed countries also face competition from emerging nations. We expect South-South trade between emerging nations to increase at a rapid pace over the coming decades – perhaps growing tenfold by 2050. Although this is also an opportunity for firms from developed markets who can identify key components to add value into these South-South flows.
Economic and diplomatic ties are developing fast between the Middle East and Asia. Where once Western firms were the dominant force in bidding to build Middle Eastern infrastructure, Asian contractors are increasingly outcompeting them for projects such as roads, sewage systems and even nuclear power plants.
The good news for UK firms is that there are plenty of areas of strength – including design and innovation, education, biotechnology, 4G mobile networks, high-tech industrial manufacturing and clean technologies such as wind power. Producers of children’s goods and baby products have also been successful in selling to Asian parents and grandparents.
Other firms have learnt to adapt to local preferences. In the past, Western supermarket chains looking to expand in China have switched from selling frozen to live chicken, as this is what customers expect. Cosmetics manufacturers have broken into the Chinese market by offering green tea-flavoured toothpaste.
Similarly, firms can pick up market share by offering local currency arrangements. We’ve seen a number of Western companies that want to build a presence in China looking to trade in renminbi rather than dollars or euros, to provide added certainty to their local partner.
Breaking into the world’s fastest-growing new markets takes thought, time and energy, but exporters will find the opportunities more than repay the effort.