Asia is a significant force in the global economy. In fact, the Export-Import Bank, the official credit agency of the U.S. government, designated India a “key market” for export financing in 2009. Unlike the United States, however, Asia is not homogenous. Each country has its own culture, business environment and trade regulations, and companies that want to penetrate Asian markets need to develop a unique distribution strategy in order to be successful.
Victor Notaro, a senior vice president and manager in PNC’s global treasury management group, sat down with Smart Business to talk about potential opportunities and barriers to doing business in the promising emerging markets of India, Vietnam and South Korea.
Why should U.S. companies consider tapping into the markets in India, Vietnam and South Korea?
Recent U.S. Trade Representative statistics show that 97 percent of all direct exporters are small businesses and approximately 65 percent have less than 20 employees. India, South Korea and Vietnam present tremendous opportunities for U.S. companies, regardless of their size, because of a combination of rapidly expanding population growth and increasing gross domestic product.
- India is the fastest-growing democracy, projected to be the third-largest economy in the world by 2050. Perhaps more importantly, it is a consumer-driven economy with 250 million to 300 million of its 1.2 billion people considered middle class. U.S. exports to India grew by 75 percent in 2007.
- South Korea is a trillion-dollar economy and an affluent, tech-savvy nation. The country’s GDP has grown from $100 per capita to $22,000 in just 40 years.
- Vietnam is following a pattern similar to China’s growth. Its GDP per capita is $956, which has doubled in the last six years.
Governments in these countries have made a concerted effort to simplify business start-up to attract foreign entrepreneurs. Vietnam, for example, recently strengthened investor protections through a new enterprise law, and other countries have implemented border cooperation agreements, eased access to credit and simplified the construction permit process.
What are some of the risks to doing business in these markets?
Collecting full payment in a timely manner is the primary risk. Payment systems and sophistication levels vary greatly and checks are still the most common form of payment, which increases both bank fees and fraud risk. Moreover, there are not many regulations in place to standardize payments in the banking industry. Geopolitical factors like political instability and currency devaluation may also complicate trade, but this should not discourage companies from considering expansion in Asia. With the appropriate research and planning and sound legal and financial guidance, the rewards of entering these markets can outweigh the risks.
How can U.S. companies prepare to enter these markets for the first time?
Most middle-market companies do not have staff dedicated to exporting research, so they should try to work with a bank that has trade finance and capital markets expertise as well as experience in helping businesses expand in Asia. A bank that has a relationship with the U.S. Commercial Service the U.S. government’s primary trade promotion agency may be beneficial and can help you to:
- Determine if there is demand for your goods or services in a target market. Gathering and analyzing information about the markets you are considering current business climate, trends, demographics may influence your decision to sell in a certain region.
- Find and vet potential business partners with matching services, such as The Gold Key, which identifies prospective trade partners in your industry and connects you with them.
- Navigate the legal and cultural issues specific to each country.
- Mitigate and manage your risks so that you get paid on a timely basis.
This article was prepared for general information purposes only and is not intended as legal, tax, accounting or financial advice, or recommendations to buy or sell currencies or to engage in any specific transactions, and does not purport to be comprehensive. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Any reliance upon this information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other adviser regarding your specific situation. Relevant information was from sources deemed reliable. Such information is not guaranteed as to its accuracy. Any views expressed herein are subject to change without notice due to market conditions and other factors.
© 2008 The PNC Financial Services Group, Inc. All rights reserved.
VICTOR NOTARO is senior vice president and manager of PNC’s strategic partners group and global treasury management group, part of The PNC Financial Services Group, Inc. Reach him at (412) 768-3066 or firstname.lastname@example.org. To learn more about doing business in Asia, check out PNC's Advisory Series at pnc.com/joinus.