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
Why should U.S. companies consider tapping into the markets in India, Vietnam and
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 [email protected]. To learn more about doing business
in Asia, check out PNC’s Advisory Series at pnc.com/joinus.