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Certainly, the export value numbers are enough to stimulate pulses in almost all sectors where U.S. companies are competitive. As of October 2011, year-to-year U.S. export growth compared with 2010 was 22 percent for Brazil ($35 billion), nearly 38 percent for Russia ($6.7 billion), 10 percent for India ($17.7 billion), and 16.5 percent ($84.2 billion) for China. BRIC countries offer tangible opportunities just as European markets struggle with low-growth and long-term government imposed austerity.
Let’s briefly look at each market starting with the largest export market by value.
China
GDP growth is projected to be around 8.2 percent in 2012, down from an estimated 9 percent in 2011. And although concerns abound about possible asset bubbles and battered bank balance sheets, imports fueled by consumer spending are likely to grow at record levels. But China, like the other BRICs, is not a place where you can land at an airport and begin thumbing through the phone directory looking for leads. Partnering up with a local Chinese firm is the preferred—if not essential—market entry strategy, and finding the right one requires patience and the help of others. People with experience in China advise newcomers to consider the so-called second tier markets including Shenyang, Wuhan, Ningbo, and others with a population of more than one million where there is less competition and more need.
One reliable place to look for help is the Dept. of Commerce and its network of experts and offices throughout China. They offer to find and vet partners for a modest fee. Services are tailored for small- and mid-size U.S. companies. The big U.S. consulting houses offer similar services and tend to have deep sector expertise. They also offer to help organize supply chains and to design other efficiencies for the China operation.
U.S. firms for whom it makes less sense to have a full-blown China presence—with all the associated startup costs and regulatory headaches—might at least initially go the e-commerce route. Of China’s 180 million Internet users, more than 34 percent are making purchases. According to one source, by 2013, 6.5 percent of all retail sales in China (which does not have a shopping mall culture like the U.S.) will be online compared with 8 percent in the U.S. China’s e-commerce is growing at a faster rate, and a recent survey of some of the bigger online platforms found goods ranging from chicken feet to luxury cars to coupons for plastic surgery.
It is estimated that U.S.-sourced goods worth nearly $4 billion were sold via China e-commerce in 2011. New channels are arriving on a regular basis. Walmart is opening an online store in 2012. Baidu offers U.S.-made goods, and a new U.S. firm, Exportnow.com, has teamed up with market-leading Taobao. Exportnow.com offers to ship U.S. goods from California to a bonded warehouse in Shanghai, where the service handles all customs clearance, regulatory compliance, labeling, fulfillment, and payment collection.
This is all promising news but should be tempered with realities on the ground, which include opaque regulations, rampant intellectual property theft, and rules that favor Chinese competitors and bureaucrats.
India
Robust GDP growth of 7.8 percent is projected for 2012, and there are big opportunities in infrastructure: railways, roads, ports, power generation, and renewable energy. The U.S. Dept. of Commerce is organizing multiple trade missions to India targeting infrastructure, medical equipment, and other sectors. Participating in official missions, which are open to companies of all sizes, is a good market-entry strategy, as is working with the seven U.S. Commercial Service offices in the country. Similar to the other BRICs, personal relationships and contacts are the key to getting things done, and the U.S. government has a good track record advocating for and providing market intelligence to U.S. companies. Other business matchmaking and market research are available in the private sector.
Reforms are creating more opportunities in a country of the “License Raj,” a name Indians themselves use to describe a government bureaucracy with a near obsession for bits of official paper with elegant stamps but that mainly succeed in slowing things down. As is the case elsewhere, Indians are of multiple minds about relaxing business regulations, as illustrated by the recent tussle over whether to allow large retail giants like Walmart to operate outlets in India. (Walmart and its competitors are allowed to operate wholesale businesses.) The government first said yes, then in the face of opposition which claimed the behemoths would send millions of mom- and pop-run stores into penury, the government reversed itself. Big-box stores are likely to come to India, just as the government allowed foreign banks to set up shop, but only after lengthy political wrangling.
Russia
GDP growth is expected to be about 3.7 percent in 2012. Opportunities exist in the energy sector, agriculture, commercial aircraft, infrastructure, services, and others. Russia has close trading ties with the EU, but U.S. companies with patience and persistence have registered significant sales. There also seems to be an uptick in one-off sales as Russian buyers find U.S. suppliers via the Internet and at trade shows in the U.S. and abroad.
More proactive U.S. businesspeople can rely on the U.S. Commercial Service with offices in Moscow and St. Petersburg. The Moscow office maintains lists of reliable Russian customs brokers and provides introductions to potential buyers. Brand-name consultants are also well-established there.
The biggest near-term development is a WTO membership for Russia, possibly in 2012. Russia has had to promise numerous reforms in return for joining the club, and, when implemented, these reforms should provide more market access at less cost. Also as part of the deal, duties should decrease for many items, and customs procedures should become less onerous. The great beneficiaries, at least initially, will be European businesses, especially German, who have cultivated Russian buyers far more enthusiastically than have U.S. suppliers. This situation can be reversed but not without going there and engaging.
There are many remarkable changes in Russia since the early 1990s when there was scant merchandise in scant stores in big cities. Today, Russia’s metropolitan areas, including many once “closed cities,” are chock-a-block with retail businesses, all of them privately owned. Recently, commercial airline connections were reestablished between Alaska and the Russian Far East, as businesspeople in Vladivostok and Khabarovsk seek to open their region to U.S. tourism and investment.
Politics, too, seem on the verge of changing again, as Russians seek more control over their own destinies and want to be more integrated with the world economy. The challenge for Russia going forward will be to reduce its dependence on fossil fuel production while repairing a crumbling infrastructure that dates from Soviet times.
Brazil
GDP growth is expected to slow to less than 4 percent in 2012. The minimum wage is set to rise by 14 percent, and despite high inflation, Brazilians will have more income to spend. Brazil will be the world’s fourth biggest economy by 2030, and prospects look reasonably bright, especially with the discovery of offshore oil. Oil and gas support companies in the U.S. are already busy there, but building out the infrastructure and serving spinoff businesses will generate more opportunity in other sectors. The IT market will be worth $136 billion by 2016. Upcoming World Cup and Summer Olympics events and construction projects, as well as a new train line connecting the Sao Paulo airport with downtown, will generate more opportunity and further introduce Brazil as an economic force on the world stage.
As with the other BRICs, U.S. businesses seeking to enter this market and find partners can call on the U.S. government for help, as well as U.S. and Brazilian private sector consultants. They can help find reliable partners, advise on complex regulations, and navigate sometimes opaque customs and tax procedures. Trade shows and trade missions also have good track records for generating sales for U.S. companies, and Brazilian buyers are increasingly traveling north to attend U.S. trade shows, perhaps stopping off in Florida to buy a condo as an investment and vacation home. The Brazilian currency appreciated 34 percent against the U.S. dollar last year, making U.S. goods more competitive even after duties and taxes have been larded on.
The Brazilian government strongly favors local producers over foreigners, so partnerships may be the best market entry strategy. But Brazilians can’t produce everything they need, and as the economy grows, foreign suppliers will see their share increase. Taxes are very high on imported items, but several have been reduced. One importer joked that thong bikinis are popular in Brazil because there is less fabric to tax.
The BRICs remain popular with U.S. exporters because there are few other developing markets of this size, and in the case of China and India none. They are also difficult places to do business. Just look at the World Bank rankings for ease in doing business in 183 countries which measure things like cross-border trade and the time it takes to establish a business. The Doing Business score for Brazil for 2012 is 126th, down from 120th in 2010. Russia is in 120th place, up from 124th for the previous year. India is 132nd place, up from 139th. And China had the best rating of the group but slipped from 87th place to 91st. By comparison, the U.S. held firm in 4th place, with Singapore leading all countries as No. 1.
The good news is that all BRICs except China achieved World Bank-defined business reforms last year with Russia leading the way. There’s always next year, and don’t BRIC yourself in. Think beyond BRICs to other good developing markets including Turkey, Indonesia, Vietnam, South Africa, and others. wt
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