Managing risks in key emerging Asian markets
Managing risk, as an exporter or subcontractor, can be a complex undertaking for businesses wanting to expand into emerging markets.
Established markets, like the US and the UK, generally have lower barriers to entry, and are seen by many businesses as a favourable first step to growing
exports. But if we look at the fastest growing economies in the world today for Australian export businesses, then emerging markets are where the opportunities
may lie, particularly for Australian businesses providing quality food products and specialised professional and technical services.
“Their relevance for the global economy isn’t simply as centres of production or trading hubs packaging and shipping goods to advanced economies. They have also become increasingly important as final destinations for consumer goods and services, now accounting for close to 85% of the growth in global consumption, more than double their share in the 1990s. ”
- Domestic position—how leveraged is the private and public sector?
- External position—what is the external debt and reserves position? Is the current account in deficit and how far has the currency deviated from
its long term average?
- Economic stability—what is the growth and inflation outlook? How reliant is the country on commodity exports, given the weakness in global commodity
- Policy effectiveness—how effective is the regulatory environment and how severe are political risks?
For example, if you’re a business operating in India, expect to wait longer to get paid. In 2017 it took 75 days for the average business to get payment from its debtors, which is higher than the 66 days noted in 2012. Payment times in Australia are closer to 42 days on average. Indian utility companies and businesses that provide goods or services to the manufacturing and construction sectors are experiencing longer delays. This could be a challenge for Australian exporters exposed to these sectors.
When it comes to trading across borders, Vietnam ranks the best out of our three mentioned emerging economies (94), slightly ahead of Indonesia’s 112, and outranking India’s 146.
The World Bank’s ease of doing business ranking lists Vietnam’s business climate 68 out of 190 economies with Vietnam outperforming the regional average on most gauges of doing business, but starting a business and resolving insolvency is harder in Vietnam.
As part of your business’s risk assessment plan, becoming familiar with the operating environment of new markets is a crucial step to develop your market entry plan. As part of your market discovery you may find a number of differences between Australia and other markets. Some important factors include the paying taxes, industrial relations and the costs of importing.
The average time it will take your business to ensure border compliance when importing goods into Vietnam – including time and cost for obtaining, preparing and submitting documents during port or border handling, customs clearance and inspection procedures – is listed as taking about 56 hours. While still relatively high compared to the UK’s 3 hours, it is still substantially lower than India’s 267 hours and Indonesia’s 80 hours.
The Indonesian consuming class —households with incomes of more than US$10,000 per annum—numbered 19.6 million in 2016 and is forecast to increase to 23.9 million by 2030. Australia is expected to benefit from rising Indonesian consumer demand for education, finance, healthcare, information and communications technology, and tourism in particular.
For Australian businesses in the services industry, setting up in country can provide better access to opportunities. However, it is important to understand some of potential barriers including access to labour, prudential and regulatory requirements, and limits to foreign direct investment when setting up in an emerging market.
Regardless of the emerging market you decide to do business in or expand to, getting the right legal and taxation advice, and information on the local market conditions that will impact your business is imperative.
There is help available, talk to:
Efic – for your export finance needs. Efic’s specialises in providing finance solutions to Australian businesses securing export opportunities emerging markets.
Austrade – leverage their deep commercial knowledge and relationships of international and domestic networks to help your business succeed internationally. With offices on the ground across the world, Austrade can provide in country expertise to help your business succeed.