Emerging economies offer New Zealand great opportunity

Press release

5 March 2012

Emerging economies offer New Zealand great opportunity

New Zealand companies are being urged to pay much closer attention to the ‘emerging markets’ of the world rather than the United States and European dominated G7 nations.

The recently released Grant Thornton International Business Report (IBR ) of 11,500 businesses in 40 countries makes salient reading for New Zealand business people.

Murray Brewer, partner, Grant Thornton New Zealand, said that we should not be thinking only of the BRIC economies of Brazil, Russia, India and China, but the other emerging stars such as Indonesia, South Korea, Mexico and Turkey.

“Together these countries are the drivers of everything positive in the world economy. The manner in which leaders in the troubled Eurozone recently pleaded with these markets for funds to help alleviate the sovereign debt crisis marks yet another definitive step in the transition of economic power from ‘old to ‘new’,” he said.

The survey indicated that the BRICs are forecast to account for 37% of global growth in the period 2011-16, with China alone contributing 22%. This will increase the BRIC share of global output from 19% to 23%. Meanwhile, the proportion of global output produced by the traditional powerhouses in the G7 economies will fall from 48% to 44% over the same period.

“This growth is reflected in their optimism. The report showed that a net 34% of BRIC business leaders were optimistic about the next 12 months, compared with -12% in the G7. New Zealand mirrors the BRIC economies with a 36% level of confidence.”

Murray Brewer said that one of the attractive things about these “other” economies such as Indonesia, Mexico and South Korea, in particular, is that they are relatively close to New Zealand compared with traditional European markets.

“Indonesia is practically on our door-step and is the world’s fourth most populated country with 234 million people. Mexico has 108 million, South Korea 50 million and Turkey 72 million. We are talking about extremely large markets.

“The other great attraction for these countries is that as their standards of living increase, the products that New Zealand produces become an affordable addition to their shopping lists.

“While the opportunities are immense, the key to successfully taking advantage of the business opportunities in each country revolves around planning, knowledge and relationships. Understanding the business needs, working with the best people in the other country and regular monitoring and communication increases the likelihood of success.”

Some key factors to consider include:

•The way respective governments make rules and regulations and the approvals that are required.

•Understanding each other’s markets, the products which most appeal, how to attract them and complete the sale.

•Practices which work in one country don’t always work in the other. There are a large number of businesses that have failed through being ill-prepared, or underestimating the differences between the markets.

•The impact of foreign exchange on the pricing of goods and services, and the profits made.

•Restrictions on the flow of funds in and out of each country.

•Although English is used more and more, the language barrier can lead to misinterpretation, misunderstanding and additional cost.

•Labour laws and practices are very different.

•While the principles of taxation may be similar, the detail of the rules and approach of the Tax Authorities is very different. In addition, how the tax rules of each country interact with each other also needs to be considered.

•Time delays in delivery of goods and services to market.

•Relationships with business advisers or commercial partners become very important.

“While the opportunities are great, there are also risks. It is essential that due diligence, partnerships and appropriate preparation is undertaken before entering these markets. Ensure that you seek sound advice,” Murray Brewer said.

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