Growing Markets in Asia

Growing Markets in Asia

By Diane M. Calabrese / Published April 2017

 

Asia is the biggest continent by land area. Its boundaries coincide roughly with the Ural Mountains, the Arctic Ocean, the Pacific Ocean, and the Indian Ocean.

South of the Ural Mountains on the western edge of the Asian continent, four seas—the Caspian, Black, Mediterranean and Red—complete the boundary picture. On the east and southeast, Asia encompasses Japan, the Philippines, Indonesia, and several smaller island groups.

Close to 4.5 billion people (more than half of the world’s population) live in Asia, and there are at least 44 countries. (The number goes higher, usually to 48, in some tallies; controversies over sovereignty create the difficulty of reaching a firm figure.)

The approach to trade with Asian countries varies. In some instances, there are strong bilateral ties. In other cases, the United States reaches agreements with blocks of countries.

For example, India is the 11th largest goods trading partner of the United States. (Services are separated from goods in assessments of trade activity.) Among the top U.S. exports to India are machinery and electrical machinery—equipment of interest to our industry.

The United States also has strong ties to a block of 10 countries that comprise the Association of Southeast Asian Nations (ASEAN). The nations in ASEAN are Brunei Darussalam, Cambodia, Indonesia, Laos/Lao People’s Democratic Republic, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. Viewed as a single economy, ASEAN is the second-fastest growing economy in Asia, with China being first.

Trading with India or the ASEAN member nations is made easier for U.S. companies by the extensive help they can tap into via the federal government. In many of the nations of ASEAN, the U.S. Commercial Services (USCS), the trade promotion arm of the International Trade Administration (ITA), an agency of the Department of Commerce, maintains offices in embassies and consulates. That sort of on-the-ground availability can be very useful to representatives of U.S. companies who are visiting nations to establish contacts, explore opportunities, and negotiate agreements to sell goods (or services).

The short of it is this: for companies that want to grow markets in Asia, there are opportunities. In fact, some members of our industry have been doing business in Asia for many years.

“Alkota Cleaning Systems has been selling into the Asian market for more than 15 years,” says Jeffrey K. Burros, export manager at the company, which is based in Alcester, SD. “We have servicing distributors in China, Malaysia, and Singapore. We sell our complete line of cold and hot water systems.

Adjustments are made to some equipment. “Our electric motor driven systems are 50 hertz voltages to accommodate the local voltages of each country,” explains Burros. Every market is unique and poses challenges, and so it is with Asian markets. “There are a few challenges with freight, duty, and taxes going into each country that add costs to your equipment,” says Burros. “I recommend using a freight forwarder in the United States when shipping overseas. The forwarder can provide much of the legal paperwork. Also, you will need to provide shipping documentation with each order, which also adds cost.”

Prudence Before Profit

In any transaction in the 21st century, care must be taken to avoid fraudulent schemes. Exercise prudence. “Another challenge selling overseas is to be very careful of scam or phishing e-mails asking if you ship to a particular country and where they will also provide freight pickup at your location,” says Burros. “We normally ask for payment up front in a wire transfer, no credit cards, before shipping products to any country.”

Roy Pennington, the owner of Hi Pressure Cleaning Systems Inc. in Houma, LA, agrees that there must be caution in striking deals. He extends the cautionary note to all aspects of selling in Asia, which he characterizes as a “difficult topic” to explore.

Too often, explains Pennington, it seems as though there is a “one-way street” regarding growth in market connections to Asia. “We are besieged by Asian ‘copy-cat manufacturers’ wanting to bring in their knock-off [brand-name] engines and triplex pumps into our markets.”

What Pennington would like to see is more vigorous exchange in the form of genuine two-way movement of competing goods. “But there is no reciprocity, or even interest in the same, that I have found,” he says.

“We do some business that is primarily mining and oil-related in Asia, but the bulk of this business is originated through sales calls on purchasing agents in New Orleans and Houston,” says Pennington. “The customers are ‘buying and sourcing’ for the needs of their overseas operations. We usually sell intrinsically safe units, in various voltages that include 200, 385, and 600 volts. Some are 50 hertz, and some are 60 hertz.”

Meeting the needs of ocean-going vessels does constitute a market connected to Asia. “We keep a large volume of inventory available for immediate delivery primarily to our ocean-going ships coming into the Gulf Coast ports,” explains Pennington. “Most requests are for either replacement components or units originating in Japan and China. Even though we quote units made in the USA and Canada, with parts readily available worldwide, we rarely get an order.”

Pennington would like to see countries in Asia be more receptive to units and components from the United States and Canada. Manufacturers in both countries have a lot to offer interested buyers.

Administrative Focus and Assistance

The new presidential administration emphasizes that trade ought to be and can be a two-way street. One of the first press releases issued by the Office of the United States Trade Representative (USTR) in January highlights an America First Trade Policy. The policy aims for equitable deals on tariffs and enforcement of agreements.

The USTR initiative may help to bring more balance between exports and imports. It will lead to many discussions and analyses regarding how many jobs are created in the United States by exports versus how many jobs are created by bringing more manufacturing jobs to U.S. soil. Such tug and pull is a good thing.

Closing some of the gap between exports and imports would be a good thing, too. Consider just one illustration. In 2013 (the last year for which data are available), the United States exported $15.6 billion in electrical machinery to ASEAN countries. That’s just under half the $30.8 billion electrical machinery it imported from the ASEAN countries in 2012.

Trade balance is a complex issue, involving product fit, pegs to currency, and much more, but exploring (and then acting on) trade with Asia is one way to help reduce the imbalance of trade and benefit everyone—not only with good products extending their reach, but also with opportunities for economic growth in all places.

The reach and corresponding economic activity are already impressive. Small- to medium-sized enterprises (SME), companies with fewer than 500 employees or certified as a small business by the U.S. Small Business Administration (SBA), accounted for 98 percent of exporters and 97 percent of importers in 2014, according to ITA. The SMEs also accounted for one-third of the dollar value of goods exported in the same year.

Top markets for SME exports, again according to ITA, align with large companies. Canada and Mexico receive most exports with the United Kingdom a very close third. Germany, China, and Australia rank next with Japan, Korea, Hong Kong, and Singapore clustering in the third tier.

For companies that want to identify markets in Asia, there is significant assistance available from federal entities. The Trade.gov website of the ITA is an excellent source of information. The ITA’s website offers country commercial guides for 125 countries. It also gives a thorough description of the services that the USCS offers to U.S. businesses, services including finding compatible markets and identifying sources of financing.

The ITA website provides links to the Export-Import Bank, which finances the export of U.S. goods and services to international markets. Also, the ITA site provides a link to SBA trade financing. Loan guarantees are available from SBA to give small business exporters access to the capital they need to get started with exporting.

To assess possibilities, a company can use the interactive USA Trade Online tool offered by the U.S. Census Bureau (usatrade.census.gov), which gives up-to-date and detailed information on export and import data. It also provides harmonized system and NAICS (North American Industry Classification System) classifications.

The U.S. State Department website (State.gov) makes it easy to get a profile of a particular country. Export.gov is a portal that eases the path to information at all federal websites that include information about trade.

Despite the strong involvement of U.S. companies in trade with Asia, throughout 2015 and 2016 the month-by-month balance of exports to Asia from the United States and imports from Asia to the United States heavily favored Asia. For the last two years, the United States has imported from Asia twice as much in dollar value of goods as it has exported. (www.census.gov/foreign-trade/balance/c0016.html.)

Thus, the success of U.S. companies in exporting will not only benefit the companies, but it will also benefit the nation as a whole. Of course, keeping a company strong is the first priority of its owner(s). It is worth periodically re-evaluating the risks and costs versus the potential benefits to your company to serve the Asian market as the global economy continues to develop.