Explaining how investing in one emerging market with the aim of accessing connected markets to multiply the value of a single investment.
The number of factors involved when small and medium-sized companies consider exporting to new, emerging or non-traditional markets is staggering and an oft-cited reason to give up and stay focused on current customers.
But one factor is often overlooked: the multiplier effect.
Experts in the know refer to this as “south-to-south trade” but for the rest of us, the term “gateway market” may be more informative.
Essentially, the strategy is to invest in one emerging market with the aim of accessing connected markets to multiply the value of a single investment.
Todd Winterhalt, vice-president of international business development for Export Development Canada believes this is the most powerful factor when considering any export or foreign investment opportunity.
For example: a Canadian autoparts manufacturer sets up shop in Brazil, and is then able to take advantage of Brazil-Mexico trade agreements to service the Mexican market.
“This is a tertiary global supply chain play and frankly it’s where we see all of the growth,” says Winterhalt.
But Canada has been so focused on exporting to the U.S. and investing in Western Europe that we’ve missed opportunities to get a piece of the broader global growth that’s taking place, he explains.
“It’s a little more challenging to take that first leap outside your comfort zone, so a great deal of research and forethought must be done before participating in a more ambitious global supply chain investment.”
But the pay-off can be stunning.
If you examine US and European growth rates—hovering under one per cent for the next couple of years—things look bleak.
But many emerging markets are growing by six or seven per cent. Add the momentum of other developing economies in proximity, and your initial investment in a country growing at six per cent blooms well into the double digits.
Keep in mind these developing economies with burgeoning growth in the middle class are adding many millions of consumers to the spending world. And they want the luxuries such as cars, air conditioners and high-quality food we’ve had for decades.
That, according to the EDC, is where the opportunity really lies for Canadians.
“Recognizing that it might be a valid strategy to attack that first market with the understanding you will be able to attack regional markets from that initial place of investment is a very powerful development and one that would serve Canada well,” says Winterthalt.
In the mood for due diligence? Check out our Manufacturing Intelligence Spotlights on the top 21 global growth markets and export destinations for reams of data in one place.