World Trade Markets and Asia
In the first part, we looked at some key global factors that influence international trade including such areas as border trade, taxation, bank secrecy, supply chain and logistics and currency controls.
Part 2: World Trade Markets and Asia
Richard Watson, ATC Hong Kong
World Trade Markets
Trade integration has increased steadily worldwide since the Second World War, with an upswing in global openness during the 1970s, followed by a slight contraction in the middle of the 1980s and growth once again in the 1990s. But in recent years not all countries have been sharing equally in the opportunities offered by growing world trade.
Since the 1970s, the openness of trade with Asian countries has accelerated sharply, while that of sub-Saharan Africa and Latin America has experienced a deceleration. A large part of the increase in improved worldwide trade integration is the long-term downward trend in transport and communication costs. And there is greater cross-border trade interdependence as a result of reductions in trade barriers resulting from regional and multilateral trade liberalisation.
Regional trade agreements have contributed to expanded and better trade within trade blocs, primarily as a result of a raft of new agreements (NAFTA, MERCOSUR, ASEAN, COMESA) and development of existing agreements (EEC). On top of that, a number of developing countries in South Asia, South-East Asia, Latin America and North Africa have been reducing their trade barriers unilaterally.
During the last three decades major trade reforms have been taking place in developing countries, especially in South and South-East Asia. But again this has not meant reducing employment opportunities in local manufacturing sectors; generally the opposite has been the case although often the nature of the employment changes. This is clear from the phenomenal GDP growth year-on-year in China, and the rapid shift from low tech manufacturing to higher end manufacturing and services. For many industrialised countries there has clearly been an acceleration of trade with high-growth developing countries especially Asian countries; however the labour market in many developed and developing countries have been characterised by increasing inequality in terms of skills and wages.
Recent events, such as the global financial crisis and the resulting difficulties being experienced by developed economies such as the US and many EU countries, has placed a greater focus on the growing imbalance of trade (and the growing trade deficits) between developed and developing countries. Exporters from developed and developing countries are now looking to Asia (in particular) for growth rather than the more traditional markets such as the US.
Asia
At some time in the development of a company’s plans to move beyond domestic borders, entrepreneurs and trading companies look at how they can become a truly international player. While the rewards can be great, the risks and costs – both real and perceived – can and often do prevent these plans becoming a reality.
Asia (and in particular China) has very attractive and potentially lucrative markets for importers and exporters – whether or not a company is sourcing or manufacturing products. Many entrepreneurs and trading companies may already be sourcing from or selling to China, India and many Asian markets – so it is only natural that they look to Asia as (the first) part of their international growth.
Today, many European and North American entrepreneurs and trading companies are characterised by and/or face these issues:
- are using their domestic company to sell to large customers who accept direct shipment
- are sourcing from Asia and reselling in their home country or third party destinations
- are selling to Asia through agents
- have buyers who are increasingly demanding better pricing
- have buyers who want to buy direct from an Asian supplier
- have buyers who want to buy FOB a port in Asia
- need to have better control over receipts and payments
- have limited capital to set up and maintain an operation in a foreign country
- often deal with payments to suppliers, and from buyers, via TT and letters of credit
- have suppliers who can be difficult to deal with due to differences in culture, language, time zone and business ethics
- are very concerned about quality control of sourced goods as returns can be difficult and very costly
- know that cross-border issues including banking, freight movement, customs clearance, invoicing and receivables often need to be dealt with at a local level
Any European or North American company with an eye on Asia will have had to deal with the characteristics and issues listed above and determine the risks and costs in creating such a trading structure. Critical to their success is the ability to predict and contain risk, usually through the use of a support matrix – including their own staff, law firm(s), tax advisor(s) and local services companies.
One important point to note is that Asia is not just one market – indeed countries such as China are not just one market. They are hugely diverse in terms of language, culture, financial and political ideologies and stability, currency controls, corruption and efficiency. Anyone with a view to trading within Asia needs to apply a much greater level of due diligence than would be the case in their home country.
In part three of this four part article we will a more detailed look at Asia. In particular, we will examine typical international, regional and local structures and considerations; and take a more detailed look at Asian markets for importers, exporters and wealthy entrepreneurs.
