Despite the volatility experienced in emerging markets in recent years, they can offer superior returns to Canadian exporters because of their higher potential for growth compared to mature economies.
Canadian companies are faced with many challenges, including a lack of resources and in-depth market knowledge. So how can you determine which emerging market is right for you?
Many of these markets offer excellent potential. According to our latest Global Economic Outlook, Canadian exports will increase 4% this year and 5% in 2019, partly due to leveraging markets in the emerging world. And the market potential of emerging economies is expected to grow well into the future.
To help exporters research what we call Markets of Opportunity, including ones that rarely make the news, we suggest taking an indicator-based approach. That lets you keep score of the strengths and weaknesses of your target market in different areas.
Some countries, for example, may have difficult business environments due to burdensome bureaucratic processes but their imports from the rest of the world could still show strong growth. A country with this profile could be a good fit for companies with experience handling difficult business environments who still want to tap into high demand.
Key indicators
EDC’s Economic and Political Intelligence Centre says examining four key indicators is a good starting point to better understand what markets are right for you.
Often the most important factors are understanding how economic, political and financial risks can impact the commercial environment in a country. This can include political violence, governments taking actions such as expropriations or interference against businesses, as well as the threat of restrictions on the transfer of foreign currency out of the country. Risk ratings, such as those produced by EDC and published in the Country Risk Quarterly, provide an indication of country risk.
Exporters don’t want to enter a market where there’s a complex regulatory environment, creating a lot of red tape and a slow-moving bureaucracy. The World Bank Group’s Ease of Doing Business index addresses these kinds of issues. This indicator can help you identify how efficiently the regulatory environment operates compared to other nations. It uses an approach of analyzing how easy it is to start and operate a local business.
Indicators dealing with the “ease of access” answer the question: “How easy is it to enter the market?” Examples of publicly available scores on this subject include the World Bank’s Logistics Performance Index and several indicators dealing with borders and customs and transportation infrastructure in the World Economic Forum’s Global Competitiveness Index. They talk about the efficiency of customs procedures as well as the state of the country’s port infrastructure.
This is an important indicator because unforeseen delays, whether due to customs or transportation issues, can cost both time and money, not to mention the loss of a potential customer.
One way to gauge demand is to look at forecasts about how much a country is expected to import in the future. It’s important to identify if there is growth potential looking ahead.
If demand has currently peaked and the forecast for the next five years is slower or indicates no growth, it can show it may not be the right time to enter that market. Or, on the flipside, if the growth potential is there, it may be time to tap into that demand for your company’s product or service.
The demand indicator can also reveal the Canadian capabilities that already exist in the market. We have conducted analysis that can give you an indication of the existing Canadian footprint, as well as the types of products and services, in a market. It’s not an indicator of overall competition, rather it demonstrates the existing strength of the Canadian brand.
