Manufacturers & Distributors ARTICLE -

Emerging Markets May Be Key to Growing Your Customer Base

Target Audience: Manufacturing and Distributing Companies, M&D Industry

Did you realize that new customers might be living halfway around the world? Even though offshoring manufacturing facilities in developing countries is nothing new, manufacturers typically have exported finished products out of developing countries for sale elsewhere.

But now many of these same countries have seen their own economies expand in recent years, creating a prime opportunity for manufacturers to expand their customer bases. Because of this development, it may be worth the time to consider expanding into emerging markets.

Where are the emerging markets?

Key emerging markets include Brazil, Russia, India and China. These countries’ mounting spending power, focus on infrastructure improvements, and growth in industries such as mining and large-scale agriculture have spurred a need for all types of manufactured products.

Manufacturers may find additional growth opportunities across the rest of Latin America, Eastern Europe, Southeast Asia, the Middle East and parts of Africa.

How can you connect with customers?

Options for capturing customers in emerging markets include:

Exporting. If you export your goods, you can establish a sales office within the emerging market, fulfill orders by mail or work with an intermediary who finds customers for you. While this approach minimizes your financial risk, you may not learn your new market’s needs — or how to cater to them to increase sales — as well as you would with a more direct overseas presence.

Licensing production to another company. This can be a good strategy for businesses with scarce financial resources. But it also can cap your potential profits, because you’ll collect only a royalty on sales.

Forming a joint venture with or acquiring an established company in the emerging market. These can be good compromises for companies that are ready for a significant commitment but want established local expertise to guide them through the process. Startup costs can be hefty, but you can save on import taxes and international transportation costs.

Launching a physical operation of your own directly in the emerging market. This demands the biggest financial investment — unless you already have a manufacturing facility in the country — but can have big advantages, too. Committing to a market by creating local jobs can help foster goodwill among your potential customers, and some countries may offer you tax incentives to open up shop. While traditionally low labor costs in developing countries may rise as these countries continue to mature, the skill level among job seekers in these markets is also growing.

Are you prepared to make the move?

Before you expand, you need to understand the market. Talk with other companies in the area, potential customers, dealers and distributors, bankers, consulates, and local government authorities to get a handle on the financial, cultural, legal and political landscape.

You’ll also want to crunch the numbers on your various options, including transportation costs, wages for workers, construction and financing for a new site. The price, benefits and risks vary for each option, so conduct a careful analysis to find the best way to accomplish your goals.

In addition, going multinational means navigating some complicated tax issues, including transfer pricing between your U.S. and foreign operations, income and other local taxes in your new market, and your foreign operation’s organizational structure. Developing strategies to minimize your taxes in the United States and abroad will go a long way toward your financial success.

Patience required

Find out how our M&D accountants can add value to your business. Email us or call us at 1 (888) 875-9770.

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