Potential World Markets - Case Study Example

Clarke Gittens 13 December Export Market Selection Singapore, a relatively small independent republic lying off the Southerntip of the Malay Peninsula, is a major exporting centre for much of South East Asia’s agricultural and industrial products. (Universal dictionary), rice being one of the major agricultural commodities. The basic assumption of this study is that rice would be high on the list of priorities for Singaporean firms engaged in or entering the export trade, because it is in demand as part of the staple diet of many countries. This study posits that a small (imaginary) firm based in Singapore, wishing to trade in rice, is considering potential world markets. They are considering five possibilities: Brazil, Ghana, Saudi Arabia, Vietnam and the United Kingdom, considering market characteristics such as , political, financial/economic legal and social conditions, which will be briefly described and evaluated in terms of the product. Assuming that the cost of shipping a large volume cargo would factor in their considerations, the possible markets will be considered in order of increasing distance from Singapore. 1. Vietnam Communist ideology has a strong political influence; “Vietnams political culture has been determined by a number of factors of which communism is but the latest. The countrys political tradition is one of applying borrowed ideas to indigenous conditions… Vietnams political processes… incorporate as much from the national mythology as from the pragmatic concerns engendered by current issues.” (Vietnam’s Political Culture China has long had significant influence in Vietnam, which applies the ideology of Mao Zedong and that of Russian Communism. “In legal procedure, bureaucratic practice, and industrial management, the Vietnamese system more closely resembles the Soviet system than the Chinese... but ...Vietnamese policies and institutions, rather than adhering strictly to either Chinese or Soviet models, have tended to be essentially Vietnamese responses to Vietnamese problems.” It is also evident that “Vietnams political culture, … has contributed to its comparative isolation from non-communist states. This isolation is partially a result of the ideology that has created … political barriers with the West,… it also (stems from) the collective mentality of the nations leadership, which views itself as set apart from communist as well as noncommunist nations.”(Ibid). Economically, Vietnam is … a developing market. (Wikipedia), although “since the mid 1980s, … Vietnam has shifted from a centrally planned economy to a Socialist-oriented market economy.” This has resulted in rapid economic growth, and today “Vietnam is … a leading agricultural exporter…” (Ibid) In 2009, the nominal GDP reached $92.439 billion, with nominal GDP per capita of $1,060,” … it is expected that by 2025 Vietnam will have the 17th largest economy in the world.” (Ibid) This could make Vietnam an attractive target market, but since Vietnam’s economy is a still firmly based on agriculture, and they are one of the biggest producers of rice in the world, producing a total of around 40 million tons of rice a year.(Wikipedia), enough for their own requirements and massive exports. (Sarian). As if to make the market even less attractive, “Imports into Vietnam currently attract an average tarriff of about 18%, (which is) high by global standards.” (Wikipedia). It is thus not feasible to consider exporting rice to Vietnam. They are placed last on the list. 2. Saudi Arabia Saudi Arabia, the third-largest country in Asia, has both positive and negaative market features. They have an absolute monarchy; the King is head of state and of government, although “decisions are generally made after consultation among the senior princes … the King functioning as primus inter pares and ultimate arbiter… “ The constitution of Saudi Arabia is based on the Quran, interpreted by strict Sharia principles. There are no political parties. (Wikipedia) The Islamic culture and laws of Saudi Arabia forbid Saudis to eat pork or drink alcohol, but most other foods are allowed, as long as they conform to the religious requirements of Halaal. (Ibid) Many Saudis are descended from ancient tribes of nomadic shepherds, and maintain much of their heritage. “Traditional foods like dates, fatir (flat bread), arikah (bread from the southwestern part of the country), and hawayij (a spice blend) are still eaten by Saudis today, although most Saudis have settled in towns and cities and no longer follow the nomadic lifestyle.”(Food in every country) Economically, the discovery of oil in the 1930s resulted in major economic and social changes, enabling Saudi Arabia “to become modernized and to … develop stronger industries in … areas such as agriculture... Foreign workers … maintain the new industries, and foreign foods as well as fast food chains are now available in Saudi Arabia. However, it is mostly the foreigners who eat those foods; most Saudis prefer traditional fare.” (Ibid) There are few exports from Saudi Arabia other than oil, but the Purchasing Power Parity (PPP) for 2009 was estimated at $23.429 per capita. (Wikipedia) Consumption of rice in Saudi Arabia is relatively low. In an effort to assist the poor, imports of this commodity were subsidized, but in November 2009 the subsidies were abolished, because “foreign exporters have been taking advantage of them to increase prices,” (Trade Arabia) Although it appears that rice is not highly regarded by the authorities, and no significant growth in demand is predicted, this is a stable country, and it is assumed that Saudi Arabia would be placed third place in the list of possible markets. 3. Ghana: The Republic of Ghana is in West Africa; and shows some market potential. Politically, and economically this is a relatively stable country (in comparison with many other African countries. Ghana gained independence from The United Kingdom in 1957. (Business Africa), although a BBC report says that it was only in April 1992 that a constitution allowing for a multi-party system was approved in a referendum, ushering in a period of democracy. …“A well-administered country by regional standards, Ghana is often seen as a model for political and economic reform in Africa.” (BBC) This view seems well-founded, as Ghana has shown remarkable growth. In 2003 the population was 20,467,747 with an expected growth rate of about 1.45%. (Ibid). The GDP increased at an average 3% yr in 1980 – 90. From 1990 – 2004 the average was 4.4%. In 2005 it was 5.9% and 6.3%.in 2007. (Africa South of the Sahara). However, Ghana is still dependent on international financial and technical assistance, and for the past decade the country has received constant support from international financial institutions such as IMF and the World Bank. (Business Africa) The economy is dominated by agriculture, which accounts for 36% of GDP and employs 60% of the work force, mainly small landholders. Ghana is one of the world’s top three producers of cocoa and coffee, and also produces, rice, cassava, peanuts, corn, shea nuts, bananas and timber. The government is committed to moving the country away from dependence on cash crops, to “diversify the economy.”“(Ibid). Rice is a staple diet throughout most of the country. “Ghanaians enjoy a rather simple, but flavorful cuisine. The majority of meals consist of thick, well-seasoned stews, usually accompanied by such staple foods as rice or boiled yams.” “(Food in Every Country). In 2005 Ghana was 35% self-sufficient in rice production, the average 150,000 tonnes being supplemented by annual imports of between 350,000 and 400,000 metric tonnes. (Ghana Business News). The ministry of Agriculture claimed that this had “negatively affected the country’s balance of payment position.” However, tariffs on imported rice, (which were then at 20%), “would not be increased” as these were “passed on to the consumer.” Instead, a program to increase local production of rice was to be implemented to reduce the country’s reliance on imports. (Ghana Business News). Another disturbing factor, which could influence evaluation of this market, is that in September, 2010 it was reported that rice importing companies in Ghana threatened to close or relocate to Abidjan if measures were not put in place to save them from collapsing, because smugglers were bringing rice from Ivory Coast, a phenomenon, they said, that affected the rice importing companies and also local rice production. It was estimated that smuggling was costing the country about $40 million a year. The companies blamed this on high import tariffs on rice,(37% in Ghana, and only 12.5% in Ivory Coast.) (Ibid). The fact that the minister of food and Agriculture was unsympathetic, saying that it would be to the benefit of the country if rice importing companies did close down, would not have been welcomed by would-be rice suppliers, so this market would be placed fourth on the list. 4. United Kingdom The United Kingdom is a much more attractive market. Politically stable, with a limited, constitutional monarchy in which The queen is head of state, while the Prime Minister of the UK is head of a government that has executive power. “The UK has long had a multi-party political system, and since the 1920s, the two largest political parties have been the Conservative Party and the Labor Party, ... the … electoral system …tends to maintain the dominance of these two parties, though each has in the past century relied upon a third party to deliver a working majority in Parliament.” (Wikipedia) This market is partially influenced the European Union.. (Their) membership… has long been objected to over questions of sovereignty. (Wikipedia) The UK has a sound economy, being highly industrialized, and considerable income coming from the City of London …one of the worlds largest financial centers. (Wikipedia) “The UK Economy ranks sixth in the world in terms of export of commodities and services.” (Economy watch). Agriculture is intensive, highly mechanized, and efficient … producing about 60% of food needs with only 2% of the labour force, and contributing around 2% of GDP. Agriculture is heavily subsidized under the European Unions Common Agricultural Policy. (The United Kingdom, Import and Export). Staple foods are meat, fish, potatoes, flour, butter and eggs;. (British Life and Culture). But, “Over the last century, eating habits in Britain have changed dramatically. Our diets have been influenced by all kinds of factors: by the technologies in our kitchens, by the modes of transport supplying our shops, by the media and the government and by trade and migration. (British Library Board). A survey conducted by Kingston Business School in 1993, showed that rice consumption in the UK was increasing at the rate of 5% per annum. Growth in this market was being stimulated through the introduction of new products. Another study says, “…technological changes along the food supply chain, structural changes and growth in large-scale retailing, as well as the expansion of trade worldwide have contributed to a rapidly changing market for food products. (Trends in consumer preferences and food safety) A paper “The rice market in the EEC” published in the same year indicated that the UK was importing some 247 000 tons of rice a year. It is difficult to obtain more recent information from the web, but it can be safely assumed that rice imports would have continued to grow, as shown by a 2010 assertion that “The UK is the leading rice importer in the EU.” (CBI) These factors combine to make the UK a very attractive market, with good prospects of expansion. 5. Brazil Brazil, on the East Coast of South America, is politically a “federal presidential representative democratic republic,” with the President as head of state and of government, and a multi-party system in operation. Executive power is exercised by the government, while Legislative power is vested in the government and a two-chambered National Congress. (Wikipedia) Economically sound, Brazil is regarded as an upper middle income country. It is experiencing rapid socioeconomic shifts, with rural to urban migration, increases in the size of the middle class, and improvements in the distribution of income, all of which are presenting new challenges to Brazil’s farm sector. (Choices) The World Bank classes Brazil as an “emerging country,” based on its large population, resource base, and market, and also uses the appellation, “upper middle income country.” In 2008 the per capita gross national income was $5,860. (World Bank). Economic reforms after 2003 led to increases in real per capita income, and improved income distribution. Real per capita income increased 14% from 2004 to 2007 …With growth in per capita income; Brazil’s food consumption … has grown steadily from 1980 to 2007 at an annual rate of 0.8% and now exceeds the average for upper-middle-income countries. (Choices). The country has an impressive agricultural performance. From 1996 to 2008, the gross domestic product (GDP) of agriculture expanded by an average 12% a year. (Ibid). However, in March of 2007 the USA Department of Agriculture estimated Brazil’s rice production at about 7.7 million tons, but added that “there is a possibility that there will not be enough production …to meet Brazilian demand this year.(USDA) In 2008, when the world price of rice soared to over R1000/ton, the Brazilian government temporarily suspended exports in order to ensure the domestic supply. (CNBC). This indicates that in spite of Brazil’s agricultural success, there is a strong possibility that it will be necessary for them to begin importing rice. In the final analysis, it seems difficult to choose between Brazil and the UK as primary target market. However, it is assumed that the South American tendency towards political instability would tip the scales in favour of the UK. The final listing would thus be: 1. United Kingdom. 2. Brazil. 3. Saudi Arabia 4. Ghana 5. Vietnam. ================================= References. Web Publications Wikipedia “Economy of Vietnam” 6 Dec. 2010. 9 Dec. 12.2010. Wikipedia “Paddy field.” 4 Dec. 2010. 9 Dec. 2010 Wikipedia “Politics of Saudi Arabia.” 8 Dec. 2010. 9.Dec. 2010 Wikipedia, “Politics of the United Kingdom.” 3 Dec. 2010. 10 Dec.2010. Wikipedia. “The Economy of England.” 20 Nov. 2010. 10 Dec.2010. Wikipedia. “Politics of Brazil.” 6 December 2010. 10 Dec. 2010. “Vietnam Political Culture.” countrystudies.us/Vietnam, n.d. Web. 10.Dec. 2010. “Notes on Vietnam’s rice production.” Mb.com.ph. Sarian, Zac B. 17 Nov. 2010. Web. 9 Dec. 2010. “News: Agriculture and Farming.” Trade Arabia. –8 Dec. 2010. Web. 9 Dec. 2010 “Food in every country – Saudi Arabia.” foodbycountry.com. n.d. Web. 10.Dec.2010 “Food in every country – Ghana.” foodbycountry.com. n.d. Web. 10 Dec. 2010. “International year of Rice 2004.” FAO.org. n.d. Web. 11 Dec. 2010 “Republic of Ghana – Briefs.” Businessafrica.net. 12 Sept. 2010. Web. 8.Dec. 2010 “Ghana Country Profile.” BBC news. 26 Nov. 2010 Web. 8 Dec. 2010 “Ghana Needs Rice Imports to Meet Local Demand.” .ghanaweb.com. 17 May 2005. Web 11 Dec.2010 “Rice importers threaten to leave Ghana.” Adom Online.com. 3 Sept. Web. 11 Dec. 2010 “The United Kingdom import and export.” .economywatch.com/world_economy. N.d. Web. 9 Dec. 2010./ “British life and Culture.” woodlands-junior.kent.sch.uk/customs. Barrow, Mandy. 2010 Web. 11 Dec. 2010 “Changes in Eating Habits” British Library Board. n.d. Web. 11.Dec. 2010 “Brazil.” CNBC.com. 23 Ap. 2008. Web. 11.Dec. 2010 “Brazil 06/07 Rice Update and Trip Report” .fas.usda.gov/psdonline. Mar. 2007. Web. 11.Dec. 2007 “Changes in food consumption in Brazil.” ncbi.nlm.nih.gov/pubmed/limits. de Oliviera SP. June 1997. Web 11.Dec. 2010 Article in an Online Magazine. Valdes, Constanza. Ignez Vidigal Lopes, and Mauro de Rezende Lopes. “Brazils Changing Food Demand Challenges the Farm Sector.” Choices Mag. n.d. Web. 11 Dec. 2010. Article in an Online Scholarly Journal that also appears in Print. A. Hogg, A., S.P. Kalafatis, and C. Blankson. “Current developments in the UK rice market 1994,Consumption and distribution.” Kingston Business School, Kingston University. 1994. Web. 11-Dec.2010. Books: “Africa South if the Sahara 2010 39th edition.” Routledge, London New York. Print. “Singapore.” Reader’s Digest Universal Dictionary. 1987. Print. Read More