Opportunities exist in foreign trade if vigilant
International markets still offer opportunities for American firms this year. But if you’re looking to extend your business arm overseas, proceed with caution.
That’s the advice of experts within Firstar-US Bank’s International Banking Group, who shared their insights on five key foreign markets at a recent gathering in Milwaukee.
Most foreign markets, especially the Pacific Rim and South America, are suffering through long-term recessions or destabilization in their economies.
Seiko Callender, the manager for Japan, Australia, New Zealand and the Indian sub-continent, joked that the news from the Far East was so depressing, she had to put a picture of Seattle Mariner Ichiro Suzuki on one of the slides to have one bright note about Japan. (Suzuki, a Japanese native, was the American League’s Most Valuable Player and Rookie of the Year in 2001.)
"It’s so depressing," Callender said of the Japanese economy.
Among the troubles in Japan are 2.5% deflation, a 5.5% unemployment rate – the highest unemployment rate since the end of World War II – and the falling value of the yen. The banking industry in Japan is also preparing for the April 1 removal of the government’s 100% guarantee on banks’ deposits, a move that could trigger massive savings withdrawals and loan defaults as high as $1 trillion.
"Despite all that, opportunities still exist," Callender said, noting that it is easier for foreign companies to enter the Japanese markets. "But US companies may want to start asking for letters of credit."
The US recession has had a significant negative impact on many Asian economies such as Singapore, where the economy relies heavily on outside markets. Taiwan is also in the midst of a recession, as its economy relies heavily (30% of all exports) on information technology, said Thomas Taylor, the manager for Greater China and Southeast Asia region for the bank. Taiwan also suffers from the ongoing transfer of manufacturing facilities to mainland China.
"Taiwan used to be known as Formosa," Taylor said. "Formosa meaning ‘beautiful land.’ People with dark senses of humor are starting to call it Formosa again because all of the factories and pollution are moving to China."
Taylor warned the audience of massive banking consolidations taking place in Taiwan, saying that if doing business in Taiwan, business owners should make sure they know whom they are dealing with.
The brightest spot in Asia is China, according to Taylor. Despite the communist government, China’s economy is becoming increasingly reliant on market-oriented policies. Its economy grew at a robust 7.1% in 2001 and is expected to do the same, if not better, in 2002. China’s acceptance as a member of the World Trade Organization and being the host country for the 2008 summer games (in Beijing) makes the medium-range forecast positive as well. Taylor also noted that although Western companies are more advanced in business savvy, the knowledge gap is narrowing.
One of the biggest problems in doing business in China is getting through the maze of regulations that Taylor said most Chinese don’t even understand, but he tempered that by saying it’s getting easier to cut out the middleman in the distribution of US products.
Don’t cry for me, Argentina
Four years of recession overtaxed the banking industry in Argentina resulting in a multitude of bad loans and the collapse of its economy. The government has stepped in and isn’t allowing the withdrawal of funds out of its banking system, giving many foreign investors, including Spanish banks that have significant investments in the country, pause.
"How many people here want to do business in Argentina?" joked Susana Gonzalez-Murillo, the manager of US Bank’s Latin American and Canadian operations. When no one raised a hand, she said: "Good answer. Who would invest in a country where you can’t get your money out if you want to?"
Argentina’s failure is bound to affect other Latin American countries, including neighboring giant Brazil, which sends approximately 8% of all of its exports to Argentina.
However, Gonzalez-Murillo said, Brazil’s future looks fairly optimistic due to fiscal prudence and a continued commitment to reform. That formula has kept it within International Monetary Fund targets, and the country has managed to turn a $748 million trade deficit in 2000 into a $2.6 billion trade surplus in 2001. Contributing to the trade deficit turnaround are policies that protect local industries, making it harder for foreign competitors to enter the Brazilian markets.
Gonzalez-Murillo said of all the Latin American countries, Mexico represents "a safe haven for investment." The Mexican economy is inextricably linked to the US economy, although it has negotiated free-trade agreements with other countries, as well.
That’s not to say that everything’s sailing along in Mexico, however. The country still suffers from high poverty levels and uneven growth, and the opposition party in the Mexican Congress has modified President Vincente Fox’s tax reform agenda. The new taxes – enacted because of sagging oil revenues – could stunt growth by reducing available capital and domestic consumption.
As for Europe, the implementation of the euro as the currency of choice in 12 countries could help US companies in Europe cut down on transaction fees, but the use of the euro is more of a political move than anything, said Zlata Degtjar, manager of Europe, the Middle East and Africa for the bank. The European economy should have a gradual recovery from near recession in 2001, but problems in France and Germany – where bankruptcies number approximately 1,000 a week – could hamper the European economy as a whole.
February 15, 2002 Small Business Times, Milwaukee
