Small Companies Finding Growth in Emerging International Markets
As the world economy begins to recover from the recession of the past five years, a glimpse of changing global economic indicators highlights the growing importance of exports to American entrepreneurs and small businesses. The overarching trend is this: emerging economies were less affected by the economic slump,1 and there appears to be significant growth opportunities for entrepreneurs willing and able to compete in these markets. So, while there will continue to be sluggish domestic growth in an increasingly globalized world, emerging growth markets hold significant potential for domestic enterprises, both in the short and long term.
This year, the American market is projected to grow 2 to 3 percent, with similar growth rates in the European Union.1 In emerging markets — especially India and China — projections indicate growth of at least twice that rate.1 Rapid increases in economic growth are supporting a similar increase in the consumer base; the middle classes in these markets are projected to double over the next 15 years.1 Anemic growth in the American market shows that establishing a presence in foreign markets is not only beneficial for businesses — in the long term, it is essential.
Build with BRICs
While domestic growth in the U.S. was about 3 percent in 2011, American exports grew more than 14 percent during the same period.2 In addition, U.S. exports are expected to grow similar amounts year-to-year for the next five years.2 Furthermore, the global economy is undergoing a paradigm shift: in the past, the economy has been dominated by the American and, to a lesser degree, European consumers and markets, but continuing into the immediate future, the global marketplace will consist of more diverse consumer preferences.
Growth trends in Brazil, Russia, India, and China — the “BRIC” countries, as they are commonly called — are causing much of this market diversification. Combined, they already possess a quarter of the world’s gross domestic product, and are projected to experience average growth of 6 to 7 percent for the next 10 years,3 accounting for a majority of GDP growth. Add the size of their population to the economic trends, and the picture becomes even more imposing: the BRIC countries encompass a quarter of the planet’s total land area and almost half of its population — a total of 3 billion people, over half of whom live in the rapidly-expanding urban areas. By 2020, it is widely expected that each of the BRIC countries will be in the top 10 economies; many believe that by 2030 they will eclipse the G7, with Russia and Brazil supplying the world’s largest gross volume of raw materials, China supplying the largest share of manufactured goods, and India providing the largest supply of services.4
The rapid economic growth in these countries is stimulating similar growth in the wealth of their population, producing unique consumer bases with individual product preferences. The middle class accounts for most of a market’s consumption, and company offerings are tailored to their preferences. Today, America holds nearly one-third of the world’s consumer market and is more than three times the size of the closest competitor.3 This means product development and design efforts of major global companies are driven largely by the American market and consumer demands. In the future this will not be the case, as in 20 years it is expected that two-thirds of the world’s middle class (and, therefore, consumer base) will reside in Asia4 and not North America or Europe.
Export opportunities for small companies
This change in consumer demographics will create many market opportunities, while simultaneously creating threats to current markets. The American market, while still realizing modest growth, will see competition increase for many products in its domestic market. For U.S. companies already exporting, or those nimble enough to develop plans to do so, the relatively anemic domestic growth can be augmented with growth in foreign markets.
Small size is by no means a disadvantage to businesses interested in exporting. In 2009, almost 300,000 small companies exported from the U.S., comprising 97 percent of all American exporters, with export revenue surpassing $300 billion.5 It is estimated that these small companies manufactured components worth approximately 50 to 65 percent of the value of all goods and services exported from the U.S.,5 either through direct or indirect exports from their supply chain.
The world marketplace is changing, and with the changing marketplace comes a changing consumer, moving from a largely monolithic, U.S.-driven consumer base to a diverse, multinational, multicultural consumer with many ethnic and local design and purchasing influences. The preponderance of economic growth will be in markets outside the U.S. and the EU. Companies both large and small that want to optimize opportunities for growth in the current decade, should be evaluating ways to access and participate in markets outside the American-European megalith. Many U.S. entrepreneurs are already doing just that, and finding that their smaller size is an asset, not an impediment, for competing in the nimble manner required by today’s shifting markets.
- International Monetary Fund: World Economic Outlook, October 2012, Projections Table 1.1, page 8
- The Rise of US Exports, by Greg Fisher. Forbes, April 18, 2012
- Goldman Sachs Global Economic Paper No. 192: The Long-Term Outlook for the BRICs and N-11 Post Crisis, December 4, 2009.
- Goldman Sachs Global Economics Paper No. 208: The BRICs 10 Years On: Halfway Through the Great Transformation, December 7, 2011
- 2011 National Export Strategy: Powering the National Export Initiative, Trade Promotion Coordinating Committee and the National Export Initiative, Washington, D.C. June 2011