International Trade: BRICS are not the only export building blocks

THE BRICS economies attracted a lot of attention since the phrase was coined in 2001, but attention has now moved forwards – and back.

“More and more of my clients which are looking to trade internationally are open to trading and establishing entities outside the BRICS countries,” says Josh Wong, partner at DLA Piper in Leeds.

“It is fair to say that a lot of our clients around Yorkshire are looking around territories other than just the mainstay emerging markets. Africa is a place that’s received a lot of interest and businesses are also looking at South East Asia and fast growing economies such as Vietnam and Cambodia, not just China, or India which are more established trading jurisdictions.

“I get a sense there’s a confidence from Yorkshire business to start looking at these newer economies and not to go down the well-trodden route. The advice our clients demand on trading issues has also been much more sophisticated.”

Tapping into these other economies is due to a number of things, including ease of travel – more available flights and less visa restrictions for example, Wong says.

Regulations in relation to trading have also become less strict, he adds. “One stark example is Burma, which in the past has had huge restrictions due to the regime, but it is now opening up very quickly with lots of interest from UK businesses,” Wong says.

“There are also improvements in infrastructure in places like Cambodia and Vietnam that are catching up with what is in place in China and India.”

Wong explains that there is also a feeling that costs are increasing when doing business with the BRICS countries.

He says that this is a common pattern as countries become more mature. China, for example, is now keen to be seen as an innovator that adds value and quality to products, moving away from low-end manufacturing.

“China is also becoming a richer country so there are higher salaries, which adds up to higher costs,” Wong adds. “But even though China as a whole is more expensive now, there are certain provinces in China that remain competitive and do have very good opportunities for foreign investment. So, there are still plenty of areas in China where businesses can find opportunities.”

Richard Williams, international and corporate tax partner at Deloitte in Leeds said that although BRICS are still major markets, he’s not seeing as much investment in those economies as he used to.

“For example, there seems to be more activity in the US which is coming back in vogue,” Williams says. “It’s good for companies who might be looking to expand outside of their core market but in foreign territories which are arguably better known.”

Wong agrees. “If a client is not necessarily looking at taking a risk in an emerging market, then looking to invest in Europe or the US is a really good option,” he says.
Williams described the BRICS as the “obvious” growth engines. “We shouldn’t forget about the BRICS countries, but there are other markets opening up now,” he says. “There shouldn’t only be a focus on the BRICS countries anymore. Other territories are just as viable, such as Vietnam, despite not being as developed as the BRICS.”

He added: “There is definitely growing activity across Africa and some people have said perhaps Africa is the new BRICS.”

“Also look at the Latin American markets – places like Chile, Peru and Argentina are providing opportunity. The world is opening up – countries which people haven’t been looking at in the past are starting to become much more talked about.”

Mark Robson, UKTI’s regional director for Yorkshire and the Humber, agrees. He says that businesses are finding opportunities in many more markets.

“Everyone was talking about China, then it was India, Brazil, and now Africa, Indonesia and Vietnam. As places become wealthier and the problems of doing business are ironed out, people realise you can get opportunities there.

“But remember, it depends what sector you’re selling into. Most companies looking to sell into Indonesia and Africa are mostly selling infrastructure and building materials for example.”

Robson says that companies should be open to looking at alternative cities, too – not just the obvious ones.

He says: “If you keep going to the same cities all the time, you have a lot of competition but there might be another city 100 miles away that has opportunity. It’s worth thinking more broadly and thinking what the opportunities are. Do you just wait to go to the one place in China or do you go to other places, too?”

Despite uncertainties around the European market, Andrew Coticelli, a partner at Deloitte and its head of tax in the North, highlights the opportunity of staying closer to home for Yorkshire exporters.

“If you look at Europe – it is quite a flat economy there, so for UK exporters,
Europe is a vulnerable area,” he says.

“Nevertheless, there are obvious export opportunities in Europe, because the culture and the regulatory aspects are a lot more familiar.”

He says that although Europe isn’t seen as an obvious area where you can increase your margin, it is a market which is more certain and will ultimately lead to growth.

“Regulation in Europe is more similar to what we have in the UK and so for groups where it is an obvious opportunity, they should absolutely focus on it,” he says.