Executive summary
- Having grown at a year-average of more than 5% in the past two decades, Chile, the freest economy in Latin America, has laid solid groundwork for the challenging goal of becoming the first developed economy in Latin America by 2018.
- Progressing with growing incomes and improving living standards, Chileans are ready for quality products from all over the world. This together with their wide acceptance of made-in-China imports presents a shining beacon of opportunities for Hong Kong companies.
- With virtually all imports subjected to a Most Favoured Nation (MFN) duty of 6% ad valorem in Chile, the low entry barrier and the underlying ready acceptance for imports present a lucrative market for exporters of electronics, clothing, footwear, toys and timepieces.
- To overcome the limitations of a small domestic population, Chilean enterprises have an extensive regional presence across borders, which offer new-to-the-region Hong Kong companies a convenient bridgehead to further conquer the large and promising Latin American market.
- On the other hand, Hong Kong has become increasingly an important platform for Chilean wine and fresh produce to grow their business given the increasing affluence in the underpenetrated Asian markets.
- Putting the steadfast outlook aside, to tackle the limitations of a small domestic market and conservative consumers, Hong Kong traders have to go the extra mile in Chile, for instance, by fine-tuning their products to emphasise practicality and to accept small orders.
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Becoming a global economic pacemaker
Brazil, recording the highest annual economic growth since 1986 in 2010, accounts for 40% of the region’s GDP and one-third of its total population, so it is by far the economic powerhouse of Latin America. It has also long been bracketed together with Russia, India and China as among BRICs to dominate world economic growth over the coming decades, and by 2050 outperform many of today’s leading economies which are still struggling with balance sheet repair and austerity measures.
Becoming the first developed economy in Latin America
Having grown at a year-average of more than 5% in the past two decades, Chile, the freest economy in Latin America, offers not only a stable macroeconomic environment – high per-capita GDP (US$12,000 in 2010) and low inflation rate (1.4% in 2010) but steadfast business prospects for foreign traders and investors.
Despite the disastrous 8.8-magnitude earthquake in February 2010 (the sixth strongest recorded since 1900), the Chilean economy triumphed on the back of sustained commodity prices and reconstruction efforts. The hard-fought battle to grow the economy ended last year with an encouraging rise of 5.2%. That laid the groundwork for the challenging goal of becoming the first developed economy in Latin America by 2018.
Small or not small?
One of the most cited drawbacks of trading with the 17 million-strong Chile is its small pool of consumers. However, when one looks at it from the perspective of purchasing power, Chile is by no means a small market. With a per-capita GDP of US$11,800, Chile’s purchasing power ranks only after the much less populated Bahamas, Barbados, Antigua and Barbuda and Uruguay in Latin America.
Perhaps, this is one of the reasons why Chile was third in Hong Kong’s exports to Latin America last year, trailing only the region’s two largest countries – Mexico and Brazil. Accounting for nearly 7% of Hong Kong’s Latin American bound exports in 2010, Chile, in this sense, is a bigger market for Hong Kong companies than such markets as Argentina, Colombia, Venezuela and Peru in the region.
To overcome the limitations of a small domestic population, Chilean enterprises usually have their business operations and networks extending across borders. Taking a regional perspective, Chile, riding on its extensive presence in Argentina and Peru, for example, is therefore never an insignificant market for new-to-the-region Hong Kong companies, but a convenient trading platform to tap the region.
Taking a regional perspective
Given its strong logistics and retail sectors, Chile not only boasts the region’s largest shipping company, but the most sophisticated retail sector. Two of the top-five retailers in Latin America, namely Cencosud (2nd) and Falabella (5th) are Chilean-based, outperforming many of their Brazilian and Mexican peers.
In terms of countries of operation, both Cencosud and Falabella are far more multinational than their Latin American counterparts. For instance, the second-ranked Cencosud operates in five markets including Argentina, Brazil, Chile, Colombia and Peru, while the No.1 Latin American retailer, Pão de Açúcar, focuses only on the Brazilian market.
This extensive regional presence is therefore not only a major reason behind the success of Chilean retailers in overcoming the limitations of a small domestic market, but offers new-to-the-region Hong Kong companies a convenient bridgehead to further conquer the large and promising Latin American market.
Chileans are ready for Hong Kong products
Given its liberal trade regime, virtually all imports are subject to a Most Favoured Nation (MFN) duty of 6% ad valorem in Chile, not to mention the duty-free access afforded to countries with which free trade agreements (FTAs) are signed. The low entry barrier and the underlying ready acceptance for imports present a lucrative market for Hong Kong exports in many respects. To catch up with growing demand, consumer electronics, clothing, footwear, toys and timepieces look set to have the most promising prospects.
Promoting Chilean wine and gourmet foods via Hong Kong
Not only has the privileged agro-climatic conditions made Chile a vitivinicultural paradise in South America, but also a major wine supplier to Hong Kong. Thanks to the reduction of wine duties to zero in 2008, the city has become increasingly an important platform for Chilean wineries to grow their business given the increasing affluence and burgeoning wine culture in the underpenetrated Asian markets. Meanwhile, Chilean fruit and vegetables are also gaining popularity in Asia, presaging greater business opportunities for Hong Kong – the culinary capital of Asia.
Start small to finish big
Although Chile is a liberal market and has been restrained in its use of trade remedies, trading with Chile is not completely challenge-free. To tackle the limitations of a small domestic market and conservative consumers, Hong Kong traders have to go the extra mile in Chile, for instance, by fine-tuning their products to emphasise practicality and to accept small orders.
To mitigate the inconvenience caused by long flights and the high cost of travel, Hong Kong companies can consider using Hong Kong trade fairs and exhibitions as a platform to meet Chilean businesspeople. As an illustration, the Hong Kong Trade Development Council (HKTDC) received more than 950 Chilean buyers at its various trade fairs in 2010, up 52% from the previous year.
