Are emerging markets too risky?

A new survey has found despite their potential for growth, emerging markets are seen as risky by SMEs.

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Last Updated: 15 Apr 2011
With David Cameron jetting off on trade missions to India and China (not to mention that questionably-timed trip to Egypt), the Government has been falling over itself to push trade with emerging markets as a way to stimulate growth. And not a moment too soon, given that the trade deficit rose to its highest level since 2005 in December. But now a survey has found that small businesses have yet to replicate that enthusiasm for forging relationships with emerging markets, preferring instead to focus on trading with more established economies, which are seen as less risky. So the Government’s plans don’t seem to be running quite as smoothly as it had hoped.

According to the survey by financial and professional services company TheCityUK, which spoke to more than 500 small businesses, almost a third plan to focus most of their trade efforts on other EU countries, while 16% are looking to the US and Canada as their main growth markets. That’s compared to 11% who are planning to export to China, and just 9% who want to move into India.

Those figures come across as rather puzzling, particularly when you take into account that World Bank figures have estimated that growth in China and India this year will top 8%, while it languishes below 3% for Europe and the United States. But businesses say that developed markets are easier to trade with: in fact, a survey last week showed that in emerging markets, cultural and language barriers (which tend to be more pronounced in less developed economies), as well as red tape and, crucially, exchange rates, can all be off-putting.

So what can the Government do? Well, in that survey, 15% said they wanted more information on markets and competitions in the countries they’re planning to trade with, while 16% said they wanted more access to finance. Earlier this month, the Government published a Trade and Investment White Paper, which set out plans to provide state-guaranteed loans to back exporters, as well as extending the Export Guarantee Scheme for those sending their goods outside the EU. Not much mention of advice services, though.

TheCityUK points out that while those cultural barriers can be daunting, emerging markets ‘represent the most exciting prospect of a profitable future’. But there’s no question that less talk and more action on the Government’s behalf would help…  

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Strategy Misc

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