Lots of smoke....is there fire?If you've read the news over the last several weeks you couldn't have escaped the increasingly frequent (and often dire) references to emerging markets currencies and their plummeting valuations. Many pundits have even gone as far as to predict that export growth from the US will cease (as lower foreign currency increases the local cost of goods denominated in USD) and project possible repeat of the near global economic disasters of the LTCM crisis in '98 triggered by a Russian default, and the Asian (mostly ASEAN) currency crisis of the same period.
Those are big, scary implications for a global economy that is likely less resilient today than it was in the late 90s.
But remember as well, the incredible growth and strengthened economies that emerged in Thailand, S. Korea, Indonesia and other neighboring countries. There can be great value created from such turmoil.
It won't be a local market catastropheEmerging markets are growing. That's incontrovertible and essentially irreversible. Whether you should bet your 401K on 5.5% vs. 8.2% annual economic growth is between you and your financial advisors. But that's not the appropriate gauge for your export market involvement as a US manufacturer.
In Sarah Max's (@SarahvonMax) interview with Lewis Kaufman of @ThornburgFunds (Barron's 3 Sept 13) he presents both a compelling investment case, and also a critically important perspective for US manufacturers. "While many emerging market nations will undoubtedly need to 'take their medicine' he says, domestic consumption in these countries is still growing much faster than in the developed world...'Domestic demand is the essence of the emerging market story.'"
In fact, just the oppositeThat's the important bottom line for US manufacturers to remember. Amidst the kerfuffle of record low rupee and potential inflation in Brazil, the fact remains that enormous new communities of consumers clamor for products. These aren't folks debating whether to upgrade their 50" LCD to a 70" plasma, but rather ready to buy a 3rd set of clothing, a couple more candy bards and maybe an AC unit.
In other words, this local consumption, in an economic environment of rapid growth - often north of 5% even amidst challenges - can drive substantial export growth for American manufacturers with the vision and determination to enter emerging and frontier markets. (Want more daily info? follow @Shuli_Ren - Barron's daily emerging markets blog author)
Hunker down or double down?Intellectually it's easy to acknowledge that currency cycles happen just like business cycles. But emotionally it's tougher to watch your market development efforts punished by circumstances you can't control. So periodic review of strategic objectives is important to help maintain perspective.
As long as the imperative for growth remains intact, and diversification across growing global emerging markets remains an element of the growth strategy, then local slowing can also represent an enticing opportunity.
Turmoil in the market could be the perfect time to accelerate your market entry with a bold strategy of acquisition or JV (joint venture.)
Organic growth vs. local acquisitionSMBs often default to an organic export growth model, typically through distribution sales channel. That's often appropriate; carries low risk; works consistently if properly and expertly executed; and retains flexibility to respond to shifting market priorities.
But....that predisposition often precludes companies exploring other viable options for market entry and rapid growth. Acquisitions (where local majority ownership by US entities is allowed) and JVs are both appropriate vehicles for not only entering local markets but also achieving rapid growth - perhaps with accretive earnings contributing immediately to corporate profitability.
These offer a number of other potential benefits too, including relief from trade barrier tariffs and existing strong, local relationships so important in many markets. Strategically selected, the target will also open up an immediate body of prospective customers with an opportunity for a shortened sales cycle.
Worry free?Not quite - as though the rest of your business life is, right? Due diligence for any such transaction is complicated and can be expensive. Add gray areas inherent in international transactions of privately owned businesses (e.g. black/cash vs. white/tax reporting accounting common to many markets and exposure to inherited FCPA exposure) and it's even more complicated in this scenario.
But it's also increasingly common, and the skills and experience necessary to make an informed decision, quickly, is increasingly available to SMBs for reasonable fees.
The bottom line is that economies follow cycles. But down cycles in rapidly growing economies still offer compelling growth to US manufacturers willing to pursue it, and may open up more exciting strategic opportunities for rapid and meaningful local growth through an M&A strategy. But none of it happens sipping on a latte or answering email. It takes vision and proactive action.
Can you? Will you deliver for your business?