Analysis of countries such as Myanmar, Vietnam, and Cambodia, prove that emerging markets are popular again, as suppliers are increasingly flocking to these new manufacturing hubs. Small, independent suppliers within emerging markets offer great benefits to established retailers in developed markets, and the relationship is one that is valuable and extremely worthwhile for both parties.
These countries are noticing exceptional increases in the manufacturing sector, a change that can be attributed to both foreign investment and economic reforms.
Myanmar has experienced a GDP growth rate of 8.05%, and is continuing to rise due, in part, to it’s convenient spot between huge marketplaces, India and China.
Growing industrial output and increased exports are also being witnessed in Vietnam and Cambodia. In the first 10 months of 2016, Vietnam reached $143 billion in exports. In 2015, Cambodia’s garment exports were valued at about $5.7 billion, an increase of 7% from 2014.
As these emerging markets grow, China, who is normally the go-to country for manufacturing, is noticing some of the fastest sector decreases in several years.
So, why are retailers taking their business elsewhere?
First, countries like Myanmar, Vietnam, and Cambodia are able to produce goods at a lower Cost of Goods Sold, meaning that it will be cheaper for retailers to tap into these markets.
Additionally, the product quality of those produced by these emerging markets is often higher, therefore allowing the supplier to cater to the retailer better in both cost and quality aspects.
Clearly, building relationships in emerging markets is a win-win for both parties, but gaining the relationship requires strategy and is often difficult.
For leading retailers, manufacturers, and wholesalers, tapping into these up-and-coming markets poses an issue because of international finance restraints, such as bank limitations and difficult payment terms. Suppliers struggle to provide quality payment terms and have issues securing local funding as financial systems are underdeveloped. Other obstacles that emerging markets must overcome are excessive government intervention, bribery, and corruption.
How can retailers, manufacturers, and wholesalers overcome these concerns and build a relationship?
Suppliers in emerging markets need to be paid immediately upon shipment, or their business could be crippled. They’re unable to offer delayed payment terms, making them a risky investment to buyers.
Oppositely, some suppliers may be unable to produce high-quality goods without upfront payment due to lack of cash flow.
These issues create problems for both players but ultimately affect the supplier more than the retailer.
To combat them, some companies are offering short-term loans to these suppliers. This method is commonplace in developed markets, but rare for emerging markets because of the risk associated with it.
Independent international trade finance providers can supply financing options with no risk or cost, allowing new supplier relationships in emerging markets to become fruitful. These providers can pay the supplier and offer delated payment terms to the buyer, allowing both sides to get the relationship and outcome they want.
Finance providers are gaining a huge amount of support in Vietnam, and other emerging markets, and are helping to perpetuate its status as one of the fastest growing economies in the world.
The decision to work with emerging markets may seem risky to retailers, manufacturers, and wholesalers, but it’s possible despite the challenges. Both parties benefit exponentially from the partnership, and it even aids the economy of the emerging market country.
What to Read Next: