7 Oct 2011
HKTDC Research: Notes before sailing to Chile
Notes before sailing to Chile
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 acceptance of small orders.
Start small to finish big
The 17-million-strong Chilean consumer market is small, when compared to such markets as Brazil, Argentina and Mexico in Latin America. To cater to the diverse styles and preferences of the small population, Chilean retailers are used to having in their stores a full spectrum of products, ranging from mostly low-end to a few high-end ones.
Their orders for each single item are therefore usually small. Since their order quantity may not be on a full-container-load basis and shipment consolidation is usually required, the competitiveness of Hong Kong exports will be hampered as economies of scale (i.e. cost advantages) cannot be realised.
To overcome the limitations of a small domestic population, Hong Kong companies are advised to take a regional perspective when trading with Chile. Riding on Chilean enterprises’ extensive business operations and networks that extend across borders, new-to-the-region Hong Kong companies can gain access to consumers in other prospective markets such as Argentina and Peru in the region.
Design without contrivance
Bearing less sense of showing off, Chilean consumers are considered conservative. Given their deeper pockets, however, they are also sophisticated and demanding about the way the goods are designed to perform their functions.
In most cases, Chilean consumers are not unwilling to try less well-known brands, given their better functionality/features and more reasonable prices. This habitual behaviour may make it essential for Hong Kong exporters to strike a balance between quality, function and price, especially when the market size is small for tailor-made product designs.
To enhance the chance of success, Hong Kong companies planning to tap the Chilean market are advised to place their emphasis on practicality and note that fancy designs may not sell well in the Chilean market for the time being (though the demand for luxury consumption is trending up), unless enormous and continuous promotion campaigns are planned to arouse public sentiment.
Standing out from the crowd
Following the signing of the FTA with China in 2006, many Chilean companies, especially those engaged in retail businesses, are interested in direct sourcing. Although some companies such as Ripley have maintained offices and/or buying agents in Hong Kong for years, most Chilean companies now prefer trade directly with indigenous mainland suppliers to save on middleman costs.
For instance, Cencosud and Falabella have set up offices in Shanghai to perform functions like sourcing and quality control, while D&S (Walmart Chile), the largest supermarket chain in Chile, has been using Shanghai as a sourcing centre in the Asian region.
The fast improving quality of indigenous Chinese products, on the other hand, has also further intensified competition by reducing the advantages of sourcing from Hong Kong over indigenous mainland suppliers in terms of quality and design.
To differentiate their products from indigenous mainland supplies, Hong Kong companies can offer products with higher quality/price ratios and provide better services such as accepting small orders or short delivery times.
Thorough exploration needed
Taking an east-to-west flight to Chile can be quite exhausting for Hong Kong companies as it can easily take 30 hours. Regarding shipments, it takes about a month for cargo exported from Hong Kong to arrive at the major ports in Chile, namely Valparaíso and San Antonio.
Logistics control and management may therefore pose overwhelming burdens on small- and medium-sized companies. In addition, comprehensive export financing and insurance will be difficult and expensive to obtain as shipping time and distance are long, perhaps straining the financial supply chain.
Spanish-speaking Chile can create problems when
communicating with business counterparts. In fact, most people on the street in Chile speak only Spanish, although English proficiency in Chile is considered one of the highest in the region.
Granted that the situation is better when it comes to foreign trade business, new-to-the-market businesspeople are advised to hire a reliable interpreter to accompany them to business meetings to facilitate negotiations and avoid undesirable surprises.
To mitigate the inconvenience caused by long flights and the high cost of travel, Hong Kong companies, instead of establishing a direct presence in Chile, can consider the alternative of 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. The most visited fairs last year were the Electronics Fairs (Spring and Autumn editions), Gifts & Premium Fair and Toys & Games Fair.
Trust makes better business
Chilean businesspeople are shy until they get to know their business partners. They prefer to have direct contact with business counterparts, and become more prudent when it comes to decision-making; business deals are usually agreed and concluded in a formal environment.
As indicated by many importers and retailers in Chile, companies planning to sell goods to Chile are recommended to appoint a local sales agent or representative or to associate with a local company. Hong Kong companies can find reliable agents through various Chilean chambers of commerce. Most referred include the Federation of Chilean Industry (SOFOFA).
Given the low level of corruption, there is no need to offer incentives or inducements of any kind, yet it is advisable to include arbitration clauses in business contracts. To better prevent any irregularities, Hong Kong companies can check the commercial performance of their trade partners through, for example, Databusiness Services provided by the Santiago Chamber of Commerce (CSS) before closing deals with Chilean counterparts.
More aggressive Hong Kong companies can make use of the online database maintained by Chile’s Export Promotion Bureau (ProChile) to find contact numbers and addresses of Chilean traders (classified by products) and introduce their products to potential buyers through direct mail as the first step towards longer-term business relationships.