3 Oct 2011
HKTDC Research: Red carpet to the Chilean consumer market
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 opportunity for Hong Kong companies. To stand out and get the “red carpet” treatment to the market, however, Hong Kong companies must first understand the characteristics of their customers.
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$11,800, Chile’s purchasing power ranks only after the much less populated Bahamas, Barbados, Antigua and Barbuda and Uruguay in Latin America.
Perhaps, this is one of the reasons why Chile was third in Hong Kong’s exports to Latin America last year, trailing only the region’s two largest countries – Mexico and Brazil. Accounting for nearly 7% of Hong Kong’s Latin American bound exports in 2010, Chile, in this sense, is a bigger market for Hong Kong companies than such markets as Argentina, Colombia, Venezuela and Peru in the region.
|
Country |
Market size (population, mn) |
Purchasing power (per-capita GDP, US$) |
Share of Hong Kong’s 2010 exports to Latin America (%) |
|
|
1 |
Mexico |
109 |
9,600 |
29.2 |
|
2 |
Brazil |
193 |
10,800 |
27.6 |
|
3 |
Chile |
17 |
11,800 |
6.6 |
|
4 |
Argentina |
41 |
9,100 |
6.3 |
|
5 |
Panama |
4 |
7,600 |
5.7 |
|
6 |
Paraguay |
6 |
2,900 |
5.2 |
|
7 |
Colombia |
46 |
6,300 |
3.0 |
|
8 |
Venezuela |
29 |
10,000 |
2.6 |
|
9 |
Peru |
30 |
5,200 |
2.4 |
|
10 |
Uruguay |
3 |
12,000 |
1.4 |
Source: IMF, Bank of Chile, Census & Statistics Department, HKSAR Government
Moreover, 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.
Targeting the top incomes
Notwithstanding an appreciable improvement in incomes among the lower- and middle-income classes, the overall income distribution in Chile is uneven, with the top income quintile (V) earning more than 55% of the nation’s total income, while the least privileged quintile (I) earning less than 4% of the total.
Earning an income of more than US$400 per month on average, the IV and V income quintiles, which comprise nearly two million households or six million people are expected to add critical mass to Hong Kong exporters’ marketing efforts in Chile and provide the greatest growth momentum in the market.
Income distribution in Chile
|
Quintile |
No. of households |
Population |
Average household size |
Per-capita monthly income |
||
|
Average |
Min |
Max |
||||
|
I |
937,091 |
3,586,875 |
3.8 |
63 |
0 |
117 |
|
II |
937,248 |
3,628,503 |
3.9 |
158 |
117 |
200 |
|
III |
937,748 |
3,407,328 |
3.6 |
253 |
200 |
317 |
|
IV |
936,306 |
3,182,844 |
3.4 |
422 |
317 |
568 |
|
V |
937,097 |
2,777,285 |
3.0 |
1,505 |
568 |
- |
|
Total |
4,685,490 |
16,582,835 |
3.5 |
480 |
0 |
- |
Source: CASEN Survey 2009, MIDEPLAN
Aside from earnings, another characteristic of these higher-income groups is their smaller-than-average household size. The smaller household size has led to smaller demand for economy- or family-size household items, while the smaller number of children has prompted these well-off consumers to trade up to premium baby and children’s products such as educational toys and clothes to pamper their children.
Showing exuberance in practical ways
Looking at spending patterns, Chileans, after paying for food, beverages, tobacco and housing, are estimated to have spent more than 60% of their income on various goods and services in 2010. In line with their high demand for home improvement and personal care, household goods and services, healthcare and clothing and footwear accounted for nearly 30% of total household spending in Chile. This compares with roughly 13% in Brazil, and is almost double that of Peru.
Household spending patterns (2010)
Source: Euromonitor
Bearing less sense of showing off, Chileans, in general, are conservative in making purchases. They prefer practicality to fancy design and simple outfits to elaborate costume, except for a few items such as consumer electronics including smartphones, interactive digital TVs (iDTVs) and cross-platform multimedia players.
That said, even for hi-tech gadgets such as smartphones which are fast gaining in popularity in the country, most Chilean consumers don’t mind buying and using alternatives from Asia as lower-cost substitutes, given the latter’s comparable quality and functionality.
On brand preference, it is not uncommon to see Chilean consumers choosing less-
prestigious but more reasonably-priced brands as substitutes for premium brands. While this may dampen demand for luxury and high-end products, it gives Hong Kong’s mid-ranged exports plenty of room to grow, especially when Chileans make functionality and quality the top priority.
Don’t miss out RM when counting I to XV
Home to 40% of the country’s population and almost half of its aggregate output, Santiago Metropolitan Region (Región Metropolitana de Santiago or RM) is the smallest yet the most important and densely populated region of all the 15 Chilean regions.
The RM region not only contains the capital, but the business hub and the largest consumer market of Chile. As a consumer base, it represents the country’s most modern retail landscape, where most of the pricey and chic shopping malls, department stores and chain stores are clustered, including the ongoing development and construction of the US$500-million Costanera Center complex that houses Torre Gran Costanera – the tallest building in South America.
Concerning logistics, RM has the most advanced transportation and telecommunications infrastructure in Chile. It is home to the country’s busiest airport, Arturo Merino Benítez airport (SCL), which is considered one of the most efficient airports in Latin America, and is only two hours’ drive from the country’s most important trading ports for consumer goods – the Port of San Antonio and the Port of Valparaíso.
Riding on its strategic position, RM has attracted many prominent companies, such as Packard Bell, IBM, HP, Panasonic, LG, Zurich, Dodge Mining Services, Procter & Gamble and Nestlé, to set up production facilities, headquarters and representative offices to serve the regional market, oiling the wheels of business networking and negotiations.
Population distribution, by region (2010)
|
Region |
Name |
Capital |
Population |
|
|
I |
Tarapacá |
Iquique |
293,200 |
|
|
II |
Antofagasta |
Antofagasta |
575,268 |
|
|
III |
Atacama |
Copiapó |
280,543 |
|
|
IV |
Coquimbo |
La Serena |
718,717 |
|
|
V |
Valparaíso |
Valparaíso |
1,759,167 |
|
|
VI |
Libertador G. B. O’Higgins |
Rancagua |
883,368 |
|
|
VII |
Maule |
Talca |
1,007,831 |
|
|
VIII |
Bíobío |
Concepción |
2,036,443 |
|
|
IX |
La Araucanía |
Temuco |
970,419 |
|
|
X |
Los Lagos |
Puerto Montt |
836,256 |
|
|
XI |
Aisén |
Coihaique |
104,843 |
|
|
XII |
Magallanes y Antártica |
Punta Arenas |
158,952 |
|
|
RM |
Metropolitana de Santiago |
Santiago |
6,883,563 |
|
|
XIV |
Los Ríos |
Valdivia |
379,709 |
|
|
XV |
Arica-Parinacota |
Arica |
184,957 |
Source: Department of Health Statistics and Information, Ministry of Health of Chile (DEIS)
As far as external trade is concerned, Region I (Tarapacá) and Region XII (Magallanes y Antártica) are important, where the two free trade zones, namely the Free Zone of Iquique (ZOFRI) and the Free Zone of Punta Arenas (PARANEZON), are respectively located. Considering their large pool of consumers and advanced logistics infrastructure, Bío-Bío (Region VIII) and Valparaíso (Region V) are also highly relevant to trade.
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