• Since the 2001/02 economic crash, living standards and consumer expectations have been on the rise in Argentina. Its expanding middle class, estimated at 16 million or 40% of the population (vis-a-vis Brazil's 20%), presage good prospects for Hong Kong exports.
  
  
• A resurgent buying appetite in Argentina, plus emerging production bottlenecks, has underscored the pent-up demand for competitively-priced quality imports. That is galvanising Argentina into sourcing from the mainland, with Hong Kong able to link Argentina with the mainland.
  
  
• High urbanisation in Argentina further facilitates market promotion, while the gradual modernisation of its retail sector is bringing opportunities to do business directly with large retailers.
  
  
• Admittedly, products managed by Hong Kong companies are perceived to have better quality and trendier designs in comparison with indigenous mainland products, although Hong Kong products are mainly produced on the mainland.
  
  
• But doing business with Argentina also presents great challenges. In particular, it still has a bewildering array of tariff and non-tariff barriers, not to mention the tyranny of long distance.

A Consumer Revolution in the Making

On the heels of the 2001/02 economic crash, the Argentine economy has largely regained momentum. With real GDP growth averaging 9% between 2003 and 2006 and average gross income rising by 26%, solid economic growth in Argentina has once again afforded Hong Kong companies good business opportunities, thanks to strong commodity demand and a sturdy export-oriented agricultural sector in Argentina. Following Presidency Kirchner's four-year effort in steering Argentina away from the deep economic crisis that peaked in 2002, Mrs Kirchner's succession to the presidency, which implies a continuation of government policies, is expected to further enhance political and social stability in Argentina.

On the domestic front, living standards and consumer expectations are on the rise. The benefits of greater political and social stability are taking root, as an expanding middle class flexes its purchasing muscle. At present, the size of the middle class in Argentina is estimated at 40% of the population. This figure is much higher than the 20% in neighbouring Brazil, although in absolute terms, Argentina's 16 million-strong middle class is smaller than Brazil's 40 million because Brazil's population is nearly five times that of Argentina. Judging from the size of the expanding pool of middle-class consumers, plus their growing penchant for spending, Argentina therefore offers good prospects for Hong Kong companies.

On the other hand, Argentina is a highly urbanised country, where nearly 90% of the population lives in urban areas. This compares to some 75-80% in Brazil, Chile and Mexico. In particular, the city of Buenos Aires, inhabiting over a quarter of the total population, is considered one of the most urbanised cities in Latin America. The high concentration of potential consumers facilitates product promotion and business solicitation, and therefore offers a good base of operations for Hong Kong exporters who are targeting the Argentine market. Moreover, the gradual modernisation of the retail sector following the strong rebound of the Argentine economy brings Hong Kong traders opportunities to market their products/brands in cooperation with large retailers such as hypermarkets/supermarkets, department stores and shopping malls in Argentina.

What to Buy?

While protectionist measures such as anti-dumping duties and customs tariffs are concerns for Hong Kong exporters, emerging production bottlenecks and a fast-returning appetite for consumption have spotlighted the pent-up demand in Argentina for quality imports. Moreover, the industrial restructuring, in which Argentine manufacturers are shifting their focus to higher-end production following the rebound of the economy, offers good opportunities for Hong Kong companies whose strongest edge lies in competitive mid-to-high-end products. Products with favourable growth potential include consumer electronics, toys and games, watches and clocks, apparel and footwear.

Regarding product design and price, Argentine consumers are now looking for better-designed products with competitive prices. While people are gradually regaining their economic power and consumption appetite, not many Argentine consumers can afford to buy high-priced products. However, their desire for better-designed products is rapidly on the rise. Heavily affected by European lifestyles, Argentine consumers in general are quite brand aware. Also, there is a growing trend, especially among the younger generation, for fancy designs instead of prestigious brand names.

Where Hong Kong Can Make a Difference?

While moving up the supply chain, domestic production in Argentina is insufficient compared with pent-up demand following the rebound of the economy. That spells good news for overseas suppliers. To cater for consumer preferences, however, Argentine retailers and importers are scouting around for the right products at the right price. That apparently means sourcing from Asia, not least from the Chinese mainland. As a competitive supplier and sourcing platform for quality, well-designed and trendy products, Hong Kong is able to fill the gap between budding high-end local production in Argentina and lower-end imports from the Chinese mainland.

If anything, Argentine businesspeople are more confident about buying from Hong Kong companies, although more and more of them have been aware that the quality of imports from indigenous mainland suppliers has been increasing in recent years. Riding on their experienced trading community and long-established network on the mainland, Hong Kong companies can help Argentine companies intending to source from or sell to the mainland by serving as quality controllers and risk managers. Admittedly, products managed by Hong Kong companies are perceived to have better quality and trendier designs in comparison with indigenous mainland products, despite the fact that Hong Kong products are mainly produced on the mainland.

As it now stands, Argentina is Hong Kong's fifth largest export market in Latin America, behind Mexico, Brazil, Panama and Chile. In tandem with Argentina's economic growth, Hong Kong's trade with Argentina has ramped up in the past few years. Following a dazzling growth of 786% between 2002 and 2006, for example, Hong Kong's total exports to Argentina expanded another 37% in 2007, despite all the trade restrictions in force. But bilateral trade growth, of course, shows only part of the changing tableau. The bigger story is in Argentina's trade growth with the mainland, in which Hong Kong plays a role that is ripe for expansion.

Tips for Doing Business with Argentina

The flip side of the promising bilateral trade outlook is the fact that doing business with Argentina may pose great challenges for Hong Kong traders. In order to mitigate the risk and enhance the chance of success, new-to-market Hong Kong companies should not overlook the challenges in Argentina. Corruption and red tape aside, customs tariffs and novel non-tariff barriers including licensing requirements, port restrictions and product standards are evidently obstacles to selling to the market. In response, Hong Kong exporters should appoint well-established forwarders to avoid the difficulties stemming from bureaucracy and corruption. They are also advised to keep themselves abreast of regulatory developments in Argentina, and to work closely with relevant testing laboratories or agencies to tackle novel non-tariff barriers.

To compound problems, distance is another obstacle. In view of the prohibitive travelling time and costs, it is not a bad idea for Hong Kong traders to find Argentine business partners or buyers at trade fairs and exhibitions in Hong Kong, as an alternative to establishing a direct presence in Argentina. As an illustration, up to early November, the Hong Kong Trade Development Council received 1,296 Argentine visitors at its various trade fairs, compared to a total of 1,015 for the whole of 2006. Meeting Argentine businesspeople in Hong Kong can further help Hong Kong traders avoid language barriers, as well as the crime and violence that are prevalent in Argentina.

This new report is available at TDC's Retail Outlets. It can also be purchased through the TDC Bookshop section in the TDC's trade portal: info.hktdc.com.