• With the highest per-capita GDP and lowest inflation in the region, Chile, the freest economy in Latin America, offers steadfast business prospects for Hong Kong companies.
  
• Thanks to Chilean consumers' ready acceptance of China-made products, plus the Chile-China Free Trade Agreement (FTA) effective since October 2006, China became Chile's No. 1 export destination (outperforming the US) and No. 2 import source in 2007.
• But given a population of 16 million, Chile is a relatively small market. Therefore, Hong Kong exporters should keep an eye on the countries nearby, such as Peru, Bolivia and Ecuador, using Chile as the first port of call.
• Also worth noting is that Chilean consumers are conservative. Bearing less sense of showing off, it is not uncommon to see Chilean consumers picking unbranded but more reasonably priced products rather than branded and stylish ones.
• Aside from distance and language barriers, Hong Kong exporters should take note of the intensifying competition from indigenous mainland suppliers. They should endeavour to justify their higher prices, for instance, by enhancing quality and service.

A Sustained Growing Economy

Despite a substantial regional slowdown in the period 1998-2003, Chile managed to maintain an average annual GDP growth of more than 5% between 1990 and 2007. Chile, being the freest economy in Latin America, offers not only a stable macroeconomic environment - the highest per-capita GDP and the lowest average inflation rates among major Latin American countries but also steadfast business prospects for foreign traders and investors.

Being recognised as the mining capital of Latin America and the world's leading copper supplier, Chile's economic development depends largely on its mining sector, and so does its overall trade profile. Skyrocketing international copper prices in recent years - spot copper prices rose more than fivefold from US$0.7 per pound in 2003 to US$3.8 per pound in February 2008 - have therefore provided a strong boost to the Chilean economy. With sustained commodity prices stemming from increasing investment demand for base metals amid the continued worry of the slowdown of US economy and the ever-growing consumption demand for copper for production and infrastructure construction in China, the world's biggest copper consumer, sturdy commodity exports will continue to be a key driver of the Chilean economy.

Closer Link between Chile and China in the Post-FTA Era

For more than a quarter of a century, Chile has been the freest, most open and stable economy in Latin America. Having established an extensive web of FTAs and preferential trading arrangements, Chile has preferential market access to nearly 90% of the world's GDP and 4 billion potential consumers. Riding on its proximity to and strong connections with other South American markets, Chile has been the first port of call to many of its neighbouring countries.

Thanks to Chilean consumers' ready acceptance of China-made products, Chile for years has been regarded as the most open market for Chinese imports in Latin America. Spurred further by the Chile-China FTA (the first FTA China signed with a Latin American country) effective since 1 October 2006, China became Chile's No. 1 export destination (outperforming the US), No. 2 import source and No. 2 trading partner in 2007. As bilateral trade and economic cooperation are expected to fare even better between the two countries in the post-FTA period, China will very likely surpass the US and become Chile's No. 1 trading partner by the end of 2008.

This closer link between Chile and China poses challenges as well as opportunities for Hong Kong exporters. While many major retail groups have already established a direct presence in the mainland for sourcing a wide range of consumer products like consumer electronics, garments, footwear, watches and toys, many others are looking for reliable partners to help market their products such as wine and fresh produce to mainland consumers. To further strengthen Hong Kong's starring role in facilitating Sino-Chilean trade, Hong Kong traders, apart from promoting their products to Chilean customers, should take better advantage of their business experience and distribution network in the Chinese mainland to help new-to-the-market Chilean companies to tap into the challenging but lucrative mainland market.

A Small and Conservative Country with Big Neighbours

Inhabited by a population of some 16 million, Chile is a small country situated in the southern cone of Latin America. This makes it crucial for Hong Kong exporters to eye not only the domestic Chilean market, but also neighbouring countries by using Chile as a first port of call. In fact, many foreign companies, including many Hong Kong companies, have used the free ports of Arica and Iquique in the Free Zone of Iquique (ZOFRI) in the far north of Chile as a storage and distribution hub for re-exports to Peru, Bolivia, Ecuador, Colombia and Venezuela.

Perhaps due to its remoteness and geographical isolation, Chilean consumers are quite conservative. In general, Chilean consumers prefer practicality to fancy design and simple attire to fussy costume. Bearing less sense of showing off, it is also not uncommon to see Chilean shoppers picking unbranded but more reasonably priced items as substitutes for branded and stylish ones. This gives Hong Kong exporters a hint regarding the importance of offering products with high quality/price ratio.

Potential Challenges and Practical Recommendations

Despite rosy prospects, doing business with Chile is not free from challenges. Aside from distance and language barriers, Hong Kong exporters should take note of the growing trend of direct trade between Chile and China and the intensifying competition from indigenous mainland suppliers. Hong Kong exporters are advised to justify their higher prices, while differentiating their products from indigenous mainland products, by enhancing quality and rendering better services, e.g. accepting small orders.

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. To jump-start, Hong Kong companies can find reliable agents through various Chilean chambers of commerce. Most referred include the Federation of Chilean Industry (SOFOFA).

Furthermore, in order to mitigate the annoyance caused by long flights and exorbitant travel costs, Hong Kong companies should consider the alternative of using Hong Kong trade fairs and exhibitions as a platform to meet Chilean businesspeople. This can further help Hong Kong traders avoid the language barriers that they will find difficult to overcome in Chile. As an illustration, the Hong Kong Trade Development Council received 898 Chilean visitors at its various trade fairs in 2007, demonstrating a compound annual growth (CAGR) of 24% over the past five years.

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: www.tdctrade.com.