Business Beyond the Reef

Mexico has such a bad press. The U.S. media only covers the drug wars and illegal immigration. We eat Tex-Mex and think it is Mexican. The real secret never leaks out: nearly 50,000 small American companies export to Mexico!

Oh, down in Mexico
I never really been so I don’t really know
Oh, Mexico
I guess I’ll have to go

Oh, Mexico
I never really been but I’d sure like to go
Oh, Mexico
I guess I’ll have to go now

- James Taylor, “Oh, Mexico“

Sure, Mexico has problems. Surveys rank the country as 98th in the world for transparency and 66th for competitiveness. 52% of the population is poor or extremely poor. Those drug war headlines aren’t made up.

Jeff Hamilton, a U.S. Commercial Service officer in Mexico City, discussed all that with a business group in Honolulu just before Christmas. Jeff pointed out on a map how to avoid the drug wars (don’t go to certain northern cities, for the most part) – and argued that more than 80% of the casualties are members of the drug cartels, and 6% are police. Takeaway? They are not aiming at you. Use due caution and you’ll do all right.

Hamilton argued that Mexico’s extreme income distribution means that companies might want to think about products that will sell to the upper and upper-middle parts of the market. Yes, Mexico ranks behind Brazil and Panama for competitiveness, but it is also ahead of places like Colombia and Peru.

There are still those 50,000-some American companies selling in Mexico, so the story can’t be all bad. Perhaps you are missing a bet if you aren’t there. You can chalk it up to geography or NAFTA, but Mexicans have a liking for U.S. products, sourcing 49% of the their imports from the United States.

Hamilton turned to things that Hawaii companies might sell in Mexico. Hawaii is famous for its tropical agriculture, but that’s not going to cut it in Mexico, which grows its own coffee, papaya and other tropical crops. Some of our specialty prepared food products might go down better, but he wasn’t too excited.

He sees good prospects for Hawaii’s expertise in green tropical architecture, experience with green buildings, and for our wind power and geothermal companies.

Hawaii might do even better selling services, such as architectural design, education, and the big one – tourism. Mexicans are eager to get their kids into U.S. colleges and universities and never think about Hawaii, so this could be an opportunity for Hawaii schools to make some headway.

Tourism needs to be targeted to the people who can afford it and Hawaii is a tough sell as long as Mexicans think of it only as a place with scenery and beaches. They’ve got scenery and beaches. Hamilton, however, said that 14 million Mexicans visited the United States in 2010. Their favored destinations, unsurprisingly, are Texas, Florida, California, New York and – drumroll – Las Vegas. Their primary interests, says Hamilton, are shopping, good restaurants, museums and Disneyworld. Honolulu has restaurants, some of the shopping, world-class museums that few tourists venture to, and now we have the Aulani Walt Disney Resort and Spa. Might be time for a tourism campaign in Mexico, you think? Jeff recommended two ways to start: The annual Visit USA show in Mexico every February, and especially FITA 2012 (the Tourism Fair of the Americas) in Mexico City, September 20-23. With FITA, you can spread your message throughout Latin America.

As a general matter, Hamilton advised companies new to Mexico to focus first on at most three cities: Mexico City, Guadalajara and Monterrey. Decision-making tends to take longer than north of the border, so plan to be patient. Also expect drawn out negotiations on payment terms. While it might be a red flag in dealing with other markets, firms often ship to Mexico by sending their goods to an intermediate shipper in Texas, who then gets them across the border to their destinations.

I did some market research for a Hawaii company selling aloha-oriented products and was surprised to see a large number of hula halau (teams and dance schools) in Mexico, indicating a possible affinity for Hawaii. Hamilton didn’t think so. He said Hawaii is not well-known in Mexico, that most Mexicans only think of it as a tourism destination, maybe not even part of the United States. Incidentally, they don’t call it hula in Mexico, it is simply “Hawaiian dance”. We’ve got our work cut out for us.

Industry and infrastructure are where it is at in Canada – not consumer goods. Hey, those Canadians are getting older and they tend to be more frugal than we profligate types south of the border. The population is declining, too, so you better think about what an older population is likely to buy. That was a message delivered by Richard Steffans, the head of U.S. Commercial Service operations at the American embassy and consulates in Canada when he spoke to a business group in Honolulu just before the holidays. Though Rich tailored his remarks to things Hawaii exporters need to know, much of what he said applies to any company thinking of selling in Canada.

We keep hearing about oil and gas from the tar sands of Alberta (and U.S. politicians fret about adding one more pipeline to a network that already looks like a bad tartan), but renewable energy is huge in Canada. Steffans sees opportunities for wind energy operators and equipment suppliers across much of Canada. He recommends exhibiting or just seeing the Globe 2012 Business & Environment trade fair in Vancouver, March 14-16, as a great way to start. U.S. companies can get a booth in the American Pavilion – or you can go to the show and get Commercial Service help in landing the right meetings while you are there. Go here for more details.

Steffans told us that Canada has big projects coming in wastewater treatment. First Nations communities will soon publish some significant tenders. And the Alberta tar sands projects raise a bunch of water treatment and remediation issues. Again, he recommended Globe 2012 as a place to start.

Rich was optimistic about prospects in construction and engineering, whether doing the work, selling equipment and materials, or the design and engineering end of things. He highlighted the PanAm Games, coming to Toronto in 2015, which will include a $1 billion PanAmerican Village! Steffans told us about a slew of port development projects, something that Hawaii companies may have a good chance at. He noted that most significant Canadian contractors will be at World of Concrete in Las Vegas, January 24-27. Get your flight and hotel reservations now!

We have one or two Hawaii companies who should be looking at contracts on a $1.2 billion subsea transmission line between Newfoundland and Nova Scotia.

Steffans turned to the dwindling consumer goods market because that is what a lot of our companies have to sell. You can still make money in consumer goods, just probably not as much per person as in the United States. Rich responded to a question about selling cosmetics in Canada, but didn’t give much hope. An aging population doesn’t try that many new cosmetics and the market is saturated by the big cosmetics players.

Some agricultural products are making hay. A Hawaii coffee producer said he does well in the Canadian market, but added that price is crucial. The Canadian consumer is sophisticated and is attracted to Hawaii coffee, but competing coffees from all over the world are fighting for the market. He warned that Canadian shop shelves are shorter than in U.S. stores, so you need to think about packaging to fit. You are going to need new labels anyway that are in both English and French. For food products, the coffee guy gave a great ad for using the Foreign Agricultural Service folks to help smooth the way in.

Steffans noted big growth in Canadian sales of Hawaii coffee, seafood and, especially, honey (up 600%!). At the same time, Hawaii papaya and macadamia nut sales are declining. Growth areas are in anything labeled organic and ethically-harvested.

Steffans’ offices in Canada recently launched a new rep finding program: Client Finder. For $500, they use an email campaign to broadcast your U.S. products to hundreds or thousands of potential reps, agents, distributors or clients throughout Canada. Sounds like a good bet and it is so new that it isn’t up on the CS Canada website yet. Soon. You can find the CS offices at the American embassy or consulates in Ottawa, Montreal, Calgary or Toronto. Budget cuts in Washington closed the CS office in Vancouver last week; western Canada will be served from Calgary.

I sat in last week on presentations by MBA students to Hawaii companies about where and how to export their products. This was part of a class at Hawaii Pacific University taught by David Day, who is a member of our Hawaii Pacific Export Council. Other colleges and universities may have similar programs. They have worked well here. Not only do companies get new sales as a result, but the students sometimes get jobs out of it.

Local companies tell MBA students a bit about their company, their products and how they have done their past export marketing, if any. The students, generally in teams of four, are then turned loose to find a single overseas market that seems good, and to figure out how their client company can possibly do business there. The company may express its wishes about markets to tackle, but it is the students who come up with the recommendations. Being MBA students, they often have their own business experience and many of HPU’s grad students are from other countries. (Interesting mix of accents during the presentations.)

Coincidentally, almost all the companies involved in the latest class were food product firms with little or no export experience. Not coincidentally, most of them were recent graduates of our Export University program so they are sold on the concept of exporting. And drinks were big. Two of the companies produce Hawaiian coffees and another makes and sells Hawaiian teas. The students took the coffee makers to Japan and South Korea. Japan was no surprise, given the ready knowledge of Hawaii in Japan and the long development of a coffee culture there. Korea was a bit more interesting. Most Hawaii coffee producers aim for top quality and want to sell roasted beans, whole or ground. Almost nobody produces instant coffee, the local firms looking down their noses at such a thing. But that is what the Korean market demands. The MBA students discovered that 90% of the Korean coffee market is for instant coffee, and reason that a Hawaii premium instant coffee could make a killing. I’m not sure the Hawaii companies were convinced, but they went away scratching their chins.

The audience was also surprised by the growth of the tea market in Canada. While coffee is taking over among the younger demographic in much of Asia, young people in Canada are turning to tea, often perceived as a health drink. Based on the students’ research we may soon see a Hawaii tea company selling through tea shops in Canada. Even Starbucks is brewing more tea in its Canada stores!

Many of the teams commented on selling in China, concluding that the Chinese market, while sexy and hot, is simply too tough for small companies to handle. They recommended that our firms take a look for lower hanging fruit elsewhere. There was one comment that, in China, taxes, other costs and sheer greed have led to a bag of Kona coffee priced at $65!

They also looked at sea asparagus, a salty, crunchy seaweed eaten as a vegetable or a garnish, grown on Oahu’s North Shore. You are likely to see it soon in Japan, where it is already gaining a media following. And flavored seas salts, which could be the next big thing in Australia’s barbecues.

A few years ago, an HPU student developed a plan to take Hawaii kukui nut oil products, both cosmetics and cooking oils, into the German market. Not only did sales boom, the student is now the company’s export manager.

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My two posts last week about Hawaii tourism were picked up by ETurboNews, an electronic newsletter for professionals in the visitor industry. Nice to be noticed. You can see the ETurbo versions here and here.