Business Beyond the Reef

Good market research & a great tan!

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.

Selling in the Pacific Islands could be called a micro-markets strategy. I posted earlier about selling in the Federal States of Micronesia (FSM), a market with an estimated 2012 GNP of $222 million – smaller than many cities elsewhere. The Republic of the Marshall Islands (RMI) is another micro-market, its 2012 GNP forecast at about $170 million. Unlike the FSM, where potential business is spread among four states, the economy of the Marshalls really means one, perhaps, two islands – though there are physically many more.

In Majuro's lagoon

Things are a bit more upbeat in the Marshalls than in the FSM, GNP growing by a quite respectable 5.2% in FY2010. GNP growth was negative during the recession and quite low for years before that, so this healthy rise is welcome. It comes mostly from growth in the Marshalls’ fishing industry. What’s more, this growth looks solid for the next three years as more investment goes into fishing and airport expansion projects move into high gear. Though Marshallese imports are tiny by world standards, the pickup in economic activity raised imports of goods and services to nearly $180 million in 2010.

Economic activity centers on Majuro and Kwajalein. The latter acts as a brake on the economy as U.S. military spending spirals down. The American base on Kwaj has been a mainstay of the Marshallese economy for decades while the U.S. conducted first its nuclear tests at Bikini and later continued using Kwaj as the western terminus of the Pacific Missile Range test facility. Despite pumping money into the economy, especially on the neighboring island of Ebeye, nuclear testing displaced the Bikinians to Majuro where something of a slum grew up. Many Bikinians (and other Marshallese) have since moved to the mainland U.S. and to Hawaii, stressing social programs there.

Government spending drives most Marshallese economic activity - based on U.S. support under the Compact of Free Association. That said, the private sector is growing, based primarily on the fishing industry, copra production and construction (much of which takes us back to government spending). Coconut oil prices rose to very high levels in 2010, boosting the economy.

Formerly dominated by foreign fleets (most of whom paid for their fishing rights), the Marshalls now have at least eight modern purse seiners with three more expected in the next two years. There is a fish loining facility on Majuro, but it operates at a loss and is subsidized by sales of fishing rights. The Marshalls also has a small tropical fish collecting industry.

Tourism has been a disappointment despite outstanding fishing and some good diving. The hotel and restaurant sector has declined at a steep 9% annual rate since 2001.

You can find out more about economic activity in the Marshall Islands here.

Here is the latest in our series of APEC business workshops. Join us in Honolulu!