Geopolitical Advantage – Neighbouring markets

Unlocking international growth for small and medium size enterprises in the food and drink industry starts with your natural markets. Markets that have great potential and minimal implementation challenges.

Not all the categories and products are the same and neither is the geographical position of a country nor its relationship with other nations, all of which can influence the type of markets you should aim for!

• There are 5 key advantages that can position your Company for success.
• Then, there are 10 types of markets that can enable your brand or product to have a competitive advantage for a certain target market.

If you want to know more, please read my last newsletter about “The 5 Competitive Key Advantages & 10 Types of Natural Markets to Export”.

In the next newsletters, I will be going deeper into the competitive advantages for each type of Market.

Let’s start with the Geopolitical Advantage for Neighbouring Markets.

Neighbouring markets

The country's geographic position plays a crucial role in determining its economic and business performance.

The geographical location of a nation defines its wealth. The quality of their land defines access to raw materials. The extent of its mountains and rivers defines the ease or difficulty of transporting goods between regions.

Borders with neighbouring countries define the markets to which you can export more competitively.

According to Tim Marshall in his book “Prisoners of Geography” (2015) in Europe, France is the country that benefits the most from its geography. It contains the largest extent of fertile land in Western Europe and many of its rivers are interconnected, which allows goods to move between regions.

To add to these factors, it borders by land with: Germany; Belgium; Luxembourg; Italy; Spain; Switzerland; Andorra and Monaco, giving it access to more than 213 million potential consumers.

Sales Weight in Bordering Countries

If we look at the volume transacted in the food categories (HS 01 to 5 and 7 to 22) from the COMTRADE platform, we can see that the exporting country exports primarily to its neighbouring countries and depends heavily on its land borders to sell its products.

If we analyse the Top 20 Export Markets of the Food and Drink Industry, which represent 72% of the world Food and Drink exports, we can see that Mexico is the most dependent market on its neighbours (85%) and Brazil the least (4%).

Mexico has land borders with Belize, Guatemala and United States and maritime borders with Cuba and Honduras. But only the United States represents 84% and all the others just 1%.

Brazil has land borders with nine countries, but the geography of Latin America doesn’t help promote trade between them. Most of the population of Latin America lives along the coast and the connections between them by land are few and of poor quality.

The number of neighbours or your geographical position may influence a country’s cross-border trade. Germany has 9 neighbours and a central gravitational position in Europe.

On the other hand, the UK has only one land neighbour and a peripheral position with other European countries.

Cross-border trade

Cross-border trade between neighbouring countries involves the exchange of food goods across shared borders, often characterized by close geographical proximity and cultural ties.

The distance between your production facility and other cities in neighbouring countries may be shorter than the distance to your own capital city. For some industrial products and for fresh produce, it makes more sense to export to a neighbouring country rather than to sell to other regions of their own country.

You may encounter different retail chains on both sides of the border, with varying products, brands, and prices. While retailers adjust to local competition, they typically source from local players and adhere to a nationwide pricing policy.

Given the proximity, residents on both sides of the border often lead intertwined lives and develop similar consumption habits over time, influencing their shopping preferences. Brand awareness can thus organically grow through familiarity and cross-border interactions.

Barriers to Cross-border Trade

Cross-border trade may encounter legal hurdles, such as high tariffs and duties imposed by protectionist measures, making trade economically unfeasible.

In a less formal context, trade barriers may stem from complex customs procedures or other factors effectively closing off borders.

Additionally, underdeveloped transportation networks connecting neighbouring regions can further impede the potential for cross-border trade.

Consequently, in countries where cross-trade via land borders is not viable, international trade is then channelled through seaports. However, proximity is not the only factor influencing costs regarding maritime trade. If an optimal sea route is not available, it can render the business unviable.

Bad Neighbours

The main reasons behind the bad relations between neighbours are:

• Political conflicts: Countries engaged in ongoing political disputes or conflicts.
• Geopolitical tensions: Border disputes, historical conflicts, or territorial claims.
• Security concerns: Border regions plagued by instability, crime, or terrorism.
• Economic disparities: Wide disparities in economic development between neighbouring countries.

And this lack of trust can discourage trade and economic cooperation between neighbours and lead to trade restrictions or sanctions against each other.

Good neighbours or bad neighbours, you can’t choose them! There are those that like you and like your products, there are others that you don’t get along with and you don’t have anything to offer them!?

Compounding Competitive Advantages

As your Product or Brand for a specific target market can have multiple competitive advantages and be from different types of market characteristics, the more advantages your product has, the more your Value Proposition is reinforced.

In other words, a higher economic integration (Geopolitical Advantage – Trade Agreement Markets) with neighbours (Geopolitical Advantage – Neighbouring markets), is likely to result in a corresponding enhancement of total export volume to a target market.

Please share your thoughts on what competitive advantages your company has and in which types of markets, your brand already succeeds in!

On my next newsletter, I will go deeper in the next type of market: Trade Agreement Markets (Geopolitical Advantage).

Sources:

• Prisoners of Geography (Tm Marshall, 2015)
• “World Trade: The Importance of Neighbors” from International Journal of Economics & Management Sciences (Elias Sanidas, 2018)
• “Trade with thy Neighbour” from Economics Web Institute (Valentino Piana, 2006)