CHAPTER III.- MARKET ANALYSIS AND POTENTIAL
3.7 Target Market/Product Scope
3.7.1 Initial Target field: Honduran Exports to Taiwan
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In Taiwan, as a competitor we have Collins Co. LTD, which is a large trading company based in Taiwan since 1969. It has operations in Canada, Unites States, Mexico, China, Hong Kong, Thailand, Malaysia and Philippines.
Eidas LLC company is also trading company based in Taiwan but focusing on computer hardware and in minerals such as ore and coal trade.
Apart from these companies, we also have as competitors those distributors and companies who import and export the products that they sell or use as inputs for their business.
3.7 Target Market/Product Scope
As mentioned previously, Guanxi Trading LLC will start by trading products between Honduras and Taiwan. Price is one of the main factors that influence the receptivity of most Honduran imports, whereas quality is one of the main aspects for importing products into Taiwan.
3.7.1 Initial Target field: Honduran Exports to Taiwan
After much evaluation and assessment of statistics and market information, coffee and coffee derived products, tobacco and tobacco related products, cocoa and cocoa preparations will be the initial products that Guanxi Trading LLC will start trading from Honduras to Taiwan.
Coffee and coffee related products
Coffee is one of Honduras’ most important crops. The Honduran coffee production is spread throughout the country. Over the years, coffee cultivation in Honduras has in
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average contributed to the agricultural GDP of the economy by 20% and coffee production has increased over the years.
Germany is the main export market for Honduran coffee. In 2010, 26% of exports were destined to that country. Belgium and United States were the second and third largest export markets, with 15% and 8% of exports, respectively.
Honduras also exports coffee to Asia Pacific countries, mainly to South Korea and Japan.
In 2010 it sold around US$39.5 million dollars in coffee to South Korea and to Japan approximately US$20.1 million. However, to Taiwan, exports were only around US$1.4 million, as seen below.
Table 6: Honduras’ Coffee Exports
Country 2008 2009 2010 Grand Total Percentage of
Sales from 2010 South Korea $13,709 $13,236 $39,477 $66,422 41.07%
Japan $22,647 $16,199 $20,769 $59,616 36.86%
Asia Pacific Sales $50,438 $47,346 $63,950 $161,735 8.84%
Rest of the World $568,014 $484,523 $659,251 $1,711,788 91.16%
Total Sales $618,452 $531,869 $723,201 $1,873,522 100.00%
Honduras' Coffee Exports In thousands of US$
Source: Central Bank of Honduras
Taiwan’s coffee imports have increased over the past several years. In 2010, approximately US$68.9 million were imported in coffee and coffee related products. Of this amount, 33%
of Taiwan’s coffee imports came from Asia and around 20% came from Central American countries, meaning that Honduran coffee has room to increase its current market share in the country.
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Honduran coffee has won several awards in international markets. Recently, it was among the top 10 aromatic coffees in a competition held in the United States, which involved the presence of major powers such as Brazil.
Honduras needs to immerse itself more into the global marketplace. In order for Honduran coffee to gain importance in the international markets, Honduras needs to brand itself so that coffee gains equal value on the international market as a world-class product.
In 2008, Molinos Café Maya, a Honduran coffee producer, exported coffee to Taiwan. It had to redesign its coffee product line to add gourmet blends, including pure and flavored coffees. Hazelnut flavored coffee was among the most readily accepted in the Taiwanese market.
Although Taiwanese people are heavy tea drinkers, over the years, coffee intake has increased among the population. The appearances of chain stores such as Starbucks, Lavazza and Barista have fomented an increase on coffee intake, thus leading to a growth of coffee imports.
As mentioned previously, King Car Food Industrial Co., Ltd., part of Mr. Brown Coffee, has shown great interest in Honduran coffee, thus giving us a great opportunity to have them as a customer. Another possible distributor we can work with is Orsir Coffee, who sells specialty coffee from around the world, including coffee from Guatemala.
Honduras exported around 33,000 kg of coffee per month to Taiwan in 2010. We anticipate impelling sales of Honduran coffee to Taiwan and thus, selling around 40% of this amount to Taiwan. With all this in mind, here are the forecasted sales and cost breakdown for coffee and coffee related products to export to Taiwan.
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2012 2013 2014
Units sold (bag of 46 kg) 3480 3828 4272
Unit Price $252 $264 $276
Sales $875,647 $1,008,878 $1,179,400
Direct Unit costs $220 $231 $243
Direct cost of sales $765,600 $884,268 $1,036,174
Import duties $0 $0 $0
Freight & stuffing charges $38,420 $42,262 $47,164
Customs brokerage $400 $420 $441
Insurance $2,628 $2,891 $3,226
Total costs $807,048 $929,841 $1,087,005
Total costs/unit $232 $243 $254
Net profit $68,599 $79,036 $92,395
Year Coffee
Table 7: Coffee sales breakdown
Unit price is determined by adding an 8.5% over the total costs/unit, which will be our profit margin for this product.
Because coffee has a relatively inelastic demand, sales won’t be affected as much due to cost increases. Number of units sold is forecasted to increase by 10% and 12% for 2013 and 2014, respectively.
Under the FTA between Honduras and Taiwan, coffee and coffee related products, under HS code 0901, are categorized as type A, meaning that duties on these types of products shall be eliminated entirely and such goods are already duty-free, since the FTA agreement has already entered into force.
Tobacco and tobacco related products
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Cigars are part of the most important non-traditional exports products of Honduras.
According to overseas buyers, Honduran cigars have great taste and they have a lot of potential and are consumed by major Hollywood actors, such as Arnold Schwarzenegger, Bruce Willis, Mel Gibson, Steven Seagal and Jean-Claude Van Damme. 10
In order to aid Honduras in its attempt to re-launch the tobacco industry, Guanxi Trading LLC will aid in promoting this industry in Taiwan.
In 2010, Honduras exported around US$71.6 million in these products. The vast majority of cigars produced in Honduras are exported to United States. Other major markets include Canada and some European countries. In Asia Pacific, Japan and Australia are exports markets for Honduran tobacco.
Taiwan imports about half of its cigarette supplies. Most of Taiwan’s imports of tobacco come from Asia, constituting around 84%. When taking into account only Taiwan’s imports of cigars, cheroots and cigarillos containing tobacco, most of them are imported from Cuba and Dominican Republic. In 2010, Taiwan imported around US$2 million in these types of products, from which 58% came from Central America and the Caribbean region, as seen below.
Table 8: Taiwan’s Cigar Imports
10 Schwarzenegger, Mel Gibson, Willis and Seagal, smokers of Honduran cigars.
http://www.kluz.tv/noticia/2011/02/16/233447-schwarzenegger-mel-gibson-willis-seagal-fumadores-puros-hondurenos.html February 2011.
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Country Name 2009 2010 Percentage of
Sales from 2010
Global-Continental $1,853,867 $2,006,065 100%
Central America and
the Caribbean $1,351,513 $1,168,562 58.25%
Europe $357,997 $452,704 22.57%
North America $127,520 $352,542 17.57%
South America $6,235 $20,993 1.05%
Asia $10,602 $11,264 0.56%
In US$
Year
Source: Taiwan BOFT Trade Statisitcs
240210: Cigars, cheroots and cigarillos, containing tobacco Taiwan Imports
Although cigar exports from Honduras to the Taiwanese market have been low, Guanxi Trading LLC will focus on exploiting this market for Honduran cigars due to the high demand of Taiwan for tobacco and tobacco related products.
For importing tobacco into Taiwan, we must abide by the Tobacco and Alcohol Administration Act.
Possible distributors we can work with in Taiwan are Shyang Yi Tobacco & Wine Co., Ltd.
and Gala Vineyard Wine & Cigar Enterprise Inc., which are distributors of tobacco related products in the region.
We anticipate in selling around 20% of current Taiwan imports from Central America and the Caribbean for our first year of operation. For the next two years, we anticipate to increase sales by 9% and 13%, respectively.
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2012 2013 2014
Units sold (box of 1.36 kg) 2160 2246 2426
Unit Price $115 $121 $127
Sales $249,301 $272,088 $308,461
Direct Unit costs $90 $95 $99
Direct cost of sales $194,400 $212,247 $240,720
Import duties (20%) $38,880 $42,449 $48,144
Freight & stuffing charges $898 $934 $1,009
Customs brokerage $400 $420 $441
Insurance $612 $636 $687
Total costs $235,190 $256,686 $291,001
Total costs/unit $109 $114 $120
Net profit $14,111 $15,401 $17,460
Year Cigars
Table 9: Cigar sales breakdown
Unit price is determined by adding a 6% over the total costs/unit, which will be our profit margin for this product. The number of units sold is expected to increase by 4% for 2013 and 8% for 2014.
Under the FTA between Honduras and Taiwan, cigars, cheroots and cigarillos, containing tobacco, fall under HS code 24021000 and are categorized as type E, with a base rate of 20%, meaning that the duties shall be deemed as sensitive and free from any reduction commitment.
Cocoa and cocoa preparations
Cocoa ranks third, after sugar and coffee, in the world commodity market. It is widely used for industrial, cosmetic and for mass consumption.
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Country Name 2010 Value 2010 Qty. in kg Percentage of Sales Value from 2010
and the Caribbean $12,987 1,500 0.08%
Taiwan Imports
1801 - 1805: Cocoa and cocoa preparations Value In US$
Although no exports from Honduras to Taiwan have been recorded in this category, Taiwan imported around US$15.3 million in cocoa and cocoa preparations in 2010.
Table 10: Taiwan’s Cocoa Imports
However, Honduran cocoa over the past several has high demand in European countries and the United States, which means that Honduran cocoa meets the quality standards of the demanding European and US markets, which are the leaders in production of cocoa related products.
Taiwan imports a great amount of raw material such as cocoa paste and cocoa powder, meaning that there is a chance for Honduras to export these products to Taiwan. Honduras doesn’t produce chocolate ready for consumption, which constitutes the other part of Taiwan’s imports on this category. Thus, there is an opportunity to start developing this sector in Honduras since it has the land and agro-ecological conditions for adequate cocoa plantation.
Projections from the cocoa producing sector in Honduras are in increasing the plantations of this product in the country. It is expected that in 2013, three thousand tons will be exported.
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Units sold (bag of 46 kg) 2328 2561 2868
Unit Price $170 $178 $186
Sales $395,862 $455,606 $533,878
Direct Unit costs $145 $152 $160
Direct cost of sales $337,560 $389,912 $458,486
Import duties $0 $0 $0
Freight & stuffing charges $25,702 $28,274 $31,664
Customs brokerage $400 $420 $441
Honduras has two known cocoa exporters, Hanfa Inversiones S. de R.L. and the Honduran Association of Cocoa Producers (APROCACAHO), but as mentioned before, no exports to Taiwan have been accomplished, thus giving Guanxi Trading LLC an opportunity to open the market in Taiwan for Honduran cocoa.
A suitable business partner in Taiwan would be Esprit International Co. Ltd, which is engaged in distributing chocolate based products and other pastry materials. Espirit also has the potential for becoming our suppliers to the Honduran market. Hunya Foods Co., Ltd.
and Uni-President are other possible customers due to the fact that they are manufacturers of chocolate related food products.
We anticipate in selling around 3% of Taiwan’s monthly imports of cocoa as raw material, powder or paste for our first year of operations. We then plan to increase sales by 15% and 17% for 2013 and 2014, respectively.
Table 11: Cocoa sales breakdown
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Unit price is determined by adding an 8.5% over the total costs/unit, which will be our profit margin for this product. The demand for cocoa is relatively inelastic. The number of units is expected to increase by 10% and 12% for 2013 and 2014, respectively.
Under the FTA between Honduras and Taiwan, cocoa as raw material and as powder and paste, fall under HS codes 1801 through 1805, are categorized as type A, meaning that these products can enter Taiwan duty free.