CHAPTER III.- MARKET ANALYSIS AND POTENTIAL
3.2 Market Analysis and Potential
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3.2 Market Analysis and Potential
Honduras is an agricultural based economy, as was Taiwan before it shifted from import-substitution to export-led growth. Honduras is now where Taiwan was 60 years ago.
Taiwan’s path to success is one that Honduras can learn a lot from.
Honduras’ main export products are coffee and bananas. Among other important sectors in the export market are farmed shrimps, palm oil, cocoa, tobacco and tobacco related products, textiles and apparel, wood, pineapples, sugar, soap/detergents, oriental vegetables, and metals such as zinc, silver, lead and gold.
Among its major imports are: fabrics, machinery, plastic products, paper and other related products, industrial chemicals, petroleum, lubricants, vehicles, metals, electrical equipment, medical equipment and processed foods.
This is relatively high even though there are a lot of players in the industries we deal with, but maintaining relations with top-quality and reliable supplier is fundamental to our business.
Globalization and advances in Internet based strategies pose a threat to our business as communication gaps are shortened and companies decide to “cut out the middle man”.
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The Honduran economy had a strong export-processing maquila industry, which was focused on assembling textile and apparel goods for re-export to the United States. It also had quite a strong automobile wiring harnesses sector, but both sectors have declined significantly due to the international economic downturn which started in 2008, resulting in lower demand and companies moving their operations out of the country due to lower labor costs in other countries. A large subsistence farming population continues to be the country’s major sector.
The United States is Honduras’ major export market (40%), followed by EU (26%), rest of Central American countries (18%), Asia (8%) and others (8%)7. The United States also supplies around 50% of Honduran imports. The United States has been Honduras’ major trade partner over the past several years, but with globalization nowadays, countries have to look to expand to other markets.
With the recent global crisis, Honduras’ economy suffered a lot due to the decrease in demand from the United States, which proved once again that it is impractical to rely on a single, huge market to which direct exports and efforts.
This is why Guanxi Trading LLC focuses on doing business with Asia. Taiwan is a perfect starting point because it is a close ally of Honduras, commercially and politically.
Honduras and Taiwan hold a strong relationship. Taiwan over the years, has offered Honduras various support and grants in various projects, such as tourism development, microfinance for small and medium enterprises, housing, infrastructure, health, employment, development of urban and rural areas, as well as education, with numerous scholarships granted to Honduran citizens to study in Taiwan.
In addition, Taiwan has also has sent numerous technical missions to Honduras to share skills in electricity generation, rice farming, food processing, among other areas.
7 SIECA. Honduran exports 2010.
http://estadisticas.sieca.int/siecadb/Estadisticas/MenuEstadisticas.asp?Base=Paises
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Taiwan moved from exporting rice, sugar, tea, bananas, pineapples and other processed food to its main export partner, Japan, to textiles such as synthetic fibers and handcrafts to the United States and now its major exports are electronics, machinery, flat panels, plastics, chemicals, and optical and photographic measuring and medical instruments. Currently, Taiwan’s major export partners are China and Hong Kong, with the United States coming in third and Japan in fourth. Taiwan’s exports constitute around 70% of the country’s GDP.
The trade policy of Honduras is very keen on opening markets in order to boost its involvement in international trade. It is also attempting to maintain a stable macroeconomic framework in order to produce favorable conditions in its attempt to fight poverty.
Taiwan, with its outward-oriented development strategy, brought economic growth and prosperity to the nation. It also engaged in a progressive liberalization of its trade and investment structures, which brought rapid economic growth. This is how Taiwan developed into a modern industrial economy and a leading producer and exporter of IT products.
Taiwan’s development started with a land reform which increased the agricultural output dramatically. Then, the State focused the economy to an import substitution industrialization policy, which encouraged domestic production of substitutes for imported goods such as textiles, cement, plywood and fertilizers. This was accomplished due to aids granted, mainly by United States, to help Taiwan import machinery and materials in order to develop low-skill, labor intensive industries, and thus, replace the need to import these goods.
This was followed by the massive creation of industrial infrastructure, communication systems and development of a strong educational system.
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From then on, Taiwan experienced rapid economic growth periods. Health care, education and quality of life also improved. Much of this was possible due to economic aid from the United States, which subsidized the high costs of domestic production.
Table 1: Selected Indicators of Taiwan’s Economy, 1952-96
A 19 points program Economic and Financial Reform followed, with liberalization of market controls, stimulation of exports, creation of export processing areas, and attraction of foreign investment. This program encouraged saving and investment, it intended to reduce expenditures and promote exports. The creation of small and medium sized national enterprises flourished with the help of Government subsidies and credit loans by banks.
Also, a Statute for the Encouragement of Investment (SEI) was implemented. It was designed to reduce tax burdens, facilitate land acquisitions, simplification of investment licensing procedures, and as a main objective, promoting tax incentives for exports.
The big foreign companies got contracts with these small-sized family enterprises.
However, neither then, nor now, has foreign investment signified an important part in the Taiwanese economy.
Source: Journal of Policy Analysis and Reform from Australian National University
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Most of Taiwan’s development came from the local companies’ production for foreign traders established in Taiwan and for international trade networks, with the help of intermediaries, in most cases, export trading companies.
As mentioned before, Taiwan´s growth over the years has been mainly due to their export promotion policy, which consisted on agricultural products, processed agricultural products and industrial products. The success of this export-oriented strategy was also due to the Government’s policies, high productivity, effectiveness and low wages of labor in Taiwan during that time.
This export oriented economy represents the most significant policy shift in Taiwan’s postwar economic development. Full employment was attained in Taiwan in 1971.8 From then on, agricultural products were replaced by labor-intensive, low-skilled products such as textiles, machinery and electronic products as Taiwan’s major exports, representing the transformation of Taiwan’s economy.
8 Tsao, Juliana. The Role of Small and Medium Sized Export Trading Companies in Taiwan’s Economic Transition 1950-1990.
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Since the implementation of this policy, poverty levels have been significantly reduced due to periods of rapid economic growth that Taiwan has undergone.
Then, Taiwan went under economic liberalization and internationalization and upgraded their domestic industry from labor-intensive to skills-intensive and high technology-intensive production.
Of course, there is no recipe for rapid and sustained economic growth, but even so, Honduras can learn much from the Taiwanese economic development strategies.