Look outside your comfort zone and explore the opportunities that exist in developing economies. That is a message that New Zealand businesses need to keep in mind when looking at growth prospects beyond the cozy confines of our small nation. Belonging to Mercosur – one of the fastest growing joint regional economic markets in the world - Brazil and Argentina are two such economies worth consideration.

The current global financial crisis has exposed the vulnerability of many advanced economies that are now constrained by public or household debt burdens. By contrast most major developing economies like Argentina and Brazil have already returned to trend growth and are not troubled by unsustainable public debt. Instead, they have to deal with inflationary pressures and potential asset price bubbles. Brazil is currently the fifth largest economy while Argentina is ranked 19^th. Combined they account for 96% of Mercosur’s GDP, almost US$3 trillion.

Driving economic growth out of these naturally resource rich countries is an increasingly productive workforce. The rapidly rising urban middle class has increased buying power demanding premium products and services.

Unencumbered by personal debt with rising personal wealth, middle class consumers in emerging markets have increased their share of global consumption over the past four years to around 35%, compared to American global consumption of close to 27%.

Increased demands on physical, social and business infrastructure are essential to support the growth in production, a burgeoning middle class and high rates of consumption. The Brazilian government plans to invest US $315b on infrastructure over the next 5 years. On the outskirts of São Paulo, Brazil, São José dos Campos is a huge 1,200,000m² technology and research business park. The joint initiative between the state of São Paulo and private investors includes; state run universities, aeronautical research, renewable energy generation, business incubators and more.

Protectionist economies with complex tax and company systems, like Brazil and Argentina, present some very real challenges for New Zealand businesses wishing to enter these markets. Political uncertainties in Brazil and Argentina are likely to raise concern and caution for New Zealand businesses accustomed to a relatively stable and transparent system. Higher inflation rates and volatile currencies also have direct implications upon the cost of doing business. Bribery and corruption is often discussed as part of the business landscape in Brazil and Argentina. Although we may consider these business practices unethical they need to be understood and managed.

All these challenges and more considered, the message received from businesses we reviewed in Argentina and Brazil is persistence, patience, good strategies and local partnerships can be rewarded with handsome dividends.

Despite the challenges of doing business in Brazil and Argentina, both countries offer a number of strategic investment opportunities in the food chain, research and technology (ICT), manufacturing, services, education, infrastructural, healthcare, aeronautical and renewable energy sectors, just to mention a few. Once you have established an operational entity in either Argentina or Brazil, the Mercosur Trade Agreement can allow and assist growth into more markets in the South American region.

It is recommended that interested New Zealand businesses conduct thorough due diligence, identify and work closely with savvy local partners, utilise support options such as New Zealand Trade and Enterprise and enter with rigorous business plans. Depending on the product or service it can take between six months and five years before a return on your investment is realised. It is therefore highly recommended that businesses be financially prepared to support long-term investment. With a bit of Kiwi ingenuity and hard work, New Zealand businesses that choose to embrace the challenge and opportunities presented in these markets will position themselves for substantial growth in a dynamic and thriving economic market. Tomorrow’s economies are here today, they are in sight of us and we have the capabilities to venture into them.

Sri Gazula, Daniel Feutz and Belatchew Nadew are currently completing their Executive MBA through Massey University and recently returned from an overseas study tour to Argentina and Brazil.