ups business monitortm export index latin america...the ups business monitortmexport index (bmei)...

UPS Business MonitorTM

Export Index Latin America

2018

Index

P. 3 1. ForewordP. 3 2. ObjectivesP. 4 3. Main FindingsP. 4 3.1 Main trendsP. 6 3.2 Logistics flowsP. 9 3.3 Online flowsP. 14 3.4 Payment flowsP. 16 3.5 Supplier flows

P. 20 4. Industry HighlightsP. 23 5. Key TakeawaysP. 24 6. Sample: Industries, Selection Criteria

and CompositionP. 24 6.1 Industries evaluated for the BMEI 2018P. 24 6.2 Geographic breakdownP. 24 6.3 BMEI 2018 SME profileP. 25 6.4 Type of executive interviewed

P. 26 7. MethodologyP. 26 8. Panel of Opinion Leaders

Industry White PapersAutomotiveHigh-TechIndustrial Manufacturing

© 2018 United Parcel Service of America, Inc. 2

1. ForewordThe UPS Business MonitorTM Export Index (BMEI) Latin America 2018 is the result of interviews with 2,082 small- and medium-sized exporters and importers in 11 Latin American countries and the United States. The BMEI 2018 examines the critical variables of typical SME export and import operations from the perspectives of both parties. The study’s focus on importers (buyers) and exporters (sellers) reveals strategic insight intoareas of improvement for exporters and importers to strengthen their business dealings and drive transactional flows.

The SMEs interviewed employ 150 or less employees and completed at least five foreign trade transactions in the 12 months prior to the interview.

In addition to the sample of 2,082 exporters and importers, in-depth interviews were conducted with a panel of 16 experts.

This year‘s report builds on the momentum of the prior BMEI studies. The UPS BMEI Latin America 2017 can be downloaded at: pressroom.ups.com.


2. ObjectivesThe BMEI 2018’s assessment of the critical variables of typical cross-border transactions carried out by small- and medium-sized exporters and importers addresses several objectives:

Determine the main causes of delivery delays for exporters and importers.

Understand how online transactions are changing the way companies export and import products.

Evaluate how payment methods are facilitating or hindering cross-border payment flows.

Identify gaps between exporters and importers by determining what exporters consider to be their main competitive advantage, and identifying the most important attributes weighed by importers when assessing new potential suppliers.

3. Main Findings3.1 Main trends

Eight clear trends in four key areas were identified among the region’s exporters and importers across three industries in 12 countries. They are:

4KEY AREAS

8MAIN TRENDS

This white paper explores the eight main trends identified in the BMEI 2018 and highlights the gaps between exporters and importers, in general, and digital players vs. nondigital players, in particular.


§ LATAM exporters prefer traditional payment methods for online sales, unlike U.S.-based exporters.

§ Online transaction costs are the same or higher than for offline sales/purchases.

PAYMENT FLOWS

§ Exporters are using shipping and logistics services as a key supplier differentiator.

§ Online sales have a minimal impact on delivery times.

LOGISTICS FLOWS

SUPPLIER FLOWS§ Importers are highly likely to

switch suppliers if offered flexible payment terms followed by better shipping and logistics services.

§ Exporters and importers cited production delays as the main cause of delivery delays.

§ Exporters are not using their company websites to full capacity.

§ More importers are making online transactions than exporters.

ONLINE FLOWS

Logistics flows§ Exporters are using shipping and logistics services

as a key supplier differentiator.§ Online sales have a minimal impact on delivery

times.

3.2 Logistics flows

In the BMEI 2017, 78% of importers cited shipping and logistics solutions as the most important attribute when choosing a supplier, after price and product quality. In the BMEI 2018, exporters were asked to self-assess their competitive advantages, leaving price and product quality aside.

Exporters in the total sample named “shipping and logistics solutions” as their main competitive advantage with 26% choosing this response.

Furthermore, findings clearly reveal a categorical effect of shipping and logistics services on online sales. In the case of exporters who also said their online sales have increased, 41% cited shipping and logistics services offered to their clients as the main competitive advantage.

Exporters – Q: Price and product quality aside, what is your company’s main competitive advantage?

When importers were asked what would convince them to switch suppliers, their top two responses were similar to what exporters said their customers value the most but in the opposite order: seventy-six percent of importers said they would change suppliers if offered “flexible payment terms or financing,” whereas 66% cited “shipping and logistics solutions.” These findings are in line with the results of the BMEI 2017 in which importers cited “shipping and logistics services” and ”flexible payment terms” as the top two factors they take into consideration when evaluating an international supplier, price and quality aside.


76%

BMEI 2018: main reasons importers would switch suppliers

BMEI 2017: the most important attributes of an international supplier, price and product quality aside

78%66% 78%

The general consensus among the BMEI 2018 panel of opinion leaders is that online transactions will lead to greater productivity but the adoption of digital forms of doing business is still low in export/import transactions. That said, 34% of exporters said their delivery times had decreased as a result of online transactions, a clear indicator of productivity gains.

The overall impact is still low, especially among importers, with 60% indicating no change.


Exporters and importers – Q: How have online transactions affected your delivery times?

Delivery times

Exporters* Importers

*Percentages may not add up to 100% due to rounding.

60%20%

20%

54%34%

13%

“Logistics is the Achilles’ heel of Central American exporters.” (Carmen Vergara, Head of Research for SIECA, Secretariat for Central American Economic Integration)

Online flows§ Exporters are not using their company websites

to full capacity.§ More importers are making online transactions

than exporters.

3.3 Online flows

Adoption of online technologies is changing how exporters and importers are doing business in Latin America and the Caribbean (LATAM) but gaps persist, and in some cases, are growing.

The internet is clearly the preferred channel for making contact with new buyers, especially through company websites.

However, besides using the internet to contact new buyers or suppliers, the overall use of online tools and strategies is low among exporters and importers.

For example, even though company websites are the preferred online channel for closing transactions among both exporters and importers, overall spending on digital strategies to better position companies websites (e.g., online advertising and search engine optimization [SEO]) is limited.

Sixty-four percent of all exporters in LATAM do not invest in online advertising or SEO tools.

The study's findings reveal the positive impact that online advertising and SEO tools have on companies’ online sales. Thirty-six percent of exporters who indicated that they invest in online advertising and/or SEO strategies also reported an increase in online sales, up from 25% of the total sample.

Exporters – Q: What channels did your recent customers use to establish contact with your company? (multiple responses)


While 42% of exporters in the total sample sell their products online, only 4% – 40 exporters – indicated that they also use a combination of three additional online strategies for their exports. These include: e-marketplaces (e.g., Alibaba or EBay), online advertising (e.g., AdWords) and/or SEO tools, and online channels to transact and receive payment for those sales.

U.S.-based exporters lead the ranking with the highest number of participants in this small circle of highly digital exporters (11%). However, there were some surprises. For example, neither Mexico nor Argentina – two of the region’s largest markets included in the BMEI 2018 – made the cut. (See Figure on p. 11.).

Seventy-three percent of importers in LATAM are making online purchases, whereas only 56% of exporters in LATAM sell their products online. Seventy percent of all LATAM importers are making purchases online via their suppliers’ websites.

There are several factors that influence companies’ use of online channels for doing business, including their countries of origin, destination markets, products imported/exported, and their industry.

In comparing results from LATAM with those from the U.S., the lag among LATAM exporters in terms of online cross-border transactions and the use of other online tools is evident.

U.S. exporters are using the internet to sell their products to a greater extent than their LATAM counterparts. They also indicated a higher use of credit cards and other electronic payment methods for online transactions than LATAM exporters, which still use bank transfers for most trade transactions. (See Payment Flows for an analysis of payment methods accepted by exporters.)

12%

U.S. Exporters NOTselling online

48%

LATAM Exporters NOT selling online

Only 12% of U.S. exporters indicate that they do not sell any products online, whereas 48% of LATAM exporters do not sell any products online.


The No. 1 obstacle to online transactions cited by importers is “insufficient or incomplete product information available on the supplier’s website or third-party e-marketplaces (e.g., product description, photos, tech specs, etc.).”

Based on exporters’ responses to four different questions in the BMEI 2018 questionnaire, a ranking of the most digital countries was created. The results were also used to create a profile of the most digitally proactive exporters of the total sample. As mentioned, only 40 companies from the sample of 1,041 exporters made the cut.

Exporters – Q: Have your company’s online sales increased, decreased or remained unchanged?

Exporters(Total sample)

Online sales

6%

48%25%


Country of origin of the top 40 digital exporters

Overall, 86% of exporters with strong digital strategies cited consistent or higher online sales, compared to only 31% of the total exporter sample. Furthermore, only 3% of the top 40 digital exporters reported a decline in their online sales vs. 48% of the total sample of exporters.

Digital Exporters(Top 40)

53%

3%33%

The use of online channels for conducting business transactions still lags behind traditional channels (e.g., telephone, face-to-face and fax). However, importers show a greater tendency than exporters to adopt online channels for transactions.

73%

27%

My supplier's websiteE-marketplaces

71%

29%

My company's websiteE-marketplaces

Online channels used to complete purchases: company websites vs. e-marketplaces

Twenty-nine percent of exporters who reported an increase in online sales cited “buyers indicated that they wanted to make their purchases online” as the No. 1 reason for the rise in sales.

Exporters Importers


A breakdown of the two parties’ use of online channels to complete purchases/sales shows a similar preference for suppliers’ websites over e-marketplaces.

Preferred channels used for sales/purchases:

§ LATAM exporters prefer traditional payment methodsfor online sales, unlike U.S.-based exporters.

§ Online transaction costs are the same or higher than for offline sales/purchases.

Payment flows

“Methods of payment and transactional security are two issues hindering online sales throughout LATAM. The cost of selling online needs to come down.” (Samuel Lara, Advisor for Special Projects, Export Promotion Agency of Mexico – ProMexico)

3.4 Payment flows

U.S.-based exporters indicated a higher acceptance of credit cards and PayPal than their LATAM counterparts but penetration levels of digital payment methods are low even in the U.S.

The BMEI panel of opinion leaders cited high interest rates and commissions among the main reasons for the low penetration of digital payment methods.

Exporters – Q: What is the main method of payment used by your customersfor online transactions?

The overall impact of online sales/purchases on transaction costs has been minimal with 57% of exporters and 50% of importers reporting no change. Furthermore, 28% of exporters and 34% of importers reported an increase in transaction costs, highlighting the fact that digital does not necessarily mean cheaper.

Exporters and importers – Q: How have online transactions affected your company’s transaction costs?

Transaction costs

15%

28%

57%

17%

34%

50%


Exporters Importers

Supplier flows§ Exporters and importers cited production delays as the

main cause of delivery delays.§ Importers are highly likely to switch suppliers if offered

flexible payment terms followed by better shipping and logistics services.

3.5 Supplier flows

Small- and medium-sized exporters and importers are fairly aligned in terms of identifying the main pain points in the supplier-buyer relationship.

The two parties’ perceptions of the most critical aspects of cross-border transactions –price and product quality aside – coincide. Both parties cited: 1) shipping and logistics solutions; 2) flexible payment terms; and, 3) after-sales support/services, as the top three critical aspects of the supplier-buyer relationship.

However, there are some gaps between exporters and importers. Seventy-six percent of importers cited “flexible payment terms and/or financing” as a reason they would switch suppliers, the highest response. When exporters were asked to name their main competitive advantage, “flexible payment terms” came in second with 23% of the responses (see p. 6).

The second reason importers gave for why they would switch suppliers (66%) was “shipping and logistics services,” which 26% of exporters cited as their main competitive advantage. Finally, 50% of importers cited “after-sales services and support” as a reason they would switch, which 21% of exporters cited as their main competitive advantage.

Given the importance importers place on flexible payment terms and financing, exporters should offer optimize the financial conditions they offer buyers.

Importers – Q: Price and product quality aside, what could a new supplier offer your company that would make you switch suppliers? Please indicate next to each

option whether it would prompt you to switch suppliers or not. (multiple responses)

“Public policies can help cushion competitive disadvantages related to logistics by creating a bridge between the exporters of the region and international logistics operators offering storage and distribution services, bringing exporters’ products closer to global consumption centers.” (Juan Ignacio González, Export Promotion Agency of Argentina (AAICI).


Eighty-eight percent of importers said they would consider switching suppliers, highlighting the high likelihood among importers to change if they are offered better terms and conditions. This small group cited “good price/quality ratio of supplier’s product(s)” (44%) and “long-standing supplier/buyer relationship” (35%) as the two main reasons for why they would not switch suppliers.

Thirty-five percent of importers said they had recently changed international suppliers. When importers were asked to cite the main reason for why they had switched suppliers, 26% cited delivery delays, just slightly below increased product price (27%) and slightly above poorer product quality (23%), reflecting the importers’ sensitivity to delivery delays.

0% 10% 20% 30% 40% 50%

We are bound by contract

Consistent on-time del iveries

Good customer service/afte r-salesse rvices/technological support

Flexible payment terms such as financing

Long-standing supplier/buyer relationship

Good price/quality ratio of supplier’s product(s)

Importers – Q: What was the main reason that your company stopped working with a specific supplier or switched to a new supplier?

For exporters, the impact of aligning their business strategies with the needs of their customers resulted in higher sales. Forty-one percent of exporters who indicated that their online sales increased cited shipping and logistics services as their main competitive advantage offered to their customers, up from 26% of exporters in the total sample (see logistics flows, p. 6).

Q: Is your company currently searching for new international suppliers?

43%

56%

2%

Yes No Doesn’t know/No response

Importers – Q: What are the main reasons why your company would not change its international suppliers? (multiple responses)


Exporters and importers – Q: What are the main causes of your delivery delays? (multiple responses)

Manufacturers’ production capacity is the greatest challenge facing exporters and importers.

Importers U.S. LATAM

Delays 47% 73%No delays 45% 25%Doesn't know/no response

8% 3%

Exporters U.S. LATAM

Delays 56% 62%No delays 39% 36%Doesn't know/no response

5% 2%


In the BMEI 2017, importers indicated delivery delays as the main obstacle faced during the import process. In the BMEI 2018, the majority of exporters and importers indicated they experience delivery delays (63% and 79%, respectively). The leading cause of delivery delays cited by both parties was “production delays.”

Production delays aside, exporters indicated “customs and brokerage services” as the second main cause of their delivery delays, whereas importers cited “shipping-related delays attributed to the shipper” as the second main cause of their delivery delays.

When comparing LATAM exporters and importers to their U.S. counterparts, both groups indicated experiencing high level of delays. However, a higher number of LATAM exporters and importers reported delivery delays compared to their U.S. counterparts.

Industry highlights§ Automotive§ High-tech§ Industrial manufacturing

Ind. Mfg.High-techAutomotive

4. Industry highlightsA look at the findings for each of the three industries included in the BMEI 2018 reveals some useful insights into the current trends for each one.

Exporters – Q: Price and product quality aside, what is your company’s main competitive advantage? (simple response)

29%

21%

19%

27%

22%

23%

23%

25%

21%

In logistics flows, exporters in two of the three industries cited “shipping and logistics services offered” as their main competitive advantage. The exception was industrial manufacturing, where they came in a close second after “flexible payment terms.”

Exporters – Q: What is the main method of payment used by your buyers for online transactions? (simple response)

Regarding payment flows, automotive is the industry with the highest level of credit card acceptance for online transactions (23% vs. 18% for the total sample) and use of PayPal (18% vs. 9% for the total sample).

Shipping and logistics services offered

Flexible payment terms

After-sales services and support

Bank transfer

Credit card

PayPal

64%

17%

5%

5%

53%

23%

18%

3%

68%

15%

5%

3%Letter of credit


LOGISTICS FLOWS

PAYMENT FLOWS

Ind. Mfg. High-techAutomotive

Importers – Q: Price and product quality aside, what could a new supplier offer your company that would make you

switch suppliers? (multiple responses)

68%

68%

47%

66%

54%

42%

68%

52%

42%

In supplier flows, the importance of shipping and logistics solutions as a key differentiator is particularly notable in automotive, where importers cited them as the main reason they would switch suppliers tied with flexible payment terms.

Shipping and logistics services offered

Flexible payment terms

After-sales services and support

Exporters and importers – Q: Do you use online or offline channels to complete purchases? (simple response)

63%/38%

In online flows, the gap between exporters’ and importers’ use of online channels identified in the total sample persists in the breakdown by industry, with the biggest gap emerging in industrial manufacturing (18 percentage points) and the smallest gap in high-tech (10 percentage points).

48%/52%

64%/36%

54%/46%

67%/33%

49%/51%

A detailed report for each of the three industries included in the BMEI 2018 can be downloaded at: pressroom.ups.com.

Offline Online


ONLINE FLOWS

SUPPLIER FLOWS

Exporters

Importers

Automotive High-techInd. Mfg.

Automotive High-tech Ind. Mfg.

GAP(in %

points)

GAP(in %

points)

Key Takeaways

5. Conclusions: Key Takeaways

§ Exporters and importers attribute the majority of their delivery delays to production delays. If exporters are going to satisfy increasingly greater demand from regional and global buyers, they must drive productivity in local manufacturing processes.

§ Given the high likelihood among importers to switch suppliers, exporters need to design strategies to address buyers’ demands and reduce delivery delays.

§ Exporters need to offer online purchasing channels due to rising demand from importers.

§ Exporters’ websites are the main tool used by importers to contact new suppliers and make purchases. Exporters need to assess their websites as the main point of sales for international customers, allocating budget for online advertising and SEO strategies to ensure better positioning.

§ Offering effective shipping and logistics is a way for exporters to build loyalty among their customers, especially in LATAM where delivery delays are particularly prevalent.

§ Online transactions are contributing to faster delivery times, but the overall impact has been minimal, as the transition to online platforms is still fairly slow.

§ Although the overall impact of online purchases on transaction costs has been minimal, experts agree that this trend is attributable to the ongoing transition from offline transactions to online transactions, with many companies using a combination of online and offline channels to sell their products.

§ Low use of electronic payment methods for trade transactions, especially in LATAM, is a challenge facing financial institutions and governments alike.

LOGISTICS FLOWS

PAYMENT FLOWS


ONLINE FLOWS

SUPPLIER FLOWS

6. Sample: Industries, Selection Criteria and Composition

6.1 Industries evaluated for the BMEI 2018

Three industries were chosen for the BMEI 2018: industrial manufacturing, automotive,and high-tech.

These three export industries were identified based on a cross section of the following four variables:

1. High participation in U.S. trade2. High participation in Latin American trade3. Demand/use of express courier services4. Estimated density of exporters

6.3 BMEI 2018 SME profile

As part of the selection criteria, the study interviewed SMEs – companies with fewer than 150 employees – because this segment represents the lion’s share of foreign trade transactions in the Americas. An additional criterion applied to the sample was that all selected exporters and importers had to have performed at least five import or export transactions in the 12 months prior to the interview.

As a result, 2,082 companies were identified and interviewed, for an overall margin of error +/- 2.1%, according to the Calculation of the Probability of a Sample used in this type of research. The sample consists of two groups: 1,041 exporters and 1,041 importers, with a margin of error of +/- 3%. The sample will be evenly distributed among the three industries – 694 interviews in each – with a margin of error of +/- 3.7%. The sample by country is determined by the size of each one.(*)

6.2 Geographic breakdown

With the main industries of interest defined based on trade flows and other critical factors, UPS chose to focus on 12 specific markets: Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Guatemala, Mexico, Nicaragua, Panama, Peru and the United States.

To analyze the export/import behavior in each one of the countries selected for this study, a sample per country was defined based on the size ratio between each market with a margin of error between +/- 4.7% and +/- 9.1%.


Sample summary (Percentages may not total 100 due to rounding.)

6.4 Type of executive interviewed

Finally, in order to achieve the study’s objectives, the individuals within the company responsible for international purchases or sales were interviewed.

2,082INTERVIEWS

Industrial Manufacturing

33%High-Tech

33%Automotive

33%


7. MethodologyIn the sample of 2,082 exporters and importers, participants were contacted and asked questions over the telephone.

The questionnaire was based on three distinct stages of the typical SME export and import operation: selection of international suppliers, payment flows, especially online transactions, and logistics flows.

8. Panel of Opinion LeadersWith the findings based on the responses from the 2,082 exporters and importers in hand, a panel of 16 experts was consulted. In-depth interviews were conducted with opinion leaders (leading public officials from government agencies and industry leaders from private entities linked to foreign trade and e-commerce). Their insight provides country-specific, industry and regional background and contextual information. The interviews were conducted with the objective to validate and narrate the results obtained.

Entities included in the panel of opinion leaders

Argentina§ AAICI

Country Entity

Brazil§ APEX Chile

§ PROCHILE

Colombia§ ANALDEX

Costa Rica§ CADEXCO§ PROCOMER

Dominican Republic§ ADOEXPO

Mexico§ CANACINTRA§ PROMEXICO

Nicaragua§ APEN

Panama§ AMPYME§ APEX

Regional§ ALAI§ CAF§ GOOGLE§ SIECA

Opinion leaders


ups business monitortm export index latin america...the ups business monitortmexport index (bmei)...

Documents