State by State: Asia and Minnesota Trade

 

Known as the ‘Land of 10,000 Lakes’, Minnesota is the second northernmost state in the U.S. In 2013, the state’s real GDP reached US$312 billion, up 2.8 percent from the previous year and significantly outpacing the 1.9 percent national increase. Major industries in Minnesota include medical devices, biomedical technology, renewable energy, environmental technologies, agribusiness as well as financial and insurance services. In this brief, Dezan Shira & Associates examines Minnesota’s trade with ASEAN, China and India.

ASEAN and Minnesota Trade

Trade and Exports

Minnesota’s almost billion-dollar trade surplus with ASEAN is impressive; in 2014, Minnesota’s exports of US$1.77 billion far exceeded imports from the region of US$808.4 million. This makes the ASEAN trade bloc – which includes the Southeast Asian nations of Brunei, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand and Vietnam – a hugely important market for Minnesotan products and export minded traders.

The Trans-Pacific Partnership (TPP) agreement, currently doing the rounds in Washington DC, could be a big deal for Minnesota. The TPP has the potential to increase Minnesota exports substantially. Two high tariffs which would be eliminated by the TPP are Malaysia’s tax on iron and steel structures (up to 25%), and Vietnam’s duty of self-adhesive plastic and tape rolls, which is currently 17%.

The main destinations for Minnesota exports in ASEAN are the Philippines, which received US$571.2 million of Minnesota’s exports, and Singapore, which received US$530.9 million. It should be remembered that Singapore is a prime re-export destination, as it contains the world’s second busiest container port by traffic. 32.6 million containers were loaded and unloaded in Singapore, signifying that Minnesota exports to Singapore are often shipped elsewhere in Asia.

The majority of Minnesota’s imports from ASEAN come from Malaysia (US$235.7 million), Thailand (US$172.1 million) and Vietnam (US$156.8 million).

Investment Opportunities

There is something for every company in ASEAN –perhaps the most economically diverse regional grouping in the world. Singapore’s dynamic economy is a typical base for holding companies in ASEAN. As a market for Minnesota’s exports, its high-income residents have a GDP per capita around 10 percent higher than residents of Minnesota.

ASEAN remains a key market for Minnesota exporters. Like ASEAN countries itself, electronic integrated circuits and micro-assemblies are a leading part of Minnesota’s exports, and the value of such products exported from the state shot up 11 percent over 2013-14. Malaysia’s electrical and electronics industry should be on the radar of Minnesota businesses. The Malaysian Investment Development Authority sees the semiconductor sector as spearheading growth. Exports of semiconductor devices in 2013 made up 47 percent of Malaysia’s total electrical and electronics exports. As a key part of the global supply chain, Malaysia is a location for Minnesota firms to consider in great depth.

ASEAN also presents an opportunity for Minnesota’s healthcare industry. As economic development leaves the famines of previous generations as distant memories, the demographic landscape is set to be altered over coming years.

Tailoring your healthcare products and services to suit ASEAN’s diverse market is an absolute necessity. This is especially apparent in age demographics. According to the World Bank, life expectancy at birth in Singapore in 2013 was 82 years, equivalent to that of Australia. Looking at Myanmar in 2013, life expectancy was 65 years, equivalent to the USA in the early 1940’s. Myanmar’s development trajectory appears set to follow others in the region, led by labor-intensive industries.

Meanwhile, Vietnam is not only an export market; it is also one to invest in. In particular, the Vietnamese market presents an excellent opportunity for Minnesota-based retailers. By the end of 2012, approximately 40 percent of the 700 supermarkets in Vietnam were a part of a foreign group. Considering Vietnam only began opening its doors to companies including Metro Cash & Carry and Lotte Mart in 2009, this represents a big jump. Under World Trade Organization obligations, Vietnam has been required to allow the establishment of wholly foreign owned retailers since January 2015.

In short, Vietnam acknowledges the strength of American retailers and also recognizes the benefits such investors can bring – and especially improvements in the domestic supply chain such as cold storage and field to market time frames.

China and Minnesota Trade

Trade and Exports

Since 2005, trade with China has become an important source of economic growth for Minnesota. Last year, the state saw a record breaking US$21.4 billion worth of exports to foreign countries, with China its third-largest export market. In 2014, Minnesota’s manufactured exports to China reached US$2,233 million, just behind Canada and Mexico. Medical products, electrical machinery, plastics and wood pulp are the top four exports to foreign countries. China is one of the state’s largest markets for optic fiber, optical/checking instruments and integrated circuits. Interestingly, export of food products to China grew by 25 percent compared to the previous year.

Investment Opportunities

Today, numerous Minnesota-based companies have been established in China, including 3M, Cargill, Best Buy, Target, General Mills, Medtronic, Hormel, Imation, Ecolab, Thomson Legal & Regulatory, Carlson Companies and Anderson Corporation. Exporters across Minnesota, from farmers to manufacturers, are looking to sell to China’s vast and lucrative market. Great investment opportunities can be found in the medical device industry, hospitals, healthcare, commercial services, education, food industry, and particularly the clean energy industry.

China aims to increase the share of renewable energy (excluding natural gas and nuclear) in its overall energy profile from nine percent in 2009 to 15 percent or more by 2020. To achieve this goal, coal and carbon energy will need to be replaced by renewable clean energy, namely wind, solar, hydropower, biomass and other viable alternatives. However, China’s lack of supporting technology and professional personnel have greatly impaired the development of its clean energy industry. As a result, the Chinese government released documents encouraging foreign investment in the construction of clean energy power stations, with various tax incentives provided.

In Minnesota, the clean energy sector is one of the state’s fastest-growing and most promising industries. The number of clean energy companies in the state has climbed 122 percent since 2000, and more than 15,000 people are now working in this industrial sector. Minnesota is among the top 10 exporters of water and wastewater treatment technology in the U.S.

India and Minnesota Trade

Trade and Exports

Exports from Minnesota to India have boomed since 2005, almost tripling from US $86.9 million to $321.9 million in 2014. This means that India is Minnesota’s second biggest export partner of all BRICS countries (Brazil, Russia, India, China and South Africa), following only China. Last year alone saw a 70 percent increase in exports from Minnesota to India. If this trend continues, India could be well on its way to becoming Minnesota’s next big Asian trade partner.

The biggest contributor to Minnesota-India trade relations is paper exports, which account for 47 percent of the state’s exports to India. Minnesota’s forestry industry could have a bright future if growing economies like India continue to provide demand. After paper, non-electrical machinery, computer and electrical products are the next biggest exports to India. Overall, however, Minnesota is a leading exporter of a number of products that are experiencing increased demand in the Indian marketplace. In particular, Minnesota has established itself as a prominent exporter of civilian aircraft and vehicle parts as well as healthcare products, primarily medical devices.

Investment Opportunities

Prime Minister Narendra Modi’s Make in India campaign, which is designed to encourage manufacturing in India, presents a number of opportunities for Minnesotan companies. Meanwhile, some Indian companies have begun to invest in Minnesota to support economic development back home. For example, the Essar Group, an Indian multinational conglomerate, recently invested over $1.6 billion to acquire Minnesota Steel LLC, forming a wholly owned subsidiary called Essar Steel Minnesota LLC (ESML). ESML has created a taconite mine and pellet plant in Minnesota; a study by University of Minnesota- Duluth projects this project to boost Minnesota’s economy with $350 million in annual spending. The size of this investment illustrates the level of demand for raw resources in India.

The Indian government has also focused on improving the ease of doing business to allow foreign investors to access India’s rapidly growing market. For example, the government recently opened its medical devices industry to 100 percent foreign direct investment (FDI). The medical devices market in India is valued at $6.3 billion; multinational firms supply an estimated 80 percent of India’s medical devices. Optimistic experts expect this industry to be worth $50 billion by 2025. To achieve this, India will require significant investment, technical guidance and strategic partners from abroad – all of which represent opportunities for Minnesotan healthcare companies.

Separately, India remains a global leader in business process outsourcing (BPO). Minnesota-based Target Corporation has maintained a back office in India for a number of years, but small and medium sized enterprises (SMEs) are increasingly taking advantage of the low operating costs for back office support from India. Another area where Minnesota is primed to take advantage of Indian economic growth is in agricultural exports. Major Minnesota-based multinationals like General Mills and Cargill already have divisions in India, but smaller food companies expect to find more opportunities to serve India’s growing middle class in the near term.

Further Support from Dezan Shira & Associates

Dezan Shira & Associates can service Minnesota-based companies that are looking to develop their Asia operations. The firm can help companies establish a direct office in the region and can guide them through the affiliated tax, legal and HR issues that come with doing so. To arrange a free consultation, please contact our U.S. office at usa@dezshira.com.

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