Several small states in the world are constituted of one or more small islands isolated from the mainland.
Examples are the Maldives, Seychelles, Malta, Cape Verde, etc.
They are known as microstates because they are independent states, despite having a small size and a tiny population (few exceed half a million inhabitants).
Today we want to understand if these markets can be attractive for an exporter and how to reach them.
What are the island microstates?
In the table below, we have placed the island microstates showing the total GDP, the GDP per capita, and the number of inhabitants.
Most of these states are known as tourist destinations, and their economy is mainly based on tourism and fishing. Although in more recent times some of these countries are known as tax havens.
Precisely because the economy is strongly based on tourism, it makes these states very interesting for exports, in particular for two reasons:
1) Almost all goods are imported from outside. Tourists often request goods of different types such as fashion clothes, certain foods, sports equipment, rental cars, etc. There is the opportunity to export a wide variety of goods of different price ranges.
2) Despite the low number of resident inhabitants, in reality, the number of people (and consequently of consumption) is much higher than what the number of inhabitants suggests.
For example, the Maldives has a population of 393,000 yet welcomes 1.5 million tourists a year, most of which are concentrated in the high season.
How to enter the market
To enter these markets, you need to find a local distributor who decides to sell your products locally
Local distributors have specialized in one or more product categories and are in the business for years. They have long experience in importing and working with foreign companies, so they know how to manage logistics, import duties or other taxes, and product approval when necessary.
Finding the right distributor is the winning choice for exporting into microstate islands. Often there is only one distributor of reference for certain types of products, which act as a monopolist for the trade of certain products and therefore have a strong power to push certain products/services on the local market.
Is there an alternative to distributors? What about sales agents?
It may make sense to contact sales agents, but it is crucial to work with experienced ones only. Local agents have to support you not only in finding clients but also with logistics and customs management.
Logistics and customs can represent a problem that could take a lot of your time to solve. It may not be worth spending too many resources in managing these aspects due to low volumes.
Therefore, I reiterate that it is extremely important that the distributor or agent has to take care of bureaucratic and logistic aspects.
What about getting in touch with retailers?
If you sell niche B2C products, you could also try another way to sell in the micro island states.
You could contact local stores that sell similar products, then ask if they are interested in purchasing your products. Local stores may recommend local distributors or might be interested in purchasing products directly from you.
Can it be an option to enter the local market directly by opening a company branch on-site?
In most cases, no.
Micro island states are small markets and a critical mass of sales is usually not reached to consider opening a local branch. Even multinationals prefer to rely on local distributors who already know the market.
A single microstate is rarely an important strategic market for a single manufacturing company. However, the sum of all the island microstates can generate a considerable sales volume (we might think of a company that produces diving equipment).
However, a single microstate can hardly be so important as to make it necessary and convenient to open a local office.
How to find a local distributor?
The first piece of advice is to contact local shops that sell products similar or complementary to those you produce and ask if they can indicate a local distributor.
This approach is feasible if you sell very specific products and where specialty stores exist.
If you sell KiteSurf equipment, call all the shops that sell sports equipment on the island.
If you sell auto accessories, call local dealers and auto parts stores.
If you sell high-end costumes, contact local fashion stores.
One tip: go there directly to the shops. You could maybe take a vacation on one island and use a day to visit the shops. A non-formal approach is often more effective.
For example: do not make an appointment by introducing yourself to the visit, but go directly to the shops (perhaps immediately on the first day, so you have time to meet the owner in the following days or even the distributors in the same week).
This approach is much more difficult if you sell mass consumer products such as food. It is tough to show up in a supermarket and ask for information about the local distributor (I would try, but there is a high risk of not having precise answers).
It is necessary to do more careful research. In many microstates, there are about ten distributors that manage almost all the import of consumer goods. They are historical distributors who during the years signed exclusive distribution agreements with a large number of brands.
In many cases, these distributors are a kind of oligarchy that controls a large chunk of the local economy.
Another tip for finding local distributors is to post your business ad on the Globartis business platform. We do not have members from all the microstates, but we do have several entrepreneurs and managers from Malta, Mauritius, Cape Verde, Iceland, and Seychelles.
How to negotiate with the local distributor.
The negotiation is similar to that with other distributors, but a couple of aspects should be considered.
Despite low volumes, local distributors often have a strong negotiating power, because there is not much competition among distributors (usually).
In many cases, distributors in microstates know each other personally. If you are negotiating with two different distributors, it is not unreasonable that they talk about it. Be consistent in what you say to one and the other and consider the possibility that they are in contact.
We talked about island microstates however, there are profound differences between them.
For example, Malta, which is in the European Union despite being a microstate, is very close to Italy and follows the European Union rules regarding product approvals and import taxes. In this logic, the Maltese market presents the characteristics of a microstate in a less evident way.
On the other hand, some overseas islands that are part of other states are very similar to microstates. And the market has the peculiar characteristics that we described before.
An example is the French overseas domains (French Guyana, Reunion, Guadalupe, Martinique, etc): they are French territory, but thousands of kilometers away. Being France, they follow European rules. They have the Euro and follow French laws, but with some exceptions. For example, the tax laws are different and the VAT rate is also different than in France. Local distributors are managing most of the businesses in French overseas domains.
From this point of view, these possessions are more similar to microstates (from a market point of view) than to mainland France.
Although they are small markets, island microstates can be extremely interesting for companies working in certain sectors (tourism, catering, sports equipment, etc.). However, even businesses that are not related to tourism can find advantages in exporting to microstates.
Microstates are usually ignored by most of the companies, and therefore there could be the possibility of entering the market enjoying less competition than other nations.
My advice is to try to test the waters and find out if there are concrete possibilities. If you see that a competing product is for sale on the island, don’t assume it has opened a distribution channel. In some cases, local stores or distributors buy the product from other distributors in other countries, without going through the manufacturing company. So they may be interested in dealing directly with the manufacturer of the product.
As you can see from the map, there are many microstates are distributed in various areas of the planet. To get started it is good to approach first those who have trade agreements with your country.
Are you looking for business partners in microstates? Find business partners worldwide with the Globartis b2b portal.