Joint export promotion, especially when financially supported by the government, can be a very efficient but also a tricky tool.
Exports, what is it actually?
Before discussing export promotion and its applications, it is important to specify what exporting actually is all about. For the firm, exports offer the opportunity for economies of scale. With a broader market reach and many customers abroad, a firm can produce more, and, particularly in the manufacturing sector, do so more efficiently. As a result, exporting can lead to lower costs and higher profits both at home and abroad. Exporting also means market diversification, and provides stability by not making the firm overly dependent on any particular market. Exporting lets the firm learn from the competition, makes it sensitive to different demand structures, and makes its managers appreciate and cope with diverse cultural environments.
Exports need to be seen from a spirit of international collaboration; after all, every export has to be someone else’s import. This may well be the key to re-thinking export promotion. In many cases we have often forgotten to ask our partners in different countries how we could help their imports. In other words, localizing the product and the whole production, sales and marketing thinking. Localizing the product means that export promotion has to start from the home ground. The whole chain of design, production and marketing has to be thought over. This type of re-thinking also leads to the conclusion that knowledge and market information are of utmost importance. Acquiring market information and researching local consumer behaviour patterns has very often been left out in the planning processes.
Problems and Hinders for Exporting
It is important to understand what kind of problems or concerns companies have when planning exports. Finding a solution to these problems is a vital part of export promotion as well.
Smaller firms in particular tend to encounter five types of export-related problem areas:
- Logistics, arranging transportation, determining transport rates, handling documentation, obtaining financial information, coordinating distribution, packaging and obtaining insurance.
- Legal procedures which typically cover government red tape, product liability, and licensing and customs/duty issues.
- The servicing of exports is a third area; where the firm needs to provide parts availability, repair service and technical advice.
- Sales promotion is a fourth area; firms need to cope with advertising, sales effort and the obtaining of marketing information.
- The fifth problem area concerns foreign market intelligence, which covers information on the location of markets, trade restrictions and competition overseas.
These five points cover well the problems that we face in SME’s everyday life. It is very important to keep all of these in mind when planning any international activity. Export promotion should not only be seen as a way to boost marketing, since it covers quite a number of other important aspects as well.
Export Promotion Programs
Traditional export promotion programs have been quite widely studied, especially in the case of government-supported programs. Export promotion programs represent readily available external sources of information and experiential knowledge and provide the firm with an external capability to cope with the complexities of exporting. As such, export promotion programs are believed to enhance a firm’s competitiveness compared with that of non-users by increasing the knowledge and competence applied to export market development. Furthermore, export assistance is generally provided free or at a nominal charge, offering a cost-efficient means of gaining knowledge and experience. Such assistance also provides a central inventory for market information and sales leads, which enables the firm to save time and money.
Therefore, the use of export promotion programs can result in a considerable reduction in the investment necessary to generate and maintain in-house export expertise. Another well-known and empirically supported financial benefit of export promotion assistance is the direct cost savings enjoyed by users through programs such as subsidies, below-market rate loans, and reduced bulk rates on rental spaces at trade shows and travel fares. As such, usage of export promotion programs enables a firm to reduce operating costs and become more profitable and therefore more efficient in its export activities.
“One of the major criticisms of government export promotion schemes in many countries, is that they tend to be poorly targeted”
One of the major criticisms of government export promotion schemes in many countries is that they tend to be poorly targeted. Awareness levels about export schemes among managers of companies at exporting or pre-exporting stages of internationalisation are often quite low, and the perceived usefulness of schemes may decline as companies internationalise and their needs become more specific. One solution may be to develop a better understanding of the needs of managers who make export market development decisions, and to target segments of managers (rather than companies) who share similar strengths and weaknesses.
On the other hand, one needs to remember that especially in the case of smaller boat building countries, they can never get enough exposure. By joining forces even smaller companies get visibility that is bigger than the company of that size would otherwise expect to get. Again, we have to remember that visibility is only one side of the process.
“By joining forces even smaller companies get visibility that is bigger than the company of that size would otherwise expect to get”
Export promotion programs are neither a panacea nor a complete waste of resources. On the one hand, the perceived inability of these programs to increase export sales either directly or indirectly suggests that export promotion assistance is not a sufficient factor in enhancing exporting firms’ effectiveness. Therefore, it can be argued that realization of export sales entails several other interrelated activities, any of which can adversely affect the firm’s prospects of achieving its sales objectives. An important policy implication of these results is that the highly publicized reluctance to use government export assistance programs, especially by smaller firms, may be attributed to the lack of the perceived contribution such programs make to export sales growth. A formidable task awaiting export development offices is to generate and disseminate information providing strong and direct evidence contrary to the perceived inability of export promotion programs to assist in export sales growth.
Governments seem to have developed various approaches towards export promotion. One focuses on knowledge transfer to enable greater opportunity in change competence within firms. Here, governments offer either export service programs or market development programs. Service programs typically consist of seminars for potential exporters, export counselling in most various ways. Market development programs provide sales leads to local firms; offer participation in foreign trade shows, preparation of market analyses, and market intelligence.
In today’s rapidly changing business environment, few resources are permanently needed. A shift is moving us all from “possession” to “usage.” Companies have more opportunities to collaborate by, for example, sharing warehousing, transportation or even assembly facilities abroad, thus, making exports easier and cheaper. Governments can encourage such export collaboration and alliances within or even across their borders in order to make their firms more competitive. For example, an accumulation and subsequent sharing of benchmarking information on industry specific performance dimensions can make a major difference in letting firms learn how and where to compete.
“Any activity, such as export promotion, for which substantial resources, both public and private, are being deployed, should be subjected to systematic and periodic evaluation. It is also necessary to learn from past experiences in order to improve the planning and execution of future programs. In order to cope with changing situations there must be readiness by governments to readapt programs and, sometimes, even change the whole direction of effort”.
The importance of knowledge in export promotion
In the previous chapters I have discussed the importance of knowledge and information for any planning process for export promotion. Information is a crucial strategic resource for those who use it. In business, management has come to realize that managing a business well is managing its future, and managing its future is managing information.
Information is even more important in the international setting, where entirely new parameters and environments are encountered. Business executives, policymakers and researchers alike need to know about the economic environment, the technological level, and the cultural and social dimensions of foreign countries. It is also important to understand foreign political systems, determine their stability, comprehend pertinent legal issues, and identify differences in societal structures.
Lack of needed information is the major deterrent for the entry of small and medium-sized firms into the export market. Research analysing international market failures ex post facto found that most errors could have been avoided if the firm and its managers had obtained adequate information about the business environment.
I would claim that there is a clear need to analyse the real purpose of export promotion and its targets. The change in all industries is so fast that also export promotion must be able to adopt new approaches to stay viable. New business environments demand for on-going strategy planning. This planning process has to able to produce ideas and result in new approaches to be able to ensure the required efficiency and sustainable growth. The theories seem to come to the conclusion that the stress of export promotion can no longer be on subsidization.
“The stress of export promotion can no longer be on subsidization”.
The companies have to start export promotion from their home grounds by preparing themselves properly in all sectors of their business. They will have to aim to develop a competitive platform that will then enable them to launch successful exports well prepared in all aspects of their business.
In the marine industry, with such a high percentage of SMEs, there is a lack of corporate structure and experience in growing a business. This is why the need to turn some of the export promotion home-oriented. This industry is particularly vulnerable to the economic cycle being dependent on consumer’s discretionary expenditure. This is why the boat building companies are less able to survive bad times.
Export promotion will have to start from sustained and transferable research and data gathering, which will allow qualitative advantage over massed, produced products from the emerging economies and improved manufacturing techniques and lean, quality businesses. A sustainable future for small companies, like in the recreational boating will be ensured by the intelligent use of export promotional tools, creative development of environmentally sound products, processes and operations. Producing competitively positioned craft with high level of innovation, added value and customer satisfaction will help in keeping the good position.
In addition to the traditional ways of carrying out export promotional programs, the companies will have to start re-thinking the whole scope. The importance of knowledge and information gathering in the planning process is paramount. On the other hand, all theories make indications that joint participations in trade fairs, trade missions, working with the press and joint advertising all bring results. The sustainability of competitiveness, though, will have to come from deeper in the company’s processes.
Before you decide to take part in any export program you need to do your homework. Does my product fit into the target market, is my price on a suitable level, do I have the production capability and are my sales people up to the job? A couple of simple but very important details.
Dr Jouko Huju DBA, GMBA-Finland
+358 40 5509310
Disclaimer: Global Marine Business Advisors and its associated website www.gmba.blue are not registered legal entities. GMBA is a network of independent marine industry advisors. In all articles the opinions expressed are those of the author and does not necessarily reflect those of GMBA