Global Trade Strategies: Interacting with Trade Institutions and Businesses 1949991504, 9781949991505

Table of contents :
Cover
Contents
Preface
Chapter 1: International Trade Promotion: Why and How
Chapter 2: Trade Development: Needs and Strategy Building
Chapter 3: Facing New Challenges of the Most Recent Development Schemes in a World of Regionalization / Globalization of Trade
Chapter 4: Drivers of Competitiveness
Chapter 5: Strategic Building Tool for Trade Analysis: The TiVA Concept
Chapter 6: International Trade Information and Trade Flows Analysis
Chapter 7: Trade Development Strategic Linkages
Chapter 8: Selected Successful National Case Studies
Chapter 9: Trade Development Strategies for SMEs
Chapter 10: Using the Trend in Value Added Concept Published by OECD (TiVA Database) and the Canadian Trade Commissioner Service (TCS) Offer
Chapter 11: Disruptive Innovation: A New Dimension of Competitiveness Issues
Chapter 12: Global Competitiveness Ranking
Chapter 13: Integrating All Factors for Market Development: Artificial Intelligence Systems, a Future Challenge for Trade Support Institutions
Chapter 14: Rethinking Global Trade Strategies in the Digital Era
About the Authors
Index
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Citation preview

Interacting with Trade Institutions and Businesses Michel Borgeon • Claude Cellich Developing global business strategies in today’s competitive and disruptive environment calls for greater interaction between the business sector and government. Among the instruments available today are various market analytic tools. These tools coupled with new business models not only provide a competitive edge but also becomes a necessity to survive in the global ever changing trade environment.

The authors explain how to design practical strategies in a global context, greater competition and uncertainty due to the introduction of new business models. Michel Borgeon is professor emeritus at International University in Geneva,. Prior to joining International Trade Centre (ITC), he taught at the French Trade Promotion Center. At ITC, he held senior positions with extensive missions in Africa and Asia. He co-authored the textbook on Trade Promotion Strategies Best Practices. He holds a PhD in economics, Paris Pantheon Sorbonne, and a diploma of the Institute of Political Sciences in Paris. Claude Cellich is currently vice president for external relations at the International University in Geneva. Over the years, he has lectured at the ENA in Paris, the University of Economics in Prague as well as at trade promotion organizations. Prior to joining academia, he held diplomatic positions in Geneva and India with the International Trade Centre the joint agency of the United Nations and the World Trade Organization. He co-authored textbooks on global business negotiations and trade promotion strategies. He holds graduate degrees in economics and business administration from the University of Detroit.

International Business Collection S. Tamer Cavusgil, Michael Czinkota, and Gary Knight, Editors ISBN: 978-1-94999-150-5

DIGITAL DISRUPTION IN GLOBAL TRADE

This book concerns everyone dealing with market selection, market strategies, and trade policy. The reader will be able to develop global strategies based on trade information and trade flows analysis. An analysis of the most competitive countries in world trade shows the importance of pro-business policies, access to modern infrastructures, investment in research, and increased productivity.

BORGEON • CELLICH

Global Trade Strategies

Global Trade Strategies Interacting with Trade Institutions and Businesses

Michel Borgeon Claude Cellich

Global Trade Strategies

Global Trade Strategies Interacting with Trade Institutions and Businesses Michel Borgeon and Claude Cellich

Global Trade Strategies: Interacting with Trade Institutions and Businesses Copyright © Business Expert Press, LLC, 2020. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means—electronic, mechanical, photocopy, recording, or any other except for brief quotations, not to exceed 400 words, without the prior permission of the publisher. First published in 2020 by Business Expert Press, LLC 222 East 46th Street, New York, NY 10017 www.businessexpertpress.com ISBN-13: 978-1-94999-150-5 (paperback) ISBN-13: 978-1-94999-151-2 (e-book) Business Expert Press International Business C ­ ollection Collection ISSN: 1948-2752 (print) Collection ISSN: 1948-2760 (electronic) Cover image licensed by Ingram Image, StockPhotoSecrets.com Cover and interior design by Exeter Premedia Services Private Ltd., Chennai, India First edition: 2020 10 9 8 7 6 5 4 3 2 1 Printed in the United States of America.

Abstract Developing global strategies call for new business models that ensure the integration of digital technologies in their operations. Traditional ways of doing business in an interconnected world requires firms to rethink their strategies. Successful enterprises are recognizing the importance of data analytics by exploring new insights into customer behavior, experiences, forecasting demand improving supply-chain performance and overall operational efficiencies. The disruptive global business environment has led trade promotion organizations to develop innovative tools and to design trade strategies that take into account digital transformation, rapidly changing market conditions and the entry of new types of competitors. To survive in the global digital economy, trade officials and business executives need to rethink what business they are in and how to digitalize their operations.

Keywords artificial intelligence; competitiveness; trade information; trade flows; trade development; trade maps; SMEs case studies (Finland, Ireland, Singapore, New Zealand, Mauritius, Republic of Korea); disruptive ­ ­innovation; globalization; strategies; value added chain concept

Contents Preface��������������������������������������������������������������������������������������������������ix Chapter 1 International Trade Promotion: Why and How����������������1 Chapter 2 Trade Development: Needs and Strategy Building������������7 Chapter 3 Facing New Challenges of the Most Recent Development Schemes in a World of Regionalization / Globalization of Trade������������������������������������������������������������������������������19 Chapter 4 Drivers of Competitiveness���������������������������������������������25 Chapter 5 Strategic Building Tool for Trade Analysis: The TiVA Concept�������������������������������������������������������������������������33 Chapter 6 International Trade Information and Trade Flows Analysis��������������������������������������������������������������������������37 Chapter 7 Trade Development Strategic Linkages���������������������������47 Chapter 8 Selected Successful National Case Studies�����������������������63 Chapter 9 Trade Development Strategies for SMEs�����������������������107 Chapter 10 Using the Trend in Value Added Concept Published by OECD (TiVA Database) and the Canadian Trade Commissioner Service (TCS) Offer��������������������������������������115 Chapter 11 Disruptive Innovation: A New Dimension of Competitiveness Issues�������������������������������������������������121 Chapter 12 Global Competitiveness Ranking����������������������������������127 Chapter 13 Integrating All Factors for Market Development: Artificial Intelligence Systems, a Future Challenge for Trade Support Institutions��������������������������������������������137 Chapter 14 Rethinking Global Trade Strategies in the Digital Era��������������������������������������������������������������������141 About the Authors�������������������������������������������������������������������������������145 Index�������������������������������������������������������������������������������������������������147

Preface Business interacting with trade institutions reflects the exponential changes that have taken place in recent years. The evolution of global trade, greater competition, and particularly the growth of e-commerce have drastically revolutionized the playing field. In other words, doing business as usual is no longer viable. The availability of real-time data and the integration of digital technologies in their business models enable enterprises to rethink their strategies. The new realities and global challenges facing trade officials and business executives call for innovative business models to pursue global opportunities in the digital era, keeping in mind the new disrupting challenges and opportunities offered by Artificial Intelligence models. Today, business executives are facing increasing pressure from the marketplace for greater efficiency and lower transaction costs. These new challenges can be overcome through shorter production cycles, digital communication and efficient export processes by integrating new technologies in business models and government practices. In view of global competition, businesses can no longer compete on price only but on their enterprise capability to offer a total global response by its capacity to produce to international standards, deliver on time, faster than competition, and provide complementary services to customers. To compete successfully in global markets, trade development strategies must take into account these new imperatives. It is essential that strategies focus on competitiveness rather than on the traditional market based approach. This entails the development of both tangibles and intangibles as well as setting up clusters of export-oriented SMEs joining global supply chains, shorter sourcing and networking among others. Several countries have recognized these new challenges (Ireland, Finland, Mauritius, New Zealand, Republic of Korea, and Singapore introduced in this book) by including the private sector in developing trade strategies. The availability of up-to-date detailed trade statistics by the World Trade Organization, the World Bank, UNCTAD and ITC provide

x Preface

strategy developers invaluable tools to design trade strategies, export market development plans and apply best practices. We trust the the information provided in this book is not only helpul but sincerely hope it would simulate further research in the development of new and innovative strategies. This book reflects our past association over several decades with the International Trade Centre (UN/WTO) and our teaching at the International University in Geneva. We owe a special word of thanks to the talented staff of Business Expert Press for their constructive feedback. Finally, the biggest thanks of all goes to our families for their support, understanding, and patience enabling us to complete this project. Michel Borgeon and Claude Cellich Geneva, Switzerland January 2020

CHAPTER 1

International Trade Promotion: Why and How With the progressive liberalization of markets on the long term, the globalization process implies for local firms as well as for governments more and stiffer competition, at home as well as on the international marketplace. Now more than ever, the competitive advantages that any firm or country possesses become smaller and less durable. Enterprise managers are facing realities: becoming globally competitive, pursuing new commercial opportunities (in line with the market liberalization), or conduct “business as usual,” with inevitably diminishing sales and profit. At national level, the long-term implications are also dramatic. In any country, and more specifically, the concerned government, establishes and maintains a business environment (even in an increased international competition) in order to encourage local entrepreneurs to invest, to help increasing employment, to generate specialized skills and support innovation and new technologies, with the goal of making profits (fairly taxed) and finally to become a competitive global player. If none of the above, the business sector will suffer and will not be able to take advantage of emerging international export opportunities and trade performance will inevitably deteriorate. This is a particularly challenging scenario for the public-sector planner and strategy-maker in a developing or transition economy. There, the private sector may be fragile, with day-to-day survival concerns rather than long-term development, and would be unable to take any kind of leadership role in response to the rigors of new global competition. Therefore, the challenge is introducing and managing an effective national export strategy (NES).

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How to proceed? Two steps are proposed: 1. Identify some basic principles 2. Analyze examples of best practices (selected case studies developed in Chapter 8). What should a national export development strategy encompass, in the dynamics of today’s international markets? Should it focus on market development, improving traditional promotional instruments, like trade fair participation, trade missions, and commercial representation services in foreign markets, or should NES concentrate on delivery of more efficient public-sector services that address “persistent market failings,” such as the reluctance of the prospective exporters. These trade support institutions may have recurrent obligations to: • purchase information, • cover initial market contact and exploration costs, and • invest in technological innovations. This should be coupled with NES promotional initiatives, organized on behalf of existing enterprises, combined with on-profile programs designed to generate new export capacities. Assuming that there is a need for the local business community to achieve international standards of competitiveness, the way forward consists in expanding the export strategy equation for inclusion of all the factors relevant to reduce the cost of the export transaction, which means: • improving forward and backward linkages within and among local industries, generating higher value-added production capacities, • helping companies to acquire new technologies, and • developing new, export-oriented competencies. However, for an NES, to be effective, it must be comprehensively integrated into the overall economic planning framework. It should not



International Trade Promotion: Why and How 3

simply deal with offshore market development and promotion, but should integrate the longer-term onshore challenges of establishing a national competitiveness framework, creating an export culture and national consensus, thus developing new export industries. Of course, this building process implies a clear policy statement and orientation: such a choice is obvious for small or limited resources countries (e.g., Singapore), but not so for the large ones (Brazil, Indonesia, even the United States, for which exports represent a relatively smaller share of GDP component). In short, export strategy should address the issue of current and future international competitiveness throughout the country’s supply chain. This leads to the conclusion that the process of managing NES implies the direct and substantive involvement of all relevant ministries in the strategy management process: industry, agriculture, transport and public utilities, labor, education, foreign affairs and, of course, finance, with interministerial consultations at the highest level of decision making. Then comes the fundamental issue of the public–private sector partnership. For the strategy to work, the private sector is a key, if not the key player for the implementation of the strategy, which must be fully involved in the overall process—not just consulted but involved. The private sector must ”buy in” and feel responsible for the success or failure of the strategy. If this is obvious and well understood in many open markets countries, it is more difficult to put into practice in some “transition” economies with the former state trading companies. The next step concerns the process of strategy development and management, reviewing the basic question of leadership and ownership. • Should trade development strategy management be a topdown responsibility (i.e., government-directed) or a bottom-up exercise (business-led)? • Should the initiative shift as strategy moves through the design, implementation, and evaluation/refinement phases? What are the institutional implications?

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One must look at the entire competitiveness platform. —Michael Czinkota, George Washington University, Washington, D.C. There is a need to review the type of institutional linkages and functional relationships needed to ensure that a broad-based strategy is effectively formulated, implemented, and reflected in the initiatives of organizations directly involved in the export development effort. The goal is to build national consensus and commitment, and to maintain functioning partnerships at the strategic level within the public sector, between the public and private sector, among trade institutions, and within the business community. Generally, the public-private sector linkage in strategy development is weak, it lacks structure. —Cecil Jowell: Private Sector Initiative for Export Promotion, Cape Town, South Africa. There is a need to look at the implications of the fully integrated approach to export development for the National Trade Promotion Organization (TPO). Clearly, the TPOs have to be proactive and move to make effective contribution to the export strategy management process. In some countries, they unfortunately do not have the proper status or mandate to enter into (trade) policymaking. A NES must not only be perceived as being effective, it should also be confirmed as being so, and not just because the monitoring and evaluation of strategy is becoming an increasing preoccupation of authorities concerned with public budget and expenditure. The assessment of utility and impact is necessary to refine and adjust both the strategy itself and the implementation process. There is a need to look at some of the more important “competitiveness-drivers.” They relate to the implications for the national export strategy of e-commerce, the increasing impact of multinationals, and the growing trend of global outsourcing, through the TiVA development concept (Trade in Value Added, developed in Chapter 10).



International Trade Promotion: Why and How 5

Some key questions emerged, which should need a clear answer in building a public sector driven global strategy: • What is the role of the public sector in assisting local firms to find their ways along the information superhighway? • What steps must be taken to ensure that local companies can engage more effectively in the international outsourcing programs of multinationals and other foreign companies? • What should be the priorities of the public-sector strategy-maker? While going some way in answering these questions, the aim is to assist the NES process to develop a response to the challenges of today’s competitive marketplace. In this area, there are more questions than answers. But this is an incentive for creating or strengthening partnership all over the global arena. The following support measures would be to create and maintain • a stable, predictable macroeconomic environment for enterprise development, characterized by low-budget deficits, tight inflation control, and competitive real exchange rates; • an outward-oriented market-friendly trade and industrial regime emphasizing the dismantling of import controls and tariffs; and • a proactive foreign investment strategy that targets a few realistic sectors and host countries, views overseas promotional offices as public–private partnerships, provides competitive investment incentives, and streamlines investment approval processes; • sustained development in human capital at all levels (particularly tertiary, scientific, information technology, and engineering education) and increased enterprise training (including assistance for industry associations to launch training schemes, information campaigns to educate firms about the benefit of training and tax breaks for training); • comprehensive technology support for quality management, productivity improvement, and technical support services for

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SMEs (including grants to obtain ISO 9000 certification), the creation of productivity centers, and commercialization of public technology institutions; • access to ample finance at competitive interest rates through cautious monetary policy management, competition in the banking sector, training for bank staff in assessing SME lending risks, and specialist of soft loans for SMEs; and • an efficient and cost-competitive infrastructure in air and sea cargo, telecommunications, Internet access, and power resources (energy saving minded). This (ideal) list has been constituted by members of the Commonwealth Secretariat, London, during a brainstorming session, 2015.

CHAPTER 2

Trade Development: Needs and Strategy Building The 10 Strategic Challenges The main purpose of trade development is to assist business executives to take advantage of emerging opportunities and to find the right way to access new markets, to identify trade partners, or to reinforce trade links (e.g., in increasing market shares, accessing trade opportunities on markets, or taking advantage of trade agreements). This means that relevant programs have to be redesigned, keeping in mind the relative competitiveness of the product and services concerned, and then to help developing trade capacities, which is the essential component to include in the national approach to trade promotion, consequently with institutional implications. The method to achieve this process would be, at the starting point, to review the existing business trends and the related needs for trade (identified both at local and global level). But such needs assessment may lead to conflicting results. Obviously, needs and priorities will differ, depending on who is being consulted; this aspect of consensus building will be developed in further chapters. So there is a need to cope with strategic challenges. Two sets of strategic challenges may be considered to achieve that goal, the first as a kind of “generic challenges,” which are structural and permanent, the second set more specific and relevant with the actual evolution of world trends and globalization issues (reviewed in Chapter 3).

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First Set of Challenges: Structural Needs Strategic Challenge 1: Balancing Needs A broad definition of trade promotion and its related support services would apply in this approach. From a public sector perspective, awareness building, development of a national export culture, skills development, and the stimulation of international entrepreneurship are the major components of a national export strategy. The challenge facing the strategy-maker within the context of a national export strategy is therefore how to balance these two interpretations of the need for trade promotion (new markets exploration versus expansion of existing ones, or in different terms, supporting newcomers or strengthening existing ones). Strategic Challenge 2: Needs Versus Demand A complicating factor in needs assessment arises when the strategist tries to distinguish between demand within the business sector for specific trade promotion services and actual need. To achieve such needs analysis, a survey was done some time ago in the United States, which reflects quite well the situation both in developed and developing countries and in many emerging economies. Of course, this reflects perceived needs, which are not necessarily objective. Trade Support Services as Viewed by the U.S. Business Sector 1. Services considered most beneficial (even when they are available or accessible online, free or not): • Banking services guarantees payment by customers. • Banking services handles all financial aspects of sales. • Service that could buy the firm’s products and resells them overseas. • Service that provides contact list of potential foreign buyers. • Service provides specific commercial information on prospective buyers. • Public freight-forwarding service handles all paperwork.



Trade Development: Needs and Strategy Building 9

• Online service offers free export-related assistance. • Service locates potential agents or distributors. 2. Services considered least beneficial (also including online access, free or not): • General information on doing business in a country • Distributing lists of products available for export to foreign countries • List of foreign importers • General export counseling provided by nonpractitioners • Business trips arranged to foreign countries • General seminars on exporting • Service to settle trade disputes (Source: Management International Review, vol. 26 issue 4).

This survey reveals that the ultimate beneficiary—the export-oriented entrepreneur or manager—sees the need for trade promotion services in term of his or her demand for particular types of information, reducing risks and facilitating services. The entrepreneur does not generally perceive the need for trade promotion services in terms of the firm’s own structural or operational shortcomings, for example, in being able to use commercial intelligence effectively or to manage the export process efficiently. Indeed, most exporters do not even know that they have weaknesses and may not therefore avail themselves of remedial services even if they are offered (typically market reports findings and recommendations for the marketing mix). The reason is that they consider their home and foreign market requirements as similar, which is not necessarily true. Consequently, the challenge is how to satisfy the business sector’s demand for immediate solutions, while concurrently developing higher levels of managerial competency over the long term and capacity to achieve international standards of competitiveness. A differentiated approach may be the best option, which defines trade promotion in terms of development objectives (e.g., gaining a significant market share in the target country), and then looking at the existing demand within the business sector for promotion and trade support

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services, keeping in mind longer-term competitiveness considerations (e.g., increasing comparative cost advantage). Strategic Challenge 3: Total Competitiveness Response Capacity For the majority of traded products, information and communications revolutions have put the buyer in the driver’s seat. The Internet is a crucial tool, getting more information on buyers and potential sources of supply and then building proper communication channels. The trend of lowering transaction costs is fueling the growth of supply chains. The goal is to keep in mind that products life cycle are getting shorter and shorter and B to B e-commerce is now largely implemented even by SMEs. Consequently, exporters who previously competed on the basis of price and quality now are also competing in term of response capacity. Success in the international marketplace is increasingly determined based on the firm’s adaptability, flexibility, quick response, communication, and delivery capacity. In short, a total competitive response is now expected. What are the implications for the national export strategist? The trade promotion strategy must not only address market identification and market development issues, but also facilitate the business sector’s adjustment to changing methods of doing business and to the market’s rising expectations about the seller’s capacity to respond “comprehensively and just in time.” These statements that constitute the new drivers of business competitiveness will be reviewed in the second set of strategic challenges. Strategic Challenge 4: Who Is the Client? The most critical question for the strategy-maker: who within the business sector should really be the strategy’s primary clients? The answer will dictate the strategy’s overall definition and scope, in the final analysis. The obvious response is that strategy should target the exporter with sufficient product/service knowledge and experience. This is for instance an enterprise that with a little promotional support can develop existing markets and possibly diversify in new ones. If



Trade Development: Needs and Strategy Building 11

Table 2.1  Choosing the right client group Client focus Firm’s export potential Low

Medium

Low Support requirement

X

Medium Low

High

Z

Y

Y

Y

Y

trade promotion services focus on this target group, the impact of the strategy can be easily demonstrated within a shorter time. These are, of course, important considerations when the strategy-maker decides on the category the client falls into as described in Table 2.1. When defining the national approach to trade promotion, the development dimension of an export strategy implies that the strategy-maker should concentrate on target groups indicated by Y. These are inexperienced businesses with good export potential, but with extensive need for support. The risk will be higher of course, with less obvious impact in the short to medium term. The type of support provided will also be significantly different and more comprehensive than that required by the high-potential firm with low export-support requirements. In short, many trade support institutions will tend to concentrate their efforts on client group X, in the absence of strategic direction pressures from senior planners. But category Y exporters will in all likelihood be more numerous than high-potential/low-support requirement firms. A strategy that concentrates on providing support directly to the firm may overstretch available both financial and technical resources. This would suggest that strategies targeting category Y should be defined in terms of support to industry associations, groups of firms and clusters, rather than individual companies. This has implications for the type of institutional relationships that a national export strategy needs to encourage. Finally, the third category of potential clients consists of firms with a high support requirement but very low export capacity (group Z). While logic suggests that such firms are not a legitimate recipient group, the tendency has often been for the public sector, in the absence of

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consultation with the business sector, to favor this category, for reasons of developmental or social considerations. Experience indicates that such initiatives contributes only marginally to export performance and involve a significant opportunity cost. This is rather based on political choices than economic ones. Targeting client group Y (medium to high export potential and support requirement) will involve an approach beyond classic market development initiatives (offshore promotion) toward new onshore capacity development. This means adapting the production and export capacity on a constant and dynamic basis, following market actual or expected trends. It is frequent that, for SMEs in developing countries, weaknesses at the production end of the transaction process often represents the greatest constraint to sustained improvement in export performance due to: • production inputs that do not meet international specifications; • inadequate technology for design or quality requirements and for moving up the value chain; and • insufficient installed capacity for minimum order sizes. Yet, few export strategies address these onshore issues directly. Strategy-makers who are preoccupied with questions of market access and market development may well ignore the fact that one cannot sell what one does not have or cannot produce. Particularly from the developing country perspective, defining a trade promotion strategy implies onshore product development consideration as a fundamental issue for a comprehensive strategic response. A good tool to assess the enterprise capacity to develop its market overseas is to use the CORE program—Company Readiness to Export online test. As the author describes their tool: CORE™ is a self-assessment tool that will allow you to determine your company’s readiness to expand its operations internationally and ascertain its ability to export a particular product. Upon completion of the questionnaire you will be able to systematically



Trade Development: Needs and Strategy Building 13

and objectively identify your company’s strengths and weaknesses concerning exporting. CORE™ generates answers (based on your responses) and then places them on two independent dimensions of readiness; “Organizational Readiness” and “Product Readiness.” At the end of each session, results are presented in a comprehensive, easy to read format and can be compared with past work sessions. https://globaledge.msu.edu/tools-and-data/diagnostic-tools/core Strategic Challenge 5: Generating Synergies A strategy that defines trade promotion in the context of export capacity development will involve onshore programs, designed to generate complementarities and synergies within export industries. In this respect, creating capabilities and efficiencies through industrial clusters and networks, reinforcing backward linkages between high-performing exporters and local suppliers, and promoting the formation of joint marketing groups have all proven to be relevant for a long-term export capacity development. For example, EcoHamaca is a network of 11 handicraft hammock producers in Masaya, Nicaragua, created in 1996 with the technical assistance of the United Nations Industrial Development Organization (UNIDO). Each enterprise competes separately on the local market, but they collaborate in developing foreign markets. Designs and production specifications were standardized in collaboration with wood and furniture producers in the Masaya industrial cluster. Export-oriented production was consolidated. Pricing was similarly standardized. The network has acquired legal status and has hired a business development and training manager. The hammock producers have adopted an ecologically friendly strategy, changing the wood used for poles from a threatened species to more abundant species, and using natural instead of chemical dyes. A common brand “Made in Masaya” was launched to promote local identity and establish clusterwide production standards. Eventually, the brand will be extended to all handicraft items produced by the cluster.

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Strategic Challenge 6: Lowering the Cost of Doing Business Reducing the costs of “non-tradeable,” for example, the cost that the enterprise must assume in order to be qualified to export, such as Internet access and quality certification, is also a relevant aspect of a comprehensive national trade promotion strategy. Similarly, all programs designed to reduce the overall export transaction cost by simplifying procedures and lowering the cost of financial services. Reducing the Cost of “Non-tradeables” The ISO 9000 certification is increasingly becoming a prerequisite for firms wishing to export and to progress on the value chain. But the cost of preparing this certification can be too high for many firms, especially the SMEs. This is why some countries are providing help for such process, for instance in Mauritius: Under such scheme, interested enterprises are given guidelines for preparing their proposals for financial support. A database on local and international consultants is made available to the enterprises wanting to prepare for ISO 9000 certification. Firms are reimbursed half the fees paid for such consultancies, up to a specified ceiling. Firms with sufficient in-house expertise to prepare for certification receive up to half the cost (with a ceiling) of sending their quality managers overseas to review the operations of similar firms already registered to ISO 9000. The Ministry of Trade and Industry in Mauritius regularly monitors the impact of the scheme by assessing the participating firms’ export performance. More detailed information on Mauritius’ export strategy is provided in Chapter 8. Lowering Transaction Costs Through Innovative Financing Schemes The comparatively high cost of obtaining financing for SMEs can be attributed in large part to a comparatively high level of risk aversion within the local banking system, limited technical capacities for analyzing credit risks, and the lack of adequate export-related financing schemes. The national strategy-maker can do little to address directly the issue of risk adversity per se other than, perhaps, trying to convince senior



Trade Development: Needs and Strategy Building 15

executives in the banking sector to introduce a less risk-adverse culture within their banks. In creating such context, concerted training improves the expertise of individual loan officers in analyzing risks and adapting financial solutions to the needs of the export community. Experience indicates that local banks, and particularly those that are not internationally “branded” or which are not part of a transnational group, are generally more willing to recognize the need for capacity building through external professional development packages as those provided by UNIDO in their technical assistance programs. More immediate results can be achieved by introducing simplified schemes for the acceptance and discounting of letters of credit (which typically can reduce the cost for the exporter by more than 50 percent). More complex schemes, such as credit guarantee schemes, which enables banks to offload part of the transaction risk, and price guaranteed contracts for commodities such as coffee or tobacco (as offered by the PTA Bank in Nairobi, Kenya) would seem to be particularly relevant. The internationalization of an enterprise tends to be the consequence of a series of adjustments to the changing conditions within the firm and its environment, rather than the result of a deliberate strategy. This process means the shortening of the internationalization process. It should, however, take into account the position of the concerned company in its internationalization process, in which stage it is. This changes the way and pattern of assistance required, depending on the step of internationalization in which the concerned company is engaged. Strategic Challenge 7: Developing an Export Process with the Corresponding Firm Profile According to Kotabe and Czinkota, there are typically five stages that can be identified in the internationalization process of a firm, particularly for SMEs. Even if these references seem a bit old, they are not out of date. These stages are: Stage 1: Partial Interest in Exporting The firm is prepared to fill an unsolicited export order, but does not make the effort to explore the feasibility of exporting (or simply ignores its comparative advantage).

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Stage 2: Exploring Exports The firm is actively exploring the feasibility of exporting, but is exporting less than 5 percent of its total sales. Typically, the firm makes or buys an export market research report on a specific target country. Stage 3: Experimental Exporter The firm is exporting on an experimental basis to countries that are generally close geographically or which share a culture similar to that of the domestic market, with export equivalent to more than 5 percent of total sales. Stage 4: Experienced Exporter with Limited Scope Exports exceed 5 percent of total sales and the firm is ready to adjust export offerings to changes in the commercial environment, but still exporting only to countries that are close geographically or culturally. Stage 5: Experienced Exporter Exports sales are greater than 5 percent of total sales and the firm is currently exploring the feasibility of exporting to additional countries that are distant and have different cultures. Source Kotabe and Czinkota (Journal of International Business Studies, Winter 1992, pp. 637–58). https://researchgate.net/publication/5222595_State_Government_ Promotion_of_Manufacturing_Exports:_A_Gap_Analysis and https://ideas.repec.org/a/pal/jintbs/v23y1992i4p637-658.html Strategic Challenge 8: Shortening the Internationalization Process One strategic approach would, of course, be to shortcut the process. Finland, for example, is endeavoring to integrate SMEs into the country’s export-oriented industrial clusters and is encouraging them to begin international operations at startup phase, rather than following the traditional route of startup from domestic market development to step-by-step export. But this implies a strong national export development program. Strategic Challenge 9: Reorienting Trade Promotion to Develop Long-Term Relationship Studies confirm that the cost of finding a new customer is three times more than the cost of maintaining an existing customer. This suggests



Trade Development: Needs and Strategy Building 17

that a national trade development strategy should reorient market development and promotion efforts away from helping exporters to find new customers on a spot-contract basis, which is the tendency of many trade support programs and toward assisting the local business community in developing long-term supply relationships. This means targeting multinational companies that are outsourcing a (growing) part of their production or service requirements. Of course, in this business, the competition is fierce and comparative advantages are constantly challenged by newcomers, but this point should not be overestimated. Multinational corporations, once they have established a relationship, are not willing to necessarily switch to an unknown newcomer unless there are valid reasons to do so. Strategic Challenge 10: Promoting Foreign Direct Investment Reorienting trade promotion activities to pursue long-term commercial relationships and develop new export capacity raises the issue of whether the strategy should encompass investment promotion. For many developing countries, attracting FDI is the most rational way to acquire new export capacity of an international competitive standard, to obtain immediate market access and to generate dynamic competitive advantages. As a result, the promotion of FDI has become a major feature of national trade promotion strategies (case of China, India, and the “ASEAN tigers”).

Conclusion Taking these challenges into account will involve strategy-makers in an exercise that essentially redefines the traditional approach to trade promotion. And the larger the number of challenges they decide to incorporate the greater the number and diversity of organizations that will need to be engaged in the global strategy development and management process. New and more global set of challenges arise will be reviewed in the next chapter.

CHAPTER 3

Facing New Challenges of the Most Recent Development Schemes in a World of Regionalization / Globalization of Trade These challenges have been stated from the TPO Award event organized by the International Trade Centre —TPO Network World Conference, 2016 The International Trade Centre (ITC) organizes biannual global meetings gathering representatives of institutions promoting international trade and investment especially from developing and emerging economies, but since these countries are those who are deeply, if not the most, involved in the global and regional trade, as part of many global value chains, in the meetings members reflect most of the challenges facing the global trade evolution. As such, these meetings are a source of new ideas and perspectives for shaping global trade strategies. They gather/ share views on the world trends and suggest tools and best practices. This gives strong indications for developing global trade strategies considering new sets of challenges, who are beyond the previous set mentioned in the previous chapter. New Challenge 1: The standards for trade are in the development of global value chain through the next decade. Global standards are now the rule, defined and developed by large multinational companies who set up the design and specifications of their products (more and more with specific services linked with those

20

FACING NEW CHALLENGES

products). The capacity to be an active network member within an export cluster and to serve as partner in the manufacturing process is key to expansion, based on competitiveness constantly monitored by the large buyers. If standards are a prerequisite, capacity to ship at a competitive price is an in-built process. The challenge there consists in the achievement of promotion of a better trade process. Integration into global value chains place (including with “trade fair” conditions) with competitive advantage, rather than becoming a bottleneck, become TPOs’ flags, helping their clients to include standards in their process and offering the solutions and new services to facilitate the integration of SMEs into the global value chains of the future. Businesses need to strive for value rather than volume and it is time to find ways to participate in global supply chains. The tool, which can be used for analysis (and to some extent for future prospects), is a joint publication proposed by WTO and the OECD, called Trade in Value Added (TiVA) initiative, published in 2016 as “TiVA indicators.” This indicator considers the value added by each country in the production of goods and services that are traded worldwide (more in Chapter 10 on this subject). New Challenge 2: Remaining active actors in a complex, uncertain, and moving fast world (UNCTAD statement). Long-term shifts either in growth as well as in shrinking trends are shaping the business environment, and key institutions, as engines for growth, TPOs, and trade associations have to identify and acknowledge these trends, and then they have to design appropriate plans and define long long-term goals for supporting the international business community. This gives the institutions involved in trade promotion a crucial responsibility in focusing toward the right trend, using proper communication channels (including the most recent information technology channels and networks) targeting the existing and potential business actors, considering that such R & D investment in market development cannot be made or is not feasible by individual companies, particularly the SMEs. Chapter 9 addresses the challenges facing SMEs. New Challenge 3: Understanding and using the most advanced information technologies (digital information) in shaping the trends of business.



Facing New Challenges 21

Digital information has rendered entire services sectors tradeable, liberating them from the constraints of distance. Even for physical merchandise, e-commerce has created new opportunities for “micro-multinationals” SMEs to link up to customers around the world. Yet much needs to be done to open the digital economy to all, from improving connectivity, to facilitating payment systems or organizing logistics. Most information is collected, developed, and made available in digital format. This drives up the emerging technologies of Big Data management through the evolving artificial intelligence programs, which fit particularly well in the international trade and investment development schemes, shaping the business landscape with a strong measurable impact on qualified jobs (and people, who would be replaced by various repetitive automation process). This has an impact on business decisions on R & D, in human development interfacing new programs (hardware and software). It is worth mentioning that advice given to business representatives about such new information technology tools by trade promotion institutions can be crucial here. On the positive side, as a consequence of the above mentioned point, companies’ digital transformation creates opportunities for more than 350 million companies but may provoke loss of jobs if no proper training is planned. Human resource training and development is critical. Such training has to be integrated on the job, not only for “blue collars” but also for management. Pilot programs can be designed and developed by trade support institutions (TSIs). Such training component concerns even them, since they have to test, show, and highlight the best practices with a neutral, nonprofit mind point of view. New Challenge 4: Identifying and implementing partnerships and networking among business representatives. In any global value chain, every partner is an essential part of interdependent system and frequently constitutes a critical loop by understanding the role and function of every partner within the flow of supply/production/shipment, manpower, technical know concerning the utilization of information systems, and particularly through Customer Relationship Management (CRM). Shaping, building, strengthening, or reconsidering networks abroad and domestically are key to success or

22

FACING NEW CHALLENGES

failure. A clear example of such issues is given by the failure of a particular battery builder/manufacturer for Samsung smartphones that randomly exploded, plunging the large multinational company in a critical financial situation. In such network systems, the weakest link has a key responsibility in the global value added chain. Powerful internal systems, shared and “fed” by the partners involved in the circuit, particularly in changing situations, have to be developed jointly. In this area, partners and supporting institutions have to work and liaise together, sometimes governments and regulating institutions have to prepare adapted tools, building synergies between trade and investment promotion agencies. Some emerging export-oriented countries are doing this process successfully. The role and function of international trade institutions (WTO, ITC, UNCTAD) is crucial there: beyond trade barriers, with tough international, regional, and local regulation in mind. These institutions keep a close look on at such elements and publish (on line as well) their findings regularly. The trade commissioners posted abroad in liaison with national trade support institutions (TSIs), should link their information system with these sources. New Challenge 5: Total competitive response / multipolar approach to strategic development for TSIs. Wider, competitiveness-based approach to trade promotion strategic development must replace the market-based focus. TSIs or other trade representatives that do not take this approach will have very little impact on future export performance are likely to get limited results. The changing times set another challenge: to ensure that trade promotion strategy development make a significant contribution to overall economic development. In fact, TSIs are better placed to focus on such approach since they have access to a wider knowledge base than individual businesses as they can make international comparisons and draw “balanced” conclusions integrating technology changes, new management schemes, and so on, which are not geared by individual company concerns. Competitiveness and development objectives are compatible. Together, they ensure long-term, sustained improvement in export performance, but their compatibility is not automatic. Another challenge now confronting national TSIs is how to make them complementary.



Facing New Challenges 23

Considering the abovementioned new challenges, what does this mean as the best practice for the TSIs? In this global context, a set of recommendations for developing or strengthening TSIs services was proposed in a recent World Economic Forum (WEF) analysis: • First, TSIs must be comprehensive in their approach. A competitiveness-based export development program requires that trade support be available to the business community at all critical points of the export value chain (and not only in the pure manufacturing, but also delivery and distribution process). Support must be available to enable exporters to produce, market, and deliver more competitively. Support must also be available to new entrepreneurs, to aspiring entrepreneurs, and to export-oriented nongovernmental organizations. It is more and more recognized that the service sector needs to be merged with manufacturing. • Second, TSIs should reinforce their specialization. General assistance does not contribute to greater competitiveness. Specialized services do (for instance, labeling, environmental conditions, energy saving, or climate change influences). Such evolution is sometimes difficult to achieve because business operators do not recognize the need for specific assistance. • Third, the range of services needed to sustain export competitiveness at the national level and the investment that specialization implies are beyond the capabilities of a single TSI. A multiple-agency approach to export development requires the building of a national trade support network. • Fourth, as a consequence of the above, TSIs must strengthen the network through partnerships, both in the home country and abroad. TSI managers must reinforce their network by implementing joint programs with other specialized TSIs, ideally focusing on a specific need within the export community. • Finally, they must keep on top of this volatile business environment by being prepared to adapt. TSIs should benchmark

24

FACING NEW CHALLENGES

their performance, measure results and adjust when the impact or achievement is below expectation. The above point definitely places the emphasis on TSIs’ role in the internationalization / globalization process exposed discussed in the next chapter. For further discussion, see: https:www.weforum.org/

CHAPTER 4

Drivers of Competitiveness There are a number of new forces in the international marketplace, namely drivers of competitiveness, which are changing how business is carried out while creating new trade opportunities for enterprises. These drivers dictate what action must be taken at the level of individual enterprises and may involve a fundamental shift in the way companies organize and conduct their business. While the decision to change rests entirely with the enterprise’s management, the public sector must assume the instrumental role of a facilitator. After all, it is the public sector’s responsibility to ensure that the appropriate business environment is in place to support a suitable response by the private sector. This is the key to a successful strategy partnership at the implementation phase of a national export strategy.

What Are the New Drivers of Competitiveness? (From a panel of 60 respondents, both public and private sector management representatives, during a workshop on the subject, organized by International Trade Centre (ITC)): • Priority of rapid response • Globalization of the supply chain • Increasing importance of the product’s “service packages.” Together, these drivers equate to a new definition of the total response capability that will shape the enterprise, its networks, and supply chain of the future. Each of these competitiveness drivers are described in detail below:

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Global Trade Strategies

Competitiveness Driver 1: Priority of Rapid Response The pace of innovation is shortening the lifecycle of most manufactured products and consumer goods. Competitive advantage from product differentiation now lasts, on average, one-tenth of the time it did 10 years ago. Higher levels of competition in the international marketplace are increasing pressures to reduce working capital tied up in production, supply pipelines, and inventories. The global fashion clothing industry, for example, now works on producing seven or eight models every year. Not so long ago, four was the norm. The cycle time from design-to-shop-shelf delivery has, as a consequence, fallen to under two months. Definitely, a much higher premium is accordingly placed on the potential supplier’s rapid response capability. Modern technologies and greater access to information are also enabling companies in importing countries to introduce new efficiencies, particularly in terms of shorter sourcing times into their supply chain. These companies now expect their suppliers, both local and foreign, to introduce equivalent levels of efficiency. Average order sizes are shrinking, forcing importing companies to demand tighter order-to-delivery response time. To respond, enterprise managers in developing or transition economies must rigorously examine their own supply chain to discover where value, quality, and customization should be added and where damage, delay, and nontradeable costs are being incurred. If such analysis is completed on a regional or industrywide basis, large-scale efficiencies affecting national competitiveness may be uncovered. At the very least, areas will be identified where essential action needs to be taken at the national level. Technological and infrastructural advances in many exporting countries have enabled more firms to meet these new requirements. The effect has been to increase competition among suppliers. To respond effectively to this increasing emphasis on rapid response, the enterprise manager must: • introduce efficiencies into supply chains and establish suitable contingency plans to overcome long-term bottlenecks and potential production disruption;

Drivers of Competitiveness 27

• acquire the necessary quality certification required by the markets the company wishes to enter; • introduce new technology and processes to provide accurate production and delivery information to buyers and to maintain regular and immediate communication with all parties in the buyer’s supply chain. In fact, applying internet technology to the supply chain can reduce transaction costs by about 60 percent; • establish capacity to communicate with current and prospective buyers on an immediate and regular basis. While the initiative obviously rests with the enterprise, the role of the public-sector strategy maker is to ensure that the national export strategy supports rapid response, specifically, through: • streamlining export procedures and authorization requirements; • promoting the development of quality certification services; • establishing national facilities for business-to-business e-commerce and reducing communication costs; • improving transport competitiveness; and • reinforcing backward linkages to local suppliers of production inputs. It should be noted that more and more global importers are now requiring new suppliers to be “Internet enabled” as a prequalification for becoming supply chain partners (and therefore become capable of communicating immediately through the intranet company network).

Competitiveness Driver 2: Globalization of the Supply Chain To maximize efficiencies, manufacturers are revising their supply chain and outsourcing major elements of their business, in production, logistics, customer servicing, and administration. The virtual company is becoming a reality, one that limits itself to its defined core operations and the marketing and management of its brand but outsources all other business activities.

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Global Trade Strategies

This rising trend presents major commercial opportunities for enterprises. The success of local enterprises in securing foreign outsourcing operations will depend to a large extent on the efficiency of import and banking processes—both of which must be addressed directly in any national export strategy: http://catgen.com/EN/metamarket.html Global sourcing has become a mainstream strategy of transnational corporations, both large and small. However, approaches differ significantly among transnationals, even among product lines within the company (depending on business involved). Many base their approach primarily on cost-reduction sourcing decisions without taking into consideration long-term benefits. It becomes a business in its own, as efficiency seeker. Such trends have some common characteristics; they limit the involvement to short-term relationships, constantly analyzing the comparative advantage of one country’s production location against other possibilities. One case goes against such expanding practices, applying a more sophisticated business ethics: IKEA usually signs a three-year supply agreement with subcontract companies (most of them in developing countries or countries in transition) on the basis of a very strong description of services required, supply calendar, agreed prices, and though quality control provided by the headquarters. But this kind of “mutual chart” is rather the exception. On the national side, it is frequent to find offers and incentives by some countries that consider themselves as more competitive, on cost of labor for instance, against other offers (Vietnam against China). Effectiveness-seeking transnational companies, on the other hand, are more concerned with achieving quality, reliability, and swift product development cycles and are more likely to undertake direct investment, promote skills transfer, and integrate suppliers into their product design and development processes (notably when local customization is involved). There are advantages for exporting enterprises to pursue partnerships with these two types of transnationals (as well of course with the IKEA type of partnership agreement). A different type of promotional approach is required for each, a fact that should be reflected not only in the export strategy of the export supplier, but in the national export strategy.

Drivers of Competitiveness 29

Support Without Control: South Asia Cases Some programs are sponsored by the public sector that links SMEs to larger firms as subcontractors and have been introduced in China, the Republic of Korea, and Singapore. The most successful ones help to coordinate the output of a number of smaller suppliers to make them more attractive to large firms as exporters. Part of the secret of their success is that the trade promotion organization (TPO) or trade development agency in each of these countries have provided strong support without assuming tight control.

Competitiveness Driver 3: Increasing Importance of the Product’s Service Package Increasing use of the Internet by sellers has given multinational companies easy access to information on prices, availability of products, and product innovations. This is making the service package the key differentiation factor and provider of value added. Exporters who concentrate purely on product delivery are likely to lose out to product suppliers who can add an associated package of transactional and post-transactional services.

A Major Factor: the Public Sector’s Influence over Business Competitiveness The emphasis is that international competitiveness is not only driven by businesses and markets alone but due to other factors. Potential business trading partners can be deterred from making long-term commitments by what they consider an inadequate local business environment. Such inadequacies can range from poor physical and social infrastructures to contradictory policies, from non-availability of competitive local suppliers to a lengthy bureaucratic procedure. For example, one developing country made exhaustive efforts to attract direct investment of a manufacturing plant from a large foreign transnational. Initially, the foreign company was enthusiastic about the possibility of sourcing much of its primary and secondary materials from

30

Global Trade Strategies

within the host country. However, the national supply chain remained inefficient, there was an imbalance between local tariffs and foreign direct investment preferential incentives, and a poor local communication and administrative infrastructure. Within three years, the manufacturing plant was importing 95 percent of its requirements. The low level of local employee education kept productivity standards below average and wages were lowered to retain some profitability. In countries where highly protective practices or tariffs have been maintained, multinational manufacturing investors complain that they hardly ever find local suppliers who can meet their requirements. The lesson here is that fiscal incentives—especially those that are time bound—cannot be used to offset unattractive aspects of the legislative, regulatory, or physical environment. Basic problems affecting profitability need to be solved—or at least improved; they cannot be offset through compensation.

Attracting Foreign Investment with the Right Facilities The opening of new and highly efficient port at Mumbai, India, has led to a dramatic increase in the number of multinationals that have applied to set up production facilities there. No amount of marketing, business opportunity profiles, or tax incentives will overcome an inherently unattractive bureaucracy and an unpredictable or unreliable supply environment! This is an era in which the public-sector strategy-maker can exercise a direct influence. Of equal concern to both foreign investors and local exporters are issues associated with intellectual property rights. Transfer of technology, innovative ideas, and operational expertise can be limited if these issues are not addressed in the national export strategy.

Finally, the Issue of Public Procurement Until now, many exporters in developing or transition economies have not participated actively in the public procurement activities of developed markets, which are estimated to account for up to 20 percent of their gross domestic product.

Drivers of Competitiveness 31

The WTO Agreement on Government Procurement is still subject of discussion for streamlining its provisions and at according special and differential treatment to exporters coming from developing countries. The same in EU countries for granting at least equal treatment for service sector foreign providers bid offers. Public-sector strategy-makers should bear these developments in mind when formulating the national export strategy.

CHAPTER 5

Strategic Building Tool for Trade Analysis: The TiVA Concept In times of great and fundamental shifts in trade policy, wherever they come from, either expected or close to emerge with cumulative effects, the flows of foreign trade record the impact of such changes. Keeping this in mind, it seems essential to choose the best and most reliable sources of international trade flows and keep them as a reference for trade information resources. For building trade development strategies, using the most reliable sources in international trade information and market analysis and retaining them as an e-resource—since all are online—is a task that all international trade operators or investors have to consider as a starting and fundamental process, whether they are public institutions or private entities. This exercise is linked to the search of what could be considered as the “best source” in this area—namely who is publishing the best (or more convenient) international trade data. Of course, the answer depends on the user, searching and developing macroanalysis (trade policy agent) or microeconomic scanning data (business agent), but a wide or detailed coverage by a unified data source is the best choice. Another dimension to consider is the major trends identified by international organizations: measuring value-added process over the world trade. Companies are increasingly producing goods and services through supply chains spanning different countries. Organisation for Economic Co-operation and Development (OECD) and the World Trade Organization (WTO) have started measuring trade in value-added as production chains globalize.

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Global Trade Strategies

Such international fragmentation of production is blurring the concept of country of origin. It also calls into question the interpretation of traditional statistics that measure flows of goods and services every time they cross borders. Current indicators do not identify the contribution of each country to the total value of any good or service in the supply chain. To better understand the dynamics of global supply chains and the importance of trade to economic growth and employment, the OECD and WTO have launched a joint initiative to measure trade in the value that is added by a country—through labor compensation, taxes, and profits—in the production of any good or service that is exported. This joint initiative on measuring trade in value-added is helpful to policy makers as explained by OECD and WTO. The two organizations have developed a new statistical model leading to the production of a public database of trade flows estimated in value-added terms. The goods and services are composed of inputs from various countries around the world. However, the flows of goods and services within these global production chains are not always reflected in conventional measures of international trade. The OECD and WTO have developed an instrument to measure this trend through the Trade in Value-Added (TiVA) initiative, which addressed this issue by considering the value-added by each country in the production of goods and services that are traded worldwide. TiVA indicators are designed to better inform policymakers by providing new insights into the commercial relations between nations. The only limitation of these instruments are that there is a rather large delay implied by the necessity to process all data composing the value-added elements in a consistent way integrating the trade classifications involved. Therefore, the latest edition of TiVA indicators published in 2017 cover the period 1996 to 2012 providing indicators for 63 economies concerning OECD, EU, G20, most East and Southeast Asian economies, and a selection of South American countries. As a whole, 34 unique industrial sectors are represented, including 16 manufacturing and 14 services sectors, as well as related aggregates (such as total manufactures and total services). This edition is a “light” update of the 2015 version introducing two new countries: Morocco and Peru. According to the OECD,



Strategic Building Tool for Trade Analysis 35

“The indicators presented in the TiVA database provide insights into • Domestic and foreign value-added content of gross exports by exporting industry; • Services content of gross exports by exporting industry, by type of service and value-added origin. • Participation in Global Value Chains (GVCs) via intermediate imports embodied in exports (backward linkages) and domestic value-added in partners’ exports (forward linkages). • ‘Global orientation’ of industrial activity that is, share of industry valued added that meets foreign final demand. • Country and industry origins of value-added in final demand, including the origin of value added in final consumption (by households and governments) and in investment by businesses. • Bilateral trade relationships based on flows of value added embodied in domestic final demand. • Inter-regional and intra-regional relationships. • Domestic value added content of imports.” Exhaustive trade information and international trade flows are compiled and published by international organizations, either global or regional based on registered data by customs, compiled and integrated in unified international classifications (the harmonized system, or “HS” ). This applies for commodity trade exclusively, the case of trade-in-services being somewhat different in WTO portal. However, trade in value-added statistics are estimates, and they do not replace traditional data but rather complements them by providing another viewpoint for trade analysis. They are useful to identify structures and understand trade patterns, especially exchanges taking place within global value chains, therefore useful to design and shape trade policy orientations but not for decision making at product level. As an example to illustrate the findings of TiVA, the data sheet on the United States is accessible in pdf format (by WTO): https://wto.org/english/res_e/statis_e/miwi_e/US_e.pdf

CHAPTER 6

International Trade Information and Trade Flows Analysis Understanding the structure and evolution of international markets is essential for both firms and trade support institutions. Firms seeking opportunities to diversify products, markets, and suppliers, and trade support institutions setting priorities for trade promotion, sector performance, partner countries, and trade development strategies must have detailed statistical information on international trade flows to effectively utilize its resources. Companies or countries can visualize the market picture of a given country and the competition on such market. International trade information is a strong analytical tool to analyze trends in global trade, even if it reflects past data, the time lag between latest statistics publication is getting shorter and may be considered as essential tools to review and assess global targets. In this field, it is recommended to give priority to international sources, keeping in mind classification problems for proper identification of products and services. International organizations are dealing with these issues in a much more comprehensive way than national sources.

Classification Issues:. The Need for Harmonization International institutions have their own data bank, like the United Nations, at a global level (COMTRADE), the UN Regional Economic Commissions, the OECD, EU at regional level, IMF for trade financial data. However, the need to work on unified platforms implies the understanding of common definitions and unified classification systems.

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Before using data on international trade, it is essential to understand the role and function of a unified commodity trade classification. The Harmonized System (HS) is gradually becoming the platform of universal usage, in addition to another classification system, used more for statistical and long-term analysis, the Standard International Trade Classification (SITC). For HS (Harmonized System), or Classification by Activity (ISIC), refer to the link from UNSTATS for definition and correspondence tables. More information is available at https://unstats. un.org/unsd/cr/registry/regcst.asp?Cl=14 The SITC is also a comparable classification system and a strong analytical tool to analyze trends. Unfortunately, it covers past data, and considering the rapid evolution of trade trends, it should be connected with the more classic and recent trade data. In order to appreciate how reliable and comparable the data may be, it is also essential to understand how and by whom the information are collected and prepared to avoid using questionable data. With a fundamental remark, it is always better to use the primary sources of information. At the national level, these are the National Customs Data, but the limitation is that they apply only for a country-to-country or country to / from the rest of the world analysis. There are in practice three levels of coverage reflected by their own classification system: 1. International and global trade, published by international organization in HS or SITC: United Nation Statistical Office, World Bank with the WITS Data Bank: https://wits.worldbank.org 2. Regional trade with the rest of the world, in HS: OECD and EU. 3. National trade, with the rest of the world, in CCCN (Custom Commodity Classification Nomenclature): for example, US Schedule A (Custom tariffs and regulations are published here). Again, services are classified following totally different schemes, by source and way of supply. This makes the analysis quite challenging. However, among the most widely used source of information provided by the International Trade Centre (ITC) with exhaustive and very practicable tools for market development identification, is based on the

International Trade Information and Trade Flows Analysis 39

Harmonized System (HS). The data shows the evolution of international trade at detailed as well as at global or regional level and shows the role and market shares of competitors, both at product and country or region level. Statistical analysis of trade information requires some attention to classification issues to avoid misinterpretation.

Market Analysis Tools and Trade Maps by ITC ITC has developed five online tools—Trade Map, Market Access Map, Investment Map, Trade Competitiveness Map, and Standards Map—that collectively help improve transparency in international trade. The tools enable companies and trade support institutions to identify export and import opportunities and compare market-access requirements, and they help policymakers monitor national trade performance and prepare for trade negotiations: http://intracen.org/itc/market-info-tools/ It might be noticed that most of the content of the Market Analysis Tools is free for all users (registration is required). Fees are charged when detailed information is required. The major Market Analysis Tools made available by ITC are: 1. Market Analysis The Market Analysis Tools portal is the access point to trade statistics, tariff data, foreign direct investment data, and voluntary standards. To help users make the most of the tools, ITC offers an online training course (free of charge) and makes available user guides as well as information about subscription options for more detailed information. 2. Trade Map The Trade Map provides online access to one of the world’s largest trade databases and presents indicators on export performance, international demand, alternative markets, and the role of competitors from both the product and country perspective. Company contact information is also available for 64 countries, but no individual company data is published. Trade Map gives access, through an interactive web-based interface, the international trade flows in value and quantities, the

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Global Trade Strategies

market shares and unit values for 5,300 products defined at the 2-, 4-, or 6-digit level of the Harmonized System (HS) and 220 countries or territories, on a monthly, quarterly, and yearly basis. One interesting feature is that these data are presented in graphic and table format. The product base is built on COMTRADE, the world’s largest database and maintained by the United Nations Statistics Division (UNSD). For building the COMTRADE database, monthly or quarterly data are collected in more than 100 countries from customs at national or regional level and for more than 150 countries at the tariff line level. Trade data is also available at tariff line level for more than 150 countries on a monthly or quarterly basis. Trade Map gives the following type of information: • Analysis of present export markets: It provides the profile and dynamics of export markets for any product, assesses the value, size, and concentration of exports and highlight countries where market shares have increased. • Pre-selection of priority markets: Views the world major importing countries, illustrating the extent of import concentration and in which countries demand has increased over the past five years. • Overview of competitors in global and specific markets: Identifies the leading exporting countries for a given product, highlight a country’s position in world exports or in the imports of partner and neighboring countries. • Review of opportunities for product diversification in a specific market: Makes a comparative assessment of import demand for related products in an export market, identifies imports of similar products and possible synergies. • Identification of existing and potential bilateral trade with any partner country: Identifies product-specific opportunities by comparing actual bilateral trade, the total import demand of partner countries and the overall export supply capacity of the home country.

International Trade Information and Trade Flows Analysis 41 6 Mexico

China Italy

Annual growth of partner countries’ imports from the world between 2014-2018, %

4

Netherlands Taipei, Chinese Switzerland

India

0

-2

Scale: 3% of world imports

Germany

2

Canada

Korea, Republic of japan Belgium France Hong kong, China Chile singapore Australia United kingdom

-4

United arab emirates Brazil

-6

-8 0

5

10

15

20

Share of partner countries in united states of america’s exports, 2018, % United states of america export growth to partner < partner import growth from the world

United states of america export growth to partner > partner import growth from the world

Reference bubble

The buble size is proportional to the share in world imports of partner countries for the selected product

Figure 6.1  Prospects for market diversification for a product exported by United States of America in 2018 product : TOTAL all products

• Information on tariffs: View information on tariff equivalent ad valorem faced by countries in their exports or applied by importing countries. To illustrate the information provided in Figure 6.1 in the PowerPoint file for U.S. trade in 2018 with the world (exports and imports of the United States), for all products. Note the key position of China, Mexico, and Canada as destinations for U.S. exports, their shares, and their annual rate of growth. Note also that the size of the bulb reflects the amount of trade implied. The next Trade Map (Figure 6.2) shows the main U.S. suppliers for all products in 2018. Again, the above map shows the key roles of China–U.S., ­Mexico–U.S. and Canada–U.S. relations, with their bulb size well illustrated. The next step for a more detailed analysis would be to breakdown the main products, with the suppliers involved, available in the ITC database in HS format. Note also that these graphs are updated every year, with an average of nine-month delay after the last year availability. It is therefore possible to update these graphs every year by consulting the source (https://www.trademap.org).

42

Global Trade Strategies 20 Scale : 3% of world exports

Annual growth of partner countries’ exports to the world between 2014-2018, %

Viet nam 15

10 Ireland

5

Malaysia Taipei, Chinese Netherlands Thailand germany Italy

Mexico

China

Japan 0

Brazil France Korea, Republic of India United kingdom Switzerland Saudi arabia 5

Canada

Singapore

-5

0

10

15

20

25

Share of partner countries in united states of america’s exports, 2018, % United states of america import growth from partner < partner export growth to the world

United states of america import growth to partner > partner export growth to the world

Reference bubble The buble size is proportional to the share in world exports of partner countries for the selected product

Figure 6.2  Prospects for diversification of supplier for a product imported by United States of America in 2018 product : TOTAL all products

3. Other ITC Trade Maps The following maps described by ITC as quoted and reproduced from the website: https://marketanalysis.intracen.org/tradeMaps.aspx: The Market Access Map provides information on applied customs tariffs, including Most Favored Nations (MFN) tariffs and unilateral and trade agreement preferences. The application also covers tariff rate quotas, trade remedies, rules of origin, plus the corresponding certificates, bound tariffs of World Trade Organization (WTO) members, nontariff measures, and trade flows. This type of information is collected through the WTO. 4. Investment Map The Investment Map combines statistics on foreign direct investment and international trade, tariff data, and the activities of multinational firms into an easy-to-use, interactive Internet tool that allows analysis by country, trading partner, and sector. 5. Standards Map The Standards Map provides online access to ITC’s detailed database on private standards and presents academic, scientific, and research papers and articles that discuss private standards issues in global value chains.

International Trade Information and Trade Flows Analysis 43

6. Procurement Map The Procurement Map seeks to help businesses, especially small and medium-sized enterprises, bid for public procurement contracts around the world. It includes a country-by-country breakdown of up to 100,000 public tenders, and indicates when countries have procurement policies that favor women-owned businesses or SMEs. Beyond the Maps, ITC provides more data to help detailed ­analysis as provided below: Tariffs and Market Requirements This improves transparency in the market-access conditions that countries face worldwide is important for exporters, trade support institutions, and policymakers. Users can access the application freely for developing countries, while users in developed countries and territories can register for a limited free-trial period or subscribe for longer access. Foreign Direct Investment Data FDI Data Bank is a web-based tool that helps investment promotion agencies assess which sectors in their countries have attracted foreign direct investment (FDI) and it assists them in the process of prioritizing sectors for investment promotion. It also helps those agencies identify competing countries and the most active investing countries in specific sectors. Voluntary Standards Trade for Sustainable Development (T4SD) is ITC’s partnershipbased program that provides comprehensive, verified, and transparent information on voluntary sustainability standards through Standards Map. The main objective of T4SD is to strengthen the capacity of producers, exporters, policymakers, and private and public buyers to participate in more sustainable production and trade. Public Tenders Information This the only free-access web platform that combines information on public tenders with relevant information on sustainabil-

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ity standards and information on legislations implemented by ­countries to support vendors or SMEs in public procurement. The additional information provided will allow companies to know their comparative advantage when replying to tenders. Market Analysis Studies ITC can conduct on-profile market analysis studies to support trade support institutions and policymakers with export potential assessment. Capacity Building in Market Analysis ITC provides a range of face-to-face and web-based capacity building programs in market analysis and research that support companies, trade support institutions, and governments in developing countries. Training content is tailored to the particular needs of the beneficiary. Trade Competitiveness Governments need to monitor trade performance in order to provide adequate trade policy support to small- and medium-sized enterprises. Trade and investment support institutions (TISIs) have to identify the right sectors on which to design specific sector-development strategy. Firms need to scan global markets for product and market diversification opportunities. Trade Competitiveness Map makes it easier for all three sets of actors to conduct strategic market research, monitor national export performance, and design trade development programs. Other Data on World Trade and Coverage One important point is that all these data are compatible with other data banks, like those offered by the World Bank or the World Trade Organization (WTO), also based on COMTRADE. But the ITC is the only one that has tools for analysis and graphical presentation. Regional organizations (like EU) may have a more detailed publication, but without trade analysis tools, limited to intraregional trade and

International Trade Information and Trade Flows Analysis 45

between the regional member states and the rest of the world (products exported to and imported from). Concluding Remarks About Data Availability and Use With such a unique and large range of analytical tools provided, both at macro and at micro level, it is clear that trade development strategies can be developed from such a large information base thereby minimizing risks; however, it might be recalled that regarding statistical analysis, the past performance does not imply continuation of recorded trends. The second main remark is that all these data are based on customs declarations and do not disclose company information, so they are classified on “product based” and not on “actor or declaring agent” so it is difficult to identify the agents / business company behind the data, making the company competitiveness analysis uneasy. This is why ITC’s “trade competitive maps” are presented for this purpose, on product base. There again, national TSIs may complement the available statistical data with a further competitiveness / sectoral analysis, including the use of TiVA (OECD-WTO) published materials. However, in established value chains, or with traditional energy providers, primary agriculture goods suppliers, and so on recorded data between long-term partners are not shifting so fast or so easily, even in a globalized trade scheme: at least the data illustrate how the competition between providers or suppliers is organized or ultimately can be challenged. Another key remark is that all trade data are based on customs declarations and do not disclose company information, so they are classified on “product based” and not on “actor or declaring agent’ so it is difficult to identify the agents / business company behind the data, making the company competitiveness analysis uneasy. This is why ITC’s “trade competitive maps” are presented for this purpose, on product base. There again, national TSIs may complement the available statistical data with a further competitiveness / sectoral analysis, including the use of TiVA (OECD-WTO) published materials (ideally 100 countries exporting, 100 importing, and 1,500 HS / SITC products). Obviously mixing all these data together could constitute the basis for Big Data analysis and Artificial Intelligence systems as exposed in Chapter 13.

CHAPTER 7

Trade Development Strategic Linkages Once a national strategy is designed, it does not necessarily follow that export performance will improve. Linkages are essential. A structure is required for successful leadership and concerted action, encompassing both institutions and institutional linkages, which means structure should follow strategy. The strategic planner needs to find answers to a series of questions: • • • •

What kind of linkages will work best in national conditions? What linkages are needed at the strategic planning phase? Which linkages are required during implementation? How should linkages be exploited for better evaluation of the strategy and its various programs? • What is the public sector’s role in forging these linkages and promoting their development?

Ultimately, no single model will suit all countries. There are, however, several common characteristics among the models adopted by countries that have achieved sustained export success. What are these common characteristics? First, different sets of institutional and functional linkages are established at the three stages of the export strategy process: • Planning and consensus-building linkages • Implementation and efficiency-building linkages • Performance monitoring and assessment linkages

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Second, there is a definite institutional structure at the center of this flexible web of linkages that coordinates and facilitates interaction. Third, at the planning and consensus-building stage, formal linkages establish and consolidate the essential partnership among the three principal stakeholder groups in the national export development effort: government, the private sector, and labor. Fourth, the web of institutional linkages is structured to emphasize capacity development and the internationalization of individual firms, not simply trade promotion. Fifth, the public sector normally assumes the lead role in initiating and energizing the linkage web and in establishing the framework within which all stakeholders will operate.

Who Are the Stakeholders? It is possible here to refer to the International Labour Organization (ILO), organized as a tripartite system in its governing body: government, private sector (employers), and employees as listed in Table 7.1. Who are they, more specifically? Table 7.1  Stakeholders, partners involved

Government

The private sector (employers)

Economic Ministries: Trade, Commerce, Industry, Agriculture, Finance, Technology, Regional Development and Planning

Exporter’s and manufacturers’ associations

Central Bank

Chamber of commerce

Ministry of Foreign Affairs

Small and medium size business associations

Social and infrastructure Ministries: Transportation, Education, and Labor

Industry associations

Industrial and Investment Promotion Agencies

Employers’ associations

National TPOs and Trade Support Institutions

Employees and their representatives Trade unions



Trade Development Strategic Linkages 49

Planning and Consensus-Building Linkages Have To Be Considered Between All Partners Involved Linkages and institutional relationships generally tend to be most formal at the planning and consensus-building stage of the national export strategy. The highly structured nature of formulating a national export strategy is indispensable from the standpoint of ensuring that all stakeholders participate in the strategy development process and of securing political commitment to successful implementation of the strategy. However, formal linkages do not in themselves ensure that consultation goes deep enough to guarantee that a viable strategy will emerge. Often, the less formal linkages, and the ongoing process of consultation among, and within, the public and private sectors contribute most to effective planning and consensus building. To obtain full national consensus and institutional commitment to the export strategy, the strategy-maker must ensure that all social partners are involved into the planning process. Formal linkages are established among the most senior decision makers in major sectoral ministries and private sector organizations. Of course, informal linkages are encouraged among all key institutions, which means that • the strategy is endorsed at the highest political level and • the relevant coordinative framework has been established to promote effective strategic linkages at the strategy implementation and monitoring stages. This will, in turn, ensure that export strategy is recognized as a national priority, that the imperatives of the strategy reflects the views and concerns of all principal stakeholders, and that the objectives of the export strategy are incorporated into the strategies and work programs of other sectoral ministries and major business organizations.

Implementation and Efficiency-Building Linkages Who should take the lead in managing the implementation of the national export strategy (NES)? That is, which institution(s) should manage the

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operational linkages needed to put the strategy in place effectively and with the minimum of duplication of effort? The standard practice has been to place leadership in the hands of one or several specialized trade support institutions (TSIs). Most successful exporting countries have established a strong central or national trade promotion organization (TPO) to coordinate the implementation of the NES. Some examples are listed below: • Japan External Trade Organization (JETRO) • South Korea Trade Promotion Institutions (KOTRA and KITA) • FINPRO in Finland • Trade New Zealand Many developing and developed countries have established similar TPOs. But not all have got equivalent success, why? Many TPOs are supply-driven agencies as recognized by the institutions themselves. A large part of the disparity in TPO performance can be attributed to the character of linkages between the organization and the private sector, and more specifically, to the level of direct private sector involvement in the planning and management of TPO operations. TPOs with little or no direct private sector involvement at the planning and management level have been observed to perform poorly. Their programs tend to be static and insufficiently demand- or needs-based. Generally, they have seen as ineffective and bureaucratic. However, one way to exchange or share national experiences in a multinational environment among equal partners and in an informal way to participate in a TPO Network Association. Such type of association exists and records among themselves the best experiences:

An Example: the TPO Network as TPO Linkage Association Source : http://intracen.org/itc/events/tpo-network-world-conferenceand-awards/ “The TPO Network Award recognizes and acknowledges a team that is working toward internationalizing our country’s entrepreneurs.”



Trade Development Strategic Linkages 51

This group of concerned members is looking toward the major trends of international trade. To quote the participants, “We are proud that our peers recognize the quality of our strategy to propel companies into foreign markets. This award requires us to be even more self-demanding to sustain the internationalization of our companies.” Selected topics announced for the TPO Network are as follows: A vision for 2030: Partnerships to deliver more, better, faster. Global problems require global responses. Delivering trade impact for goodwill require institutions to work more actively together to create scale effect and accelerate impact. Broad partnerships often require a shift in thinking. The keynote sessions will explore the vision of ecosystems for impact, identify challenges, and propose solutions. Blurring boundaries: Industry 4.0 and the ecosystem response. Digital technologies, robotics, artificial intelligence, and 3D manufacturing are changing the world of food processing, manufacturing, and shortening value chains. These changes lead to the following question: • How this is changing the traditional relationships and connections between suppliers, producers, customers, and consumers? • What are the implications for the work of TPOs? • How TPOs create additional value by being hyper connected to all of the value chain actors? Key Statement Made by the TPO Network Characteristics of a Successful TPO A TPO has a mixed public–private sector nature, ensuring that operation have private-sector aims and methodology. Independence from the political authorities, guaranteeing continuity. Mechanisms for financing in some measure independent of central government,

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requiring coverage by the private sector of part of the operational budgets. Salary structure different from that of public administration, encouraging retention of expertise. Such statement raises the key issue of the TPO structure: However, it is now widely accepted that TPOs function best when they are private sector based. This means that the TPO is either directly controlled and run by the private sector (FINPRO) or closely oriented to business or commercial goals through private sector representation in the governing board (Trade New Zealand, or Enterprise Ireland Board, (EIB). The first reason consists of the board setting broad policies and delegates to management and subcommittees the responsibility for their implementation. In its own activities and in its use of committees, the board operates on best private sector principle of corporate governance. The board’s chair is from the private sector. The chief executive officer of Enterprise Ireland is on the board as the principal officer of the Department of Enterprise, Trade and Employment. The remaining nine board members are all from the private sector, and represent the breadth of Ireland’s export capacity in manufacturing and service sectors. The EIB is presented in the next chapter. The second reason for the less than satisfactory performance of TPOs in some countries is that they have not developed operational linkages with other TSIs (public and private sector) that are needed to ensure that the full cross-section of export services are available to the private sector. In short, those TPOs have continued to concentrate on offshore market development and promotional activities, rather than on addressing the fundamental constraint to improved export performance—that is, the inability to develop internationally competitive export capacities that are consistent with market requirements. In many developing countries, TPOs have remained too narrowly focused and have not established themselves as national trade support institutions fully networked with other TSIs offering specialized technical services from the technical standpoint, at least. The TPO should focus on stimulating national competitiveness and should emphasize its role as a multiplier to ensure that the benefits of its programs extend beyond the primary beneficiaries.



Trade Development Strategic Linkages 53

A third reason for the lack of success (and credibility) of many TPOs is that they have only indirect influence on a key promotional instrument—the commercial representation abroad. This instrument is one of the most, if not the most, resource intensive and key at the field level. Within the context of a broader definition of trade promotion, the challenge confronting the national TPO is to facilitate access to other TSIs or to develop a new set of services (second generation type). Developing the overall competitiveness of the enterprise rather than increasing its immediate export sales by supporting industry associations and cluster of firms instead of concentrating on the individual enterprise; providing long-term support rather than one-off assistance; developing capabilities, both production and managerial, rather than simply marketing competence; promoting technology acquisition, investment, and subcontracting, rather than focusing on just ”getting the goods out of the country.” Core services offered under this second generation approach would include needs analysis (national and sectoral), export counseling and mentoring, education and business training, research and publications, and advocacy.

What Could Be the Critical Requirements for the Success of a National TPO? Internal Factors to Consider (each box is a separate requirement): Definitely, the TPO could be the focal point of operational linkages. At the strategy implementation stage and keeping in mind the required links in the web environment, relationship between the TPO, and the following players outside the TPO and concerned, can be classified by functions as per Table 7.2. Table 7.2  TPO Functions and functional qualities required for players Private sector orientation

Adequate and predictable funding

Relevant services, trade development oriented

An organizational strategy and work program (with set targets)

Autonomy

Professional staff

Flexibility for adapting to a changing environment

Including a mechanism for ongoing evaluation

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Global Trade Strategies

Function 1: facilitation Ministry of Trade & Commerce

Central Bank & Import/ Export Bank

Port Authorities and Customs

Freight Forwarders/Shipper’s Councils

National Trade Points

Function 2: Offshore market development Network of Commercial representatives abroad

International donors / Technical assistance agencies

Import promotion agencies

Overseas services providers, e.g. Trade fair organizers / consultants

Function 3: Program advisory Manufacturer’s associations

Employer’s federation

Chamber of commerce & industry

Exporters’ associations

Ministry of Industry

Sector associations

Ministry of Agriculture

Industrial development agency

Quality/standards/certification organizations

Investment promotion agency

Packaging institutions

Small business development agency

Export processing zones Function 4 : Research and development Management and marketing,

Training institutions / universities

Technical training and research org.

Design centers

Productivity centers Source: ITC Trade Support Institution Assessment Index, a diagnostic and bench marking tool.

Performance Monitoring and Assessment Linkages For strategy to evolve correctly, it must be monitored, assessed, and then refined based on the assessment. Yet evaluation is frequently the weakest point of the strategy management process, from the technical standpoint. It is also the stage where institutional and operational linkages are the least important. While institutional interaction may well work best through ongoing, informal relationships, experience suggests that linkages should be formalized among key “doers” in the national export initiative. For example, the Philippines government addressed this issue directly by passing an Export Act, establishing export development as a national priority and specified the institutional linkages through which the country rolling out the National Export Plan is to be formulated and managed. The



Trade Development Strategic Linkages 55

Philippines Export Act gives an apex body, the Export Development Council, the overall responsibility for formulating and coordinating the national development effort. The council is chaired by the Secretary of the Department of Trade and Industry and has cabinet-level members from the eight ministries concerned with economic development. Nine private sector representatives are appointed by the president on the basis of balanced sectoral and geographic representation. An important innovation in the Philippines approach has been the designation of only one private sector organization for the three-year duration of each National Development Plan, which is the “Accredited Export Organization,” representing the private sector, in consultation with the government on the development of the national export strategy. The intention is to ensure that the private sector speaks with one voice and that strategy-makers have a single formal linkage through which to achieve full public–private sector dialogue. In short, this single mandated linkage ensures that the private sector “has put its act together” prior to entering into consultations with the government. Another approach to establishing a base of formal linkages is that of interlocking directorship, like those practiced in Finland and Mauritius. Key export development organizations and TSIs are mandated to sit on each other’s boards, thereby ensuring consensus and consistency of approach. It is also essential to promote informal national networks. The creation of informal consultative networks to reinforce and extend bilateral linkages has proven to be successful to a number of developing countries, particularly in formulating a strategic response to the major changes occurring in the international trading environment. Experience has confirmed that for such informal networks, some prerequisites have to be met by addressing perceived needs and having a definite action plan. At least one prime mover within the private sector must assume overall coordination responsibility for the network.

Promoting Private Sector Linkages The export strategy-developer may be concerned with promoting linkages and communication among public sector organizations in the first instance, as well as public sector TSIs and the private sector. However,

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the strengthening of linkages among private sector organizations is also a crucial aspect of strategic approach to trade promotion. For instance, Chile’s approach (ProChile) to establishing and supporting product-specific export committees is a good example. These committees assess export constraints and opportunities and develop joint market development initiatives for co-financing with the national TPO. Trade New Zealand has gone one step further and proactively encourages companies in the same or related industries to form strategic alliances and establish “hard business networks” for the joint establishment of new export capacities.

Developing Functional Linkages In the widest sense trade promotion can be defined in terms of offshore, market development programs and onshore capacity development programs, in the context of overall national development, not simply foreign exchange earnings. In this sense, it involves the strategy-maker and strategy manager in establishing and nurturing a broad range of functional linkages. These are: • • • •

The trade and industry linkage The trade and investment linkage The trade and education linkage The trade and science and technology linkage, and so on.

The trade and technology linkage is of particular importance in promoting the development of the SME sector in the national export effort. In many developing and transition economies, this sector is the engine of growth, or at least has the potential to become the engine of sustained export growth. However, the size of its individual enterprises gives the sector built-in limitations. But there are ways to overcome this limitation through horizontal cooperation; enterprises having the same position in the value chain can achieve scale of economies beyond the reach of individual small firms, they may obtain bulk-purchase inputs, achieve optimal use of machinery, and pool together their production capacities to satisfy large export orders.



Trade Development Strategic Linkages 57

Equally, through vertical integration with other SMEs as well as with large enterprises further along the value chain, individual SMEs can specialize in their core business. Interfirm networking also gives rise to a collective learning space where ideas are exchanged, developed, and where knowledge is shared in a collective attempt to improve product quality and to target more profitable market segments. It is advisable in the early stage, however, that noncompeting enterprises are building their own cluster. Complementarity is the best combination. But in spite of the potential benefits to the enterprise of interfirm linkage and networking, evidence suggests that interfirm cooperation for export purposes in developed and developing countries is relatively unusual. It is certainly not spontaneous and normally relies on the intervention of an external agent acting as a catalyst for the emergence of export-led industrial clusters and networks. Sometimes the incentive can be a joint participation in specialized trade fairs. Trade New Zealand’s experience in promoting “hard business networks” is one success story.

The Indian Case: Fostering Export-Oriented Clusters and Networks The Indian Ministry of Industry has successfully pursued a national cluster development program to increase the international competitiveness of the small-industry sector. Its approach recognizes that efficient and competitive clusters are characterized by strong backward and forward linkages among local firms and institutions. The lesson learned from implementing the program include the following. • Plan demand-led initiatives: Every cluster has its unique dynamics in term of needs, available institutions, service providers, and networking relationship. The initiative that needs to be taken up by the TSI should, therefore, be to fill the gaps or to strengthen the perceived relationships.

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• Develop local systems and linkages with industry associations and other intermediaries, such as consortia and cooperatives, play a key role in reinforcing the sector support system. For these initiatives to become effective, it is essential that key people involved in cluster and network development are essentially about bringing change in the way people from firms, institutions, government, and nongovernmental organizations interrelate to promote a business environment conducive to export. Conventional evaluation criteria for sales, exports, employment, and so on are not sufficient to assess the impact and cost-effectiveness of a cluster-based trade and industry linkage. Qualitative criteria such as the degree of cooperation, development of community identity, improved relationships, and enhanced leadership capabilities are equally important for building competitiveness in the long run. Experience indicates that a minimum of three to four years is required to generate sustainable impact (in terms of both development and export objectives) at the cluster level. Create institutional capacities: “cluster brokers” are an important key to this type of trade–industry linkage. Resource building institutions need to be identified and supported. Similarly, ground level institutions (technical, financial, and otherwise) need to be included as part of a national export development strategy. Under conditions of innovation-based competition in global markets, the extent to which a cluster is organized has proven to have an important influence on the sustainability of export growth over time. This is in large part due to the varying contribution that clusters make to knowhow transfer and the development of knowledge intensive elements such as design, quality improvements, and R&D. From the standpoint of medium-term impact, the trade and investment linkage is perhaps of even greater importance to the export strategy developer. Not only will export-oriented foreign direct investment (FDI) lead to sustained improvement in export performance (and, from the development perspective, employment opportunities), it can transform local suppliers into indirect exporters through supply relationship with the foreign investor.



Trade Development Strategic Linkages 59

In the longer term, the emergence of such supply capacity will enhance the attractiveness of the country as an investment location. The promotion of FDI has understandably, therefore, become a major feature of the national export strategy of most developing and transition economies. The question, therefore, arises: since trade and investment promotion need to be closely linked, should they not be undertaken by the same organization? The general view is that trade and investment promotion are separate functions, aimed at two separate target audiences and require different set of skills and knowledge. They consequently should be pursued separately. And in fact most of such institutions are different. However, emphasis should be placed on developing strong coordinative linkages between TSIs and investment promotion agencies. The question, therefore, arises: since trade and investment promotion need to be closely linked, should they not be undertaken by the same organization? In smaller economies, there would, nevertheless, appear to be justification for combining the two activities within the same institutions, as it has been done in Barbados, Botswana, Jamaica, Mauritius, and Trinidad and Tobago. As for establishing a single office—a one-stop-shop—to provide prospective investors with all the clearances needed for specific investment proposals, the consensus is that it does not function well. The more effective approach is for the investment promotion agency to facilitate approvals by all the organizations concerned in maintaining close operating linkages.

Promoting Foreign Direct Investment (FDI) Successfully To promote export-oriented FDI successfully, the national export strategy must ensure that technical capacities and institutional linkages exist for the following functions: • Image building • Involving general public relations, designed to create awareness and positive perception

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• Establishing a foundation for future investment rather than advancing specific ventures • Generating investors’ interest. This involves targeted investment promotion activities designed to ensure that investors take a specific interest in the country. • Investor servicing • Encompassing the range of services to help the investor who has shown interest in investing in the location being promoted. Unfortunately, in many cases, developing and transition economies fail to develop the capacities and linkages that address all the key aspects of successful FDI promotion.

Other Type of Linkages In a sense, the trade and education linkage has always existed. Exports are invariably the product of some skill. This link is, however, becoming increasingly important as the world is moving toward a more knowledge-based competitive environment. Strategy-developers in a growing number of countries are particularly aware of this and have been encouraging the introduction of new technical curricula and entrepreneurship development programs at schools and universities. Training grants are being offered as an incentive to attract new export-oriented investment. Greater emphasis is being placed on management training and on ensuring the availability of specified in-career international business management programs. Similarly, the trade and science and technology linkage is being promoted as an important element of the international competitiveness effort and national strategy. Linkages between firms and research institutes and universities are being directly encouraged through the creation of “science parks.” The strategy-developer in a developing / transition economy should not consider this phenomenon as being relevant only to developed countries. The trade and science and technology linkage would seem to have particular application in industrial clusters and export processing zones.



Trade Development Strategic Linkages 61

Conclusion: Global Remarks on National/International Networks and the Key Role of Interaction Process in R & D with TSIs Research and development is systematically developed by large companies, in universities and in research centers (who are generating startups when new ideas can be processed on the global market). There is a need to encourage cross-fertilizing linkages between firms and universities and research institutions as well as other actions in the public and private sectors (e.g., financing support by relevant agents or institutions). This may constitute the hub of the national system of innovation. TSIs have to be part of this type of network. Such trade and science / technology linkage can constitute an important element of the international competitiveness effort and national strategy. Linkages between firms and research institutes and universities have to be directly encouraged (by public sector authorities) toward the creation of “science parks.” In fact, the strategy-makers in a developing / transition economy should not consider this process as relevant only to developed countries. In fact, the trade science and technology linkages can be promoted in many free trade areas with particular application in industrial clusters and export processing zones (in China, Shengen is one success story). Therefore, it is a good practice for governments to encourage linkages between firms, universities, and research institutions, joining the national / international agencies and private sector representatives on specific research projects, constituting a kind of national network system of innovation. Switzerland is a good example of such practice with innovation centers developed in the area of biology and medical research (Human Brain Project, Advanced Research Center in Geneva and nutrition wealth centers with Nestlé).

CHAPTER 8

Selected Successful National Case Studies A number of countries have developed successful export market strategies. The purpose is to identify areas of commonality in separate national approaches that could in turn provide strategy developers in other countries with useful benchmarks and ideas. A comparative analysis of six strategic approaches in trade promotion has been undertaken by the International Trade Centre / UN/WTO (ITC) that can be presented in a matrix format. The number of stars, from least (*) to most important (****), shows the priority ranking of each component.

Table 8.1  Six strategic approaches

Phase 1. Trade Development Design Actions

Finland

Philip- New pines Zealand

Mauritius

Ireland

Chile

Create an export or internationalization culture

****

***

***

****

****

****

Address onshore supply capacity and competitiveness issues

***

****

***

****

****

****

Highlight incoming direct investment

**

****

**

***

****

****

Emphasize competitiveness standards

****

***

****

***

****

****

Target specific sectors / markets

****

**

****

***

****

****

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Global Trade Strategies

Pay special attention to service exports

***

***

**

****

****

**

Establish quantitative targets

***

****

***

*

***

*

Target central position in regional market

****

**

*

****

***

***

Phase 2. Positioning Finland

Actions

Philip- New pines Zealand

Mauritius

Ireland

Chile

Integrate into national economic development plan

***

****

***

****

****

**

Distribute documents nationally

*

****

****

**

***

*

Coordinate through Cabinet-level body

*

****

**

***

***

***

Implement through centralized technical organizations

**

**

**

***

****

***

Link commercial post directly to national technical organizations

**

***

****

**

****

***

Phase 3. Implementation Actions

Finland

Philip- New pines Zealand

Mauritius

Ireland

Chile

Highlight support to Small & Medium Enterprises

***

****

***

****

****

***

Provide support on cost-sharing/fee basis

***

**

**

*

**

***

Adjust strategy/ work plan annually

***

***

****

****

***

**

More details are provided for the above-mentioned countries as successful national case studies.



Selected Successful National Case Studies 65

Selected Successful National Case Studies Case 1. Finland A Close Trade–Industry Linkage Focused on Internationalizing the Economy The Perspective Trade promotion is a long-time story for Finland: the first ever trade promotion body, FINPRO, was created in 1919. Due to its deep integration with the formely Soviet Union, Finland was comparatively rather late in globalizing its economy. In fact, Finland ranked last in terms of internationalization among developed countries in the World Competitiveness Index of the World Economic Forum in 1993. In less than 25 years, Finland has established itself as a model of international business effectiveness, diversified its export mix (in composition as well as in target markets), became a leading exporter of high-tech products and services, and now ranks among the 10 most competitive countries in the world: Special trading relationship with the former Soviet Union and other Eastern European Countries had created a deeply oriented economy, which abruptly vanished following perestroika. Then Finland created quickly a strong network of industry-level cooperative export associations, which was definitely EU-oriented. How did this resource-based economy with high labor costs, a small domestic market, become a successful value-added exporter in such a short period? Privatization and corporate restructuring, reform of the banking sector, devaluation of the local currency (markka), public and private sector cost-cutting, and entry into the European Union (EU), all made a significant contribution to Finland’s successful repositioning. Finland gained international market access quickly as it was the only way to ensure its future development.

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Finland’s Approach Finland’s current export strategy is based on the conviction that export promotion should be a joint venture between government and the private sector, designed and implemented on the basis of consensus among government, industry, and labor. The approach integrates the management of basic offshore trade promotion activities (international commercial representation, participation in fairs and missions, publicity, etc.) into the country’s overall industrial development and investment promotion initiatives. It emphasizes the crucial link between export performance and industrial R&D. It is noticeable that FINPRO was recently merged with TEKES, the Finnish funding agency for technology and innovation, to put into practice the perceived necessity to work with the business-led sectors. TEKES (now FINPRO and TEKES) activities consist in boosting wide-ranging innovation activities in research communities and industry and service sectors to promote a broad-based view on innovation. Besides funding technological breakthroughs, TEKES–FINPRO provides assistance to companies’ strategic development in international oriented business. TEKES–FINPRO works with the top innovative companies and research units in Finland. Every year, as an average, TEKES–FINPRO finances some 1,500 business research and development projects, and some 500 public research projects at universities and other research organizations. What Are the Key Factors of the Finnish Model? Internationalization Replaces the Traditional Export Promotion Approach Contrary to conventional thinking, a net outflow of investment capital is seen by the Finnish strategists as positive aspect of the export promotion effort. The Finnish approach defines export promotion in its broadest terms and in so doing brings together a number of parallel initiatives to internationalize the economy by: • Promoting Finland as the business center of a “new Northern Europe” with some 60 million people within 24 hours of land traveling distance of the Finnish capital, Helsinki. It actively seeks involvement (both financially and technically) in eco-



Selected Successful National Case Studies 67

•

•

• • •

nomic and industrial development projects in the transition economies of Eastern and Central Europe. Promoting internal competition to ensure that Finnish firms operate to internationally competitive standards of quality and efficiency. Providing Finnish companies with a full range of internationalization consultancy services, trade, investment, joint venturing, and technology through market-based trade centers (for a fee). The process is entirely accessible online: https://businessfinland.fi/en/for-finnish-customers/online-services/ Promoting inward and outward foreign investment. Promoting technology contacts between Finnish and foreign companies. Promoting Finnish companies as partners in international “chain corporations” with a more sophisticated role than pure subcontracting: https://businessfinland.fi/en/do-business-with-finland/home/

The internationalization strategy is implemented in full partnership between government and the private sector, which is expected to absorb an increasing proportion of the cost of the public sector services through this strategy. These services are, for example, offered to industry on a partial cost recovery, rather than on a free basis. https://businessfinland.fi/en/for-finnish-customers/home/ One interesting consequence of the internationalization emphasis has been the rapid increase in foreign direct investment (FDI) by Finnish firms. Finnish direct investment outside Finland exceed FDI by 30 percent on average: this net outflow of investment capital is seen by the Finnish strategists as a positive aspect of the export promotion effort. Taking a Focused Industrial Cluster Approach to Export Development • Finland takes a long-term cluster-specific approach to export development. • Finland’s National Industry Strategy launched in 1993, following a period of long economic recession, identified

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key clusters in the Finnish economy where conditions were thought to exist for long-term competitive expansion and progressive export growth. • Then, economic and export development/internationalization strategies focus on these sectors using a 25-year timeframe. FINPRO–TEKES services with Business Finland online have organized their approach along six main accessible online issues that illustrate the most recent globalization and internationalization practices in the internationalization process (as described in their website): 1. Funding, for research, product development, and many kinds of business development needs. 2. Building networks, for boosting innovation-based, export growth, accelerate internationalization, providing assistance in exporting. 3. Discovering opportunities, testing possibilities on the international market, with the help of Business Finland. 4. Innovating, developing a competitive advantage and innovation-based exports. 5. Going to markets, helping the Finish companies to find new partners. 6. Scaling the business, in case of growing pains, bringing down the boundaries of growth and broadening the scope of operations. Each choice opens the door to specific assistance proposals, in a “ready to go alone” or going with an online expert counselor, providing a direct advice and / or coaching: https://businessfinland.fi/en/for-finnish-customers/services/scaleyour-business/ In order to illustrate the global situation of Finland exports, the ITC Trade Maps show the Finnish growth of national supply and international demand with circles showing the volume of trade (light grey circles means Finland is a net importer for the product concerned, dark grey bulbs mean Finland is a net exporter for the product concerned, with the bubble size proportional to export value). https://trademap.org/Country



Selected Successful National Case Studies 69 6 Poland

Annual growth of partner countries’ imports from the world between 2014-2018, %

Scale: 3% of world imports

China

4 Spain

Netherlands Italy

Germany Sweden

2 Norway

Estonia Belgium

United States of America

Denmark

France Turkey Republic of Korea United Kingdom

0

Canada

Russian federation

Japan

-2 0

2

4

6

8

10

12

14

16

Share of partner countries in Finland’s exports, 2018, % Finland export growth to partner < partner import growth from the world

Finland export growth to The bubble size is proportional Reference bubble partner > partner import Some bubbles may not be displayed to the share in world imports growth from the world of partner countries for due to lack of growth rate the selected product indicators

Figure 8.1  Prospects for market diversification for a product exported by Finland in 2018 product : TOTAL all products

The Finland trade balance is negative for minerals, electrical machinery, and vehicles (above growth of world trade, all products) and positive for paper, optical, and precision equipment. The Trade Map in Figure 8.1 shows also the winning sectors (ships, boats) and the losing ones. Such a map is a good illustration of Finland’s key sectors and the respective market competitiveness (positive, right size or negative, left size). Globally, the sectors in the right of the Trade Map are the most promising. Finland is mostly competing in the above and left box, which means challenging in losers (growing or declining) sectors. The second ITC Trade Map in Figure 8.2 illustrates the main partners of Finland, with the same bubble illustration: the bubble size is proportional to the share in world imports of partner countries; light grey bulbs indicate that the Finland import growth to partner is growing less than the partner import growth, and dark grey bulbs indicate that the Finland export growth is growing more than partner import growth. Light grey color shows the reference scale of 3 percent of world imports. This map gives a clear indication of diversification of Finnish clients.

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Winners in growing sectors

Annual growth of world imports between 2014-2018, %

Losers in growing sectors

28 - Inorganic chemicals: organic or inorganic compounds of precious metals, of rare-earth metals,0...

10 8 6

Scale: 1,000,000 US Dollar thousan

79 - Zinc and articles thereof 47 - Pulp of wood or of other fibrous cellulosic material: recovered (waste and scrap) paper or pape... 90 - Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical ins... 87 - Vehicles other than railway or tramway rolling stock, and parts and accessories thereof 38 - Miscellaneous chemical producrts 85 - Electrical machinery and equipment and parts thereof: sound recorders and reproducers, televisi... 99 - Commodities not elsewhere specified

4

74 - Copper and articles thereof

39 - Plastics and articles thereof 30 - Pharmaceutical products 72 - Iron and steel 2

Growth of world trade. all products 89 - Ships, boats and floating structures

29 - Organic chemicals

0

73 - Articles of iron or steel

44 - Wood and articles of wood: wood charcoal

84 - Machinery, mechanical appliances, nuclear reactors. boilers: parts thereof

-2

48 - Paper and paperboard: articles of paper pulp. of paper or of paperboard

-4

75 - Nickel and articles thereof Losers in declining sectors

-6 -15

27 - Mineral fuels. mineral oils and products of their distillation; bituminous substances: mineral ...

-10

-5

0

5

10

15

Winners in declining sectors 20

25

0

Annual increase of Finlands share in world exports between 2014-2018, % Finland is anet importer for this product

Finland is a net exporter for this product

Reference bubble

The bubble size is proportional to export value

Figure 8.2  Growth of national supply and international demand for products exported by Finland in 2018

In Figure 8.2, the key position of the United States, China, and Germany require different comments: The United States has a critical share and size for Finish industries but has a relative growth below U.S. import growth from the world, opposite to export growth to China, which is superior to Chinese growth imports from the world. Germany is a traditional client for Finland, with the highest share of 14 percent of Finland exports in 2018.

Case 2. Enterprise Ireland (EI) It is noticeable that more and more Trade Promotion Institutions have their name changed by including the word “enterprise.” For example, Ireland started with a new logo some years ago, like Mauritius “Enterprise Mauritius, “France “Business France”, Singapore “Singapore Enterprise,” and Switzerland changed to “Switzerland Global Enterprise,” which reflect the fact that national trade promotion organizations (TPOs) are definitely “enterprise-oriented.” EI structure and organization are clearly business-oriented and reflect goals developed for Irish companies or the (foreign) partners involved with them. Such goals can be replicated for other TPOs, from a conceptual point of view. It is a clear illustration of principles stated all along



Selected Successful National Case Studies 71

this book. Without repeating all what the website claims, it is clearly an invitation to participate into the EI program, almost specifically designed for small and medium enterprises (SMEs). How Enterprise Ireland Presents Itself in this Context? Export Assistance Overview Success in export markets is crucial to the long-term growth of Irish businesses and the Irish economy. Support for companies focused on growth through international sales is a priority for Enterprise Ireland. “We are committed to facilitating the development of a strong exporting sector by offering flexible solutions to client needs.” https://enterprise-ireland.com/en/Export-Assistance/ On this basis, the six main functions of EI are described (as quoted by EI): 1. Exporter Development “Enterprise Ireland is responsible for supporting prospective and emerging exporters to build company scale and expand their reach. The Exporter Development Department works with companies considering exporting as a platform for scaling through our client engagement model.” “We are looking to engage with existing and new Enterprise Ireland clients with 10 or more employees to support them in fulfilling their global ambition.” Enterprise Ireland works with Ireland’s ambitious entrepreneurs and business owners to help them scale and expand reach into new export markets. To support companies in assessing export capability, EI have developed an online export preparedness scorecard to help companies to determine their capability to develop and implement an export-led business plan. 2. Market Research Centre “This consists in access to business intelligence, in a country, company, market and sector knowledge of the competitive environment in which Irish companies operate, a key to successful export growth. Enterprise Ireland has purchased, on behalf of its clients, world class market research reports. The

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publishers we subscribe to all have web-based databases which you can search from your desk to find relevant titles. You are then welcome to view these reports at the Market Research Centre in our Dublin office or at one of our regional locations.” 3. International Office Network “Learn how our international offices can assist you to win and grow your exports.” 4. Trade Events and Missions “Learn about upcoming events and trade missions.” 5. Trade Missions and International Events “Our program of trade missions, trade fairs and knowledge events give clients the opportunity to connect with existing and new customers, access key decision makers, increase sales in international markets and exchange ideas.” 6. Building Export Selling Capabilities “We offer a range of programs to help you develop your sales strategy and selling skills.” Besides the above services, more tools for global trade development are provided by EI: The EI International Selling Program The International Selling Program is Enterprise Ireland’s flagship program designed to equip Irish companies with the necessary capability to deepen their presence in an existing international market or enter a new international market. Delivered in partnership with Dublin Institute of Technology (DIT), this practical program will deliver a real and immediate impact on your company’s ability to access new markets and grow export sales. EI Export Selling Workshops Enterprise Ireland has developed a series of workshops entitled Excel at Export Selling aimed at rapidly embedding the proven tools of good international selling practice into the sales teams of Irish companies across all industry sectors. These workshops are designed to equip Irish companies with the skills to truly make an impact on international markets and master the



Selected Successful National Case Studies 73

fundamentals of export selling. Workshops include, for instance, Value Proposition and Marketing Formulation, Pipeline Management and Partnering. Selling to the Public Sector in Ireland and Internationally Enterprise Ireland is committed to working with client companies and buyers to facilitate and maximize the contract opportunities available through the public sector. The Enterprise Ireland Public Procurement team is working to raise awareness of the innovative solutions provided by indigenous SMEs to the public sector in Ireland, channel partners, primary contractors, and Global Government Organizations, including the European Union (EU) and the United Nations (UN). Internet Marketing Unit Enterprise Ireland’s Internet Marketing Unit is focused on helping client companies to exploit the Internet as a route-to-market and to assist companies develop a strategy that will shape how they do business online. The Unit provides a range of services, including strategic guidance, workshops/seminars and funding support. Mentors Companies can request the appointment of a mentor from the Enterprise Ireland Mentor Network to advise on issues relating to developing and executing an international sales strategy. Business Accelerators Program Enterprise Ireland can help companies retain the services of a Business Accelerator, an industry expert within a specific sector and market, with the experience, knowledge, and contacts to support the company’s expansion and development into an export market. In-market Business Accelerators come from the front lines of industry worldwide, with the relevant sales and marketing experience to advise and guide Irish companies to accelerate their growth in the market and build presence.

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Table 8.2 Concerned agents and the business accelerators purposes Senior executives from in-market technology, services, manufacturing, or distribution companies.

Senior local buyers, influencers, or industry specialists.

Irish executives (based in the target market) who have succeeded in an overseas market.

Early or recently retired senior executives with appropriate commercial experience and contacts.

Executives from headquarters of multinational companies with plants in Ireland.

Note: each assignment is tailored to the company’s specific needs. The purposes of business accelerators consist in facilitating: Market entry and business expansion.

Enhanced strategic and actionable in-market information.

Valuable feedback on product/service offerings.

Access to highlevel market contacts.

Access to new technology.

Better strategic marketing focus and direction.

Strategic inputs at Board level.

Note that Grant assistance is available for the cost of hiring a Business Accelerator.

Business Accelerators are chosen based on their extensive industry experience and track record of success, and include the following criteria as per Table 8.2. With such a large, but realistic assistance program, EI covers practically all the aspects of trade promotion abroad from an enterprise point of view. There is, however, a challenging horizon that is arising for the Irish companies: the BREXIT and its consequences for the Irish international trade environment. Enterprise Ireland seems to be rightly equipped to confront such a challenge! Enterprise Ireland Strategic Goals 2017-2020 Regardless of these issues, Enterprise Ireland has developed its strategic goals, which are accessible online, right almost from the beginning of its website: https://enterprise-ireland.com/en/Publications/Reports-Published-Strategies/Strategy-2017-to-2020.pdf :



Selected Successful National Case Studies 75

“Our new strategy is about inspiring and driving Irish enterprise to ‘Build Scale, Expand Reach’ and is clearly ambitious. Despite the uncertainty, our strategic aims are to assist clients to create 60,000 new jobs by 2020 and to sustain the existing record level of jobs. We also aim to grow annual exports by €5bn to €26bn per annum and increase the level of spend in the Irish economy by €4bn to €27bn per annum by 2020. This strategy focuses on addressing the need for greater scale across Irish enterprise. We will do this by: • Innovation: Driving innovation in Irish enterprise to unprecedented levels through new supports to reach the target of €1.25bn in R&D expenditure per annum by 2020. • Competitiveness: Improving the competitiveness of Irish companies through our Lean programs and new client engagement model, which will provide targeted supports based on agreed milestones. • Diversification: Increasing the diversification of client company exports into new markets, with two-thirds of exports going beyond the UK. This includes a major focus on the Eurozone where we are targeting a 50 per cent increase in exports. • Ambition: Inspiring more companies to have global ambition.”

8

Losers in gowing sectors

[00] - Electrical machinery and equipment and parts thereof: sound recorders and reproducers, televisi... 33 - Essential oils and resinoids: perfumery, cosmetic or toilet preparations 30 - Pharmaceuticla products

Winners in growing sectors

Annual growth of world imports between 2014-2018, %

6 38 - Miscellaneous chemical products 4

22 - Beverages, spirits and vinegar 44 - Wood and articles of wood: wood charcoal Scale: 10,000,000 US Dollar Thousand

99 - Commodities not elsewhere specified 39 - Plastics and articles thereof 2

Growth for world trade, all products 29 - Organic chemieals 02 - Meat and edible meat offal

0

35 - Albuminoial substances: modified starches: gules: enzymes 02 - Meat and edible meat offal 84 - Machiney, mechanical appliances, nuclear reactors, boilers: parts thereof

04 - Dairy produce: birds’ eggs: natural honey: edible products of animal origin, not elsewhere spec... -2

90 - Opticla, photographic, cinematographic, measuring, checking, precision, medical or surgical ins... 19 - Preparations of cereals, flour, or milk: pastrycooks’ products

-4

27 - Mineral fuels, mineral oils and products of their distillation: bituminous substances: mineral ... 16 - Preparations of meat, of fish or of crustaceans, molluscs or other aquatic invertebrates 03 - Fish and crustaceans, molluscs and other aquatic invertebrates 88 - Aircraft, spacecraft, and parts thereof 28 - Inorganic chemicals: organic or inorganic compounds ofprecious metals, of rate-earth metals,o... Loser in declining sectors

Winners in declining sectors

-6 -15

-10

-5

0

5

10

15

0 Annual increase of Ireland share in world exports between 2014-2018, % Ireland is a net importer

Ireland is a net exporter

for this product

for this product

Reference bubble

The bubble size is proportional to export value

Figure 8.3  Growth of national supply and international demand for products seported by Ireland in 2018

20

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Global Trade Strategies

However, it is noticeable that this type of announcement is exceptional for a national Trade Promotion Organization, which shows a clear commitment helping the Irish exporting companies to integrate the announced global plan as proactive members. Definitely, Ireland is competing with winners, where annual growth of world imports is above average (e.g., pharmaceutical products, aircraft, spacecraft and parts, with an explosive growth rate of 33 percent), but Ireland is net importer for this sector. Organic chemical is also a key export sector, but in a declining environment (–5 percent) as illustrated in Figure 8.3. A second map (Figure 8.4) shows the main markets who are Irish clients, with the same graphic representation as Finland (note the reference scale of 3 percent of world imports in light brown). https://trademap.org/ Country China and the United States, key partners of Ireland with Germany, are the biggest client markets, with most of the sectors where the market share is growing (Irish export growth faster than world import growth of these partners): such a structure shows a strong competitiveness, even in rather remote export destinations like Mexico. Interestingly, United Kingdom, Sweden, and Spain record an export growth lower than the import growth of these countries from the world.

6 Poland Scale : 3 % of world imports Annual growth of partner countrles’ imports from the world between 2014-2018, %

Mexico China

4

Spain Sweden

Netherlands United States of America

Germany Singapore

2

Belgium

Italy Australia

Switzerland

Denmark 0 Canada

France Hong Kong. China Japan

United Kingdom

-2 5

10

15

20

25

30

Share of partner countries in Ireland’s exports, 2018, % Ireland export growth to partner > Partner import growth from the world

The bubble size is proportional Ireland export growth to Reference Bubble partner > Partner import Some bubbles may not be displayed to the share in world imports of partner countries for growth from the world due to lack of growth rate the selected product indicators

Figure 8.4  Prospects for market diversification for a product exported by Ireland in 2018 product : TOTAL all products



Selected Successful National Case Studies 77

Case 3. Singapore The World Economic Forum (WEF) publishes the Global Competitiveness Report annually: http://reports.weforum.org/global-competitiveness-report-2018/competitiveness-rankings/ This report, among others, provides The Global Competitiveness Index 4.0. This index, according to the WEF, “assesses the microeconomic and macroeconomic foundations of national competitiveness, which is defined as the set of institutions, policies, and factors that determine the level of productivity of a country.” In the 2018 ranking, Singapore gets the second place, out of 140 countries, with a score of 83.5, close to the first ranked country, the United States, getting 85.6 (with the best possible score of 100) as per Figure 8.5. Singapore ranks first in the following criteria : infrastructure (score 95.7), health (good health expectation, score 100), and product markets (score in 2018: 81.2 previous score 2017: 80.3). Singapore has a world-class legal framework, a robust intellectual property regime, a motivating business environment, and extensive global networks, as illustrated by the following scores: The product market score with a first ranking is broken down in two components: trade openness (88.5) and prevalence of non-tariff barriers (82.2).

Figure 8.5  Performance Overview 2018

For Singapore, this is a particularly positive result. http://reports.weforum.org/global-competitiveness-report-2018/ country-economy-profiles/#economy=SGP

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Note: Five-year average FDI inward flow in % GDP: 21.3 and Pillar no. 6 skills (76). It is clear that these results show the large openness of Singapore in its business-oriented trade policy. Internationalization is the key engine of growth for Singaporean companies, with overseas revenue driving companies’ growth (average 5 percent year-on-year), twice faster than the local revenue growth (2.1 percent in 2017). For SMEs as well as for large enterprises, overseas revenue constitute almost half of their total revenue. As illustrated in the figure 8.6, more than half of Singaporean companies are engaged in China and Malaysia, with deep interest in Indonesia, Thailand, and Vietnam, all these countries in relative short distance, which is a clear comparative advantage. The institution that takes care of trade promotion is Enterprise Singapore: http://atpf.org/en/org/singapore.html and https://enterprisesg.gov.sg/ Enterprise Singapore is the Singapore government’s leading agency for enterprise development. It also supports the growth of Singapore as a hub for global trading and startups. The agency attracts global commodities traders to establish their global or Asian home base in Singapore. Today, Singapore is a leading global trading hub with a complete ecosystem for the energy, agri-commodities, and metals and minerals trading clusters. Singapore is also home to many global enterprises, startups, and investors that operate in its pro-enterprise environment. As the national standards and accreditation body, Enterprise ­Singapore builds trust in Singapore’s products and services through quality and standards. Renowned for their dedication to quality and innovation, ­Singapore companies make ideal business partners. With Enterprise Singapore’s global network in over 35 locations spanning many developed and emerging markets, it connects businesses with relevant Singapore companies for their business expansion. Main Activities The agency works with committed companies to build capabilities, innovate and internationalize, also supports the growth of Singapore as a hub



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for global trading and startups. As the national standards and accreditation body, Enterprise Singapore continues to build trust in Singapore’s products and services through quality and standards. —Source: www.enterprisesg.gov.sg gives more information. Enterprise Singapore provides its services in the following structure: • • • • •

Industries Overseas Markets Quality and Standards Financial Assistance Non-Financial Assistance

The main services provided by Enterprise Singapore, ranked according to their popularity, are: • • • • • •

e-Services Consumer safety information Free trade agreements SME support Information for startups New Market entry

Among SME services offered by Enterprise Singapore (https:// enterprisesg.gov.sg/), the following items open interactive pages which are to be used by the enterprises: I want to improve my business capabilities I am looking for good partners I want to finance my business Beyond these categories, access for SMEs to obtain marketing tool kits, through the following items label (from the web page), which opens an online help menu and interactive advisory statements: Market assessment: it is important to invest in money and efforts in opportunities that offer the best return. Marketing Plan: getting a better grasp of the factors that have a significant impact on the business.

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Marketing Collateral: development of collateral that will get the marketing message to the right prospects. Branding: using the greatest strengths to build trust and attract customers. Promotion Leads and Sales: in the more and more competitive environment, attracting sales leads to the organization and closing sales leads. Public Relation and Advertising: gaining awareness and favor for target customers. Digital Marketing: getting the potential of an efficient cost-effective means to grow the business. Marketing Effectiveness: measuring the effectiveness of the marketing efforts and improving returns on the marketing investment. Enterprise Singapore, with such online facilities, provides a full range of advisory services, which allows the Singaporean company with a complete set of tools to build or improve a marketing plan. Interactive access of articles may also complete the assistance program: for example https://web.smu.edu.sg/spring/everything-is-a-pattern/ Note : There is no limitation of access. Any website visitor has full access to the website. Other Institutions Offering Services for Trade Development in Singapore https://globaltrade.net Enterprise Singapore, a government agency, is not the only institution offering expertise and services for export promotion in the public sector. Another key public institution is the Singapore Trade Development Board (TDB), as they introduce themselves in https://singapore.manufacturers.globalsources.com/

The Singapore Trade Development Board (TDB) The Singapore Trade Development Board was established in 1983. Its mission is to develop Singapore as a premier international trading hub by promoting Singapore’s goods and services, pioneering entry into new markets, attracting international traders to base in Singapore and advancing the nation’s external interests with the purpose of increasing Singapore’s prosperity through trade expansion. The two major strategic thrusts of



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TDB will be to internationalize Singapore enterprises to extend their international market reach, and to replicate in cyberspace the gateway function that Singapore already serves for international trade, logistics, and related services in the physical world. TDB operates 35 offices worldwide. TDB’s Main Activities Participation in multilateral and regional trade organization: • World Trade Organization (WTO) • Asia Pacific Economic Cooperation (APEC) • Association of South East Asian Nations (ASEAN) Work closely with other industry associations : • Singapore Commodities Exchange (SICOM) to ensure that the trading infrastructure keeps up with industry requirements. • Overseas Marketing Office program to support companies expand their business overseas • Knowledge Management Program aimed at cultivating a culture of information sharing with the TDB. TDB’s Services • Organization of missions and fairs to seek new markets for trading and investment opportunities • TDB Business Library Integrated resource center offering 30,000 publications, including directories, industry and market reports, listings of business opportunities and leading company reports • Offers business matching services. Private sector institutions or consultant companies are also active in Singapore export promotion. Some key Singaporean consulting representatives are presented here, as they introduce themselves: Alliance Experts Alliance Experts is a global network of business development specialists. They help companies to enter into new markets profitably. They are

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active on all five continents in major economic regions and drive their hubs around the globe. They help Singaporean companies to define their export strategies, develop practical market research and find agents, distributors, or joint venture partners: they may also assist in negotiations and can even act as local representatives, with large experience of foreign markets. Orissa International Orissa International is a well-established trade and investment promotion company serving government economic development agencies and companies around the world to increase exports in new markets, and to search investors through a large network of established offices in 18 key locations around the world. They claim that they were identified as the best performing export consultant by a large U.S. state government economic development agency. Interstice Consulting Interstice Consulting is an international professional services firm engaged for private sector companies, government, NGOs, as well as individual business agents. Interstice Consulting staff is made of highly skilled and experienced professionals drawn from diverse professions in law, accountancy, investment banking and management consulting. Their area of expertise is in International Trade Consulting, Foreign Direct Investment Operations, Foreign Business Development, Assistance to Trade Promotion Organizations.

Conclusion for Trade Promotion in Singapore With such a large range of public institutions and private consulting offices, accessible for all Singaporean and their business partners, it is clear that the Singaporean companies have a wide choice of services to promote their market development strategies, to such an extent that foreign companies open their regional offices to serve as an entry door to East Asia markets (including to Chinese markets, due to the large community of Chinese business established there for decades). Singapore definitely



Selected Successful National Case Studies 83 20 Philippines

Scale : 3 % of world imports

Annual growth of partner countries’ imports from the between 2014-2018, %

15 Cambodia Vietnam China

10

Germany India

5

Netherlands

Thailand Taipei. Chinese Republic of Korea

Malaysia Indonesia

Japan 0

China

United States of America

Australia

United Kingdom -5

France Belgium

Hong Kong, China

Panama

-10 0

2

4

6

10

8

12

14

Share of partner countries in Singapore’s exports, 2018, % Singapore export growth to partner > Partner import growth from the world

Singapore export growth to partner > Partner import growth from the world

Reference bubble

The bubble size is proportional to the share in world imports of partner countries for the selected product

Figure 8.6  Prospects for market diversification for a product exported by Singapore in 2018 product : TOTAL all products

appears as a hub for Asia and the ASEAN trade agreement largely and deeply implemented here acts as an incentive to promote the internationalization of Singapore, explaining de facto the WEF high ranking of competitiveness recorded by Singapore. Similar to the other previous cases, ITC Trade Maps provide a glimpse on clients and products concerned by Singaporean trade development as shown in Figures 8.6 and 8.7. The main trade partners of Singapore are, not surprisingly, China, with a great share of nearly 15 percent and the United States (nearly 7 percent), but with opposite results: Singapore exports to China grow faster than the Chinese import growth from the world, while exports to the United States grow slower than U.S. import growth from the world. Note the positive annual growth of Philippines and Vietnam, while Japan is decreasing (near –7 percent annual decrease over the period 2013–2018). Surprisingly, the neighboring countries of Malaysia and Indonesia have a small share in Singapore exports, with their small bubble size, and Thailand and Republic of Korea are better. Germany is an important partner, almost the same size as China, with an export growth higher than the German import growth from the world. Singapore’s exports is instructive: most of the national supply is located in growing sectors, with a big share for electrical machinery equipment

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Winners in growing sectors 19 - Preparation of cereals, flour, starch or milk: pastrycooks’ products 85 - Electrical machinery and equipment and parts thereof: sound recorders and reproducers, televisi... 30 - Pharmaceutical products Scale : 20,000,000 US Dollar thousand 99 - Commodities not elsewhere specified

Annual growth of world imports between 2014-2018, %

Loser in growing sectors 6

33 - Essential oils and resinoids: perfumery, cosmetic or toilet preparations 22 - Beverages, spirits and vinegar 38 - Miscellaneous chemical products 21 - Miscellaneous edible preparations 84 - Machinery, mechanical appliances, nuclear reactors, boilers: parts thereof

4

90 - Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical ins... Growth for world trade, all products 40 - Rubber and articles thereof 39 - Plastics and articles thereof 29 - Organic Chemicals 71 - Natural or cultured pearls, precious or semi-precious stones, precious metals, metals clad with... 73 - Articles of iron or steel 87 - Vehicles other than railway or tramway rolling stock, and parts and accessories thereof

2

72 - Iron and steel

0

91 - Clocks and watches and parts thereof -2 27 - Mineral fuels, mineral oils and products of their distillation: bituminous substances: mineral... -4 88 - Aircraft, spacecraft, and parts thereof Loser in declining sectors

Winners in declining secots

-6 -10

-5

0

5

10

15

20

25

30

0 Annual increase of Singapore share in world exports between 2014-2018,% Singapore is a net importer for this product

Singapore is a net exporter for this product

Reference bubble The bubble size is proporttional to export value

Figure 8.7  Growth of national supply and international demand for products exported by Singapore in 2018

and parts, sound recorders and reproducers, television, parts and subcomponents, and so on, with obviously factories engaged in hardware, electronics for large groups; the second bulb in size also made of machinery, mechanical appliances, parts have a similar configuration, but both bulbs are in the losers growing sector area. This means that the competition is stiff in these sectors with a zero to negative growth. As positive records, no Singaporean sector is engaged in “losers in declining sectors,” which confirm the competitiveness of Singapore.

Case 4. New Zealand A Bottom-Up Strategy Development Case The main priorities of the New Zealand (NZ) approach, as expressed by the national authorities are to: • Create a public–private sector partnership for strategy development and implementation; • Establish an institutional structure to facilitate the strategy implementation; • Build the national strategy from the ground up;



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• Promote broad-based awareness of the export strategy; • Tailor trade promotion support services to the specifics of the strategy; • Treat strategy development as an ongoing process; • Maintain institutional networks; • Adopt a client orientation in the delivery of services; and • Finally, measure performance. The New Zealand Realities and Perspective New Zealand has natural comparative advantages in its capacity to produce agricultural products. However, the smallness of its domestic market and its remote location gives it serious competitive disadvantages of scale and distance from major markets. The costs of marketing and distribution are major constraints to broad-based export success. To counter these built-in disadvantages and to protect local producers from international competition, NZ maintained, up to the mid-1980s a highly regulated economy. Single-desk agricultural marketing organizations (producer boards) provided critical mass, economies of scale, and uniformity of branding, standards, and quality. Tax-funded subsidies are provided to agricultural and manufacturing exporters. Public funds are invested in large producers of steel, natural gas, synthetic petrol, methanol, and forestry, to reduce expensive imports and to add to the country’s export capacity. NZ entered into a Closer Economic Relation (CER) agreement with Australia, removing trade barriers to its nearest neighbor. A balance of payments and currency crisis led to a major turning point to supporting trade performance in the mid-1980s. In response to its deteriorating economic situation, the NZ government embarked on a program to liberalize the economy comprehensively to make it more competitive. Import controls were substantially reduced, industries and the labor market were deregulated, and the government’s participation in many industries were sold. As a result, costs fell and an aggressive monetary policy ensured that inflation was almost eliminated, helping further competition. New Zealand became, and remains, one of the world’s most open

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economies. In fact, the 2018 World Bank’s report on “ease of doing business” ranks New Zealand first. Liberalization, of course, led to more intense competition, which, in turn stimulated many manufacturers to identify and develop specialized skills and products. Investments in new machinery and technology enabled NZ enterprises to compete successfully with larger overseas producers on short production runs that needs rapid retooling. This type of activity has now become one of NZ’s major competitive advantage. The balance of payment deficit is no longer an issue, since 1996. It was initially assumed that if the macroeconomic conditions were improved, NZ companies would reinforce their competitiveness. But this did not happen immediately, and it was found that a more proactive approach to trade promotion should be adopted to ensure a quicker but also sustained improvement in export performance. It remains a principle that unless macro-policies complement the economy’s competitiveness, any amount of export assistance will be worthless. The New Zealand Approach NZ’s approach provides the framework for the design and management of a dynamic export strategy, which has changed in nature and emphasis quite dramatically in response to, and in anticipation of, evolving client needs and market conditions. What Are the Guiding Principles That Were Adopted? Creation of a public–private sector partnership for strategy development and management: The public–private sector partnership is fundamental to NZ’s approach to national export strategy development and implementation. The guiding principle is that the public sector can (should) facilitate the process, but that industry must own it. The public sector initially assumed the lead role in the process. Once defined, however, NZ has maintained the view that the private sector must also drive the strategy. After all, in the final analysis, it is the profitability of the private sector’s exporting ventures that will determine the success of an export strategy.



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Establishment of an Institutional Structure to Facilitate Strategy Building and Implementation In the early stage of defining its approach, NZ strategists concluded that the establishment of a public-sector focal point was essential to ensure a comprehensive response to the export development objective. In 1986, as a first step, and with private-sector involvement, the NZ Market Development Board (NZMDB) was established to promote the export ethic. Shortly thereafter, the NZMDB was merged with Tradecom, the Government’s overseas trade commissioner service, with a view to consolidate sector-level onshore capacities to develop offshore commercial opportunities. The new focal point organization—the New Zealand Trade Development Board (NZTDB)—became the catalyst for public–private sector dialogue on the formulation of a focused, national export strategy. A conscious effort was and continues to be made to ensure that the public-sector trade promotion service (NZTDB) is clearly identified as the government agency within the public and private sector, notably in trade for the public sector’s input and development of a national export strategy without overlapping the policy analysis work conducted by other government departments. Such clear terms of reference avoid interdepartmental rivalry within the public service. The JAG Concept in New Zealand Private-sector participation in the institutional partnership was initially based on the constitution of Joint Action Groups (JAGs). Each JAG was established to forge partnership with the NZTDB. Initially, JAGs concentrated on assisting food and beverage companies to select and participate in trade fairs overseas, and on encouraging consultancy and engineering firms to bid jointly for offshore projects. Since 1992, more than 35 JAGs had been established. The rationale was that by pooling resources to market products and develop solutions to the constraints of scale and distance, individual NZ enterprises could achieve entry to larger projects offshore while retaining their specialized skills and products.

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Building the Strategy from the Ground Up When subsequently building the first strategy, Stretching for Growth (1993–2000), the New Zealand Trade Development Board adapted the industry-sector bottom-up approach, which had been applied during the creation of JAGs, to the economy as a whole. No product-specific priorities were determined in the initial stages of developing the strategy. There was in fact a conscious effort not to pick winners. Instead, the JAG consultative process enabled sectors to identify themselves as prospective winners. The Stretching for Growth was goal-oriented. When preparing the strategy, the NZTDB confronted the JAGs with the following three questions: 1. “The level of exports for your industry at present is $X. Assuming conditions remain as they are now, what do you expect your level of exports to be in eight years’ time?” This became the strategy’s baseline figure. 2. “Given ideal conditions, what level of exports would you expect?” This became the stretch figure. 3. “What would these ideal conditions be and what issues would need to be addressed to ensure a higher level of performance?” This became the focus of the strategy. All responses from the various industries were collated, the data put into an econometric model, and the results published in the Stretching for Growth strategy. It summarized, in quantitative terms, industry-specific activity plans, specified the trade promotion tools to be applied, with a maximum of 50 percent of the funding provided by the NZTDB, and the balance paid by the industry itself. Over time the private sector usually accepted a greater share of the costs of implementing these plans. Promote Broad-Based Awareness of the Export Strategy To be effective, the strategy must be well publicized. The NZTDB recognized the importance of developing a national export strategy, but also recognized that, for the strategy to be effective, it was needed to publish it throughout the NZ business community.



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Three strategic papers were then published and widely disseminated: 1. New Zealand in the Global Marketplace, giving the basic elements of the national export strategy 2. Stretching for Growth: Building an export Strategy for NZ, providing more details on the strategy 3. Competing in the New Millennium: A Global Perspective for the NZ Business, concentrating on the implications of globalization for future business strategies. The awareness-building effort gave priority to effective communication. Professional designers were hired to package not only the publications, but also to prepare effective multimedia presentations, to be used at the launch of each publication. A public relations company orchestrated the launch. Tailor Trade Promotion Support Services to the Specifics of the Strategy On publishing the Stretching for Growth strategy, the TDB made a 12–24 months commitment to help industries address the relevant issues they had outlined. This involved helping to identify the most promising target markets, for specific sectors, surveying the exporters’ opinions, undertaking desk research from NZ, focusing the work plans of overseas Trade Representatives on appropriate information and promotional activities, and, of course, contributing to the funding of specific activities identified in each sector-specific activity plan. To complement these offshore market development services, the TDB initiated onshore activities to develop business capability and strengthen trade support infrastructure, as summarized in Table 8.3. Two important onshore programs based on public–private sector partnerships were introduced. An initiative known as the Hard Business Network Program was launched to encourage the formation of strategic alliances between three or more companies to build export capacity. To assist in building up the economic infrastructure, there was a program to identify and stimulate business clusters and to motivate local

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Table 8.3  New Zealand onshore/offshore strategic approach components Onshore

Offshore

Business capability

Infrastructure

Market development

• Customer focus • Strategic planning • Core competencies • Partnerships / Alliances • New product development • Global orientation • Quality / Benchmarking

• Skills, education, and training • R&D: Technology and innovation • Investment funds • Financial infrastructure • Environment

• Market access • Market knowledge • Overseas commercial presence • Branding

development agencies to assume greater responsibility for promoting the clustering concept. Treat Strategy Development as an Ongoing Process and Ensure Regular Monitoring Performance measures were established, with an eight-year time perspective, in the launching stage (1993–2000) followed by comprehensive assessment of the strategy. Certain issues were effectively addressed and 72 - Iron and steel

6

08 - Edible fruit and nuts: peel of citrus fruit of melons

Losers in growing sectors

Annual growth of world imports between 2014-2018, %

99 - Commodities not elsewherespecified 4

Winners in growing sectors

Scale : 2, 000,000 US Dollar thousand

76 - Aluminium and articles thereof

21 - Miscellaneous edible preparations 19 - Preparations of cereals, flour, starch or milk: pastrycooks products

22 - Beverages, spirits and vinegar 72 - Iron and steel 2

05 - Products of animal origin, not elsewhere specified or included 90 - Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical ins...

44 - Wood and articles of wood: wood charcoal Growth for world trade, all products 71 - Natrual or cultured pearls, precious or semi-precious stones, precious metals, metals with... 02 - Meat and edible meat offal 03 - Fish and crustaceans, molluses and other aquatic invertebrates

0

84 - Machinery, mechanical appliances, nuclear reactors, boilers: parts thereof

-2 35 - Albuminoidal substances: modified starches: glues: enzymes 51 - Wool, fine or coarse animal hari: horsehair yarn and woven fabric 85 - Electrical machinery and equipment and parts thereof: soundrecorders and reproducers, televisi... Losers in ceclining sectors 47 - Flip of wood or of other fibrous cellulosic material: recovered (waste and scrap) paper or pape... Winners in declining sectors

-4 -15

-10

-5

-0

5

10

15

20

0 Annual increase of New Zealand share in world exports between 2014-2018,% New Zealand is a net importer for this product

New Zealand is a net exporter for this product

Reference bubble The bubble size is proporttional to export value

Figure 8.8  Growth of national supple and international demand for products exported by New Zealand in 2018



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Annual growth of partner countries’ imports from the world between 2014-2018, %

20 Scale : 3% of world imports

Philippines 15 Vietnam 10 Indonesia Thailand India Malaysia United States of America Netherlands Germany Korea, Republic of Hong Kong, China Taipei, Chinese Japan

5

0 Canada -5

China

Australia

Singapore United kingdom United Arab Emirates

0

5

10

15

20

25

Share of partner countries in United States of America’s exports, 2018, % United states of america import growth from partner < partner export growth to the world

United states of america import growth to partner > partner export growth to the world

Reference bubble

The bubble size is proportional to the share in world exports of partner countries for the selected product

Figure 8.9  Prospects for market diversification for a product exported by New Zealand in 2018 producat: TOTAL all products

shortcomings remedies, new issues were also identified, which did not exist in 1993 or even in 2000. As a result of these, the trade promotion strategies were redefined regularly, the functions and activities of the New Zealand Trade Development Board have been revised (known now as Trade New Zealand), refocusing on the original goal of directly increasing foreign exchange earnings through the provision of offshore services. More information is available at: http://nzte.govt.nz Figures 8.8 and 8.9 show the New Zealand partners’ evolution and the main products exported by New Zealand in 2018. The New Zealand partners are highly concentrated in an area with negative annual growth, except Vietnam and Philippines. Germany is a significant partner but far from the United States and China with a big share in New Zealand exports (10 percent for the United States and 23 percent for China). These two countries are vital partners. Note the small size of Australian bulb with a negative comparative growth. New Zealand is spreading its exports to many targets, with two major partners. Considering this map, it appears that distance of the markets is no longer a major concern, or at least this component is integrated in the global business scheme of New Zealand.

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Clearly, New Zealand is concentrating its export to all kinds of food products, meat, dairy products, and products of edible origin with a major share of the world trade. There is an effort to diversify toward other products, but with limited impact, where New Zealand is a net exporter, with encouraging results in edible fruits, beverages, meat and edible meat, all these sectors are dynamic, and NZ is performing well, gaining market share (e.g., for miscellaneous edible preparations).

Case 5. Mauritius1 Mauritius Is an Economic Development Success Story Success has been due largely to the effective planning and management of a series of national export strategies. Over the long run, these strategies have moved Mauritius from a high-unemployment, mono-crop economy to one that is broad-based and characterized by nearly full employment, a significant manufacturing sector, and an increasingly important internationally oriented service sector. The export success of Mauritius has been largely a consequence of foreign direct investment attracted by the country’s political and social stability, its abundant and skilled labor, and its preferential access to the European Union and U.S. markets for sugar and textile exports. Mauritius’s circumstances are nevertheless changing, and Mauritius planners have learned from experience that an export strategy must be flexible and its development an ongoing process. What Is the Specific Mauritius Approach? The current export strategy reflects the lessons learned and the results of decisions taken over the past 25 years. The basic principles used for current strategy and strategy formulation process have put the focus on supporting the development of the enterprise. The country’s first attempt to initiate economic diversification came in the early 1960s.

  Source : Atma Beeharry Panray. 2010. “National Trade Development Strategies—The Case of Mauritius.” Technical Paper with updates.

1



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An integrated strategy was introduced to foster import-substitution manufacturing and attract foreign investment. Infrastructural, institutional, and enterprise development programs were launched in parallel. The Development Bank of Mauritius was established to provide long term credit facilities. An Economic Planning Unit was created to monitor and lead strategy. The University of Mauritius was founded to facilitate industrial development. Fiscal incentives were introduced to attract potential investors, particularly in import substitution industries. Tax legislation was progressively revised to stimulate enterprise development. The impact of this initial strategy was, however, less than hoped for. Unemployment at the beginning of the 1970s remained high (29 percent), economic growth was low (1.75 percent per year on average), and manufacturing accounted for 6.4 percent of the GDP. The country had also a chronic trade deficit. What was wrong? In the early 1970s, Mauritius introduced a mixed import-substitution-export development strategy, which was maintained throughout the decade. Priority continued to be placed on facilitating private enterprise development. An export processing zone was established, efforts to attract foreign direct investment were pushed, and a wide range of incentives were provided to firms engaged for the domestic market (“development certificate enterprises”). The banking sector was encouraged to provide easy access to short and long-term financing. In response, by the 1980s, employment in the manufacturing sector had nearly quadrupled and the unemployment rate divided by two. Over the period, the economy has grown at an annual average rate of 20.6 percent. Of equal importance were the indirect, intangible effects of the strategy’s focus on enterprise development. The import substitution aspect of the strategy, in particular, produced entrepreneurs with skills and industrial experience. It exposed the labor force to a new working environment and an “industrial culture.” All these measures ensured that Mauritius consumers gradually overcame prejudices toward locally produced goods.

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Mauritius Anticipates Shifting Circumstances and Competitive Advantages Throughout the 1980s, it became increasingly clear that the impact of the mixed economic development strategy could not be sustained. While the import-substitution strategy generated a spirit of enterprise, the high effective rate of protection—tariffs, quotas, and exchange controls— ensured that local entrepreneurs were not sufficiently exposed to market pressures to develop managerial skills and other expertise needed to compete internationally. It was solely in the protected sectors that higher profit, wages, and employment were being achieved. Two devaluations in 1979 and 1981 had not been sufficient to reverse a growing balance-of-payment problem and general stagnation of the manufacturing sector. From the early 1980s to the 1990s, increasing emphasis was then placed on increasing the momentum of the export-led component of the mixed-economic development strategy. Export incentives were introduced and reinforced. Numerous import restrictions were eliminated and the tariff system was reformed. The Mauritius Export Development and Investment Authority (MEDIA) was created to strengthen export and investment promotion. A proactive overseas market development support program was launched, targeting niche opportunities for garments in the EU and U.S. markets. Promotion in the regional market became also a focus of MEDIA’s attention. Priority was assigned to the further development of the export processing zone, and in particular its value-added contribution to national production. Foreign investment in the garment sector was, and is still, actively promoted. This export-led strategy enabled Mauritius to benefit from international trade growth in the early 1990s. The economy took advantage from favorable terms of trade, falling prices for imported oil, fluctuations of import costs (due to the changing currency value), and political uncertainties prevailing in countries with high capital-export potential. Such a situation encouraged potential investors to look to Mauritius as a base for taking advantage of preferential terms of access with



Selected Successful National Case Studies 95

the EU (Lomé Convention) and the United States (General System of Preferences or GSP). As a result, the number of enterprises operating in the free zone increased five times to more than 550, employment in the zone increased four times to 90,000, net exports increased 18 times and the zone’s share of national value-added increased from 18 to 48 percent. With full employment, however, Mauritius lost its labor-based competitive advantage, both in terms of costs and ability to generate or absorb new labor-intensive production capacities. A second competitive advantage—that of preferential market access—is also being eroded with the elimination of quotas under the WTO agreement on textile and clothing. In response, the government again modified its strategy. The aim now is to put Mauritius in the upper-middle income group of countries through a modified national export strategy. Such a strategy involves a shift of the production structure into goods and services, not limited by space, volume requirements, or distance. The new strategy focuses on obtaining greater efficiencies in traditional foreign exchange earning industries, like sugar, textiles, and tourism. It also focuses on developing the export-earning capacities of the following sectors: manufacturing, nonsugar agriculture and regional financial, commercial, and maritime services. A flexible approach is also adopted for import of foreign labor (Mauritius is at full employment level, with shortage of manpower). Finally, new priority has been placed on regional cooperation. Building an Institutional Base that Supports and Facilitates Competitiveness Importance is given to the maintenance of an institutional infrastructure that directly promotes, supports, and facilitates broad-based private sector involvement in the international marketplace as opposed to controls. Under the Ministry of Industry, Commerce, Corporate Affairs, and Financial Services, an institutional structure has gradually been constructed on the principles of institutional specialization and interinstitutional coordination.

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The main implications in trade policies consist in emphasizing institutional linkages, government–business–labor partnership, and networking. Special attention is given to developing and implementing national export strategy on a partnership basis among government, business, and labor organizations. For example, public and private sector representatives are on the board of all specialized national organizations involved in trade promotion. The chairperson of each comes from the private sector. The main tool to implement such policies is the Joint Economic Council (JEC). The JEC is the apex private-sector organization. Its mission is to promote free enterprise and the interests of the Mauritian private sector. The JEC members include the Mauritius Chamber of Commerce and Industry, the Mauritius Chamber of Agriculture, the Mauritius Employers Federation, the Mauritius Export Processing Zone Association (MEPZA), and all other major business associations in the country. One of the main directions considered by the JEC is to promote regional collaboration and take advantage of its geographic positioning. The previous strategies of Mauritius had been designed to take full advantage of commercial opportunities generated by preferential trade agreements (Lomé, GSP, and the Sugar Protocol). Focus was accordingly directed toward the European and American markets (Mauritius being also a gateway to these markets for Asian industries). While these traditional markets continue to be emphasized, the success of the country’s current strategy is also based on the development of the regional marketplace. The region comprises 350 million consumers and imports the equivalent of US$25 billion annually. Active participation in regional agreements is the key of the national export strategy. To reinforce its commercial involvement in this regional market, Mauritius has established its Freeport as a duty-free zone for all goods destined for re-export, wherever they are located in the island. For operators, all machinery, equipment, and materials can be imported duty-free into the Freeport. The legislation provides for a comprehensive package of incentives for companies looking for a cost-effective storage, assembly, and redistribution.



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Other key strategies adopted by Mauritius consist of the following: Stimulating the involvement of the SME sector in the export development effort Beyond the active promotion of the Export Processing Zone and Freeport, Mauritius’ strategy calls for SMEs located outside the zone to engage increasingly in exporting. Export support services are made directly available to the SME sector by MEDIA and the Small and Medium Industries Development Organization (SMIDO). Consultancy services, management training, startup services, research, and common repair and maintenance facilities are all available to the small-scale entrepreneur. A related initiative involves creating a structure where subcontracting and outsourcing linkages are promoted between strong, established enterprises and small firms. Promoting the development of a specialized export services industry Although manufacturing remains the backbone of economic development in Mauritius, the service sector is a growing important aspect of the country’s success and its current export strategy. As early as 1981, the Export Service Zone Act was introduced to stimulate the re-export of manufactured goods. This was to be achieved by setting up firms to engage in storage facilities and to provide specialized export marketing and related services to the domestic manufacturing sector. Incentives were extended to such firms. Results achieved with such export-oriented policies: As a consequence of this strategic decision, Mauritius has not only developed an important re-export business but has acquired considerable expertise in translation, marketing, business consultancy, and other exportable services where emphasis is on the use of new information and communication technologies (NICT). Moreover, the rate of unemployment has remained so low that Mauritius is in search of manpower, which is unique within the region. Mauritius has some key partners with whom it is dependent: the United States and United Kingdom, but losing market share (light grey bulb) as shown in Figures 8.10 and 8.11 but is diversified to Europe: France, Germany, Netherlands, Italy, Spain, even Greece, all with a relative growing strength. Obviously, the Mauritius policy to open its business as a free trade area with its open factories and workshops is working well.

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Annual growth of partner countries’ imports from the world between 2014-2018, %

Vietnam 10

Thailand China

5

Taipei, Chinese Madagascar Netherlands Spain

United States of America

India 0

France

Belgium

Switzerland Germany Seychelles Singapore

Italy South Africa

Japan

United Kingdom

-5

Kenya Russian federation

-10 0

2

4

6

8

10

12

14

16

Share of partner countries in Mauritius’s exports, 2018, % Mauritius export growth to partner < partner import growth from the world

Mauritius export growth to partner > partner import growth from the world

Reference bubble

The bubble size is proportional to the share in world imports of partner countries for the selected product

Figure 8.10  Prospects for market diversification for a product exported by Mauritius in 2018 product: TOTAL all products

Not a single product was exported in the declining sector, except clocks and parts, and all exports are in growing sectors. The textile sector is highly represented (e.g., clothing, apparel). Market share in coffee, tea, and spices, where Mauritius may have some comparative advantages is

Annual growth of world imports between 2014-2018, %

6 Losers in growing sectors 85 - Electrical machinery and equippment and parts thereof : sound recorders and reproducers, televisi... Winners in growing sectors 30 - Pharmaceutical products 03 - Fish and crustaceans, molluscs and other aquatic invertebrates 19 - Preparations of cereals, flour, starch or milk: pastrycooks’ products 4

Scale: 60,000 US Dollar thousand 22 - Beverages, spirits and vinegar 16 - Preparations of meat, of fish or of crustaceans, molluscs or other aquatic invertebrates 60 - Knitted or crodheted fabrics

09 - Coffee, tea, meat and spices

2

39 - Plastics and articles thereof

Growth for world trade, all products 90 - Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical ins... 01 - Live animals 23 - Residues and waste from the food industries: prepared animal fodder 62 - Articles of apparel and clothing accessories, not knitted or crocheted 84 - Machinery, mechanical appliances, nuclear reactors, boilers: parts thereof 71 - Natural or cultured pearls, precious or semi-precious stones, precious metals, metals clad with...

17 - Sugars and sugar confectionery

0

61 - Articles of apparel and clothing accessories, knitted or crocheted 91 - Clocks and watches and parts thereof

-2

52 - Cotton 27 - Mineral fuels, mineral oils and products of their distillation: bituminous substances: mineral... Losers in declining sectors

Winners in declining sectors

-4 -60

-40

-20

0

20

40

60

80

100

0 Annual increase of Mauritius share in world exports between 2014-2018,% Mauritius in a net importer for this product

Mauritius is a net exporter for this product

Reference bubble

The bubble size in proportional to export value

Figure 8.11  Growth of national supply and international demand for products exported by Mauritius in 2018



Selected Successful National Case Studies 99

decreasing, despite a high growing trade. The major sector is, not surprisingly, sugar and sugar confectionery. Together with clothing accessories, knitted or crocheted, the significant export trade is there.

Case 6. Republic of Korea KITA: A National Private Sector Initiative and a Proactive Export-Oriented Institution in the Republic of Korea This case is based on an International University in Geneva research paper by Hyungsuk of KITA/KOTRA Senior Trade Promotion Officer, November 2017. The Korean International Trade Association (KITA) is a nonprofit, nongovernmental association, financially free from government, established on July 31, 1946, whose members (70,000) are essentially SMEs acting as the association owners, paying an annual fee of US$125. The KITA Secretariat consist of 300 members, with headquarters in Seoul, with 13 regional branches in Korea and 10 overseas branches. KITA Organization Its organization is composed of five departments / groups: 1. Policy Development Group, with a Trade Policy Department, a Service Policy Department, a Logistic and Inter-Korea Trade Promotion Department 2. International Affairs Group, with an International Cooperation Department and four Regional Departments (Asia, America, China, and Eurasia) 3. Member Affairs Group, with On-Site Trade Support Department, Membership Services Department, and Member Support Department 4. e-Biz Services Group, with Trade Korea Department, B2C Service Department, and Trade Information Support Department 5. Planning and Administration Group, with Coordination Department, Trade Center Management Department, Exhibition and Convention Expansion Department, and Finance and Accounting Department.

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KITA’s functional organization consists of a Business Support Center, overseas and regional branches, a World Trade Academy (Global Education, Trade Education, and Cyber Trade), and an Institute for International Trade implementing Analysis and Forecasting, Corporate Competitiveness, and Regional Studies and Emerging Market Research Center. Main KITA Goals The KITA goal is to contribute to the development of the national economy as a private economic organization through advocacy of the Korean trade industry’s rights and interests, thereby facilitating global trade. Such activities are developed in conjunction with KOTRA (Korea Trade Promotion Corporation  initially,  Korea Trade-Investment Promotion Agency  since 1995) is a state-funded trade and investment promotion organization operated by the Government of Republic of Korea, established in 1962 as a national trade promotion organization. KITA’s work plan is developed around six main objectives: 1. Propose suggestions and related policy improvements to the government for protecting the rights and interests of its member companies 2. Develop new foreign markets and enhance private sector trade 3. Organize world-class exhibitions 4. Foster global trade professionals 5. Conduct investigations and studies for increasing national competitiveness 6. Establish e-trade infrastructure and expand user base. How are the Trade Support Institutional Services deployed? KITA is acting in the following functional areas: • Trade intelligence, helping enterprises to acquire information about regulations, statistics, and business opportunities, for an initial approach to identified markets. This consists of trade information provision, market analysis, preparation of business contacts and opportunities, and assessing market access conditions.



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• Export / investment promotion, in providing Korean enterprises with the opportunity to take a snapshot of a given market, for instance in organizing trade visits to local trade fairs, in developing an export readiness assessment, in counseling about the formulation and development of a market entry strategy at company level, including a value chain optimization. • Export development initiatives and follow-up, building or improving exporters’ capacity through direct counseling, advisory services, and assessment of export potential. • Enabling business environment, in providing useful services or activities for policymakers and enterprises to facilitate market entry and overcome trade barriers, through facilitation of cross-border trade, lobbying and advocacy, as well as facilitating access to resources. Of course, such a wide range of proposed services constitutes an ideal global approach and contributes to help KITA for adapting its own resources (local or from headquarters) to the concerned company. How Are the KITA Trade Support Services Organized? They consist of direct support or indirect support. Direct assistance includes financial aid, consultation, membership services, and new exporter development support. Indirect support is deployed through as off-line and online marketing support and certification. Financial aid consists of loans and trade insurance with special conditions: low interest loans for the trading SMEs, at 3.5 percent interest, repayment in 1 year after 2 years of operations, trade insurance, with annual trade insurance fee and support of exchange risk insurance fee. A whole range of consultation services are available for KITA members: • General Trading Consultation on Trading Procedures, International Patent, Rules of Origin, contracts claims, International Standards, Incoterms, Exchange Risks, International Payment, L/C, Customs Clearance required • Trade expert consultation visit

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• • • •

Language translation services Consultation call center Consultation visit (once a year) Logistics claims for shipper call center (with logistic system improvement consultation).

Membership Services Membership services operates through a Trade Service Discount Club, which delivers direct business operations : cargo express, parcel services, export packing, patent and intellectual property rights, credit check, translation and interpretation, home-page and catalog making, mobile rental-roaming, issuing certificate of origin by proxy, advertising agency, and so on. These services are delivered to requesting companies through a membership card, providing support service voucher, benefit from the services offered by the World Trade Center in Seoul, and free entry to Korean exhibitions.

20 Philippines

Scale: 3% of world imports

Annual growth of partner countries’ imports from the world between 2014-2018, %

15 Viet Nam 10 Malaysia Mexico 5

0 Turkey Brazil

-5

-10

0

Indonesia Thailand United States of America Germany Taipei, Chinese Singapore Hong Kong, China india Japan

China

Australia Canada United Kingdom Russian federation

5

10

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Share of partner countries in Republic of Korea's exports, 2018, % Republic of Korea of export growth to partner < partner import growth from the world

Republic of Korea export growth to partner > partner import growth from the world

Reference bubble The bubble size is proportional to the share in world imports of partner countries for the selected product

Figure 8.12  Prospects for market diversification for a product exported by Republic of Korea of in 2018 product : TOTAL all products

30



Selected Successful National Case Studies 103 20 Dynamic markets Philippines

Scale: 3% of world imports

Annual growth of partner countries’ imports from the world between 2014-2018, %

15 Vietnam 10 China United States of America Malaysia Mexico

5 Singapore

2

India Thailand Germany

Indonesia

Taipei, Chinese Hong Kong, China [Growth]of world market for the selected product : 2%

0

Turkey Russian Federation Japan

Brazil

-5

United Kingdom Canada Australia

Declining markets

-10 -20

-10

0

10

20

30

Annual growth of Republic of Korea exports to the partner countries between 2014-2018, % Republic of Korea export growth to partner < partner import growth from the world

Republic of Korea export growth to partner > partner import growth from the world

Reference bubble

The bubble size is proportional to the share in world imports of partner countries for the selected product

Figure 8.13  Growth in demand for a product exported by Republic of Korea in 2018 product : TOTAL all product

New Export Development Nursing KITA is providing support to startup companies, operating for less than 3 years. Among other services provided, with a monthly fee from US$125– 300, the start up company gets free Internet and postal service with a “Trade Korea minisite service” and marketing support for search engines. For a number of Korean companies that still have no or limited experience in export business, direct assistance is provided for export-oriented projects after a diagnosis and consultation service (similar to the Finland FINPRO’s direct assistance program). Trade support services also have a trade and investment component, opening export potential, participation and assistance into international exhibitions, in export sectors like sports, jewelry, IT shows, energy, and so on. KITA also organizes various buyer business meetings, with buyers matching meetings, arranging export process by proxy. Two hundred and fifty special trade companies manage the trade in 100 countries. KITA trade promotion activities are developed with vertical integration from private sector enterprises to KITA, then to the Korean government, and horizontal integration with KOTRA and industrial associations.

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8

Winners in growing sectors

Losers in growing sectors

Scale : 30,000,000 US Dollar thousand 33 - Essential oils and resinoids: perfumery, cosmetic or toilet preparations Annual growth of world imports between 2014-2018, %

6

85 - Electrical machinery and equipment and parts thereof: sound recorders and reproducers, televisi... 76 - Aluminium and articles thereof 38 - Miscellaneous chemical products 30 - Pharamaceutical products

4

74 - Copper and articles thereof

60 - Knitted or crocheted fabrics

2

Growth for world trade, all products 48 - Paper and paperboard: articles of paper pulp, of paper or of paperboard 84 - Machinery, mechanical appliances, nuclear reactors, boilers: parts thereof 39 - Plastics and articles thereof 29 - Organic chemicals 87 - Vehicles other than railway or tramway rolling stock, and parts and accessories thereof 90 - Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical ins...

72 - Iron and steel 89 - Ships, boats and floating structures

0

73 - Articles of iron or steel 40 - Rubber and articles thereof 28 - Inorganic chemicals: organic or inorganic compounds of precious metals, of rare-earth metals, o... 27 - Mineral fuels, mineral oils and products of their distillation: bituminous substances: mineral... 54 - Man-made filaments: strip and the like of man-made textile meterials

-2

Losers in declining sectors

Winners in declining sectors

-4 -20

-10

0

10

20

30

0 Annual increase of Republic of Korea share in world exports between 2014-2018, % Republic of Korea is a net importer for this product

Republic of Korea is a net exporter for this product

Reference bubble

The bubble size is proportional to export value

Figure 8.14  Growth of national supple and international demand for products expored by Republic of Korea in 2018

The vertical integration creates channels to bridge between public and private sectors, KITA representing trade enterprises; regional (Trade Company Council, regional government), and industrial groups (committees, private and public associations) are promoted. KITA cooperates with the Korean government to host global conferences or meetings to improve trade environment and expand free trade. The horizontal integration is promoted through the Institute for International Trade, discussing trade issues and trends, free trade agreements, and emerging market development with all actors involved. For Korean exporters, KITA promotes trade statistics, publishing trade statistics between Korea and 59 states, trade information with tariff, and integrated information provision in single channel, with one click (e.g., tariff, regulation, and standards in HS Code). Finally, KITA promotes education and job matchmaking through its Trade Academy, organizing programs in trading, international marketing, trade finance, logistics for students, businessmen, and CEOs. E-learning is set up with computers and mobile phones. The education programs are designed for training country officers, operating in the national trade representation offices abroad. At the end of curriculum, a trade specialist



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license is delivered. Postgraduates act as young trade professionals and in export companies, with internships, and specialists job center support. KITA also organizes the “Trade Day” on December 5th every year, and it’s a national event providing awards to CEOs of export companies with trade business from US$1 million to US$ 10–80 billion export records. Definitely, KITA offers a large assistance platforms for students, new export business to confirmed operators being a national Trade Support Institution with multidimension, which may explain that the Republic of Korea is one of the most dynamic export-oriented countries in the world. In the 2018 World Bank ranking in the “ease of doing business” the Republic of Korea ranked 5th and 19th in the IMD’s “talent ranking.” For illustration, the Korean case of ITC trade map is reproduced with three maps in Figures 8.12 through 8.14. They show the relative market diversification for the all the Korean products. The key partner of the Republic of Korea is obviously China in a very dynamic export trend. It is followed by the United States, and exports to both partners are superior to the import growth of these two markets from the world, which also follow a positive (growing) trend. Six other partners obtain growing market shares, Vietnam and with Philippines, but with different trends (winning in Vietnam, losing market share in the Philippines). Hong Kong is also a dynamic partner. Note the annual growth rate of world imports between 2013 and 2018 in % of –3 percent, like in all other graphs. In this context, Korean exports are well positioned. Electrical machinery, mechanical machinery, and accessories are the key sectors. Note the rise of essential oils and perfumery, cosmetic or toilet preparation, high value-added products, which are still small in size, but highly dynamic: the Republic of Korea is targeting a promising sector, even if it is still of small size (the bubble size is proportional to export value). However, most of Korean export sectors are growing faster than global imports of the same sectors, which means winning market shares. Globally, the Republic of Korea appears as a serious competitor (dark grey bulbs) in growing markets (above the –3 percent average).

CHAPTER 9

Trade Development Strategies for SMEs Digitalization of the global economy and the increasing reliance of outsourcing by large firms are providing new business opportunities for SMEs as never before. By exporting, SMEs can increase sales, offer minimum orders size, and provide personalized services. Moreover, SMEs are a great source of employment locally and generate economic growth at the community level and most likely to continue in the near future.

Typical Obstacles Facing SMEs Despite their relative successes, SMEs are facing several obstacles in their internationalization process. Some of the common obstacles faced by SMEs are mainly due to: • Lack of working capital to finance export operations • Limited access to information on foreign markets, business practices, and export procedures • Weak managerial skills and poorly trained staff in data analytics • Difficulties in developing new products for exports that meet international quality norms • Insufficient investment in digital technologies. Overcoming these hurdles are not easy and time-consuming. Recognizing these obstacles, governments through their national trade promotion organizations are increasingly active in creating a positive environment and providing technical assistance to SMEs enabling them to be globally competitive such as providing real-time information, financial incentives, and specialized services.

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Developing an Export Strategy In most cases, before exporters can benefit from various assistance programs, they need to have developed an export marketing strategy. Even if it is in a draft form, it will be of great help to the staff of the trade promotion organization to offer any assistance. Once the strategy is prepared, the trade promotion organization can help in finalizing it and develop an export plan as well as defining what support will be needed to enter the target market. At this stage, planning is essential for the assistance to be meet the specific needs of the SME. The provision of general information without careful preparation is not effective. Exporting can bring a number of benefits provided SMEs take a medium to long-term outlook to remain active and competitive in global markets. All too often, SMEs, after obtaining a trial order or a repeat order, return to domestic sales due to insufficient business or lack of profitability, leaving behind a bad image not only of the firm but all businesses from that country. Being an exporter is a long-term commitment requiring human and financial investment in the early stages of internationalization before generating profits.

Market Selection Today, there are almost 200 countries in the world. The largest countries represent 80 percent of global GDP and even larger share of imports meaning that the remaining 175 countries account for less than 20 percent of global trade. For this reason, few of the world’s largest companies try to penetrate more than 20 to 30 international markets creating opportunities for SMEs in countries not targeted by leading firms. In view of the concentration of competition in the top markets by large organizations, SMEs can consider target markets where competition is weakest at least in the early stages of internationalization. When selecting target markets, SMEs need to address the following critical questions: • How can I stay competitive in the digital era? • Is the strategy realistic? • Does my firm have the resources to enter and develop foreign markets?



Trade Development Strategies for SMEs 109

• Are my products/services ready to export or do they require modification/certification? • How severe is the foreign competition? • How can my firm differentiate its product/service from competition? • How to link up with global value chains? Concerning the selection of target markets, SMEs can consider the following options: • Selecting countries having a similar culture and common language as it is easier to collect and process information as well as facilitate the development of personal contacts. Furthermore, sharing the same language between people contribute to the development of strong relationships, encourage informal networks, and enhances social capital.1 According to an article in the Economist (2012),2 it was estimated that if two countries have a common language, trade between them will be greater than between countries having different languages. • Selecting markets having the best potential of their products/ services regardless of geographic proximity. Generally, such markets are highly competitive and difficult to enter. Unless SMEs enjoy a superior comparative advantage and have the organizational and financial resources to face competitive pressure, this option may be too risky. • Selecting markets that belong to a trade bloc such as ASEAN, MERCOSUR, SADCC, or the EU may be an attractive alternative. After having established itself as a serious exporter in one country, the firm can then consider developing other markets within the trade bloc. • Markets are selected based on personal contacts particularly in relationship-oriented cultures. In these cultures, business takes place primarily among people knowing and trusting each other. Ideally this option can be combined with any of the other options as it can lead to stronger relationships and greater business opportunities.

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• With Internet and social media, SMEs are likely to receive unsolicited inquiries of two types: one related to their products or services and another more transactional, that is, orders from foreign countries. Concerning the first type, SMEs should appoint a person to manage inquiries related to their image. As far as the second type is concerned, before SMEs can fill the unexpected order on an ad hoc basis, they should consider whether it is worth investing scarce resources unless there are excellent chances that future orders are likely to follow or that the order will require little additional expenses to fill. Another possibility is to forward this order to one of their distribution channel partners, after they have discussed and agreed with one of them. • Another option is to join global supply chains (GSCs). Obtaining contracts from GSCs provide SMEs access to overseas markets; however, only SMEs having invested and integrated digital technologies in their business models can expect to join global supply chains.

Innovative Instruments/Solutions for Export-Oriented SMEs New tools and databases developed in the past two decades have targeted export-oriented SMEs. For instance, several computerized programs that assess a company readiness to export is, now available. For example, Canada offers several practical guides that include on line before SMEs can fill the unexpected order on an on line self-assessment export diagnostic program and an interactive export planner that takes the user through the process of creating an export plan. Australia provides two linked export readiness programs, namely Trade Start and Export Access. Both of these programs aim to provide training to SMEs and links them to Australia’s global network. Both of these programs aim to provide training to SMEs and to join global supply chains. Besides the source of information provided by the International Trade Centre as elaborated in Chapter 6, SME executives can consult the competitive indexes and rankings issued by the World Economic Forum, the



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World Bank, and the IMD. For example, the Global Enabling Trade Index (ETI) reflects a country’s ranking issued by the World Economic Forum. Although these tools are available to any SME and startups, it is how they utilize the information that can lead to the formulation of viable export strategies. However, this is insufficient in global competitive environment. Now SMEs need to develop a competitive response capacity as described below to compete successfully in the international marketplace.

Building a Competitiveness Response Capacity As digital technologies disrupt a firm’s business model, SMEs need to find alternatives to seek new sources of revenue and growth. Trade strategies that focus only on where to export, what to offer, and how to promote products or services are rapidly becoming inadequate. It is how a firm does business that will distinguish it from competition. International trade is now characterized by constantly escalating competition among producers and suppliers, rapid product innovation, shorter product life cycles, aggressive pricing, and knowledge-based competition. Competitive advantage no longer comes from low cost or product/service differentiation but from low processing transactional costs due to digitalization and build a stronger relationship with their most valuable customers. Along with these changes, new approaches were introduced to serve customer needs with a total competitiveness capacity. Consequently, exporters who previously competed on the basis of price and quality now are also competing in term of response capacity as described in Chapter 2. An issue that is often overlooked is the production capacity of SMEs. For instance, SMEs tend to have difficulties with production requirements including: • Production inputs that do not meet international specifications • Technology being inadequate for design or quality requirements and for moving up the value chain • Insufficient installed capacity for accepting minimum order sizes (after all, one cannot export what one does not have or cannot produce in sufficient quantities).

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To overcome limited production capacity, new export opportunities for SMEs have emerged by creating capabilities and efficiencies through industrial clusters and networks, reinforcing backward linkages between high-performing exporters and local suppliers. In fact, promoting the development of joint marketing groups have proven to be relevant approaches for long-term, export capacity development. Some trade promotion organizations like in Mexico offer relevant approaches by focusing much of their SME promotion on linking small suppliers to large exporters, including foreign multinationals. This means targeting multinational companies that are outsourcing a growing part of their production or service requirements. Of course, in international business, comparative advantages are constantly challenged by newcomers, but this point should not be overestimated. Multinational corporations appreciate established relationships and do not shift their business to unknown newcomers unless they have strong reasons to do so. Alternatively, SMEs should be encouraged to join forces in consortia-like groupings when pursuing opportunities overseas and pooling resources to finance the high cost of market entry.

What About the Future? The financial crisis and the global recession in 2008 had a negative impact on SMEs worldwide resulting in canceled orders, delayed payments, greater unemployment, and forcing weaker SMEs into bankruptcy. In the past several years, the global outlook is on the upturn with rising demand particularly from supply chains. For SMEs to avoid being too dependent on a few Western markets, SMEs can take advantage of the increasing demand for goods and services from the Asian region. In fact, Asian economies are growing faster than most Western markets offering greater export possibilities. In order to survive and prosper, SMEs need to continue to innovate, maintain flexibility, and control operating costs. By improving their operational efficiencies and seizing new business opportunities, SMEs can expect future growth provided they consider the following:



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• Select target markets that offer the best potential with lower risks • Be client-oriented and maintain customer relationships • Recruit, train, and retain qualified staff, particularly those dealing with data management • Joins clusters to benefit from opportunities offered by global value chains • Invest in digital technologies and develop new business models • Consider intangibles as new sources of additional revenue • Develop a total response capacity • Adapt products/services to a rapidly changing demand • Closer interaction with the national trade promotion organization

Conclusion Due to the digitalization of the global economy and increasingly competitive markets, SMEs have to reinvent themselves to remain relevant to the business sector in volatile times. To face these challenges, several initiatives were designed to assist SMEs in developing strategies with new tools and networks. These new instruments should prove beneficial to SMEs and startups in their efforts to become market drivers in tomorrow’s globalized economy. SMEs have to rethink their operations to develop digital technologies in their business models to have a comparative advantage as well as benefiting from the opportunities offered by global value chains.

References 1. Piekkari, R., and D. Welch, and I. Welch. 2014. Language in International Business- the Multilingual Reality of Global Business Expansion. Edgar: Elgar, Cheltenham. 2. The Economist. January 28, 2012. The Power of Tribes. 3. Lu, J., and P. Beamish. 2002. The Internationalization and Growth of SMEs, ASAAC, Winnipeg 4. The Global Enabling Trade Report 2014, World Economic Forum, Geneva. 5. SMEs and Growth: Challenges and Winning Strategies. Business Development Bank of Canada, 2015.

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6. Top Barriers and Drivers to SME Internationalization 2009, OECD, Paris. 7. European Commission. 2012. Directorate-General for Enterprise and Industry, Annual Report on European SMEs 2013/2014: A Partial and Fragile Recovery. Brussels. 8. International Trade Centre. “Trade Map Trade Statistics for International Business Development.” htpp//trademap.org. 9. OECD. 2008. “The Impact of the Global Economic Crisis on SMEs in the MENA Region.” Paris.

CHAPTER 10

Using the Trend in Value Added Concept Published by OECD (TiVA Database) and the Canadian Trade Commissioner Service (TCS) Offer It is fully recognized that a commodity or a service linked to a commodity is provided to a final consumer after a (sometimes long) chain of manufacturing steps, every step being part of a value-added chain, every component of this chain being frequently processed in a different country, where the production factors have comparative advantages, including the services linked to this product, before the final step of making the product available for consumption by the final user. This is illustrated by a Website providing all suppliers operating for Apple in the manufacturing process of smartphones. This process of shared manufacturing is called “Value-added Chain,” as explained in Chapter 6, considered by international organizations as a major indicators of the world trade flows and the market shares that every country has reached (or has lost), linked with its competitiveness. This, of course, constitutes a very reliable indicator of the breakdown of any commodity. But there is a major difficulty in measuring these flows, because the classification used and subcomponents (in export, import, re-export, services value-added content supplied, etc) are not always comparable, even not identified properly by the custom authorities, with subsequent errors

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in the data compilation and finally end results. One difficulty among others lies in the classification in product or sector based, generating discrepancies between primary and secondary products in a given sector (SITC or SIC based). Despite these difficulties, international organizations (OECD, World Bank, WTO), and others try to integrate the various data together. The OECD has published a (source and methods) set of information (www. oecd.org/sti/ind/tiva). Unfortunately, the implied delays in collecting all data, including those originated in developing countries, and integration of the latest reliable published material imply a rather long delay, the last provider commands the final published data. The latest data is usually available at least six years after the current year (in 2017, years covered are 1995 to 2011 data). For business use and short term or marketing decisions, it is simply not usable, but for investment consideration and long-term decision making, it is helpful. The OECD-WTO TiVA database has helped to provide a new way through which international trade, and, in particular, international fragmentation of production can be viewed. However, the underlying national supply-use and input–output tables required to produce TiVA estimates are typically not available until at best two to three years after the reference periods to which they refer, and, in addition, involve a lengthy process of integration within a coherent global accounting framework. The OECD-WTO Trade in Value Added (TiVA) database, first launched in January 2013, has transformed the way trade can be viewed, providing unique insights on the nature of Global Value Chains (GVCs). https://oecd.org/sdd/its/tiva-nowcast-methodology.pdf Complete TiVA tables by country and the period 2000–2016, including graphics are available at: http://stats.oecd.org/Index. aspx?DataSetCode=TIVA_2016_C1 The main OECD tables available are (as of April 2018) : • Trade in Value Added (TiVA)—December 2016 • Trade in Value Added (TiVA): Origin of value added in gross exports—December 2016



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• Trade in Value Added (TiVA): Origin of value added in final demand—December 2016 • Trade in Value Added (TiVA): Gross exports by final destination—December 2016 • Trade in Value Added (TiVA): Origin of value added in gross imports—March 2017+ TiVA Nowcast Estimates 2016 Edition of TiVA Indicators (1995–2011) The 2016 edition of the TiVA database provides indicators for 63 economies covering OECD, EU, G20, most East and Southeast Asian economies, and a selection of South American countries. Thirty-four unique industrial sectors are represented, including 16 manufacturing and 14 services sectors, as well as related to total manufactures and total services. This edition is a “light” update of the 2015 version introducing two new countries, Morocco and Peru. Indicators are now provided for all years from 1995 to 2011. The industry list remains unchanged. The indicators presented in the TiVA database provide insights into: • Domestic and foreign value-added content of gross export by exporting industry • Services content of gross exports by exporting industry, by type of service and value-added origin • Participation in Global Value Chains via intermediate imports embodied in exports (backward linkages) and domestic value-added in partners’ exports (forward linkages) • “Global orientation” of industrial activity, that is, share of industry valued-added that meets foreign final demand • Country and industry origins of value-added in final demand, including the origin of value-added in final consumption (by households and government) and in investment by businesses • Bilateral trade relationships based on flows of value-added embodied in domestic final demand • Inter-regional and intraregional relationships • Domestic value-added content of imports (NEW)

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One Application for the TiVA / GVC Concept Trade promotion strategy for SMEs and participation in the Global Value Chain System: the Canadian Trade Commissioner Service (TCS) offer. Following the TiVA concept (http://oe.cd/tiva), developed jointly by the OECD, UNCTAD, and the World Bank, “global value chains” take advantage of open borders, allowing each link in the chain to specialize in what it does best. As a result, many large firms have reduced their in-house activities, sourcing non core activities to outside firms who can deliver the product or service better, faster, or cheaper than the firm could do itself. This defines a new type of trade promotion assistance proposed by trade support institutions. Taking this type of strategic goal into consideration, the Canadian Trade Commissioner Service (TCS) has released a guide for SMEs: http://tradecommissioner.gc.ca/gvc-cvm/gvc-guide-cvm-guide. aspx?lang=eng This is an online self-diagnosis system as a step-by-step document, which could be used by exporting companies willing to build up a trade promotion strategy to enter and take benefit of the increasing the global value chain as listed in Figure 10.1. “A step by step diagnosis is proposed to allow potential candidates to assess their potential and consider the step either to enter (or create) an existing value chain with its range of diverse benefits, can be a solid strategy for the concerned firm. It is not, however, without risks. Before choosing to invest abroad, firms should carry out a detailed market analysis to ensure that the market is an appropriate one for their product. The guide provides access to a full range of trade promotion contacts that illustrates quite well the principles developed throughout this guide in a practical way by helping Canadian businesses succeed internationally. The TCS provides four key services. It supports firms by: 1. helping prepare for international business; 2. assisting with international market potential assessments; 3. providing qualified market contacts; and 4. guiding problem resolution when challenges arise.”



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Global value chains

Selling

Off-shoring

Out-sourcing

Selling product into a value chain or to a supplier into that chain

Moving aspects of business to lower cost locations

Delegating select business processes to third party vendors

CDIA Includes buying a foreign company for their production network, building an overseas facility for new market access, etc.

FDI Includes attracting investment from a foreign firm to leverage their assets, such as capital, research, product, etc.

Joint ventures Allow for strategic collaboration, risk sharing and access to additional resources, including collaborative research and development

Figure 10.1  Global value chains components

In fact, instead of reading, a complete online resource is accessible, which is a summary of all resources listed. The following quotes provide direct access to a full range of services: Global Value Chain Information Links • • • • • •

The Trade Commissioner Service—Global Value Chains Canada Export: Climb Up the Value Chain (Podcast) Value chains for new markets factsheet Value Chain Assessment Checklist Global Value Chains and Sustainable Development Goals: What Role for Trade and Industrial Policies?

Selling into a Global Value Chain • Step-by-Step Guide to Exporting • Exporting to the United States; A Guide for Canadian Businesses Financing • Funding Opportunities • Export Development Canada—Financing Solutions for Canadian Companies • Business Development Bank of Canada—Financing

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This mapping exercise is conceptualized from Value Chain Guidebook: A Process for Value Chain Development, second edition, Agriculture and Food Council of Alberta, Value Chain Initiative. September 2004, pp. 65–67. Value Chain Guidebook: A Process for Value Chain Development, second edition, Agriculture and Food Council of Alberta, Value Chain Initiative, September 2004, p. 51. Of course, for non-Canadian business, the diagnostic (and the relevant possible steps and solutions) have to be adapted according to the situation, but this guide provides all the basic steps to consider before jumping to the TiVA process : ideally, nothing stops business representatives to ask advice to the national trade promotion institution with the conclusions reached after completing the exercise. After all, TiVA involves foreign partners who more or less develop a similar pattern, and ultimately if they reach complementary diagnostic, they may share their views and decide to create, participate, and optimize their own potential value chain (with the relevant TSIs).

CHAPTER 11

Disruptive Innovation: A New Dimension of Competitiveness Issues Disruptive innovation is a term in the field of business administration that refers to an innovation that creates a new market and value network and eventually disrupts an existing market and value network, displacing established market leading firms, products, and alliances. The term was defined and first analyzed by the American scholar Clayton M. Christensen and his collaborators beginning in 1995 and can be considered as a remarkable influential business idea. The concept is well defined in Wikipedia: “Disruptive innovations tend to be produced by outsiders or entrepreneurs, rather than existing market-leading companies. The business environment of market leaders does not allow them to pursue disruptive innovations when they first arise, because they are not profitable enough at first and because their development can take scarce resources away from sustaining innovations (which are needed to compete against current competition). A disruptive process can take longer to develop than by the conventional approach and the risk associated to it is higher than the other more incremental or evolutionary forms of innovations, but once it is deployed in the market, it achieves a much faster penetration and higher degree of impact on the established markets.” See for definition of disruptive innovation: https://en.wikipedia.org/wiki/Disruptive_innovation Beyond business and economics, disruptive innovations can also be considered to disrupt complex systems, including economic and business-related aspects. Business leaders today often think disruption is beyond their control. While 93 percent of executives say they know their industry will be

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disrupted at some point in the next five years, only 20 percent feel they are highly prepared to address it. But what is under the surface of disruption? Accenture Research (a well-known business advisory company) shows that disruption follows a discernible pattern. To better understand the nature of disruption in an industry context, Accenture created the Disruptability Index: 3,269 companies have been analyzed—across 20 industries and 98 industry segments—and looked at 15 factors to gauge both the current level of disruption and susceptibility to future disruption. The results have been published as a graph showing the level of disruption and the susceptibility to future disruption from low to high for a number of sectors (Figure 11.1 and 11.2). To illustrate the case, some examples can be given, typical of the disruptive process: • The emerging technologies involved in the transportation sector: electrical power challenging oil / diesel fuel engines in cars, trucks, etc. that disrupts classical engines and creates totally new ways of building motors and cars: everyone has noticed the challenge raised by Tesla cars (and soon trucks). Before you act Understand your industry’s current position Volatility

Software & platforms High tech

Current level of disruption

High

Median score Viability

Retail Media & entertainment Communications

Infrastructure & transportation services

Energy

Natural resources Postal services Life sciences Automotive Travel Industrial equipment Banking Chemicals Utilities Consumer Capital goods markets Insurance

Median score

Low

Health

Durability Low

Vulnerability Susceptibility to future disruption

High

Average enterprise value of companies in the study sample

Dissect disruption

Understand the patern

Seize the opportunity

Figure 11.1  Level of disruption and susceptibility of future disruption by sector published by Accenture

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Figure 11.2  Level of Future Disruption, survey by Accenture

Transition period is allowed with hybrid cars, mixing electric power with oil, but definitely, the whole car industry has to reconsider its development schemes, consequently the industry of batteries is booming (to such extent that Tesla has built in the United States the largest battery factory in the world, and then the largest electric car factory in China, an important market for electric cars). The same disruption will emerge when another system will expand hydrogen / electric powered cars. • The smartphone industry, created by Apple (challenged by Samsung, Huawei, etc.), which makes obsolete the fixed telephone terminal. The industry of building Gorilla glass, small batteries with the largest possible capacity, specific electronic components and processor assembly, which is largely spread over the whole world, where competition in the manufacturing process and cost of delivery in the whole value chain is acute—several websites illustrate such globalization of Apple component manufacturing and assembling worldwide. The companies who did not expect such revolution of the smartphone concept, believing that their own technologies were strong enough to resist: they paid a high price: this is the story

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of Nokia and BlackBerry, where their dominant position was abruptly threatened and then their market shares vanished! Many other examples can be quoted, but the background idea is that disruption seems to come and spread over the globe at shorter intervals, with new value-added chains created shortly for the purpose. In this area, SMEs are frequently challenging the large multinationals, which do not have the same flexibility.

Consequences of Disruption for Exporting Companies and Trade Promotion Related Issues For SMEs or Contracted Suppliers Abroad The fact that disruption emerges in a given sector, with new products and services appearing swiftly, deeply modifies the value chain of established products, and for the (local) business and production centers involved, the competitive advantages they may have in the production chain of an established product is abruptly questioned. Then either they adapt quickly their processes to remain competitive with the new technology or they just disappear, since their production process is no longer considered relevant. It is clear that, in such evolution, the flexibility involved is closely linked to the capacity to digest the innovative processes to become capable of producing components of the new product (e.g., digital screens “finger sensitive,” resistant in “Gorilla glass” for smartphones) at a competitive price! This is the positive aspect of the process. But there are also some threats concerning intellectual property issues. Of course, this implies that the innovation induced in the disrupting product is linked to registered patents, so the subcontractor (or SME involved in the production/value-added chain) has no control, but is involved in the product/value-added chain associated in the manufacturing chain: this makes the intellectual property rights particularly difficult to break down: for instance, a Chinese company can be engaged in the manufacturing process of parts of a 3D printer created, designed, and patented by its creator, so the issue is: how the design is protected against manufacturing under another brand ? A company can promote the 3D printer manufactured in their factories, with small modified features and supply to a

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large competitor of the patent owner, who could market the new product. The case applies to many SME participating to the manufacturing of new “disrupted” products, even a trade promotion institution can help the SME to export “its” 3D printer, which adds on the possible confusion. The issue can be complex, but acute when the disrupted product is just starting its own product life cycle. Whatever the issue, SMEs have a comparative advantage due to their size and flexibility, adaptability, particularly when they belong to an established supply chain, with support given by the contractor. However, the challenge for them is to increase their size and capacity: SMEs may have a great new product, but to transform an innovative idea or product into a mass production is another issue! SMEs are also more and more challenged by large platforms, particularly in the B2C universe. It is a bit different in the B2B and the “nest products” area, where SMEs may have a comparative advantage. In any case, the trade institutions who could be involved in the promotion process have in such case a deep control to ensure that the SME involved in the production of the disrupted product (or part of it) is not infringing the patents. The meaning is that disrupting products not only challenge existing production or value-added chains but also the whole trade promotion process (e.g., manufacturing and marketing under new licenses): Trade support institutions have to be properly equipped for such critical analysis! For some developments, see the following reference: Lin, C.F., and H.W. Liu. 30 November 2018. Disruptive Technologies and Sustainable Development: Implications for Southeast Asia. ICTSD Another Challenging Concern for Business Management Practices: Artificial Intelligence (AI) as a Disrupting Engine In the forthcoming years, A.I. features will become pilot ones, AI will be used as a major component in the decision-making / business process. AI programs will act as a disrupting engine within the company management system and will definitely impact business models. AI programs will constitute a kind of advisory, supporting, or decision-making

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services deeply included in the management system. AI engines will help to define priorities (e.g., logistics, value-added chain management, client support, sales management, and even marketing policies). For instance, in the information technology sector, AI will deploy “big data” analysis management systems, driving existing databases, either inside or outside the company environment. Obviously, not all companies will realize or will include this disrupting management tool. Not doing so means in the near future, risk of market share losses and even potential disappearance in high-tech sectors already equipped, like e-commerce services or information technology. Some big actors are opening the windows / doors for shaping AI models as usable tools, like Accenture, Apple, Microsoft, IBM, etc. first introduced in limited sectors (e.g., company sectors like supply chains) and then enlarged to the whole decision-making process, like information technology processes that were gradually introduced within companies, or e-commerce facilities, covering now the whole business system.

CHAPTER 12

Global Competitiveness Ranking As expressed by the latest WEF in its Global Competitiveness Report: The past decades, world trade has increased faster than any other economic activity, but this growth as not been uniform across the globe. Some countries have achieved higher levels of success than other countries. And by success, it does not only imply a high GDP, trade surplus or wealth, but also elements like economic stability, investment in digital development, access to an educated workforce, open business environment, etc. There are several indices available today listing the rankings of countries based on specific parameters where some countries seem to outperform others in most of these rankings. Why are some countries able to do so? What makes them so successful overall?

Selection of Indexes and Rankings In order to answer the above questions, first, it is necessary to identify the top performers of the world. Seven indices were selected to include the widest spectrum of parameters. The focus of this chapter targets the top 20 world economies. The following indexes were included: • Global Competitive Index,1 published by the World Economic Forum, assesses the competitiveness landscape of 138 economies. • The Global Enabling Trade Index2 is co-published by the World Economic Forum and the Global Alliance for Trade

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•

•

•

•

•

Facilitation. It evaluates 138 economies based on their ability to facilitate the flow of goods in international trade. UNDP Human Development Index.3 This index is a summary of average achievements in long and healthy life, being knowledgeable and have a decent standard of living in 189 countries. IMD World Digital Competitiveness Ranking4: This ranking consisting of 63 countries takes into consideration a country’s knowledge needed to understand and innovate new technologies, the tools required to develop digital technology and the ability to exploit digital transformation. Ease of Doing Business5: Published by the World Bank Group, it denotes if the regulatory environment is more or less favorable for the starting and operation of a local firm in 190 countries including dealing with construction permits, registering property, and accessing electricity. IMD World Talent Ranking6: This ranking considers countries’ ability to attract and retain talent, have superior education at all levels, and provide excellent opportunities for career advancement over a person’s career. The Global Innovation Index7: This ranking published by the World Intellectual Property Organization (WIPO) with Cornell University’s SC Johnson College of Business and INSEAD measures the innovative performance of 127 economies concerned with the role of innovation as driver of growth in human capital and research, market sophistication, knowledge, and technology/creative outputs. The parameters used in each index is given in Table 12.1.

Table 12.1  Parameters used under each index

Global Competitive Index: This index is composed of the following pillars: Institutions

Higher Education and Training

Technological readiness

Infrastructure

Goods Market Efficiency

Market Size

Macroeconomic Environment

Labor Market Efficiency

Business Sophistication

Health and Primary Education

Financial market development



Global Competitiveness Ranking 129

The Global Enabling Trade Index: The parameters considered under this index are: Market Access

Infrastructure

Border Administration

Operating Environment

UNDP Human Development Index: The main criteria looked at are: Life Expectancy at Birth

Gross National Income per Capita

Expected Year of Schooling

IMD Digital Competitiveness Ranking. This ranking measures a country’s ability to adapt and exploit digital technologies leading to the transformation of government services and business models and society in general by taking into account the following indicators: Knowledge

Technology

Future readiness

IMD World Talent Ranking. This ranking assets the extent to which countries develop, attract, and retain talent by taking into account the following factors: Investment and development of home-grown talent

Appeal of the country to attract foreign talent

The availability of skills and competencies in the talent pool

Ease of Doing Business Index: This index takes into consideration the following indicators: Getting electricity

Getting credit

Trading across borders

Resolving insolvency

Registering property and dealing with construction permit

Protecting investors

Enforcing contracts

Paying taxes

Global innovation Index covers: Institutions

Infrastructure

Business sophistication

Human capital and research

Market sophistication

Knowledge and technology outputs Creative outputs

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The top 20 countries from each of these indices were selected based on the latest available data. The rankings are only indicative of the status of the countries. In view of rapid changes taking place in the world economy, it is possible that today’s rankings for some countries no longer reflect their level of competitiveness and related business performance. For example, the 2018 IMD World Digital Competitiveness ranking, the United States moved from the fourth place to the first while Switzerland dropped from second to fifth position. Country chapters explain in detail these movements. Of all the countries listed in Table 12.2, only seven of them are ranked in all the indexes (Denmark, Finland, Germany, Hong Kong, Norway, Singapore, and Sweden). Four other countries, namely, Netherlands, New Zealand, Switzerland, and UK, are ranked in six indexes. A number of countries have high rankings in some indexes and lower in others due to difficulties in hiring foreign workers, facing complex tariffs structures, insufficient investment in digital technology, and restricted market access among others. It is clear that there are common practices adopted by all countries that have contributed to their success. Seven key factors were identified as described below:

Promoting Pro-business Policies The first would be the critical role of the government in maintaining an open economy, promoting pro-business policies, and creating a business environment conducive to economic growth. Economic stability and long-term outlook are key indices for potential investors. This calls for stable governments, relatively stable currencies, and regulations that consider changes in the global economy and adapt accordingly. An important role of governments is to encourage investment in digital infrastructure development to avoid a digital divide.

Investing in Lifelong Learning All top-ranked countries devote substantial amounts of expenditures in education (both second and tertiary). In fact, education becomes a lifelong learning activity due to digital technology advances. In addition,

World Economic Forum global enabling trade

Singapore

Netherlands

Hong Kong, China

Luxembourg

Sweden

Finland

Austria

United Kingdom

Germany

World Economic Forum global competitiveness

Switzerland

USA

Singapore

Netherlands

Germany

Hong Kong, China

Sweden

United Kingdom

Japan

Ranking

1

2

3

4

5

6

7

8

9

Table 12.2 Top 20 countries under each index

Singapore

Sweden

Hong Kong , China

Iceland

Germany

Ireland

Australia

Switzerland

Norway

UNDP human development

Netherlands

Canada

Finland

Norway

Switzerland

Denmark

Sweden

Singapore

USA

Sweden

USA

United Kingdom

Norway

Korea, Rep.

Hong Kong, China

Denmark

Singapore

New Zealand

Sweden

Germany

Norway

Netherlands

Finland

Austria

Belgium

Denmark

Switzerland

World Bank Group ease IMD world digital of doing IMD talent competitiveness business ranking

(Continued)

Germany

Denmark

Finland

USA

Singapore

United Kingdom

Sweden

Netherlands

Switzerland

WIPO global innovation

Global Competitiveness Ranking 131

Japan Austria

Denmark

France

Estonia

Spain

Japan

Norway

New Zealand

Iceland

Ireland

Denmark

New Zealand

Canada

Taiwan

Israel

UAE

Australia

Luxembourg

Belgium

12

13

14

15

16

17

18

19

20

Liechtenstein

Belgium

New Zealand

Finland

United Kingdom

USA

Canada

Denmark

Switzerland

Norway

11

Netherlands

Belgium

Finland

10

Ireland

New Zealand

Germany

UAE

Taiwan

Austria

Korea, Rep.

Australia

Israel

Hong Kong, China

United Kingdom

Iceland

Austria

Ireland

Germany

Georgia

Australia

Latvia

Finland

Estonia

Taiwan

Macedonia

Israel

Australia

Iceland

Cyprus

USA

New Zealand

Ireland

Singapore

Hong Kong, China

Canada

Luxembourg

Australia

Norway

Canada

China

France

Luxembourg

Hong Kong, China

Japan

Korea, Rep.

Israel

Ireland

132 Global Trade Strategies



Global Competitiveness Ranking 133

informal learning reflecting the needs of individuals and their working environment is increasing in importance as the world is moving toward a knowledge-based economy. Apprenticeship is another avenue for the young generation entering the labor market to acquire the technical skills needed by business. Due to globalization, and the digital revolution, the demand for traditional skills is decreasing while at the same time the need for new skills will expand exponentially, particularly those requiring data analytics, cybersecurity, and platform management as well as jobs that do not exist today. Furthermore, soft skills such as emotional intelligence and creativity will be in high demand. These new skills call for raising the quality of the education system and greater cooperation between universities and research institutions.

Integrating Digital Technology and Artificial Intelligence (AI) in Business Functions In the near future, AI will transform the way business operates. For instance, the rise of virtual communication, access to detailed up-to-date information, and technological innovation among others have disrupted the business environment while opening new opportunities for those firms investing and integrating digital technology and AI in their business systems. Most of the top-ranked competitive countries have benefited from digitalization by transforming and upgrading their business models as disruption technologies give rise to new business opportunities. The World Digital Competitiveness Index shows a strong correlation with the global innovation, digitalization and talent ranking illustrates the link between them. In the digital economy, being competitive requires enterprises integrate digitalization and AI in their business operations. To stay ahead of competition, management has to give priority to investment in digital technologies.

Increasing Efficiency of Doing Business With exponential technologies driving new products, services, and business models at an accelerating rate, organizations in these top economies have moved from concentration on traditional products to more

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technology-oriented and service-oriented products, with greater focus on the private sector. A major condition for competitiveness is the development of new business practices that include shortening the internationalizing process and lowering the cost of doing business through sophisticated business models, capability to respond rapidly to market changes, and improve forward and backward linkages. Today, being competitive in global markets require companies to develop a total competitiveness response capacity including selling solutions and other related intangibles.

Developing Modern Infrastructures Another important aspect is the practice of an effective bureaucracy. This is possible due to a stable government. Transportation, banking and finance, telecom, and Internet are among the strongest sectors in the topranked countries and this has helped them to remain competitive in the global economy. Countries not ranked in the top 20 are improving and should not be overlooked. For example, China was ranked 48th in 2013 and is now ranked 40th. At the same time, some countries are losing their rankings. Consequently, not only the latest rankings should be taken onto consideration, but the trend over the past years need to be consulted to determine whether it is positive or negative. In addition to the rankings, it is essential to consult the individual chapters of target countries to determine their attractiveness for either investment, trading, a joint venture, or whatever the business objective is.

Transforming Traditional Functions The integration of global supply chains in the economies has contributed to the overall performance of ranked countries. Transport logistics and inventory management are benefiting from new software systems by increasing productivity and lowering costs. Equally important, is the rising value of intangibles in global trade where a number of countries have taken the lead in developing new hi-tech industries and providing high value services. Top-performing countries have also realized the importance of sustainable growth and are continuously moving toward a more environmentally



Global Competitiveness Ranking 135

friendly way of life while transforming their economies. Finding alternative sources of energy, reducing air pollution, and health care are some of the sectors of prominence contributing to their success in the global economy. Finally, integrating digital technologies in every aspect of everyone lives including business models, management practices, and education is of importance.

Increasing Productivity All the top-ranked countries have low unemployment rates and enterprises enjoy relatively stable relations between management and employees as well as with labor unions contributing to fewer work stoppages. Labor laws are being revised allowing flexibility in managing human resources. Moreover, the social services provided in these countries like minimum wages, health care, pensions among others are all of high quality and these have led to overall economic stability and high level of productivity. Of all the key factors the top-performing economies have in common, high productivity is probably the most significant one. Despite high costs of living and high wages, these countries manage to compete successfully in global markets due to the productivity of their labor force. This is mainly the result of a country’s pro-business policies, benefitting from efficient government services, accessing a qualified workforce, and modern infrastructure, adopting cost-cutting technologies and investing in A.I.

Summary To compete in the digital era, business leaders need to develop a digital mindset in their organizations. This will require developing new business models that fully integrate digital technology while taking into account the emergence of new competitors as competition is no longer defined by traditional boundaries. Firms have to invest in digital technologies and train and retrain their employees in data analytics and in new functions that do not exist today. Moreover, firms have to find new sources of revenues by selling products as well as selling solutions to make their assets more productive. This entails developing intangibles such as maintenance

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services fees. Finally, today, the greatest assets a firm has is its database of its most valuable customers as data is now the new oil.

References 1. “The Global Competitiveness Report 2017–2018.” World Economic Forum, www.weforum.org/reports/the-global-competitiveness-report-2017-2018. pdf 2. “The Global Enabling Trade Report 2016.” World Economic Forum, http://reports.weforum.org/global-enabling-trade-report-2016/enablingtrade-rankings/?doing_wp_cron=1542115827.8339018821716308593750 3. “The UNDP Human Development Index/The IMD World Digital Competitiveness Ranking.” https://imd.org/wcc/world-competitivenesscenter-rankings/world-digital-competitiveness-rankings-2018/ 4. “The 2017 IMD Digital Competition Ranking Ranking.” https://imd.org/ wcc/world-competitiveness-center-publications/talent-ranking--talent-flow/ 5. “Doing Business 2018: Reforming to Create Jobs.” World Bank Group. http:// documents.worldbank.org/curated/en/803361509607947633/DoingBusiness-2018-Reforming-to-Create-Jobs 6. The 2017 World Talent Ranking, https://www.imd.org/wcc 7. “The Global Innovation Index: Energizing the World with Innovation.” www. globalinnovationindex.org.

CHAPTER 13

Integrating All Factors for Market Development: Artificial Intelligence Systems, a Future Challenge for Trade Support Institutions International business firms, even SMEs, should position (preferably with/through its trade support institution) their own global business strategy, giving answer to a pattern of questions, similar to the following: My company/business has comparative advantages in the sector X, which can be used on the Y market, as provider of Product or Service Z ; on top I have to realize that a future disruption may emerge in my sector (e.g., vulnerability) : knowing that, I may stay as it is (for a certain time) or open my range of partners (within TiVA pattern) with whom I will develop (my) future business as a flexible /adjustable pattern network (e.g., attempting to set my business with more toward durability, if feasible, of course). Such analysis and questioning should of course constantly be renewed, since a possible disruption may emerge at any time. However, the analysis may be driven by the TSI, or conducted with experienced consulting firms, and of course this is frequently above the capacity of SMEs (which may explain the initiative taken by Accenture above as service provider:

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Finally, a wide range of tools can be used, most of them free of charge, ready to be downloaded, through international organizations (OECD, WTO, ITC), or trade promotion institutions to prepare the opening and development of an existing or potential market. It is clear, however, that these tools, imply quite a large amount of time to acquire and analyze, in order to draft workable conclusions. This is precisely the purpose of TSIs to access such sources of information, download data (statistics, data bases), and make recommendations, if not for an individual company, at least for a sector or a network of (registered) users unless the concerned company is quite equipped with the relevant (human) resources, properly trained to use such information. The strong point is that these resources are regularly updated and accessible, but the weak point is that they need time to be integrated into the formulation of a market development scheme. This approach, properly connected to the existing data information systems and programmed is obviously one typical field for the development of Artificial Intelligence Systems, a future challenge for TSIs. Some web links suggest that this AI approach, with some direct or indirect relations with global trade promotion, is creating some disrupting developments: https://nevonexpress.com/Artificial-Intelligence-in-Trade-Promotions.php https://predictiveanalyticstoday.com/top-trade-promotion-management-software/ https://genpact.com/cora https://six-group.com/securities-services/en/shared/news/2018/artificial-intelligence.html https://nber.org/papers/w24254 https://cigionline.org/articles/artificial-intelligence-trade-policysnew-frontier http://intracen.org/online-trade-intelligence-portal/ by the International Trade Centre The nature of predictable development in this area is clearly defined by Nevon Solutions (a Trade Consulting Firm): https://nevonexpress.com/Artificial-Intelligence-in-Trade-Promotions.php :



Integrating All Factors for Market Development 139

“Artificial Intelligence in trade promotion provides new strategies, tactics and technology choices to optimize trade promotion spend by anticipating demand and predicting revenue, volume and profitability. Modeling data with artificial neural networks allows a flexible approach toward independent variables.” This is a challenging task that defines the future environment of international trade.

CHAPTER 14

Rethinking Global Trade Strategies in the Digital Era Success today requires the agility and drive to constantly rethink, reinvigorate, react and reinvent. —Bill Gates Developing global strategies in the digital era is much more demanding due mainly to exponential digital technologies that have contributed to the creation of new products, services, and business models at an accelerating rate. Moreover, competition is no longer limited to traditional boundaries as new competitors from other industries enter the field. In fact, there are new realities driving competition including potential collaboration with competitors. For example, Tesla entered the automobile industry by manufacturing electric cars and investing in battery technologies. The entry of Tesla in the auto industry has forced traditional car manufacturers to invest and produce electric cars but also to cooperate with Tesla in battery technology. By investing in battery technology, it allowed Tesla to expand its business further by entering the home energy market with new products like Tesla Powerball and Tesla solar roof for home energy storage. New business models are emerging based on products or services rather than ownership such as Uber and Airbnb are disrupting traditional business models. Disruptive models can be adapted by other services where they are underutilized and that can be sold through digital platforms to create value.1 It is the convergence of various digital technologies that enable firms to develop innovative strategies and new business models.2 To meet this new type of competition, companies have developed innovative business strategies to take advantage of emerging opportunities. In the digital economy, companies are no longer competing on

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product differentiation and price but from complementary products and new services providing value around their core businesses.3 However, to benefit from these new opportunities, companies have to integrate their digital strategy into their overall business strategy. Companies can differentiate themselves from competition with digital innovative strategies.4 In the digital era, greater opportunities have emerged for intangibles and services as more and more firms are shifting their resources from fixed tangible assets to intangibles ones as they generate greater value. For example, in addition to selling aircraft engines, GE is expanding specialized services by installing sensors in their engines. These sensors enable GE to collect data on the engine performance and recommend predictive maintenance. By doing so, airlines reduced downtime and increased engine efficiency saving them substantial maintenance costs. The ability to have access to real-time information enables firms to make better-informed strategic decisions, however, it is how companies manage and interpret data that is essential to compete in the digital economy. Today, data is becoming extremely valuable as oil was in the industrial world. The importance of data analytics is essential for organizations to explore new insights into customer behavior, customer experiences, forecasting demand, detecting product issues earlier and improving supply-chain performance and relationship as well as operational efficiencies driven by • social media, Internet and sensors opening a new world of opportunities in finding new data insights, and • data processing, machine learning, and artificial intelligence advancements in digital technology extends data analytics capabilities from answering not only what and why it happened but also what will happen and how to proceed. Digital technology is transforming supply chain operations by revolutionizing warehousing and inventory management, delivery systems, and overall logistics. Real-time information and data management are key to implement demand-driven supply chains.4 As far as SMEs are concerned, digitalizing their operations gives them a significant advantage over competition and provides them with greater opportunities to access foreign

Rethinking Global Trade Strategies in the Digital Era 143

markets. By introducing cost-cutting technologies resulting in lower transaction costs and gain in operational efficiencies, SMEs become more competitive in global markets. By introducing innovative business models, SMEs improve their positions to join global supply chains as they are increasingly subcontracting their noncore activities to outside suppliers. Another challenge is the introduction of 3D printing. This new technology allows decentralization of manufacturing where production takes place close to the user, thereby reducing transportation costs, simplifying logistics, and lowering tariffs if any. In addition, it facilitates customization, on-demand production and can produce more complex and better products. Although not all industries will adopt 3D printing, over time with greater applications, the cost is likely to decrease and expand the range of products. Traditional ways of doing business in an interconnected world causes firms to rethink their business models. Today, companies need to strengthen their core competencies and invest in digital technologies to face the challenges of doing business in disruptive global environments. Developing strategies in such volatile times calls for flexible strategies to reflect changes in the digital landscape. Furthermore, creating an innovative culture in the organization calls for an open structure where individuals are encouraged to contribute to the competitive position of the company. A study by Accenture found that 52 percent of employees thought to pursue innovative ideas but only 20 percent believed that management was supportive of such ideas.5 In addition, companies can seek external support by contracting research institutions, startups, incubators, or specialized consultancy firms to develop new ideas, products, services, and business models. These strategies require business models to allow synergies to take place between physical assets and digital technology. Digitalization of the global economy opens new business opportunities but also can lead to numerous threats. Particularly those concerning security, privacy, intellectual property protection, consumer protection, and intermediary liability laws among others. While Internet provides vast amounts of data in a matter of seconds, it is never sure how much is truly accurate. The other aspect is the hackers and breaches that occur as well as misinformation. Developing strategies based of inaccurate

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information can derail any well-planned strategy. Another challenge for businesses concerns conflicting channel strategies requiring a synergy between online and offline distribution channels. In view of an evolving world, international organizations and research institutions have developed new sources of information and appropriate instruments to assist export-oriented enterprises making better strategic decisions as elaborated in previous chapters. By applying innovative tools, business executives improve their positions to develop strategies taking account of digital technologies, rapidly changing market conditions and new types of competition. As global trade is most likely to expand exponentially in Asia and eventually in other emerging regions, competition from newcomers is likely to increase. Transition to a global digital economy calls for business leaders to rethink what business they are in and develop appropriate trade strategies and corresponding business models.

References 1. World Investment Report 2017: Investment and the Digital Economy. UNCTAD, Geneva, Switzerland. 2. Gupta, S. 2017. Driving Digital Strategy: A Guide to Reimagining Your Business. Boston, MA: Harvard Business Review Press. 3. Ibid. 4. A Guide to Self-Disruption: Driving Growth through Enterprise Innovation Strategies in the Digital Age, Accenture, 2015. 5. Gupta, S. 2017. Driving Digital Strategy: A Guide To Reimagining Your Business. Boston, MA. Harvard Business Review Press.

About the Authors Michel Borgeon is professor emeritus at International University in Geneva. Prior to joining ITC (International Trade Centre, the joint agency of the World Trade Organization and the United Nations), he taught at the International Trade Institute, French Trade Promotion Center, and at the International Relations Institute in Paris (founded by Pr. Raymon Barre, French Prime Minister). At ITC, he was Senior Trade Promotion Officer (for International Trade Statistics, Training for Least Developed Countries, Trade Promotion Institutions) over three decades, with extensive missions in Africa and Asia. He coauthored the textbook on Trade Promotion Strategies Best Practices (with Claude Cellich). He holds a PHD in economics, Paris Pantheon Sorbonne and a Diploma of Political Sciences in Paris (Science-Po). Claude Cellich is currently vice president for external relations at the International University in Geneva. Over the years, he has lectured at the ENA, Paris School of Management, the University of Economics in Prague and Anahuac University in Mexico as well as at trade promotion organizations. Prior to joining academia, he held diplomatic positions in Geneva and India with the International Trade Centre, the joint agency of the World Trade Organization and the United Nations. He has coauthored textbooks on global business negotiations and trade promotion strategies. He holds graduate degrees in economics and business administration from the University of Detroit and is the recipient of the 75th Medal of Excellence from the Helsinki School of Economics.

Index AI. See Artificial intelligence Alliance Experts, 81–82 Artificial intelligence (AI) disruptive innovation, 125–126 global competitiveness, 133 integrating market development, 137–139 trade promotion, 137–139 Business competitiveness, 29–30 Capacity building, market analysis, 44 Classification systems, 37–39 Competitiveness drivers globalization of supply chain, 27–29 NES and, 4 priority of rapid response, 26–27 product’s service package, 29–31 COMTRADE database, 40 CORE™, 12–13 Cost reduction national export strategy, 2 non-tradeables, 14 strategic challenges, 14–15 Digital information, 20–21 Disruptive innovation artificial intelligence programs, 125–126 definition of, 121 examples of, 122–124 level of, 122–123 overview of, 121–122 process of, 122–124 for SMEs, 124–125 Ease of Doing Business Index, 128, 129 Effectiveness-seeking transnational companies, 28 Efficiency seeker, 28

Enterprise Ireland Business Accelerators Program, 73–74 export assistance overview, 71 export selling workshops, 72–73 International Selling Program, 72 Internet Marketing Unit, 73 mentors, 73 selling to public sector, 73 Strategic Goals 2017-2020, 74–76 structure and organization, 70–71 Enterprise manager, 26–27 Export-oriented clusters and networks, 56–58 Export-oriented FDI, 59 Export-oriented small and medium enterprises, 110–111 FDI. See Foreign direct investment Finland FINPRO–TEKES services, 66, 68 industrial cluster approach, 67–70 trade–industry linkage, 65–66 traditional export promotion approach, 66–67 Foreign direct investment (FDI), 17, 43 Foreign investment with right facilities, 30 Functional linkages, 55–56 Global Competitive Index, 127, 128 Global competitiveness ranking artificial intelligence, 133 efficiency of business, 133–134 indexes and rankings selection, 127–130 lifelong learning, 130–133 modern infrastructures, 134 overview of, 127 pro-business policies, 130 productivity, 135 traditional functions, 134–135

148 Index

Global Enabling Trade Index, 127–128, 129 Global Innovation Index, 128, 129 Globalization of supply chain, 27–29 Global sourcing, 28 Global standards, 19–20 Global trade strategies digital information, 20–21 global standards, 19–20 partnerships, identifying and implementing, 21–22 trade support institutions, 22–24 UNCTAD statement, 19 Harmonized System (HS), 38–39 HS. See Harmonized System IMD World Digital Competitiveness Ranking, 128, 129 IMD World Talent Ranking, 128, 129 Implementation and efficiencybuilding linkages, 49–50 International Trade Centre (ITC), 18 capacity building in market analysis, 44 FDI data, 43 Investment Map, 42 Market Access Map, 42 market analysis studies, 44 Market Analysis Tools, 39 Procurement Map, 43 public tenders information, 43–44 Standards Map, 42 tariffs and market requirements, 43 trade competitiveness, 44 Trade Map, 39–41 voluntary sustainability standards, 43 International trade information, 37 Interstice Consulting, 82 Investment Map, 42 Ireland. See Enterprise Ireland ITC. See International Trade Centre KITA. See Korean International Trade Association Korea. See Republic of Korea Korean International Trade Association (KITA), 99

Lifelong learning, 130–133 Market Access Map, 42 Market analysis studies, 44 Market Analysis Tools, 39 Mauritius competitive advantages, 94–95 economic development success story, 92 institutional base, 95–99 specific story, 92–93 National case studies Enterprise Ireland, 70–76 Finland, 65–70 Mauritius, 92–99 New Zealand, 84–92 Republic of Korea, 99–105 Singapore, 77–84 National export strategy (NES) competitiveness-drivers, 4 cost reduction, 2 development and management, 3–4 obligations to, 2 proposals of, 2 public–private sector partnership, 3 public sector driven global strategy, 5 support measures, 5–6 TPOs, 4 NES. See National export strategy New Zealand bottom-up strategy development case, 84–85 broad-based awareness, 88–89 building strategy, 88 guiding principles, 86 institutional structure, 87 Joint Action Groups, 87 Market Development Board, 87 performance measures, 90–92 realities and perspective, 85–86 tailor trade promotion support services, 89–90 Non-tradeables, 14 OECD. See Organisation for Economic Co-operation and Development

Index 149

Organisation for Economic Cooperation and Development (OECD), 33–35 Orissa International, 82 Performance monitoring and assessment linkages, 54–55 Planning and consensus-building linkages, 49 Private sector linkages, 55 Pro-business policies, 130 Procurement Map, 43 Public–private sector partnership, 3 Public procurement, 30–31 Public sector driven global strategy, 5 Public sector over business competitiveness, 29–30 Public-sector strategy maker, 27 Public tenders information, 43–44 Republic of Korea KITA goals, 100–102 KITA organization, 99–100 membership services, 102 new export development nursing, 103–105 Singapore main activities, 78–80 other institutions offering services, 80 overview of, 77–78 Trade Development Board, 80–82 trade promotion, 82–84 SITC. See Standard International Trade Classification Small and medium enterprises (SMEs) competitiveness response capacity, 111–112 disruptive innovation, 124–125 export-oriented, 110–111 export strategy, 108 future prospects, 112–113 innovative instruments/solutions, 110–111 market selection, 108–110 obstacles, 107

SMEs. See Small and medium enterprises Stakeholders, 48 Standard International Trade Classification (SITC), 38 Standards Map, 42 Strategic approaches implementation, 64 positioning, 64 trade development design, 63–64 Strategic challenges balancing needs, 8 client selection, 10–13 cost reduction, 14–15 export process with corresponding firm profile, 15–16 foreign direct investment, 17 generating synergies, 13 needs vs. demand, 8–10 overview of, 7 reorienting trade promotion, 16–17 shortening internationalization process, 16 total competitiveness response capacity, 10 TCS. See Trade Commissioner Service TiVA. See Trade in Value Added TPOs. See Trade Promotion Organizations Trade Commissioner Service (TCS), 118 Trade competitiveness, 44 Trade development design, 63–64 Trade development strategic linkages export-oriented clusters and networks, 56–58 export-oriented FDI, 59 functional linkages, 55–56 implementation and efficiencybuilding linkages, 49–50 national/international networks, 60–61 other types, 59–60 overview of, 47–48 performance monitoring and assessment linkages, 54–55 planning and consensus-building linkages, 49

150 Index

private sector linkages, 55 stakeholders, 48 TPO linkage association, 50–53 TPO success, 53 Trade–industry linkage, 65–66 Trade in Value Added (TiVA) database, 35, 117 financing, 119–120 global value chains components, 119 global value chains information links, 119 indicators, 117 initiative, 20, 34 key services, 118–119 OECD-WTO Trade in, 116–117 selling into global value chain, 119 Trade Map, 39–41 Trade Promotion Organizations (TPOs), 4 linkage association, 50–53 success, 53

Trade support institutions (TSIs), 22–24 Trade support services, 8–10 TSIs. See Trade support institutions UNCTAD statement, 19 UNDP Human Development Index, 128, 129 UNIDO. See United Nations Industrial Development Organization United Nations Industrial Development Organization (UNIDO), 13 Virtual company, 27 Voluntary sustainability standards, 43 World Economic Forum (WEF) analysis, 23–24 World Trade Organization (WTO), 33–35, 44–45 WTO. See World Trade Organization

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Interacting with Trade Institutions and Businesses Michel Borgeon • Claude Cellich Developing global business strategies in today’s competitive and disruptive environment calls for greater interaction between the business sector and government. Among the instruments available today are various market analytic tools. These tools coupled with new business models not only provide a competitive edge but also becomes a necessity to survive in the global ever changing trade environment.

The authors explain how to design practical strategies in a global context, greater competition and uncertainty due to the introduction of new business models. Michel Borgeon is professor emeritus at International University in Geneva. Prior to joining International Trade Centre (ITC), he taught at the French Trade Promotion Center. At ITC, he held senior positions with extensive missions in Africa and Asia. He co-authored the textbook on Trade Promotion Strategies Best Practices. He holds a PhD in economics, Paris Pantheon Sorbonne, and a diploma of the Institute of Political Sciences in Paris. Claude Cellich is currently vice president for external relations at the International University in Geneva. Over the years, he has lectured at the ENA in Paris, the University of Economics in Prague as well as at trade promotion organizations. Prior to joining academia, he held diplomatic positions in Geneva and India with the International Trade Centre the joint agency of the United Nations and the World Trade Organization. He co-authored textbooks on global business negotiations and trade promotion strategies. He holds graduate degrees in economics and business administration from the University of Detroit.

International Business Collection S. Tamer Cavusgil, Michael Czinkota, and Gary Knight, Editors ISBN: 978-1-94999-150-5

DIGITAL DISRUPTION IN GLOBAL TRADE

This book concerns everyone dealing with market selection, market strategies, and trade policy. The reader will be able to develop global strategies based on trade information and trade flows analysis. An analysis of the most competitive countries in world trade shows the importance of pro-business policies, access to modern infrastructures, investment in research, and increased productivity.

BORGEON • CELLICH

Global Trade Strategies

Global Trade Strategies Interacting with Trade Institutions and Businesses

Michel Borgeon Claude Cellich