Development Economics: Export Consortia in Developing Countries

Small and medium-sized enterprises (SME) make for the biggest share in employment and creation of value in almost all countries. In developing countries their importance tends to be even bigger because of the lack of big and competitive companies in these countries.

Entrepreneurs in developing countries face usually a lot of additional problems unknown to their colleagues in industrialized and developed countries. One of them is that they have usually big problems to have access to foreign markets. That is partly due to tariff or non-tariff barriers from the side of the countries who want to protect their local producers (either by subsidizing them, or burdening imports with high customs duties or introducing technical or phyto-sanitarian requirements in the name of consumer or health protection that serve in many cases mainly as instruments of a not-so-subtle protectionism.) Additionally entrepreneurs in developing countries are facing a lot of internal barriers in their own countries. All these barriers make it very difficult for companies from developing countries to sell their products abroad.

How can SME in developing countries increase their export competitiveness? One interesting option is the creation of export-oriented networks of companies via export consortia. Export consortia are specific network arrangements that are either sales- or promotion-oriented, and that include companies that are characterized by complementary and mutually-enhancing offers. The export manager of the consortium can facilitate solutions to export problems and enable the loosening of constraints related to the investments needed to penetrate foreign markets.

The book I am reviewing is a quite interesting study that looks in detail on existing export consortia in several countries and that includes an empirical analysis of nine export consortia in four countries (Morocco, Tunisia, Peru and Uruguay). These export consortia were supported in the framework of a UNIDO project over a period of several years with technical assistance from local and international experts.

The first chapter of the book gives an overview regarding the research on the internationalization of SME and the different categories of internal and external barriers exporters from developing countries are facing. Internal barriers include knowledge barriers (lack of information on foreign markets, lack of knowledge of incentives and export development programmes, language and cultural differences), and resource barriers (such as financial barriers, insufficient production resources, lack of marketing resources, insufficient managerial and human resources). External barriers can be categorized into environmental barriers (high competitive pressure, political instability or economic constraints, exchange rate risks, unfamiliarity with business practices, slow collection of payments from abroad) and governmental barriers (tariff and non-tariff barriers).

Chapter two has a look at the SME attitude towards cooperation and highlights that trust between the members of any SME consortium is instrumental to establish a lasting and successful cooperation. (Unfortunately, trust between business partners is a very scarce resource in developing countries, as I know from my work experience in several projects.) Crucial for the success of an export consortium seems to be the function of a network facilitator – an entity or individual that leverages his reputation and abilities by facilitating interfirm relationships within a local cluster or group of firms. His role is to promote and strengthen relationships among firms, give a clear strategy to the alliance, mediate negotiations among partners and help network members create opportunities for trust, shifting them out of their collaborative inertia. In industrialized countries these facilitators include chambers of commerce, business associations, local banks, educational or training institutions, local economic development agencies or public government bodies (like Export Promotion Agencies).

There are different types of existing or possible export consortia (chapter 3). Depending on the scope and objective, we can differ between promotional and sales consortia. Promotional consortia can develop and use for example a common brand to market their product abroad but act independently on sales level. A brand that is used for example by one hundred SME has a much bigger chance to be noticed abroad than the brand of one single small producer alone.

Many consortia focus on members from one specific sector, but there are also examples of multi-sector consortia. There are consortia that represent (potential) competitors and those where the members are non-competitors. Simple consortia have usually a small number of members, but there are also very complex consortia with many members that require a much higher degree of organization. Some consortia want to target a specific country or region, whereas others act globally. Some export consortia are created for a comparatively short time, others are based on the presumption that the members will cooperate for a very long period of time. There are even more classification but these are the most important.

In 2004 the United Nations Development Organization (UNIDO) has started a three-year project to gather experience regarding the existing export consortia in developing countries and to come up with a collection of best practices and recommendations that can help existing export consortia or that can be used to facilitate future export consortia. The reviewed book is a result of this three-year project.

I don’t want to go through too much technical details regarding the empirical analysis of existing export consortia (although for somebody like me who has worked practically with export consortia this part is very interesting). But in the last chapter this really instructive book comes up with a number of interesting conclusions and recommendations.

Export consortium management is a complex task. It requires from the viewpoint of strategic management that a consortium must cover:

  • Strategic alignment of member firms
  • Consortium strategy and actions
  • Organizational structure
  • Leadership and governance systems
  • Resources and competences
  • Performance measurement system
  • Definition of goals and objectives
  • Value proposition
  • Definition of strategic needs 

 

All these topics are dealt with in detail in the last chapter, and the use of tables and diagrams make this a very useful part of the book for anyone who is interested in this subject from a practical side.

In general, the authors seem to be quite enthusiastic about export consortia. It should be mentioned that the authors come from Italy, where export consortia are working very successful since many years, so it is not surprising they have a very positive outlook on this topic and seem genuinely interested to promote this strategy.

I agree with most of the content of the book and this publication is very valuable not only as an academic paper but also for any practitioner who is thinking about the creation of an export consortium. However, I know from my practical experience that most export consortia in developing countries fail because there is a lack of trust between the members and the complexity of the task is almost always seriously underestimated.

Additionally almost all export consortia in various countries with which I have worked are sales consortia that focus on one specific product (for example olive oil). My guess, based on empirical evidence is that export consortia that work as promotional and not as sales consortia work much more successfully. The same goes for export consortia with non-competing companies. They have in almost all cases a much better performance than consortia where the members are competitors.

Altogether I see this book as a very valuable contribution to development economics.

 

Fabio Antoldi, Daniele Cerrato, Donatella Depperu: Export Consortia in Developing Countries, Springer, Heidelberg Dordrecht London New York 2011

 

Export Consortia

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