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Eureka: A fireside chat on exports
by Joseph Gatt
2018-05-04 08:34:12
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There are basically three ways you can make foreign currency. One way is to bring tourists to your country and have them bring and spend foreign currency. Another is to send people abroad, having them make foreign currency abroad and send remittances home. A third way to make foreign currency is to sell products abroad, or export. The final way to make foreign currency is through aid and donations from foreign countries to your country.

Exports have become a buzzword and in many countries the government is trying to encourage its agricultural sector, industries and service sector to export. The problem with exports is you can't just say, here, I have tomatoes, who'd like to buy them? From production to export, here's a small guide to exporting.

expor01_400The thing about exports is that you can export products and services that you have to produce, but you can also export intellectual property that you produce once and can sell as many times as it is in demand. But you have to deal with several barriers to exports, both internal and external, that I will discuss in this fireside chat. 

Why do people, companies and countries export?

Local currency can only get you as far as buying local products. If you need any product that is not available in your local market, you have to gain that foreign currency. Few nations are completely self-sufficient, and most countries need currency of some kind to purchase products of some kind. In many countries agriculture is not self-sufficient, while in many others industry is not self-sufficient. In many countries services are not self-sufficient, while others have to purchase intellectual property to start production.

The main question is who controls the exports? Who gains the currency? Many countries, notably African and Latin American countries, have signed deals with other countries, mainly China, where in exchange for highways, airports, stadiums, theaters and government buildings, China can own the rights to agricultural land and industrial property for several years, and their entrepreneurs have something of the likes of extraterritoriality, that is can't be prosecuted by the local justice system. China is not the only country to sign such deals, Korea, Japan, Europe, the United States and other countries have signed such deals. This basically means that a lot of the exports of African and Latin American countries are Chinese entrepreneurs exporting to China, with locals or the government not making a dime from the exports and a lot of the money ending up in China.

Now many countries increasingly need foreign currency for the following reasons:

-Foreign aid is not always as unconditional as it used to be. In the past, developing countries would receive foreign aid, import Oreos and whisky, open Post Exchange shops where only a select group of people could shop and that was the end of foreign aid. Now a lot of countries who give foreign aid want to see the money used for better purposes.

-Commodity prices have gone down. Commodity prices fluctuate due to several factors, including the supply of such products and the reliability of the transport of such products, along with the demand of such products from foreign countries. Many countries now want to be self-sufficient to a certain degree, and want to start producing and exporting products other than the monocultural product they used to rely on for exports.

-Wars are the exception rather than the norm. Many countries used to be constantly at war, either as in civil wars or wars with foreign countries. Now that security has been achieved by many countries to a certain extent, they can focus on diverisifying their exports.

-Exports to finance the war effort. Many countries know that they are more likely of being attacked if they are militarily weak. So they want to diverisfy exports and sources of foreign revenue to stack up on weapons.

-Expots to build a cycle of self-sufficiency: many countries want to export to achieve a level of self-sufficiency, so they want to gain the currency to buy what is needed to build an infrastructure so they can eventually be self-reliant.

The problem with exports is that with all countries cutting down on imports and all countries trying to export, you end up getting a lot of products stuck in the warehouse. The other problem is with the reduction of foreign aid and the decline in commodity prices, a lot of countries can no longer afford to import, making exports less in demand. So the race right now is not just about exporting products, it is also about finding the right products to export. So to be able to export your product has to be useful, in demand and indispensible. 

What do you need to export?

Here's a checklist for what you'll need to export:

-A product that's useful, in demand and indispensible.

-Partners in foreign countries that can afford to pay for your product.

-A network of partners who are willing to import your products.

-A team of commercial representatives that is able to explain your product and which know the legal and logistical implications of exporting your product.

-Good public relations teams including a government and trade institutions that are supportive of your exports.

-A team which is aware of changes in the market and in different international markets and that is willing to adapt the product to the needs of the international markets.

-A government that rewards companies for exporting and bringing hard currency, company leaders who reward their employees who help export products and bring in hard currency.

-A team of loyal customers and companies who are constantly aware of the possiblility of competing with other products. Some companies aim for long-term contracts to ensure loyalty from customers, while others constantly communicate with export partners to determine what changes they need ot bring to the product.

How do you as the government help people and companies export?

As the government, you will need three things to make sure your companies export a lot. You will need to set up structures that help ease production of products, create a workforce that is comfortable with product development and inovation, and set up a workforce that is comfortable with international sales and commerce.

The first role the government plays is the ease the production and transportation of products from one location to another. Easing production means training a skilled workforce, easing procedures to start production, and easing access of products from one location to antoher.

Creating a workforce that is comfortable with produce development and inovation means setting up the kind of education system where production and inovation of products and ideas is encouraged, along with focusing on the big picture. Some government are all for science and none for social studies. Here's how this can go wrong. I remember a documentary where a ceramics shop owner was capable of producing wonderful chinaware, plates and vases but was incapable of selling anything. In terms of science, he mastered the arts of ceramics. But in terms of social studies, he did not understand that most people buy their plates, vases and china from the market or supermarket, not from specialized stores. He should have  understood that and gone straight to the supermarkets to try to sell his products. And he should have asked people where they buy their plates from and what price they tend to be willing to pay to buy plates.

Finally, when it comes to exports, you need a workforce that is comfortable with international sales. Languages, all languages are important, along with knowledge of different legal and cultural systems, and a level of comfort when it comes to dealing with international clients. For some companies, the strategy is to go to countries where few people venture, while for other companies the strategy is to look for markets with advanced economic and legal structures.

What are the barriers to exporting?

There are basically three barriers when it comes to exporting. Those are the production barriers, the sales barriers and the legal and cultural barriers.

When it comes to production barriers, some markets are just not fertile when it comes to production. Raw materials lack, transportation lacks, skilled workforces lack. In other cases transportation is great, there's an abundance of raw materials and human resources, but the market is dominated by companies who have an established network of clients and you can't compete with them domestically or internationally.

When it comes to sales barriers, some products work great in the local market, but don't sell very well internationally. In some cases the product may be deemed too “Asian” or too “European” while in other cases the price factor can be the problem. In some cases it's acceptable for a product to be expensive in the domestic market, but the expensive price of the product can be deemed unacceptable internationally.

When it comes to legal and cultural barriers, some products are legal in one country and illegal in another. In other cases it can be illegal to import a product in some countries. Some countries also ban imports of a lot of products, yet expect to flood the international market with their exports, when there tends to be a great deal of reciprocity in the import-export market. Ban products from import and soon enough governments will be pressuring your export clients from buying your products. As far as cultural barriers go, you can have a great product, but if you have awkward sales representatives or awkward business customs and traditions, that could be a barrier to exporting your product.

Can countries import what they produce locally?

Let's take four examples of products to discuss this. Let's take cars, then let's look at an intellectual property product like music, then let's look at services like translation, and finally let's look at a product like breakfast cereal.

Can you import cars when you are already producing them? I'll save World Trade Organization regulations and other trade agreements for a different fireside chat. But the deal with cars is that different people make different uses of them. Some drive short distances, others long distances, some drive fixed commutes, while others are constantly on the road, some need space to carry large objects in their cars, others need nothing else than their groceries. Cars are also not just a transportaiton gimmick, some drive their families in them, some worry about the image that will be reflected on their children if they drive that car to school while others worry about finding the right partner and believe that the car you drive will determine the kind of partner you will find. Some drive along safe roads, others drive along bumbier roads.

So given all these differences, the more cars you have on the market the better. Drivers should be able to determine what cars best are the best fit for them. Of course dumping and price fixing can be a problem, along with falty advertising and not always respecting local safety and environmental regulations. But the idea is that no single car manufacturer has the capital available to produce cars that fit all the needs of customers described above. But then you have the reciprocity factor. Japan and Korea tend to have safe roads and conformist consumers, and driving anything other than a Korean or Japanese car is often perceived as betraying the nation. They are also ageing populations with good public transportation systems where the younger generation is often not driving cars. So all these factors need to be taken into consideration in trade deals.

Music. Can you import music when your country produces its own music? Music is a great example, because it's a product that sells both online and offline, that has both hard copy forms and live forms, that's used for entertainment and commercial purposes, and more importantly, it's a market that's saturated. How can you import music? You can import music to sell it on the market, to sell it on entertainment platoforms such as television, use it in other television programs or advertising campaigns, bring artists to perform, bring artists on tours and so on.

So should the music market be an open market or a closed market. Believe it or not, most countries have restrictions on music imports. You can't play as much foreign music as you want on radio stations or television stations, can't use as much foreign music as you wish in entertainment or advertising campaigns, in some cases have restrictions on the number of foreign musicians that can perform in the country. Is it fair that Beyoncé gets a million dollars for a private performance, say in Italy, when the same Italian musician gets 10,000 dollars if he's lucky? Is it fair that local musicians have to compete with American popular music when the music market is cutthroat enough? Music is one of those brands that you don't always have to produce to be able to sell. But consumers have a great deal of choice when choosing. Some like local vintage music, others prefer local classical music, others local popular music. Some consume a lot of music while others are occasional consumers of music. Perhaps if Beyoncé hadn't performed, some people would never have bothered with going to a performance in the first place.

Services like translation. Should you rely on local translators, or should you outsource translators. Translation is an interesting service. Few organizations hire translators full-time. Some countries require legal translations to be notarized, but they tend to be the exception rather than the norm. This leaves translation to be a freelance gig with few opportunities in some countries, while in others translators are constantly busy. Some countries train translators meticulously while others don't even have translation degrees in universities. This leaves some countries with a surplus of skilled and experienced translators, and other countries with a high demand but low supply of skilled and experienced translators. So can you import translation or translators? This presupposes two things: that your country has a good online payment system so you can outsource translators, or that you bring translators and pay for their transportation. But when a country really needs translators, they should be able to find them.

Breakfast cereal. Breakfast cereal kind of works like cars, as in no two people consume cereal the same way. Some have cereal for breakfast, others as a snack. Some like varieties with lots of sugar, others prefer the bland type of cereal. Some like raisons in their cereal, others not. So if you want local brands of cereal not to compete with foreign brands of breakfast cereal, you probably want local breakfast cereal to have the kind of variation that can beat that of all the other foreign brands combined. But then the reciprocity problem emerges. Korea, China, Japan are cereal producers, but they are not big cereal consumers. So they can invade your country with their often good local brand of cereal, but if you export cereal to their country, you're really catering to a group of expats, because most people consume rice, fish and eggs for breakfast.

Exporting in 2018

Algeria is the interesting example of a country that banned imports on a lot of products yet is pushing companies to export. Picture this. I'm a Tunisian producer and exporter of harissa, and my main client is Algeria. Algeria bans the imports of harissa. I, the Tunisian producer of harissa, lose 20% or 40% of my clients and revenue. Now you wouldn't think I'd go pressure my government not to buy Algerian products, would you?

This example has happened worldwide. Since 2014 or 2015, we've seen a lot of countries ban products from imports, which overtime led to those countries victims of the bans on imports banning imports, and the vicious cycle continues. When you ban imports on a product, you wouldn't think the companies that were victims of the ban would go to their government and argue their case.

The future of exports

I think right now the norm is to ban imports or to resume tariffs which leads to more import bands and more tariffs. But trade has cycles, and goes from globalization to nationalist cycles. Over time, countries will realize that by restricting imports they are hurting their exports. Hurting exports leads to companies losing sources of revenue and over time leads to economic crisis and a crisis in lack of foreign currency, which can lead to great disasters.

Does restricting imports protect local industries? In some countries, foreign brands have access to better human resources and have more experience with marketing, and have established networks of clients, when local industries have neither the human resources nor the knowledge of marketing nor the established network of clients. In some countries, people actually prefer to deal with foreign clients, usually because such countries are tribal societies with competing clans and would rather deal with the foreign client. Overall if a country is serious about exports, it should be able to do so without restricting imports. If it does restrict imports, it better come up with logical reasons that would be convincing when dealing with foreign governments.

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