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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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TO UNDERSTAND, TO ESCALATE AND TO NEGOTIATE:
Skills of a SMEs that seeks to have a sustainable international presence

by Félix Peña
August 2013

English translation: Isabel Romero Carranza


 

There are multiple ways through which the SMEs of a country can project their ability to produce goods or provide services to other countries. Three of these ways stand out. All three involve much more than just an occasional export to boost, for example, a competitive advantage in prices as a result of exchange rate fluctuations. They are: i. multi-location, which implies a geographical dispersion of operations of a business through direct investments in different countries, leading to fixed assets and physical operations in several markets simultaneously; ii. integration into transnational value chains through a stable supply of goods and tasks for production processes that are fragmented across multiple countries, and iii. sustained presence in other markets with the export of goods and services such as, for example, differentiated goods offered on the shelves of supermarkets or other sales outlets.

An SME that aims to expand to other markets in any of these ways is supposed to have been able to develop competitive advantages for its goods or services that are the result of the incorporation of innovation and technical progress, the quality of its organization and the strength of its comprehensive quality image, among other factors. These are advantages that require time and effort to achieve and which entail a strategic vision that transcends the short term.

In addition, to achieve a presence that is sustained over time in foreign markets to which it is projected, an SME requires: i. the development of specific skills within the company or if necessary within the context of some form of consortium of companies; ii. competitive intelligence support resulting from the joint action of public, business and academic institutions, and iii. human resources specialized in the internationalization of SMEs and, therefore, specially trained to facilitate the external action of small scale companies.


The profound changes that are taking place in world economy have resulted, among other things, in an increased tendency by the small and medium size enterprises (SMEs) of a country to review and adapt their strategies of insertion in global economic competition. It implies that they question the scope and direction of these changes and, especially, how to take advantage of them.

"The change we are experiencing is colossal. And we are finding it difficult to understand", pointed out the President of Mondragón Internacional, one of the largest and most diversified business groups in Spain, with investments in several countries and international sales that reached four billion euros in 2012 (http://www.mondragon-corporation.com/).

In fact, Josu Ugarte noted in a recent article published in the newspaper "El País" in Madrid (see the reference in the Recommended Reading Section) that "in 10 years we have gone from developing, buying, producing and selling products in Spain or Europe to having to sell, buy, produce and innovate here and (for) emerging countries". He adds that "domestic demand in Spain will not grow, we are becoming peripheral: industry migrates from north to south and from west to east and a feeling of fear has invaded us that paralyzes our decisions facing up countries with a disproportionate ambition caused by their feeling of hope" (on the emotions of fear, hope and humiliation in international behavior see Dominique Moisi: "The Geopolitics of Emotion. How cultures of fear, humiliation and hope are reshaping the world", First Anchor Book Edition, New York 2010).

There are multiple ways through which the SMEs of a country can project their ability to produce goods or provide services to other countries. Three of these ways stand out. All three involve much more than just an occasional export to boost, for example, a competitive advantage in prices as a result of exchange rate fluctuations. They are: i. multi-location, which implies a geographical dispersion of the operations of a business through direct investments in different countries, leading to fixed assets and physical operations in several markets simultaneously; ii. integration into transnational value chains through a stable supply of goods and tasks for productive processes that are fragmented across multiple countries, and iii. sustained presence in other markets with the export of goods and services such as, for example, differentiated goods offered on the shelves of supermarkets or other sales outlets.

An SME that aims to expand to other markets in any of these ways is supposed to have been able to develop competitive advantages for its goods or services that are the result of the incorporation of innovation and technical progress, the quality of its organization and the strength of its comprehensive quality image, among other factors. These are advantages that require time and effort to achieve and which entail a strategic vision that transcends the short term.

In addition, in order to achieve a presence that is sustained over time in foreign markets to which it is projected an SME requires: i. the development of specific skills within the company or, if necessary, within the context of some form of consortium of companies; ii. competitive intelligence support resulting from the joint action of public, business and academic institutions, and iii. human resources specialized in the internationalization of SMEs and, therefore, specially trained to facilitate the external action of small scale companies.

In the first place, the main specific skills to be developed within the context of an SME and, eventually, of its associates, are three: to understand, to escalate, and to negotiate.

To understand implies the ability to diagnose what other markets require, their dynamics and how to access and stay in them. This is what is usually called the competitive intelligence of a company. It entails the ability to know, understand and perceive the differences of all kinds that may exist between different markets. Cultural ones are usually the most significant and, therefore, the most necessary to understand, especially when they reflect the values, tastes and preferences of consumers. Often they are differences that can only be fully understood by having lived in other countries and other cultures. It also implies knowing and identifying in time the different factors that can have an impact on the continuous shifts of competitive advantages that a company may have developed. They are those that determine the difference between being a winner or a loser in economic competition at a global scale, or in certain local or regional markets. And it also involves identifying those changes that may have a greater impact on the map of opportunities generated in the international environment where a company does business such as, among other current ones, those that involve the increase in emerging economies of urban consumers with middle-class incomes and behaviors.

To escalate involves the ability to continuously add intellectual value to the goods or services that are produced or offered. In particular it involves climbing up the links of the production and supply chains of other countries through contributions of increasingly greater added value. It is the result of the innovation capacity that a company may have, but also of its ability to understand other markets and their consumer preferences.

To negotiate involves the capacity to influence the production processes of rules and other conditions that make the functioning of the markets and, in particular, the trade and investment relations between countries and regions. They can be internal to a particular country or global, within the scope of the multilateral trading system, or specific of a regional space (such as the case of Mercosur or the European Union), or inter-regional (such as the mega preferential trade agreements that are currently being negotiated in the framework of the Pacific -the Trans-Pacific Partnership- or the North Atlantic -the Transatlantic Trade and Investment Partnership-). It is true that those who adopt policies and rules for a given market or negotiate international agreements are the respective governments. But any company operating or aspiring to operate transnationally should be interested in the effects that the rules and mechanisms that are approved and negotiated could have on its ability to hold a sustained presence in other countries or regions. Hence, directly or indirectly it should aspire to exert influence in the decision-making processes and in the corresponding negotiations based on the preservation of its own interests.

Secondly, as the three listed capacities may be difficult to achieve in the case of companies of a smaller relative size and little experience in foreign markets, they may require of institutional support in terms of competitive intelligence, and eventually in terms of the possible influences on decision-making processes within a country or at the table of international trade negotiations. Public entities may be able to provide such institutional support, especially those dedicated to the promotion of foreign trade and investments, business chambers and academic centers specialized in international relations and, in particular, in specific regions less known to Argentine SMEs such as, for example, the countries of the Persian Gulf, Central Eurasia, Asia-Pacific, sub- Saharan Africa and the Maghreb.

Said support would be the more effective the greater its proximity to the respective company or group of companies. The public-business-academic synergies in the close environment of a company are a key factor in its internationalization process. They are most effective when achieved at the local level where the company is situated (in the case of Argentina, its province or its city).

Third, an SME seeking to project to the world its ability to produce goods and provide services that aspire to be competitive with those from other sources requires human resources specialized in SME internationalization.

They must be, certainly, good specialists in foreign trade transactions. We are referring to someone who, while belonging to the company or providing services for it, facilitates the successful management of all the stages of the foreign trade chain. This involves, among other aspects, exiting one customs territory and entering another, including among the most relevant, customs procedures, adjusting to different regulatory frameworks, transportation and logistics services, financing and, of course, charging what applies.

But increasingly a company, either small or medium-sized, which aims to have a sustained presence in other markets, for example, with products that stand out for their quality and also, given the case, for their design (e.g.: processed foods, clothing, furniture, toys), or services that are valuable for other countries (in relation to agricultural production, health or entertainment, among others), will require the provision of three types of services that can be, moreover, complementary. These are services that can be provided by specialists within the company or that can be hired externally. It will become increasingly necessary to train these specialists with the participation of specialized academic institutions.

These services are, on one hand, the "decoding" of the conditions to successfully operate in other markets, especially in those belonging to other regions and, in particular, to other cultures. The "decoder" is someone who can help understand the conditions of economic competition in a given region or country. He is precisely a protagonist of the competitive intelligence of a company. He is able to grasp the deep forces that operate in certain markets, especially those more recently incorporated -or, particularly, reincorporated- to global economic competition and with a greater density of potential urban consumers of middle class income. These are deep forces that transcend the economic and penetrate deeply into the political, social and cultural dimensions of a country or region. This involves much more than the typical -and necessary - market research.

On the other hand, there is the role of what would be the functional equivalent of a 'general practitioner' in the area of human health. It is someone who can understand the set of factors that influence the relative competitiveness of a company -and its products or services- in a particular country or region of the world and, if necessary, refer the corresponding SME to specialists in specific issues that impact the chances of competing successfully, such as consumer tastes and preferences and any other variables that determine the fate of a business enterprise, especially if it aims to be sustainable in time.

And finally there is the role of 'Sherpa'. This means someone who is knowledgeable of the terrain and can guide a company to successfully climb towards the sought objective, for example the supermarket shelves of the cities of the major emerging economies and, in particular, the re-emerging ones, or the places for the entertainment of the young, eager for new and original things. He is a guide. He is someone who knows how to get there because he has in-depth knowledge of the culture, the preferences and idiosyncrasies of those who are valuable targets for an SME that sets out to conquer the world markets with its goods or services. These may be people who have worked, studied or lived in other countries, or members of the multiple Argentine diasporas living abroad, or backpackers who have developed their perception and perhaps, even more, such as English travelers of centuries ago, the instinct or the art of observing and detecting opportunities that are often there but remain unseen by the untrained eye.

The "Sherpa" in foreign trade is, as for someone who seeks to climb the Himalayas, someone essential. A variant of the "Sherpa" would be that of "translator". Someone competent in translating other languages but, above all, able to interpret the differences in values, cultures and customs in relation to the company that is going international (Timothy Brook mentions this figure of "translator" in international trade based on his analysis of the origin of globalization through trade between Europe, America and Asia in the seventeenth century, in his fascinating book "Vermeer's Hat. The Seventeenth Century and the Dawn of the Global World", Bloomsbury Press, New York 2008.)

An SME needs "Sherpas" and "translators" even though it may not be aware of it. And perhaps in an Argentina with numerous diasporas, of thousands of travelers, students and backpackers that wander the world, they are at their fingertips. If they know how to search, they will find them.



Recommended Reading:


  • Aerni, Philipp, "Do Private Standards encourage or hinder trade and innovation?, NCCR Trade Regulation, Working Paper N° 2013/18, Zurich, June 2013, at http://www.nccr trade.org/.
  • Balch, Oliver, "Viva South America! A Journey Through a Restless Continent", Faber & Faber, London 2009.
  • Brook, Timothy, "The Troubled Empire. China in the Yuan and Ming Dynasties", The Belknap Press of Harvard University Press, Cambridge-London 2010,
  • Chase, Claude; Yanovich, Alan; Crawford, Jo-Ann; Ugaz, Pamela, "Mapping of Dispute Settlement Mechanisms in Regional Trade Agreements - Innovative or Variations on a Theme"?, WTO, Economic Research and Statistic Division, Staff Working Paper ERSD-2013-07, Geneva 10 June 2013, at http://www.wto.org/.
  • Cheong, Inkyo, "Negotiations for the Trans-Pacific Partnership Agreement: Evaluation and Implications for East Asian Regionalism", Asian Development Bank Institute, ADBI Working Paper Series, N° 428, Tokyo, July 2013, at http://www.adbi.org/.
  • Machado Oliveira, Ivan Tiago, "O Regionalismo no Século XXI: Comércio, Regulaçâo e Política", IPEA, 1709 Texto para Discussâo, Rio de Janeiro, Fevereiro 2012.
  • Machado Oliveira, Ivan Thiago; Sanchez Badin, Michelle Ratton (organizadores), "Tendências Regulatórias nos Acordos Preferenciais de Comércio no Século XXI, os casos de Estados Unidos, Uniâo Europeia, China e Índia", IPEA, Brasilia 2013, at http://www.ipea.gov.br/.
  • Malamud, Andrés, "Overlapping regionalism, no integration: conceptual issues and the Latin American experiences", European University Institute, EUI Working Papers, RSCAS 2013/20 Robert Schuman Centre for Advance Studies, Global Governance Programme - 42, Florence 2013, at http://cadmus.eui.eu/.
  • Medalla, Erlind M., "Taking Stock of the ROOs in the ASEAN+1 FTAs: Toward Deepening East Asian Integration", Philippine Institute for Development Studies, Discussion Paper Series n° 2011-36, Makati City, December 2011, at http://dirp4.pids.gov.ph/.
  • Myint-U, Thant, "Where China Meets India. Burma and the New Crossroads of Asia", Faber and Faber, London 2012.
  • Perdue, Peter C., "China Marches West. The Qing Conquest of Central Eurasia", The Belknap Press of Harvard University Press, Cambridge-London 2010.
  • Piñeiro, Martín (coordinador), "Agricultura y Desarrollo en América Latina: Gobernanza y Políticas Públicas", Panel Independiente sobre la Agricultura para el Desarrollo de América Latina (PIADAL), Teseo, Buenos Aires 2013.
  • Subramanian, Arvind; Kessler, Martin, "The Hyperglobalization of Trade and its Future", Global Citizen Foundation, Working Paper 3, June 2013, at http://www.gcf.ch/.
  • Thorstensen, Vera; Machado Oliveira, Ivan Tiago (organizadores), "Os BRICS na OMC. Políticas Comerciáis Comparadas de Brasil, Rússia, Índia, China e África do Sul", IPEA, Brasilia 2012.
  • Ugarte, Josu, "Pymes, exportación y globalización: las cosas claras", en diario "El País" de Madrid, Sunday 11 August, 2013, Sección Negocios, page 9, at http://economia.elpais.com/
  • WTO-OECD, "Aid for Trade and Value Chains in Information and Communication Technology", Geneva-Paris 2013, at http://www.wto.org/.

Félix Peña Director of the Institute of International Trade at the ICBC Foundation. Director of the Masters Degree in International Trade Relations at Tres de Febrero National University (UNTREF). Member of the Executive Committee of the Argentine Council for International Relations (CARI). Member of the Evian Group Brains Trust. More information.

http://www.felixpena.com.ar | info@felixpena.com.ar


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