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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
2018 | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009

INTERNATIONAL TRADE IN A WORLD WITH MULTIPLE OPTIONS
The case of SMEs with a sustained presence in their own niches and in other markets


by Félix Peña
October 2018

English translation: Isabel Romero Carranza


 

Several factors are introducing profound changes in the global trade of goods and services. These help as understand the relative obsolescence that can be observe in the theoretical aspects, paradigms, concepts and operative methods of international trade that, for the most part, originated in a different era.

Some of these factors are: the number of countries capable of influencing world trade and its ground rules; the greater connectivity between markets, among other reasons due to the collapse of physical distances; the growth of the urban middle class, especially in developing countries; cultural diversity; consumer empowerment with its multiple options; and the dynamics of changes that are likely to continue and accentuate in the future.

These are factors with a marked impact on the three priority fronts for the development of a country strategy aimed at facilitating the projection to the world of the capacity to produce goods and offer services.

Such fronts are: the policies and methods that countries use to support a sustained presence of their firms especially niche SMEs, in foreign markets; the strategies for international insertion developed by the companies themselves, especially the SMEs that seek a sustainable projection in other markets, and the strategies and modalities of international trade negotiations of each country or organized region.


As we have pointed out on other occasions, various factors are introducing profound changes in the global trade of goods and services (see, among others, the May 2018 edition of this newsletter on www.felixpena.com.ar). These are impacting the strategies and behavior of many protagonists of the competition for world markets, whether at global or regional scale. They can help understand the relative obsolescence that can be observe in the theoretical approaches, paradigms, concepts and operational methods of international trade, which largely come from the period following World War II.

Among other factors, it is worth mentioning the following due to their relative importance:

  • the growing number of countries with the capacity to influence, in one way or another, the development of the competition for world markets and the institutions and ground rules of international trade, for example through the effect of various modalities of agreements of regional or pluri-regional scope;

  • the greater connectivity between the different markets, partly because of the shortening of physical distances aided by the new methods of communication and transport, and by the growing development of e-commerce;

  • the significant growth of the urban middle class in many developing countries especially, but not exclusively, in the Asia-Pacific region;

  • cultural diversity with its impact on the preferences and priorities of consumers in their choice of products and services;

  • the empowerment of well-informed consumers who have multiple options when deciding what goods or services they prefer, and

  • the dynamics of continuous change that will be observed in each of these factors.

These factors have a marked impact, which will probably be greater in the future, on the priority action fronts for the development of country strategies, aimed at facilitating the projection to the world of the capacity to produce goods and offer services by firms whose relative competitiveness is based on the availability of natural and human resources (knowledge, creativity and talent). Particularly, this is the case of the strategies aimed at developing and projecting to the world "niche companies", whose internationalization is based on their ability to specialize in satisfying the potential consumer demand for high quality products and services. In general, consumers are well informed about their options and quite demanding when choosing the products and services of their preference. Gastronomy, tourism, education, health, clothing, entertainment, household equipment and footwear, are just some of the many examples of sectors to consider.

The first front of action is that of the policies and methods that countries use to support a sustained presence of their companies, especially SMEs, in foreign niche markets.

In a federal country, as is the case of Argentina, such support may come not only from the central government but especially from the provincial or state governments. It would even be logical to think of the latter as the natural environment for the support of niche SMEs that try to project themselves to the world, since they are usually located within provincial geographies This is what happens in federal countries such as, for example, Brazil or Canada.

In this case, the federal agency for the promotion of international trade -which often includes an area of investment aimed at developing valuable goods and services in international markets- can play a very important role in supporting provincial agencies, which would have the main active role due to their physical proximity to the SMEs.

It will be necessary to follow closely the new initiative of the recently launched program Argentina-Exporta, in which the Federal Network will play a special role. It will help assess the advantages that could result from the joint efforts by an articulated set of provincial agencies.

We should bear in mind that the aim of this recent initiative, which is starting to develop in Argentina, is to make a quantum leap in the number of SMEs that aspire to have a sustained presence in foreign markets, including niche SMEs. It has been said that a country like Argentina should attempt to have, in the upcoming years, approximately 40,000 SMEs that sell goods or supply services in multiple markets in a sustained manner and not just in occasional operations. This number is considerably higher than the current one. An indicator to recognize the sustained projection of a company in other markets would imply a minimum of three years of presence in each market, for example through sales outlets or the participation in value chains.

A second front of action refers to the strategies for international insertion developed by the firms themselves, especially SMEs that seek a sustainable projection in other markets. It would seem unlikely for a company, especially a small or medium one, or even a micro business, that seeks to project itself in a sustained manner in other markets, not to develop or adapt its respective strategies to the new realities of global economic competition.

This implies, as a necessary condition to compete in other markets, to have a good diagnosis, not only of the opportunities that eventually open up for the goods or services that the firm can offer, alone or associated with other companies of the same country or of other countries, for example from the same region, but also of the options that the consumers of a certain country could have in their supply demand. Fully understanding a market is thus a necessary condition for having a sustained presence in it.

It is in relation to this aspect that the joint efforts of government agencies and business technical and academic institutions can provide great value to ensure the competitive intelligence required to understand the priorities and preferences of consumers and the dynamics of change of other markets. In the case of Argentina-Exporta, an important factor for its effectiveness will come from the ability to develop together with other institutions, including mainly the academic and technical networks of people with deep knowledge of the cultural factors that prevail in other markets, and which provide the necessary insights to detect the priorities, preferences and tastes of its consumers. Also sharing this capacity with other countries of the region would seem quite sensible.

Finally, a third front is that of the international trade negotiation strategies of each country or organized region. At a time when the multilateral system of international trade is in need of a revision (see the conclusions of the Meeting of Trade Ministers of the G20, held in Mar del Plata, on September 14), it is worth asking about the new approaches that the trade and investment agreements in which Argentina and its Latin American partners participate, including those of Mercosur, will have in the future.

An advisable approach would be precisely procuring ground rules that encourage different modalities of productive linkages between SMEs of developing countries and, especially, the niche internationalization of SMEs. In this regard, it can be assumed that in the next regional and interregional agreements, especially when developing countries participate, the emphasis will be placed on mechanisms and rules that can ensure both the necessary flexibility to navigate a world characterized by strong change dynamics, and the predictability required by those who run the risk of investing with the aim of producing goods and providing services in multiple markets. In this perspective, rules that contemplate different types of safety valves, which allow adjusting to unforeseen changes in market behavior, become more relevant (see, among others, the contributions of Dani Rodrik, in his book "The Globalization Paradox. Democracy and the Future of the World Economy", W.W.Norton & Company, New York - London, 2011 and of Krzysztof J. Pelc, in "Making and Bending International Rules. The Design of Exceptions and Escape Clauses in Trade Law", Cambridge University Press, New York 2016).


Recommended Reading:


  • Bartesaghi, Ignacio, "Coletazos de una negociación. El estancamiento de las negociaciones entre el Mercosur y la UE abriría una nueva oportunidad para el Uruguay", Opinión, "El Observador", Montevideo, Octubre 1, 2018.
  • Connelly, Tony, "Brexit & Ireland. The Dangers, the Opportunities, and the Inside Story ot the Irish Response", Updated with a new chapter, Penguin Books, London 2018.
  • Crankshaw, Edward, "Bismarck", Bloomsbury Reader, London 2011.
  • D'Ántonio, Michael; Eisner, Peter, "The Shadow President. The Truth bout Mike Pence", Thomas Dunne Books, St.Martin´s Press, New York 2018.
  • Fukuyama, Francis, "Identity. Contemporary Identity Politics and the Struggle for Recognition", Profile Books, London 2018.
  • Hudson Institute, "Vice President Mike Pence´s Remarks on the Administration's Policy Towars China", Event, October 4, 2018.
  • Kagan, Robert, "The Jungle Grows Back. America and Our Imperiled World", Alfred A.Knoff, New York 2018.
  • Kershaw, Ian, "Roller-Coaster. Europe 1950-2017", Penguin, London 2018.
  • Macshane, Denis, "Brexit, No Brexit. Why (in the End) Britain Won´t Leave Europe", I.B. Tauris, London - New York 2017.
  • Magnus, George, "Red Flags. Why Xi´s China is in Jeopardy", Yale Univeristy Press, New Haven - London 2018.
  • Mazzucato, Mariana, "The Value of Everything. Making and Taking in the Global Economy", PublicAffairs, New York 2018.
  • Merke, Federico, "Brasil en territorio desconocido", Opinión, "Clarín", Octubre 9, 2018.
  • Mills, Greg, "Lucky Goldstar and the Rockets. What worked in South Korea?", Discussion Paper 10/2018, The Brenthurst Foundation.
  • Rivoli, Pietra, "The Travels of a T-Shirt in the Global Economy an Economist Examines the Markets, Power, and Politics of World Trade", John Wiley & Sons, Hoboken NJ, 2015.
  • Sachs, Jeffrey D., "A New Foreign Policy. Beyond American Exceptionalism", Columbia University Press, New York 2018.
  • Tandon, Yash, "Trade is War. The West's War Against the World", OR Books, New York - London 2015.
  • Unger, Craig, "House of Trump House of Putin. The Untold Story Donald Trump and the Russian Mafia", Dutton, New York 2018.
  • Winter, Brian, "What to Expect from Jair Bolsonaro", Americas Quarterly, New York, October 9, 2018.
  • Woodward, Bob, "FEAR. Trump in the White House", Simon & Schuster, New York 2018.

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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