Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion "Partnership for a sustainable development" The case of export promotion First regional and interdisciplinary Alumni Conference in Dar Es Salaam, Tanzania November 11-14, 2007

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion The concept of sustainability: macro definitions Sustainability has three macro components: EcologicalEcological : present production and consumption must not reduce development potential of future EconomicEconomic: development should lead to a constant (sustainable) growth path SocialSocial: “just” distribution of wealth

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion The concept of sustainability: micro/meso definitions On a micro or meso level, sustainability is given when a development programme or project in the long run effective a) Is effective, i.e. it reaches its goals significant b) Is significant, i.e. makes a contribution to the overall target (e.g. exports help develop a region) efficient c) Is efficient, i.e. reaches its goals in an economical way side effects d) Does not have unacceptable side effects, i.e. culturally, environmentally, and socio-economically

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion The concept of sustainability: firm strategy oriented definitionsInnovationCompetitiveness Market presence Sustainability on a firm level means long run market presence This fimr sustainability contributes to macro sustainability, too

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Sustainability as a process of continued (SME) business creation entrepreneurshipCreation of SMEs = entrepreneurship = innovation Market orientationMarket orientation of SMEs makes innovation independent of budget decisions feeds new information into SMEs business networksSMEs benefit from business networks in order to reduce cost of non-core competency activities (e.g. business services) ExportsExports support „life expectancy“ of SMEs market informationExports require up-to-date market information Market information via business networksMarket information via business networks is preferred by most SMEs

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Sustainability through and of business networks Networks with particular relevance for SMEs offer services like: credit guaranteeMutual credit guarantee Peer groupPeer group lending/borrowing arrangements larger firmsSchemes to link SME-entrepreneurs with larger firms marketingJoint marketing initiatives Networks are the more successful, the BroaderBroader the campaigns to introduce them to businesses financeQuicker start up finance is provided to them time frameMore realistic the time frame (4 years!) brokersmore experienced network brokers are

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Employing networks for sustainable export performance: lessons learned from Indonesia Traditional trade Promotion: DirectDirect Exports trade fairsInitial contact with customer at trade fairs financeMajor problem: finance Network based trade promotion Trading housesTrading houses are prevailing form of network BroaderBroader menu of services financeSMEs do better Quicker start up finance is provided to them

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Employing networks for sustainable export performance: the case of Indonesia (2) How to support networks: provide enabling environment a)Offer Trade information b)Provide participation in trade fairs c)Offer bundled services d)Build competence for strategy consulting e)Active assistance in network building f)Investment promotion alongside trade promotion g)nationwide network building (PPP?)

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion A special case of network: GVC A dynamic definition: Sustainability = Innovation a)GVC perspective of innovation b)Exports initiate innovation c)GVCs are vehicle for exportsInnovation Global Value Chains Exports

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Innovation takes the form of upgrading within GVCs Four types of upgrading : 1.Process 1.Process upgrading 2.Product 2.Product upgrading 3.Functional 3.Functional upgrading 4.Intersectoral 4.Intersectoral upgrading

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Supporting industries and institutions Factor conditions: Physical and human resources Demand conditions: Domestic customers Structure of firms and rivalry: Leading businesses International customers African Exporter Porters single diamond model and GVCs

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Governance structure of GVCs No limitNo limit on functional activities powerDistribution of value added determined by power 2 types of governance of GVC Arms length 1.„Arms length“ Non-market 2. Non-market -Network -Quasi hierarchy -Hierarchy

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Governance structure of GVCs LatestLatest development: buyer driven value chains exert power through organization and information flow Opportunity for African producers: Processing Product differentiation Investment in local systems Special customer relation management

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Governance structure of GVCs: which is best for African exporters? Semi hierarchies:Semi hierarchies: pro product/process upgrading -traditional manufacturing and textiles benefit more Networks:Networks: universal, but hard to achieve Horizontal:Horizontal: frequently in supplier-driven GVCs

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Innovation drivers Source: UNCTAD, 2007

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion 16 Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit Retailers / BuyersLead Firms First-tier firms Second-tier firms Contractors / Distributors Subcontractors / producers = Information transfer= Product flows Third-tier firms Subcontractors / resource extractors Hierarchy and functional distribution in GVCs

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion 17 Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit Retailers / BuyersLead Firms First-tier firms Second-tier firms Contractors / Distributors Subcontractors / producers = Responsibility transfer= Product flows Third-tier firms Subcontractors / resource extractors Hierarchy and responsibility transfer

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Rewards for upgrading selected sectors, Sub Saharan Africa Source: UNCTAD, 2007

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Cases of successful upgrading Kenya / UK (late 1990s) Source: UNCTAD, 2007 Export of Fresh vegetables from Kenya to UK supermarkets was secured by …  Formation of producer alliance within Kenya  Broadening of production base by investment in Tanzania  Improving quality control  Diversification into cut flowers

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Cases of successful upgrading Zimbabwe / World (early 1990s) Source: UNCTAD, 2007 Position as first tier exporter of cotton was expanded by …  Vertical integration into spinning of yarn  Widening producer base by acquisition of cotton concessions in Mozambique  Both leading to economies of scale in production of cotton and yarn

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Cases of successful upgrading Coffee worldwide Source: UNCTAD, 2007 General trend of downgrading of local suppliers could be resisted by …  Starting specialty coffee production  Catering to niche markets like Fair Trade and Organic Food sectors  Smallholder alliances direct sales at local auctions to avoid local wholesalers  In few cases: Local Processing (wet processing plants)

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Cases of successful upgrading Mauritius / Clothing Source: UNCTAD, 2007 Product (diversification) and process upgrading was achieved by …  Investing in Madagascar, and thus  Achieving economies of scale

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Conclusions from previous cases of LDC- initiated attempts at staying in GVCs Source: UNCTAD, 2007 LDC firms can stay integrated into GVCs by …  Achieving economies of scale through FDI in neighbouring countries, linking them with GVC  Moving to higher tier through targeting new/upcoming (niche) markets  Finding the right buyer  Offering quality assurance  Shifting to premium product (organic, environmentally friendly etc.)

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Risks involved in these strategies Source: UNCTAD, 2007 Benefits do not come without risks Higher dependency on buyers Higher volatility of orders Higher vulnerability to changing trends and competitive situation Increased fragility of local production structures Solution: trading down?

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Case study: exporting „sustainable“ products Source: UNCTAD, 2007 Recent trend in IC markets: environmentally friendly products and processes Strategic option for African producers: occupy niche markets Major tool: join forces to comply with IC customer requests Methods: benchmarking like SA 8000 standard SPIES Strategy option: implement own standards if market power permits

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Case study: exporting „sustainable“ products Checklist for potential exporters

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Conclusions Sustainability is a multifacetted concept With regard to export promotion it has two dimensions: organizational and economic sustainability Business survive on economic sustainability Sustainability in the business sector is synonymous with permanent competitiveness Competitveness can best be reached by ongoing innovation Exports can be important innovation drivers if „trading up“ happens Networks play a major role in export promotion, both as peer group and as vertical GVC Upgrading in GVC should be the target of African exporters in order to stay sustainable

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Unused export potential of Southern African countries Sopurce: ITC

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Unused export potential of Southern African countries Sopurce: ITC

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Unused export potential of Southern African countries Sopurce: ITC

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Unused export potential of Southern African countries Sopurce: ITC

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Unused export potential of Southern African countries Sopurce: ITC

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Unused export potential of Southern African countries Sopurce: ITC

Cologne University of Applied Sciences / Fachhochschule Köln Faculty of Economics and Business Administration/ Fak 04   Prof. Dr. Wolfgang Veit 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion Sources OECD (2004): Entrepreneurship and Local Economic Development: Programme and Policy Recommendations Hemmer, H.R. (2002): Wirtschaftsprobleme der Entwicklungsländer, 3. Auflage UNCTAD (2007): The Least Developed Countries Report Porter, M.E. (2004): Competitive Strategy, First Free Press Export Edition Rugman,A./Collinson, S.(2006): International Business, 4th ed. Sandee, H./ Ibrahim, B. (2002): Evaluation of SME Trade and Export Promotion in Indonesia, ADB Background Report UNESCAP (2001): Enhancing Export Opportunities Through Environmentally Sound Business Development, Studies in Trade and Environment No. 44