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    Enabling the Entrepreneurs

     

     
     
    International Trade Forum - Issue 1-2/2008 

    Understanding global sourcing and supply chains may be the solution in export markets that are no longer geographic.

    Any good business strategy starts with an assessment of the market, including the economic and political factors influencing demand, and the opportunities for sales in export markets. The best strategists start by identifying the strengths and weaknesses of their enterprise in the face of market opportunities. But as recent events demonstrate only too clearly, broader political and economic currents can have greater impact on the direction of your company.

    That is particularly important in the case of entrepreneurs in developing countries, for whom the need to go global is often a necessity from the outset. Tapping export markets requires significant risks, even when those markets include the most stable in the world. With that in mind, entrepreneurs must be familiar with the forces driving change in global markets and strive for "'an enabling environment'" to reduce those risks.

    The essence of good management and any good strategy is a willingness to confront reality, rather than wishing that conditions were more favourable. These are hard times in terms of expanding access to new markets. The political context has grown more populist and protectionist in the developed and the developing world. There is a greater scepticism about trade and globalization generally in many quarters, and the recent financial crisis has reinforced that populist shift in domestic politics in many countries.

    The opportunity 

    As bleak as that sounds, reversing the trend can hold significant opportunities for entrepreneurs in developing countries. Major global companies have a deep stake in keeping the trading system open, just as developing-country entrepreneurs have a stake in gaining access to those companies' supply chains. In order to keep the trading environment open, global companies must increasingly demonstrate the power of trade to improve lives, as well as create greater diversity within their own supply chains.

    Entrepreneurs in developing countries can provide the solution. Incorporating their products and services into a global company's supply chain offers a practical and profitable way of demonstrating that trade can impact on developing-world producers and global consumers alike.

    The strategic challenge is, how best to turn that impulse into action so that governments and global companies reach beyond rhetoric to real business with developing-country entrepreneurs. What is needed is not trade capacity-building for the developing world alone; we need a significant measure of capacity-building in the developed world as well, particularly as it affects how we bargain within institutions like the WTO and how we build the other institutional incentives that systematically expand the economic freedom of businesses in developing countries.

    Markets no longer geographic 

    What has been lacking so far is a diagnostic tool that would help both markets identify and remove the barriers to developing-world entrepreneurs participating in global supply chains. The starting point for creating this diagnostic tool and improving the capacity of all players is recognizing that globalization has fundamentally changed the way we trade. Arm's length sales between independent exporters and importers no longer dominate. Most world trade now takes place between affiliates of global enterprises and the suppliers that make up their global supply chains.

    That is an important shift to understand. Take, for example, the perspective of an African textiles producer trying to tap into America's African Growth and Opportunity Act (AGOA). The tariff preferences offer the producer an advantage not just to export to the US market but also to US-based firms that can market its products globally.

    The point is, the target market is no longer geographic - it is a strategy of exporting to enterprises that will take an entrepreneur's goods, services or ideas global. Take the attitude of automotive parts manufacturers as another example. They no longer think of exporting to the US or Japan, but to new destinations called 'Toyota', 'Daimler' or 'General Motors'. These places might not show up on a conventional map but they are landmarks on a commercial map of today's global economy.

    Mindful of that shift in the pattern of trade (and the thinking of the players in this game), we can use the tools that they use to figure out how to put developing-country entrepreneurs on that global map. We can also begin to identify and remove the barriers, which will help us create the enabling economic environment referred to above.

    The tool global businesses apply to their sourcing is a supply chain map, which identifies the processes and costs associated with buying product in each individual market. Turning that map around and examining how global businesses see your market becomes a powerful way of identifying the internal and external barriers. The internal barriers represent the domestic reforms needed to help entrepreneurs compete in this game. The external barriers become the developing country's negotiating agenda in the context of the WTO, regional or bilateral trade deals. The map also helps identify the physical infrastructure that needs to be improved and the commercial standards that developing-country entrepreneurs must satisfy.

    Redrawing the world trade map 

    The really interesting part, as in all things, is what flows from the process of the parties working together to construct this map. Because it requires input from the public and private sectors in both the developing and developed world, and because it will also require contributions from international organizations like the WTO and the World Bank, it brings together all of the important parties that are needed to create the enabling environment that is critical to the success of developing-country entrepreneurs. In the process, it also introduces them to potential buyers for their goods, services and ideas.

    What will also happen is that the parties involved in the process will begin to articulate the basis for a broader, more pro-development trade deal than the one currently on the table in the now moribund Doha Development Agenda.

    Many of the most significant barriers to developed-country trade with developing-country markets are the same internal barriers that those developing countries must remove for the benefit of their own exporters. Equally, that becomes the bargaining chip to gain removal of developed-country trade barriers and subsidies.

    In summary, strategically freeing up entrepreneurs in developing countries would not only generate greater trade that can positively transform lives in both the developed and developing world, but it would also help pave the way for broader reforms in the economic environment that would pay dividends for years to come.