Quarter one export growth 49 percent at $2.7 b:

Ten insights to drive stronger export growth

Textile and garments at 74 percent to $1.2 b:

Rohantha Athukorala

The real benefits of the peace dividends is coming to play in Sri Lanka, with the overall economy surging pass the eight percent growth trajectory with the private sector taking leadership with every share issue being oversubscribed, net profit growing at double digit while the export sector is ballooning to a commanding 49 percent.

The month of March was unique as Central Bank data revealed that the one billion dollar export revenue mark was achieved for the first time in the history of exports which is a significant performance.

All credit must go to the private sector that is driving this charge in the global market place with strong support from policy makers.

Countries are moving away from Value Chain development to Network Chain Development in driving export growth.

2001 performance

The overall appetite for growth by focusing on the global market place is seen not only in the key sectors of business like apparel but also in the agricultural sector which is reflecting a growth of 25.7 percent in quarter one 2011, whilst the textile business has surged to a 74 percent growth to end quarter one at 1.2 billion dollars.

This demonstrates the strength of this industry which has withstood the aggressive competitors in the likes of China and Bangladesh to register this performance even without trade incentives like GSP plus which clearly signals to the world the power of the product and business equity it has accumulated over time.

Ceylon Tea which announced to the world the proposition of the first ozone friendly tea, has shot up to a 20.9 percent growth in quarter one, against all odds in the supply chain.

But I guess the wage bill which crossed the five hundred rupee barrier for the first time in history will take its toll in the long-term unless policy makers seriously reconsider and change the operating framework.

The sad saga is that over a fifteen reports have been done by expert panels on how Sri Lanka’s tea industry can be made competitive, most of them continue to gather dust.

The US economy once again forecaste to be in trouble with the debt touching ten percent of the economy and eleven million households facing the impact of the housing bubble burst has yet registered an export growth of 54 percent in quarter one.

This is interesting but needs to be carefully monitored as the risk element is high in this market.

The good news is that Sri Lankan exporters focusing on the Asian market for growth, like the strong thrust into the Chinese market with events like the Kunming trade fair that was recently staged, with over hundred stalls being given free on an initiative of the Industry and Commerce Ministry generates a healthy vibe.

New ethos

While many countries around the world are driving exports strategy on the ethos of value chain development, a new business plain unfolding is the concept called ‘Network Chain Development’ that is centered around the capability set of a country.

While different names are being assigned by academic entrepreneurs, in simple words this practice means a country’s capability is extended to cover a new range of products so that a small share of the global export business can be captured.

The good news is that Sri Lanka has already latched on to this concept.

For instance the handloom weavers have been trained on soft toy stiching with expert training provided by global experts. But a point to note is that countries that are into this new ethos of driving development embarked on projects that are large and can make a stronger impact to the export numbers.

While there are many limitations to this practice like economies of scale and the theory of comparative advantage the fact is that it is being practiced successfully by countries like Malaysia and South Korea and they have been successful in reviving up export growth breaking the cycle of organic growth.

A country that pursues this strategy moves away from subsidies and credit schemes to more hard wired offerings like focused industrial zones which are coupled with employment targets and foreign exchange value targets. But this is being pursued together with a strong government backing for infrastructure development that includes water, electricity, manpower, roads, and sewerage systems and IT enabling services.

The best case in point is the TamilNadu state which houses 227 manufacturing operations from the top 500 global companies.

When I last met the Secretary to the Industries Ministry of the Tamil Nadu government his proposition was the Tamil Nadu must have own rankings in the global competitiveness report and must not be clustered under India.

This signals to the world the power in which the economy is being unleashed and driven for growth.

New policy

This approach of driving value chain development has been specialized by a Harvard professor and Nobel Prize winning nominee who has been appointed a consultant to the Indian Government. He has developed a mechanism that overlays the capability set of a country with the existing product range and then recommends the new product range that can be developed in a country which can use the same capability set. As mentioned before its termed Value Chain Development.

But he warned that unless ruthless policy decisions are enacted and implemented this strategy will just remain an academic exercise. Once again the good news is that Sri Lanka has a good track of taking drastic policy decisions in the past like when the apparel industry was launched back in the 1980’s but what is mandatory is a strong political backing to drive these changes into the system.

One country that has successfully done is in the recent past is Ghana in the African continent. I guess Sri Lanka can evaluate this strategy and chalk out a strategy of developing an operational agenda.

Ten insights

Moving from this Macro new fashion that is evolving of Network Chain development let me share ten key insights that can spruce up exports in a country and drive up stronger the development agenda.

Zero carbon bra

Do not fight on price. Offer something distinctive and unique that challenges a consumer to switch to your product. This can be technology driven like the zero carbon bras or the single piece bra that the apparel industry of Sri Lanka highlighted or it can be a single minded proposition like Ozone friendly tea from Sri Lanka but the logic is that it must be a strong proposition to the consumer and not for us, manufacturing it.

Few

Do not spread your resources over many geographical boundaries. Stick to a few but build strong linkages with the demand chain. The best example to us in Sri Lanka is a renowned brand of papdam focuses on the Saudi Arabian market and has developed a range of products in different colours and taste and it is the number one pick in that market. In fact during the Ramadan season the exporter practices special function at the break of fasting that has become a social event in Saudi Arabia.

Linkage

In some markets rather than brands the distribution pipelines builds brands. Though it’s not ideal it’s the reality and let’s accept it. Be very slow in selecting the distributor and also be extra careful in managing this relationship. I know of a CEO in the tea industry who personally manages the key six buyers and will not even delegate it to one’s own family members. Hence the CEO is the salesman, brand manager, finance head and logistics manager. I guess this is what it takes to win in today’s world.

Airplanes

You cannot build business with desk research. Have to get on the next plane and walk the streets. The best insight to consumer behaviour comes from face to face ground reality checks. I know of a Sri Lankan exporter who built a striving business in Kenya selling refuse tea as fertilizer. This kind of business insights cannot be sought through secondary data analysis.

Bilingual

It has become imperative that one is multilingual. It can be the different dialects’ of Chinese or the fluency of Spanish or French. The logic being, language fosters strong relationships. End of the day its relationships that keep business and not strong brands. It is the reality and we have to accept it.

The best case in point is how Sri Lankan ayurvedic products have entered the Asian countries that already have a heritage in this sector of business relationships drive business.

Office

Local premises are a must in today’s entrenched business arena. But do not do it too fast. A better option is to let an own company staffer be stationed in the overseas market. Start by housing the person at the distributors office and once the business is breaking even move to an independent location. Many companies who operate the Indian market use this approach.

SME?

All top exporters have been an SME at one time in their life. Stick to the knitting and keep working on shaping your product to the international consumer so that a critical mass can be achieved. Thereafter, you can get into the strategies of brand marketing. But until then, stick to a basic product and maintain supply consistency. This is where many Sri Lankan exporters falter.

Investor

If you can get a local investor to the company do it. It’s a sure win to stabilize the business and reduce the risk. Especially in the Middle Eastern countries practice it given the uprising and uncertainty in the market place.

No consultants

Avoid consultants to do your business. Engage people who will be accountable for their initiatives. The complexity of the global market place can only be solved by hands on leadership. I have noticed that people with sales experience do well in the export marketing game.

Focus group

It’s good to visit your business partners but more importantly make time to meet your end consumer. Try to develop a consumer panel so that you can meet a cluster of consumers over lunch on a regular basis. A leading toy manufacturer embarks on this strategy and it has helped understand changing consumer tastes.