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The concept of sustainability: macro definitions

"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. Sustainability has three macro components:

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The concept of sustainability: macro definitions

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  1. "Partnership for a sustainabledevelopment"The case of export promotionFirst regional and interdisciplinaryAlumni Conference in Dar Es Salaam, TanzaniaNovember 11-14, 2007 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  2. Sustainability has three macro components: Ecological: present production and consumption must not reduce development potential of future Economic: development should lead to a constant (sustainable) growth path Social: “just” distribution of wealth The concept of sustainability:macro definitions 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

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

  4. Innovation Market presence Competitiveness The concept of sustainability: firm strategy oriented definitions Sustainability on a firm level means long run market presence This fimr sustainability contributes to macro sustainability, too 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  5. Creation of SMEs = entrepreneurship = innovation Market orientation of SMEs makes innovation independent of budget decisions feeds new information into SMEs SMEs benefit from business networks in order to reduce cost of non-core competency activities (e.g. business services) Exports support „life expectancy“ of SMEs Exports require up-to-date market information Market information via business networks is preferred by most SMEs Sustainability as a process of continued (SME) business creation 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  6. Networks with particular relevance for SMEs offer services like: Mutual credit guarantee Peer group lending/borrowing arrangements Schemes to link SME-entrepreneurs with larger firms Joint marketing initiatives Networks are the more successful, the Broader the campaigns to introduce them to businesses Quicker start up finance is provided to them More realistic the time frame (4 years!) more experienced network brokers are Sustainability through and of business networks 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  7. Traditional trade Promotion: Direct Exports Initial contact with customer at trade fairs Major problem: finance Network based trade promotion Trading houses are prevailing form of network Broader menu of services SMEs do better Quicker start up finance is provided to them Employing networks for sustainable export performance: lessons learned from Indonesia 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  8. How to support networks: provide enabling environment Offer Trade information Provide participation in trade fairs Offer bundled services Build competence for strategy consulting Active assistance in network building Investment promotion alongside trade promotion nationwide network building (PPP?) Employing networks for sustainable export performance: the case of Indonesia (2) 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  9. A dynamic definition: Sustainability = Innovation GVC perspective of innovation Exports initiate innovation GVCs are vehicle for exports Innovation Exports Global Value Chains A special case of network: GVC 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  10. Four types of upgrading: Process upgrading Product upgrading Functional upgrading Intersectoral upgrading Innovation takes the form of upgrading within GVCs 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  11. Porters single diamond model and GVCs International customers Structure of firms and rivalry: Leading businesses African Exporter Factor conditions: Physical and human resources Demand conditions: Domestic customers Supporting industries and institutions 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  12. Governance structure of GVCs • No limit on functional activities • Distribution of value added determined by power • 2 types of governance of GVC • „Arms length“ • Non-market • Network • Quasi hierarchy • Hierarchy 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  13. Governance structure of GVCs • Latest 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 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  14. Governance structure of GVCs: which is best for African exporters? • Semi hierarchies: pro product/process upgrading • traditional manufacturing and textiles benefit more • Networks: universal, but hard to achieve • Horizontal: frequently in supplier-driven GVCs 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  15. Innovation drivers Source: UNCTAD, 2007 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  16. Hierarchy and functional distribution in GVCs Lead Firms Retailers / Buyers First-tier firms Contractors / Distributors Second-tier firms Subcontractors / producers Subcontractors / resource extractors Third-tier firms = Information transfer = Product flows 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion 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

  17. Hierarchy and responsibility transfer Lead Firms Retailers / Buyers First-tier firms Contractors / Distributors Second-tier firms Subcontractors / producers Subcontractors / resource extractors Third-tier firms = Responsibility transfer = Product flows 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion 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

  18. Rewards for upgradingselected sectors, Sub Saharan Africa Source: UNCTAD, 2007 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  19. Cases of successful upgradingKenya / UK (late 1990s) 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 Source: UNCTAD, 2007 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  20. Cases of successful upgradingZimbabwe / World (early 1990s) 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 Source: UNCTAD, 2007 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  21. Cases of successful upgradingCoffee worldwide 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) Source: UNCTAD, 2007 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  22. Cases of successful upgrading Mauritius / Clothing Product (diversification) and process upgrading was achieved by … • Investing in Madagascar, and thus • Achieving economies of scale Source: UNCTAD, 2007 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  23. Conclusions from previous cases of LDC-initiated attempts at staying in GVCs 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.) Source: UNCTAD, 2007 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  24. Risks involved in these strategies 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? Source: UNCTAD, 2007 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  25. Case study: exporting „sustainable“ products • 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 Source: UNCTAD, 2007 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  26. Case study: exporting „sustainable“ products Checklist for potential exporters 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  27. 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 Conclusions 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  28. Unused export potential of Southern African countries Sopurce: ITC 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  29. Unused export potential of Southern African countries Sopurce: ITC 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  30. Unused export potential of Southern African countries Sopurce: ITC 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  31. Unused export potential of Southern African countries Sopurce: ITC 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  32. Unused export potential of Southern African countries Sopurce: ITC 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  33. Unused export potential of Southern African countries Sopurce: ITC 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

  34. 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 Sources 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

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