UWI lecturer: Exporting companies must look beyond debt-ridden Caricom

The economies of the Caribbean are in serious difficulties, so local companies must look for export markets out of the region, said Dr Anthony Gonsalves, senior fellow, Institute of International Relations, University of the West Indies (UWI).

He told the Business Guardian by phone on Monday that local companies do not have to begin by exporting to far off markets in Asia or even the European Union (EU) at first, but it can be done in Central America and the Spanish-speaking Caribbean.

“Caricom markets are shrinking because of all the problems they are facing. Their economies are in a lot of difficulty, so I would be surprised if T&T businesses are still exporting to Caricom the same volumes as in previous years. Their tourism is in a decline and they have high debt levels,” he said.

Gonsalves advised local companies to look at the immediate neighbours out of Caricom.

“The next sort of concentric circle is usually the Dutch- and French-speaking islands, then Cuba, Dominican Republic and Central America. At a marginal level, they can sell a few more things and get into those markets. These are markets in the region where it is easier for them to get into as there are existing arrangements. In Cuba, there is a trade facilitation office and there are contacts in the DR, they also want to set up an office in Panama.”

Economies of scale

One reason why it is difficult for local businesses to break into foreign markets is simply because of their small size and inability to develop the necessary economies of scale, Gonsalves said.

“The reason why most of them stay within Caricom is because of the cost factor. It is difficult for small firms in small countries to export at great distances because they have to develop the logistics, they have to penetrate markets and develop the economies of scales.

“It is not easy to get the goods on the shelves in foreign markets. In the United States, if you go to the large markets, you have to pay a high price to get your goods on the shelves. Unless a company has big plants and can support the marketing economies of scale and pay for these large super stores, it is more difficult,” he said.

An option is for local businesses is to export to “ethnic markets.”

“This is where they can sell processed foodstuff that is known here and which Trinidadians and West Indians would be acquainted with. The bigger question is: how to get businesses to go beyond that and take the risk to get involved in non-traditional markets.”

He said the Asian economies have done well because of the support their local businesses have.

“In Asian countries, they support their businesses until they can stand on their feet. The governments give them various subsidies, and in the early stages, a certain amount of protection. Here in T&T, the T&T Export Company has begun to do a few things. At the same time, we are not South Korea, as the markets are small and not developed.”

He suggested initiatives the state can use to assist businesses to grow to become export ready.

“There can be tax credits, subsidies on training, subsidies on marketing. Then there is the national subsidy on energy, which also gives them some competitive edge, so it has to be targeted,” Gonsalves said.

TIC

Gonsalves said the Trade and Investment Convention (TIC), which was held in June at the Hyatt Regency Trinidad Hotel, is an important avenue in assisting local companies wishing to build international contacts.

“They make a contribution as they bring together investors and buyers. Some of these come from various parts of the region and countries abroad, so that helps them to build contacts and markets. I think it is useful. There are also seminars the T&T Manufacturers' Association (TTMA) has that help them how to do business standards, packaging and rules of origin.”

Although he was not present at this year's TIC, Gonsalves said from what he has heard, companies and businesses made contacts.

“It is a very competitive world and you need very much that TTMA members and companies in general are informed and providing them with more knowledge on how to attack markets in various parts of the world. It is not an easy world, especially when there are other countries out there which are doing more to stimulate businesses and get them on the international market.”

Few companies export

Three weeks ago at an American Chamber of T&T seminar on trade, Gonsalves said out of 500 T&T companies that export, only 126 of them export out of the Caricom market and more needs to be done to help companies to grow beyond the region.

“We cannot talk about competitiveness until we talk about firms, as they are the ones who export. The problems and challenges they have. I know this country is concerned about its dependence on oil and gas, the dependence on the Caricom market. We need to go forward and diversify, We must look at these 324 firms and see what can be done for ten per cent to 20 per cent to go outside of Caricom and areas in which they can be competitive.”

Gonsalves gave a description of the sectors the exporting companies belong to.

“About 15 firms that export belong to agriculture and livestock. About 19 in art, crafts and accessories, about 17 in base metals, iron and steel. About five firms belonging to the bio-technology sector, two in ceramics, 18 in the computer sector and about 78 firms that export from the food and beverage sector, There are also about 25 companies from the oil and gas sector.”

He called Caricom T&T's “natural and protected market.”

“That is so because we have a tariff there and because T&T understands the distribution network there and also the culture that works in T&T’s favour.”

For those companies that export out of Caricom, there are two companies in mining and machinery, 11 in oil and gas, nine in paper and printing, 18 in textiles and 19 companies in food and beverage.

“In my view, these are the really competitive firms that have been able to develop a capacity to compete with the wider world. These firms are exporting to South America and the rest of the developing world,” Gonsalves said.

He spoke of non-energy products being exported to the European Union.

“Although iron and steel are based on natural gas, I place those in the non-energy products that are exported to Europe, and also beverages, like rum, beer and Angostura Bitters. Then there are cereals, which are competitive. There are also soaps, candles and lubricants.”

Out of the 500 companies that export, 324 export only to Caricom markets, but are reluctant to go global.

“These firms are not competing with the rest of the world. If you ask them if they can be internationally competitive, you will find that about 50 per cent will say it is too risky to go out of Caricom as this will involve developing new business plans, new technologies and they say they are happy exporting merely to Caricom. The next half of firms will say they want to export beyond Caricom, but they need the assistance from the Government to do so.”

T&T international trade

Gonsalves outlined the market share globally for T&T exports, which roughly broken down shows the US market takes about 48 per cent of those exports, Caricom takes about 19 per cent, The EU eight per cent, South America eight per cent, Canada two per cent and the rest of the world eight per cent.

“Up to 2010, T&T exported up to $10 billion in goods worldwide and just about $5 billion to the US, $2 billion to Caricom, $1 billion to the EU, $850 million to South America, $409 million to Central America, $307 million to the non-Caricom Caribbean countries like Cuba and Martinique. About $176 million to Caricom and the rest of the world takes $921 million of T&T's exports.”

 

(Business Guardian)

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Date Posted

July 17 2013