Exporting is only a first step says Professor Ang. The real international growth comes when our companies embed themselves in host markets, getting into their value chains

By Siah Hwee Ang*

Internationalisation is never an easy task for any company.

Exporting is known to be the basic form of internationalisation.

Many New Zealand companies will tell you that it’s not easy to constantly improve by exporting more.

Markets are always getting tougher to crack.

The limits of exporting

Will a company be able to continue to export in its entire life cycle, to such time that it becomes a behemoth in multinational terms?

Unfortunately, the answer to this is NO !

Would it be possible to try to target multiple markets to keep growing via exporting?

Technically yes. But realistically, this means a lot of learning in each of these markets.

This would stretch a company in terms of resources, commitment and managerial capabilities. And we know the lack of adequate commitment can be disastrous when a company forays overseas.

The above is just a brief discussion of the options of increased exporting in a company’s strategy. It all points to the limits of exporting.

Herein lies the beauty of participating in the global value chain.

Key difference between exporting and the global value chain

About 60 percent of global trade comes in the form of trade in intermediate goods and services. These are incorporated at various stages in the production process of goods and services for final consumption.

A simple illustration will help to clarify the difference between global value chains and exporting.

Raw material extracted from Country A is exported to Country B for processing. The processed product is then exported to Country C to be manufactured. The manufactured product is exported to Country D for final consumption.

Exporting trade reflects the actual value of the raw material, processed product, manufactured product, and retail price at various locations, while global value chains seek to uncover the additional value created at each of the locations.

In a nutshell, exporting trade values can include the value of raw material 4 times in the above global transaction.

Participating in the global value chain

Internationalisation is a given for many New Zealand companies due to our size.

Beyond the highlighted limits of exporting above, creating a brand presence to our international customers is challenging for any company that is predominantly export-oriented.

The fact is that presence will be lacking if a company is not interacting with the market itself.

When a New Zealand company is shipping an end product for consumption in China, it is encouraged to also participate in the marketing and sales activities. This can be easily done in collaboration with the local distributors. This represents a simple way for a New Zealand company to involve itself in more than one segment of the value chain, thereby capturing the value add along the way.

To the extent that another New Zealand company is shipping a good that will be further processed in another market and that it is actually being consumed, similar collaboration at the next stage of the product value chain should also be considered.

The onus is on New Zealand companies to be proactive and look out for such possibilities with the downstream end of the value chain.

Deeper engagements for longer term benefits

A deeper level of engagement in the global value chain usually requires a company to locate in the host market.

Doing this depends on elements such as the importance of the market for the company (whether now or the future), the feasibility of local production, the resource requirements, and the degree of cooperation possible.

This brings us back to the discussion of overseas direct investment (ODI) and foreign direct investment (FDI).

In these areas, it must be said that New Zealand has not been doing as well relative to similar countries of equivalent size. Nor are the statistics near the performance of our very own exporting and importing activities.

At the very least, ODI will provide New Zealand companies a better chance to create a brand presence.

It also provides a greater platform for collaboration, both among New Zealand companies overseas (which our own New Zealand Trade and Enterprise is acting as an enabler) and with local market players.

Deeper engagements will go a long way. It will help generate potential longer term benefits. More importantly, it will allow New Zealand and its companies to extract the value of the NZ Inc brand, without losing this value to local players.

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Professor Siah Hwee Ang holds the BNZ Chair in Business in Asia at Victoria University. He writes a regular column here focused on understanding the challenges and opportunities for New Zealand in our trade with China. You can contact him here