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Trade Promotion and Export Strategies for Small Firms

By Nyasigo Kornel
Today’s export promotion strategies must reflect the changing nature of the international trade environment, if they are to have an impact.
In other words, small enterprises may be better positioned to adapt to changes in the 1990s than larger enterprises. In the United Republic of Tanzania, successful new product lines have emerged due to trade liberalization, including oil presses and expellers, water pumps, storage tanks and drill presses.
In a course delivered by Civil Service College of Singapore through videoconference at Tanzania Global Development and Learning Center (TGDLC), that meant for government officials emphasized on the need to develop strong trade diplomacy with other countries in order to safe guard Tanzania’s trade interests.
According to the speaker Leon Khor large Tanzania’s enterprises are more likely to have the means to promote their own activities; most have resources to establish marketing channels, trade information systems and trade representation offices.
He says that a trade support institution will probably make only a marginal contribution. Furthermore, some large companies regard government-supported promotional activities as interference with their business decisions and may therefore be unwilling to cooperate.
In addition, he mentioned three major issues have recently emerged that influence export promotion: growing interest in the environment and sustainable development, the importance of small and medium-sized enterprises (SMEs) as exporters, and the scope for increasing trade in services, especially those supplying information technology services and clean technology.
The export potential of small and medium-sized firms has been a growing subject of interest. Why should today’s export promotion strategies focus on SMEs, rather than on large or micro enterprises?
Only a small percentage of SMEs in developing countries are now engaged in export trade, yet they account for approximately 40% of export earnings. The current trend points strongly towards a sustained growth in this share, supported by expanding output and employment. Recognizing their growth potential, most governments in developing countries are giving priority to SMEs through policy support and other incentives.
The WTO Agreement has created a framework for a more open global trading system, which has implications for smaller firms. An appropriate export strategy could provide the corresponding internal framework to enable smaller businesses to engage more successfully in external trade and meet international competition. By reducing tariff and non-tariff barriers and ensuring non-discriminatory treatment in foreign markets, the smaller exporters have been offered the same market access that was previously available to larger companies with resources to set up local operations to beat the tariff walls.
Technological developments in communications and reduced international transport costs make it easier for smaller firms to enter international markets. An export promotion strategy could facilitate market entry by assisting smaller firms to acquire technical know-how and familiarize themselves with new cost-saving innovations. SMEs, who have no in-house servicing facility, benefit significantly in terms of lower overall trade service cost and higher competitiveness.
Globalization of trade, investment and production has substantially altered comparative advantages between large and small firms. The smaller enterprises that have responded flexibly and adapted to the new environment—often linking with new partners and forming new alliances—are positioned for strong growth. These types of smaller firms generally enjoy advantages over large enterprises: they are usually able to preserve better labour relationships, bring a personal touch to their operations, cater to specialized market segments and have smaller capital investment requirements. The constant market pressure to stay competitive also spurs them to be inventive, innovative and flexible in their business operations. This makes it much easier for them to adjust quickly to changing economic conditions and market requirements.
SMEs, on the other hand, are almost entirely dependent on outside trade service providers. The impact of easily accessible and efficient services at affordable cost is correspondingly greater for them. This is crucial at the stage of initial market development efforts when SMEs need to commit scarce financial resources in advance without any guarantee of returns.
An export promotion strategy needs to define how best to help smaller firms exploit these opportunities and to overcome some of their constraints. Among the most formidable challenges to those seeking to develop new export promotion measures are the need to improve infrastructure, access to finance, and marketing. A review of the past trading performance of small firms has shown that these deficiencies are major obstacles to export success.
Setting up infrastructure like export industrial estates, export processing zones, and bonded production centres can provide a real boost to export development. In the least developed countries (LDCs) the problems are at a more basic level such as electrical power, water, roads, ports, shipping and telecomunication.
Restricted access to finance for small firms that lack collateral and are considered high-risk borrowers puts a cap on production expansion. A recent ITC survey revealed that SMEs think of financing as their most critical problem.
Many small enterprises are unable to market their goods effectively in existing markets. Small firms continue to lack knowledge of marketing channels and fail to establish marketing networks, or have not entered into strong market relationships with existing customers.
The dialogue took place at the TGDLC, which is a member of the Global Development Learning Network. Its core function is to enable decision-makers, senior and mid-level professionals and practitioners access and share the wealth of knowledge and experiences available in the world through the global communication system and information and communications technologies.

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