Developing Export Markets

A recent survey by Babson College and the London Business School on entrepreneurship noted that middle-income countries have a larger share of individuals engaged in business ventures with high growth potential than high-income countries. The study also noted that the countries have higher percentages of people starting businesses. This is partly attributed to the deployment of existing technologies to exploit their comparative advantages. High rates of early-stage entrepreneurship, however, do not necessarily translate into high rates of established business. Rich countries such as Japan, for example, have low levels of early-stage entrepreneurial activity but a large number of established businesses. This is because the start-ups are opportunity-driven companies with lower rates of business failures than those in middle-income or poor countries that are largely motivated by the necessity to earn a living. In rich countries, there is also a tendency for entrepreneurial activity to shift from consumer-oriented areas such as retailing to business services.

Export of luxury tea from Argentina. During the worst financial crisis in Argentina (2001), three young entrepreneurs founded a luxury tea business with just $10,000. They focused on quality with a view to selling in high-value export markets. The bags are a hand-tied sack of muslin (that does not alter the flavor of the tea) containing one of the five types of organic tea: cedron, black-leaf tea, peppermint, patagonian rosehip, and mate lightened for the overseas market. They traveled to different parts of Argentina to locate the best growers. After finding suitable suppliers, the partners agreed to create a premium product to be sold in up-market outlets and trendy stores. More than 75 percent of the output is sold in overseas markets: the United States, the United Kingdom, continental Europe, the Middle East, and Asia. Over the past few years, the company has registered substantial increases in sales.

The partners note that (1) exporting maximizes the benefits of selling from countries with weak currencies; (2) it is necessary to focus on quality materials, production, and packaging to charge premium prices; (3) high-quality products should be sold in high-quality outlets; and (4) it is important to disprove national stereotypes such as a reputation for lack of punctuality or honesty with buyers and distributors.

Exports by Rwandas nascent entrepreneurs. Rwanda is a small, landlocked country with a population of eight million, located in the Great Lakes Region of East-Central Africa. Despite the legacy of genocide and war, the country is showing signs of rapid development. J. Nkubana, one of a number of women entrepreneurs, sells more than 5,000 Christmas ornaments and baskets to Macys in New York. Another rising entrepreneur, Beatrice Gakuba, founder of Rwanda Floral, is the nations largest exporter of roses. She sells more than five tons of flowers a week at auctions in Amsterdam. Exporters, however, face a number of challenges in Rwanda: (1) regular electricity outages, resulting in lost productivity; (2) Rwandas landlocked status, which requires use of ports in neighboring countries, delaying shipments and delivery of exports; (3) high borrowing costs (17 percent interest on loans) and bank requirements of 100 percent collateral. Public funding to promote exports is almost nonexistent.

Question:

1. Comment on the statement exporting maximizes the benefits of selling from countries with weak currencies.