Beiträge

How to select the right export market?

„Where should I export to?“

A very important and a very common question in Switzerland, where exports play such an important role for our economic success. This is why I wanted to write about this in my third blog on LinkedIn. Has it already been a year since I posted my last one? Time really flies!

In any case: approximately half of Switzerland’s GDP comes from exports. The good news is that exports are thriving again, resulting in an all time record in 2017 with over 220 billion Swiss francs. 2018 will most probably be the best year ever.

Locking back, exports have always played a pivotal role for this landlocked, small country in the midst of Western Europe with almost no natural resources to rely on (apart from the beautiful landscapes). To find a way out of poverty, since way over 100 years now, Switzerland had to become innovative, create new products and look beyond its borders to sell them.

So this lack of natural resources was in fact the key to Switzerland’s success and led to our remarkable position in today’s globalized economy. According to WEF, Switzerland is still the most competitive country in the world. And according to other studies, it is in the top 3 countries in regards to innovation. With a small population of 8.4 millions, Switzerland is the 15th biggest exporter globally. And what’s even more incredible is that Switzerland accounts for over 4% of global Foreign Direct Investments (with only about 0.1% of global population).

With the thriving exports being at the core of our economic success, it is no surprise that Swiss entrepreneurs continuously ask themselves: „Which is the best export market for me„? For what it is worth, here are 5 thoughts one should keep in mind when selecting the right export market.

1. It is a very difficult question to answer.

Of course, there is no „one fits it all answer“ which market is the best for Swiss exporters, or for you. It is plain and simply a very difficult question and one you need to find the answers to on your own. Here are just a couple of reasons why:

  • Export industries vary: Of course, each target market offers differing market opportunities from one industry to the other. E.g., one country might be very attractive for Swiss food exports, but not at all for pharma.
  • Companies are different: Even within a certain industry, products and companies vary a lot. E.g., competitiveness is different, pricing is different, the whole value chain is different etc.
  • Experiences vary: Some companies are very experienced exporters, others are just starting to export. This affects heavily which markets should be considered.
  • People and cultures vary: In the end it is people with their differing preferences, cultural background and experiences who drive an export project and thus its success or failure.

2. Don’t rely on generic export rankings.

I think that it is fairly useless to generalize which markets or regions are the top export markets for Switzerland, or for that matter, for any other country. Nevertheless, many consultants and government organizations relentlessly publish such generic rankings. As an example which I know well (I have actually been involved in establishing it some years ago…), here is the yearly ranking of the Top 10 Swiss export markets as seen by Switzerland Global Enterprise (S-GE), the official Swiss economic promoter as of Nov 2017.

To summarize, according to S-GE, the Top 10 markets for Swiss exporters are: 1. China, 2. USA, 3. South Korea, 4. Singapore, 5. UK, 6. UAE, 7. Canada, 8. Poland, 9. Japan and 10. Germany. But is that so? For which industries? For what kind of products? For which companies? What people? Which kind of risk appetite and budget? And what does this mean for your company?

Again, I very much doubt the value of such generic, forced rankings for actual export decisions.

To make my point here, let’s have a look at how these top 10 markets have performed in the first half of 2018.

As you can see on this chart, with the exception of the US., Poland and to a lesser extent Korea, the top 9 export market according to S-GE have clearly underperformed. Exports to the UK, Singapore, Japan and Canada have declined or in the case of the UAE and China remained flat.

In fact, some of the big nominal export winners were not on the list such as the Netherlands, France or Ireland. Percentage wise, Netherlands (+ 50%), Ireland (+21%), Poland (+17%) and France (11.4%) lead the way, again with only Poland having been a Top 10 export market according to S-GE. Which brings me to my third thought.

3. Check the „near“ markets first.

Why look far, when possibly your best export opportunity might be at your doorstep?

As for the example of Switzerland, in the first half of 2018, many top growth markets in absolute (money) and relative terms (percentage) were in fact „near“, European countries. Still as of today, 58% of all Swiss exports go to Europe. And despite the remarkable rise of the economies in Asia and the Middle East, this number has only slightly decreased over the last ten years.

Europe road sign arrow indicating direction to the old continent travel tourism

Why is this? Why are the somewhat ailing European markets despite all their political, demographic and competitive problems still attractive for Swiss exporters? Here are just a few reasons:

  • Cost advantage: Usually, the closer the export market, the lower the cost. Or the farther away, the higher the cost. This because of logistical cost (e.g., transport and travel), cultural misunderstandings, differing legal systems, differing technical requirements, time differences, regulatory differences, etc.
  • Heterogeneous markets with ample market opportunities for all industries: Europe has many different economies, in different stages and with different needs. From more developed markets such as Germany or the Nordics to developing markets such as e.g., the CEE countries, you can be pretty sure that there is a market opportunity for almost every Swiss exporter.
  • Preferred market for export starters: Exporting is tough! This is why 9 out of 10 new exporters from Switzerland start in Europe.
  • Preferential access: Thanks to the free trade agreement and the various bilateral contracts, Switzerland enjoys preferential access into the EU markets. Or in other words, Switzerland has a competitive advantage over other top export nations such as China, the US or Japan.
  • Europe is a success market for Swiss exporters: In 2015 a research study by S-GE and the University of Zurich has clearly shown that Swiss exporters are highly successful in Europe. Compared with Japan and the US, we have been able to gain considerable market shares from them within the time period of 2002-2015.
  • Stable currency: Believe it or not, despite the very difficult years behind us and the various currency crisis, the Euro – compared to many other currencies – is still quite stable and predictable. And furthermore, with Euros you can buy, produce and sell along your value chain in different EU countries and hence optimize your FX risks („Natural Hedging“).

Please don’t get me wrong here. I am very much aware of the many issues Europe is facing. And I personally witnessed the game changing dynamics of Asia’s economic rise when I was living in Tokyo and Hongkong. However, if we talk about exports, meaning producing in your home country and selling abroad, my suggestion would be to first start looking into market opportunities in your neighbor countries. Which means Europe for Switzerland.

I’d like to add another point here which is frequently forgotten: For Swiss companies, often our business with Asia is not based on exports but on investments. Meaning Swiss companies produce in Asia to sell in Asia. Like e.g., Nestlé, Schindler or Barry Callebaut who all have tremendous success and growth in Asia. But again, it is not export – but FDI – and the majority of the value is created and collected outside of Switzerland.

4. Don’t trust export statistics.

Export statistics are very tricky to read. And hence a difficult basis to make your market decision on. I am by no means an expert but here are some of the examples I came across:

  • Switzerland has seen a substantial growth in textile exports to Europe over the last few years. If you think that this is only a sign of the reviving Swiss textiles industry (which by the way is rebounding thanks to great new innovations mostly in the technical fabrics sector) then you are wrong. What really boosts these export numbers are the return shipments by Zalando customers from Switzerland to Germany.
  • Did you know that a sustantial part (I heard 60%) of Switzerland’s booming pharma exports to the U.S. is indeed intercompany trade? Meaning that the big pharma companies ship certain substances from Switzerland to a production site in the US where new medication is produced and then exported again.
  • Another example: Looking at export statistics, Swiss watches seem to be very popular in Belgium but not in Luxembourg. One reason for this is that many Swiss watches – which are actually ending up in Luxembourg – are in fact first being imported into Belgium, only to be distributed from there to watch shops in the Grand Dutchy.
  • Much of the Swiss exports to the Netherlands and to Belgium are in fact what we call the „Rotterdam“ or „Antwerpen“ effect. Meaning Switzerland ships goods to these big harbors to be exported into the world. However in our export statistics they show as exports to Belgium or the Netherlands.

5. Know, talk, see, think, decide and do.

To summarize the above: It is very difficult to find out what your perfect next export market is. Apart from the fact that there are almost endless markets to choose from, it is very hard to find relevant information and even harder to interpret it correctly.

As you and your company are unique, so is your market selection process and your market entry strategy. There is no way around taking a lot of time and putting in your best effort.

It all starts with a clear business strategy (know). Then talk to as many experts as possible. People like e.g. your fellow entrepreneurs, your employees, industry experts (e.g. industry associations such Swissmem) or country experts and export specialists such as Switzerland Global Enterprise or the various Chambers of Commerce in Switzerland. And others, especially also various sources in the potential new export market.

And don’t forget to see for yourself. Go, visit and experience your future target markets and talk and meet your potential partners. Breath in the different culture and the personalities you might be doing business with. Be honest if you really feel comfortable with all this, or not. In the end, all these personal impressions and your gut feeling are as important as all the other facts that might have gathered before.

In the end, think about everything once again. Then make decision and go for it! If you have properly addressed the above five thoughts, your chances of export success will be much higher. Best of luck!

In this blog, I have tried to tackle quite a broad and heterogenous topic. Which means I needed to simplify and leave out many other worthwhile aspects. Nevertheless, I hope you liked it. As always, please do comment! Did you like it? Or not? Do you agree? What do you see differently? I am looking forward to your input.

___________________________________________________________________

What can I do for you?

As consultant in my own company, Triple Eight Solutions, I am giving hands-on impulses to companies and government organizations in Switzerland and abroad in the fields of strategy, marketing, internationalization and network with the only goal to create instant added value and new business for them.

Egypt and the Swiss Textile Machinery Industry

Hello out there!

Would you believe it, this is my first blog – initially on LinkedIn. My goal is simple: To share some of my thoughts and/or professional experiences. I hope you will find some of them interesting and – even better – that you add your points so we can initiate a dialogue. I plan to focus on economic topics, opportunities and the positive side of things. My blogs can of course only be snapshots and will never be complete – they need to be short, right? And by no means, do I claim that my thoughts or my way of looking at things are “the eternal truth”. But for what it is worth, they are my thoughts.

The reason for my first blog: I have just returned from the Swiss Textile Machine Symposium 2017 in Cairo. As a mandate, I had the privilege to represent Maag Brothers Machine Works Ltd., a boutique producer of state-of-the-art, tailor-made inspection and making-up textile machines from Zürich.

In some ways quite a familiar activity actually. During the last six years as former head of Europe, Africa and Central Asia for Switzerland’s export and investment promotion agency Switzerland Global Enterprise (S-GE), I was used to travel extensively in my vast region. And together with my team in 13 countries and with many partner organizations I was used to represent and help the Swiss economy abroad.

Our task at S-GE was as simple as it was important: Support the Swiss export industry to access new markets and find foreign companies with an interest to invest in Switzerland. Covering over hundred countries and helping the entire Swiss economy across all major sectors (e.g. Life Science, Machinery, Food, ICT, Luxury Goods, Cleantech, Infrastructure etc.), it is fair to say that I had a very diversified job.

So my first blog could have easily been about e.g. any of the 150+ investor promotion events we hosted in many countries across Europe. Or about a Swissrail fact finding mission to Russia, a cleantech business & science delegation to Germany, our yearly Swiss Pavilion at the Mobile World Congress in Barcelona, a cantonal delegation to South Africa, a product launch at the Swiss embassy in London, our activities at the World Expo 2015 in Milano, or about opening our new offices in Astana, Lagos, Istanbul, Stockholm, and, and… But now, my first blog focusses on Egypt and the Swiss textile machine industry. And why not?

So coming back to my mandate: I knew a little bit about the textile machine business but taking into account that this was my first professional visit to Egypt, this task was quite a challenge. The Symposium was flawlessly organized by the team of Swissmem, the Swiss industry association representing our important mechanical and electrical machine industry, and their Egyptian partners of Nobletex, the biggest textile machine agent in Egypt. All went very smoothly and we as participants were spoiled with a perfect program at the Symposium and some unforgettable side events. Here are some of my observations:

With its population of approximately 90 million and its strong and unique culture, Egypt is a fascinating country. After difficult years following the revolution in 2011 and the change of power to the current President Abdel Fattah Al-Sisi, things seem to stabilize and the economy has begun to rebound.

Despite a solid GDP growth rate of about 4%, Egypt faces major challenges such as strong population growth (1.8%), high unemployment (40% youth unemployment), double digit inflation (12%), ever growing government debt (currently 95%), big trade deficit, lack of foreign currencies etc. etc. Not a pretty picture. But after the IMF agreed to a 12 billion USD credit for 2016-2019 and thanks to a very business focused agenda including various reforms by the current government, there are important business opportunities for the right kind of products, companies and mindsets.

For Egypt, Switzerland is the 16th most important source of import (mostly pharma and machines) and 21st most important export partner (mostly textiles). Overall the trade volume is about 1 billion CHF, which is remarkable.

Cairo, this ever expanding, buzzling capital of 20 million and host to our Symposium can definitely not be grasped during such a short visit. Just driving with a bus from airport to hotel, hotel to restaurant etc. doesn’t do the job. But it will amaze you about Cairo’s size and energy, the constant traffic chaos, the waste all over and of course about all the people, animals and street scenes you can observe. Fascinating.

Even after my many professional and personal experiences in most regions of the world, business behavior in North Africa and the Middle East are basically unknown to me. Strongly grounded in its religion, its unique culture and pace of living, the way to do business in Egypt is unique. As always when I travel abroad on business, I tried to prepare myself by reading “Kiss, Bow or Shake Hands”, a great book by Terry Morrison and Wayne Conaway which gives you great insights about the business protocol in more than 60 countries. You know, things like don’t use the left hand, take off your shoes, don’t give flowers as a gift to women, and in general what you should say or do or – as importantly – what you shouldn’t say or do.

However, things onsite at the 2 day Swiss Textile Machinery Symposium turned out to be much less complicated. I found the Egyptian businessmen and -women in general to be very kind, approachable and fairly easy to interact. Amongst the guests at the Symposium, there was quite a variety ranging from very westernized to more Arabic looking and acting counterparts. Also, English or French skills range from perfect to nonexistent. On the other side, I was amazed how many Egyptians speak German. Women are by the way generally covered. If not, you might actually be talking to a Coptic Christian woman (Copts form about 10% of Egypt’s population). What seems to be the same for all Egyptians (and Syrians who become more and more present in the Egyptian textile sector), they all have strong negotiation skills and know exactly what they want. And they like to smoke! Everywhere.

If you do business in Egypt, be patient, expect to spend lots of time and don’t hope for immediate success. In every in-depth business meeting I had, I learned at least as much about the counterpart’s social life, family, history, Egypt and his/her personality than about the concrete business topic. More than once I was invited to a private home of a business partner when I return next time. E.g. one new Egyptian acquaintance explained with pride that he was a great chef and that he would be honored if he could cook his outstanding seafood and pasta for me in his private home in Cairo. There seems to be always a personal note to business in Egypt. I quite like this. But on the downside, this will ask a lot of your personal time and commitment. As a general rule, you cannot achieve your business objectives in just one visit. Meaning, I might actually get to taste the seafood pasta soon!

As for the Symposium: I felt that the attendance of about 200 Egyptian businessmen and women on each day was impressive. Egypt has a traditionally strong textile industry. It is particularly known for its world-class cotton. And with Egypt’s current need for economic growth and for more foreign currencies, additional exports are a very important success factor (together with more tourism, more remittances and more income from the Suez canal and from commodities). And within exports, the textile sector plays a key role. This was reflected in the number and the quality of the Egyptian attendance.

As it is for many sectors in the economy, the Egyptian military is a strong player also in the textile sector. So be aware, many of the large contracts are commissioned by the military/government and are subject to very specific decision processes (public tendering).

Just as everywhere globally, probably the most important key to success for the Swiss textile machine exporters in Egypt is the choice of their local partner/agent. The symposium was a great opportunity for the Swiss to meet old and/or new agents and to deepen their relationship.

There is a longstanding tradition between the Swiss textile machinery industry and Egypt (e.g. Maag brothers exported their first machine to Egypt in 1938) and I feel that despite the weak Egyptian pound and the usually higher priced, top-quality range of Swiss products, the Egyptian textile industry can strongly benefit from the Swiss textile machines. And it seems that I am not the only one feeling this way: Having spoken to some of the participating CEOs or Head of Sales of companies such as Rieter, Stäubli, Saurer, Amsler, SSM, Jakob Müller, Benninger and many more, all of them seemed satisfied and even some new business was done.

So overall I think that this Swissmem format of a yearly Swiss Textile Machinery Symposium in important, new textile markets (last year they were in Iran) is an efficient way to boost business. And it is also a great opportunity for the participants of the textile machinery industry to network and to exchange experiences amongst each other.

As for me, it was a very worthwhile and memorable trip basically because of three reasons. First, I was able to accomplish the objectives given to me by the CEO of Maag (which always comes first). Secondly I profoundly deepened my know-how of Egypt and the textile machinery industry. And last but not least, I returned to Switzerland with a wonderful new network consisting of a very supportive, enthusiastic and fun group of decision makers of the Swiss textile machinery industry and of some new Egyptian business partners.

As a last point: I was thoroughly impressed by what the Swiss textile machinery industry has to offer. I continue to be amazed how our small country can create so many outstanding, innovative and often world-leading products across many sectors. If you want to know more about what the Swiss textile machinery industry has to offer, check it out here: FACTOR+

What do you think about this? Please share your thoughts!