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Exports

Joining forces to export, an opportunity for SMEs

Businessmen are usually experts in their products but not on export procedures. The Inter-American Investment Corporation recommends executing agreements with other companies to jointly address internationalization challenges.

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Published by ConnectAmericas

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HIGHLIGHTS

  • Agreements with other companies diminish the company’s weaknesses and uncertainties 
  • It enables transfer of technology, product diversification, knowledge and increased experience 

One of the biggest dreams for any SME is to have its products reach distant markets. Businessmen today understand the importance of internationalization and seek to export their goods to boost business. However, export procedures are not simple and small companies may at first lack the necessary tools to carry them out.  

What can be done in this case? The Inter-American Investment Corporation (IIC) advices SME (Small and Medium-Sized Enterprises) owners to execute agreements with other companies to resolve issues outside their scope. 

According to IIC, SMEs have two alternatives upon going international. The company can either decide to export directly, in other words, individually, through its own means; or indirectly, that is to say, through another company, usually larger, as provider of input that will later form part of the exported product or service.  

The second alternative consists of seeking an export model through agreements between companies. Under this scheme, several companies agree to make use of their synergies, differences and resources to reach external markets, which would be very difficult to do alone. 

The reasons

There are several reasons why IIC recommends this model:

  1. Internal reasons. Agreements with other companies help diminish company weaknesses and uncertainties over transactions. For example, the possibility of achieving scale economies; sharing cost risks, product lines, distribution channels and management and expert staff, in addition to physical and technological resources.  
  2. Competitive reasons. Agreements with other companies also serve to strengthen the company’s competitive stance. Mature industries can be rationalized and scaled up, business can expand, demand can be covered and price wars can also be avoided through market sharing.
  3. Strategic reasons. Finally, for strategic reasons: agreements with other companies can result in transfer of technology, product diversification, knowledge and increased experience, in addition to penetrating new markets.  
  4. Attainable results. By cooperating, companies can generate scale economies, improve innovation, penetrate different markets and protect themselves from others. It can also improve corporate benefits, environment quality and power of negotiation.  

The models

IIC suggests two major cooperation models between companies:

  1. Franchising. This method is particularly adequate for expanding internationally since it introduces a local partner that knows the field and facilitates adapting to the new market. Franchises successfully operating abroad find it ideal for purposes of increasing brand recognition, sales, and profit, and for gaining experience, preventing potential foreign competitors, establishing contacts with providers and protecting the brand in the external market.  
  2. Clusters. Clusters are groups of interconnected companies that hold cooperation and interdependence bonds with other firms in their same industry or nucleus; they can be providers, logistics and distribution services providers, partner institutions or other companies operating at the same level. Clusters enable companies to compete but at the same time to cooperate in developing production processes or in obtaining specific products. 
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BIBLIOGRAPHY

The IIC developed this summary on the basis of works and presentations commissioned by the IIC and prepared by the following persons and institutions:

  • Roberto A. Cordón Engel, IDOM Consulting
  • Juan Tafurt, IDOM Consulting
  • Juan Francisco Mejía, Ikei
  • Jose Muro, Javaland
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