By Michael Czinkota and Valbona Zeneli
A new economic SEE space would offer new opportunities for resource use, new markets and new trade partners. Global competitiveness would be enhanced. New investment policies could assure a stable macroeconomic environment, fair
treatment of foreign and domestic companies and support for SMEs.
The recent economic and financial crises have affected Southeast Europe (SEE) severely. Surging growth ended abruptly in 2009 and the recovery continues to be gloomy.Old growth models no longer work. New drivers of growth need to deliver an export orientation and foreign investment focus. Growth needs to be enhance investment, productivity, competitiveness and regional economic integration.
The current SEE trade performance is disappointing. Exports are very low and concentrated mainly in commodity and light manufacturing sectors. Domestic firms face many export challenges,starting with information acquisition, market research and trade financing. SEE firms are lacking in organizational behavior, human capital and know how, technology, service, and quality orientation. The cost of production is also high because of low productivity and high logistics costs. Right now, SEE products do not have a brand advantage in the international market. The Global Competitiveness Report ranks the countries of SEE very low in terms of innovation. These economies do not have the necessary financial and human resources to invest in R&D. They may attract innovation and technology into their through trade and foreign direct investment which encourages technology transfer. Research in the region has shown that FDI particularly has been vital for growth, development, better skills, and increased exports.
Regional integration in SEE is vital for facilitating trade, and for increasing the significance of the region in the global market. The Central European Free Trade Agreement has substantially lowered tariffs and simplified trans-border challenges. However this framework is still insufficiently implemented. Intra-regional trade levels are very low, at around 33 percent. The most problematic issues lie in non-tariff barriers, lengthy procedures, extensive corruption and absence of the political will for cooperation.
Governments, even of small economies, can shape the international trade environment, by engaging directly in trade negotiations and free trade agreements. Regionalism is on the rise in the global economy, with more 330 FTAs in force in 2014. Negotiations prosper for two large regional agreements: The TPP (Transpacific Partnership Agreement) and TTIP (Transatlantic Trade and Investment Agreement). Limited free trade agreements can be seen as a blessing in these difficult days of the global economy. They at least have brought some liberalization, by cutting barriers, and keeping talks alive. Above all, regional agreements help when they create a level field for all competitors. Perhaps this is the time for SEE to initiate its own regional trade agreement.
Regional integration recognizes that countries can jointly achieve more on the international stage than as single actors. Alone, small countries are too weak and small to generate sufficient scale and capacity to attract productive investment. They do not have sufficient skilled workers, local financial capacity or ability to attract and sustain economic clusters.
A new economic SEE space would offer new opportunities for resource use, new markets and new trade partners. Global competitiveness would be enhanced. New investment policies could assure a stable macroeconomic environment, fair treatment of foreign and domestic companies and support for SMEs.
Here are some dimensions that should guide export assistance efforts, in particular for new and growing businesses. All of the countries of SEE have established export promotion agencies, yet, difficulties are encountered in the implementation.
Government export assistance can help firms as long as it either reduces risk or increases profit in the export endeavor, particularly in the first few years. This can be done by providing information on markets to which to export, or offering insurance. Done right, this is public money well spent. Research shows that for one dollar spent on export promotion, there is a return of up to forty dollars.
Most important is assistance which lets the owners and managers of firms make smart choices regarding the four critical pillars of internationalizations: competition, risk, profit, and retention of ownership.
Competition implies an abundance of demand, paired with some limitation of supply. Parties compete by seeking to secure the supply for themselves. The benefits of competition lie in the allocation and shift of resources, the efficiency of investments, and the quality of supply.
Regarding the issue of risk,the implication, co-derived from competition, is that in their striving to obtain resources, some will succeed, while others will fail. Those that succeed are likely to be content, but those who lose repeatedly might begin to doubt the concept of risk acceptance, particularly in a winner takes all society. History tells us that particularly in an encounter between successful and unsuccessful players, the less prepared ones tend to lose, and also build up a storehouse of resentment against the winners.
Profit implies that there will be a payment flow to the organizer of business activities. Such funds, often determined by the quantity of products marketed rather than by hours worked, may well be quite different for each party. Such a gap can also lead to the growth of societal discontent against the ‘profiteers’.
Finally, there is the issue of ownership retention, where individuals are given the right to accumulate resources and wealth, with a reasonably contained threat of being plundered by others.
In today’s diverse societies, there is no uniformity of thought regarding the steps acceptable for success in engaging in the international market. The role of the government support could be crucial for progress. Governments need to determine who is to receive assistance and what their export assistance is to achieve. Should only domestically owned firms receive support, or can productive foreign firms located in the country benefit as well? Key are decisive goals, ranging, for example from benefits to citizens’ employment to increases in the standard of living..
Coordination is crucial in this process. Governments should avoid assisting well established industry sectors with relatively low employment effects, and instead focus on sunrise industries, and prioritize new growth industries which currently have insufficient market support for ventures in international business. Analyses of past export assistance programs have indicated greatest effectiveness when determining the firm’s current level of international expertise and then delivering assistance reflective of the firm’s needs.
All these efforts should be seen under the approach of curative marketing, which aims to make up for past inequities, can help us all by overcoming past shortcomings and manage future adversities. The biggest challenge will be for politicians, whose performance will propel or delay development. They and the managers of firms should initiate an entirely new perspective in learning, thinking and acting. They can learn from the mistakes of other economies and not repeat them. They should bring leadership to the regional and global tables through their understanding of ethics, sustainability and personal caring. They should be involved in the new international business, with the main goal of fostering inclusive development.
Dr. Michael Czinkota is a professor at Georgetown University. He was a deputy assistant Secretary of Commerce. Dr. Czinkota’s latest book is International Marketing (10th edition), published in 2013. Dr. Valbona Zeneli is a professor of national security studies at the George C. Marshall European Center for Security Studies. The article presents the views of the authors and is not necessarily the official policy of the U.S. or German governments.
