How to pack a punch.

Dubai's success in exports last year was highlighted by three key sectors -- namely jewellery, food and plastics -- which grew by 38%, 17% and 23% respectively. Dr. Ashraf Mahate, Head of Export Market Intelligence at the Dubai Exports and Vice Chair of the Economic Policy Committee, Dubai Economic Department, advises SMEs to develop a resource-based approach for long-term success.

In February this year, Pascal Lamy, the Director General of the World Trade Organisation, stated that global trade in 2009 declined by 12%. This is the first fall in global trade since the last major recession in the early 1980s. In order to deal with lower demand, firms sought to reduce their inventory levels, leading to lower exports.

However, statistics produced by the Dubai Trade show that this does not seem to be the case for Dubai, which has increased its non-oil exports in 2009 from AED 42.6 billion to AED 52.4 billion -- an increase of 23%. Dubai's traditional markets of India, KSA, Pakistan, and Switzerland continue to be dominant in leading its exports. By far, the largest export destination is India with 40.7% of the total export value. This is followed by Switzerland at 16.7%, Saudi Arabia at 4%, Pakistan 3.3% and Iran at 2.8%.

In addition to extending their reach in the traditional markets, Dubai's exporters have penetrated new markets such as Nepal, which only last year was not even in the top twenty export destinations. Therefore, it is no surprise to find that there is only a 53% correlation between the top ten export markets, by ranking, in 2008 and 2009. Dubai's success in exports last year was highlighted by three key sectors -- namely jewellery, food and plastics -- which grew by 38%, 17% and 23% respectively. By far, the most important export sector for Dubai is the gold and jewellery market which contributes to over 60% of the total export value and about half of all re-exports.

SMEs and export

Dubai's impressive export growth has been assisted by SMEs, who according to the established definition represent 98.5% of the firms in the emirate. More importantly, the sectors that have performed exceptionally well -- such as jewellery, plastics and food -- tend to have a higher proportion of SMEs.

Despite the achievements of SMEs in exporting, their contribution tends to be under-reported largely because it tends to be in the form of indirect exporting through sub-contracting for large exporters. In fact, for many SMEs, sub-contracting is usually a first step towards exporting as it allows the firm to gain a foothold into the activity through carrying out a small part of the process. Of course, over time, SMEs develop the experience and acquire the skills to take on additional processes and, in time, deal directly with the foreign buyer.

Another factor that underplays the importance of SMEs in exports is thae fact that Dubai has traditionally been a regional sourcing hub. As a result, foreign buyers tend to visit the emirate in order to carry out their purchases. It is often the case that buyers from the GCC, Russia and the CIS, Africa, and other countries, will purchase directly from various local manufacturers so as to fill one or more containers. These buyers then either carry out the export process themselves or use the numerous brokers.

What works to their advantage?

The question then arises: What leads an SME to enter the exporting arena?

It used to be argued that certain firms had specific advantages which allowed them to export their goods or services into foreign markets. In other words, the success of a foreign firm rested on the disadvantages of the local producer.

This particular view was superseded by one which argued that exporting is a gradual process consisting of a series of small steps or stages. With each step or stage the firm tends to increase its level of export involvement.

However, this view failed to explain the so called "born global" firms, many of which were established after the advent of the Internet. The born global firms tend to enter multiple markets from the date of establishment, usually assisted by developments in information technology. In fact the developments in information technology have helped to create a more interconnected and, to some extent, an interrelated world. This, in turn, has reduced the psychological distance between countries and induced more SMEs to enter the world of foreign trade.

Today, the use of information technology has brought with it the concept of business networking and a host of portals such as Tejari, Ali Baba, and so on. These portals have allowed SMEs the ability to build relationships with foreign buyers with the minimal level of resources and capital investment.

The right approach

Many of these business networking sites or portals allow for synchronous conversations to take place, hence dispensing with the need to make expensive overseas flights or establish a foreign office. Although business networking portals have opened the doors for SMEs to enter global markets, this by itself is not sufficient for an SME to export. Nor can this adhoc approach lead to a sustainable model of exporting.

Successful SME exporting needs to develop a resource-based approach which incorporates the firm's long-term strategy. The basis of this approach is the acceptance that an SME is different from a large firm because in the former, the owner plays a central role in making all the strategic decisions. Therefore, in the case of the SME, often the owner determines the strategic direction of the firm. A large firm, on the other hand, can hire a band of professionals, each to carry out a particular task leading to the strategic decision in question. In large firms, the strategic direction of the firm is led by professional managers and the success of the business largely depends on their ability.

Various reports and studies have found that not only do SMEs lack in terms of specialised skills compared to large firms, but they also find it difficult to obtain finance. This means that SMEs may not be in the position to exploit all available opportunities and may need to be selective. As a result, SMEs need to focus their attention on certain markets or segments so as to ensure that their available resources yield the best returns.

From a strategic viewpoint, this implies that an SME needs to develop a long-term export plan that allows it to map its foreign involvement with an increase in planned resources. In doing so, the SME needs to ask itself what it hopes to gain from exporting -- be it market share, exposure, greater profits, and so on. This will also allow the SME to clearly define its export goals and objectives.

Dr Ashraf Mahate, Head of Export Market Intelligence at Dubai Exports (formerly known as the Dubai Export Development Corporation), an agency of of the Dubai Economic Department; and Vice Chair of the Economic Policy Committee, Dubai Economic Department

Second, the resource-based approach seeks to answer the question as to whether exporting is consistent with the current stage of the SME's development. It is often the case that SMEs need to develop and build up their capabilities before entering foreign markets.

Third, the export plan will allow the SME to assess demands that will be placed on the firm's key resources -- namely management, production capacity, finance and, more importantly, how they will be met?

Fourth, the SME will need to carry out a cost benefit analysis to determine whether resources will be better used for developing new domestic business or entering a foreign market? As it is often said, the key to success is in the planning and this is certainly true when it comes to exporting.

Therefore, no SME should underestimate the importance of developing a comprehensive strategic export plan before deciding to enter foreign markets.

About

Dr. Ashraf Mahate is the Head of Export Market Intelligence at Dubai Exports (formerly known as the Dubai Export Development Corporation), which is an agency of the Dubai Economic Department. Dr. Mahate is also the Vice Chair of the Economic Policy Committee with the Dubai Economic Department. He has written a number of journal articles, chapters in books and edited books in the areas of economics, finance and banking. He has also presented papers at major international conferences. Dr. Mahate has provided extensive consultancy services to various organisations in the areas of banking, economics and finance. He has been a director of a number of companies including a venture capital company and a private equity fund.

Dr. Mahate received his doctorate from Cass City University Business School in London (UK) which was ranked by the Financial Times newspaper as the 12th best university in the world for finance. He read Economics at University College London, followed by a Masters in International Economics and Banking at the University of Wales in Cardiff. Dr. Mahate is a professional educator and received his training at the Institute of Education (University of London). He is a member of the Chartered Institute of Managers (UK) and a Member of the Institute of Commercial Management (UK). He is also a member of the Association of Certified Anti-Money Laundering Specialists (ACAMS).

EDC is grateful to International Trade Centre for allowing it to use material from its Trade Secrets: The Export Answer Book for Small and Medium Sized Exporters, September 2006.

2011 CPI Financial. All rights reserved.

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