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Article

Why Official Export Promotion Fails

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
January 1992
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A survey of experience and interviews with experts

Most officials in developing countries seem to believe that export promotion—not only the task of persuading firms to export, but also the provision of services to support export marketing—is inherently a task for government. The predominant pattern has been to set up a public sector trade promotion organization (TPO) as the sole or main supplier of most or all services in support of export marketing, and to offer these services free of charge. A few countries, such as India and the Philippines, have set up more than one major public sector supplier of such services. As a result, public sector TPOs are now the rule in developing countries.

Our recently published study in the World Bank’s Trade Policy Division (published by the Economic Development Institute—see box), however, finds that in these countries most TPOs fail to meet their objectives. Moreover, many are set up for the wrong reasons. Many countries appear to have been strongly influenced by donor agencies and their consultants in setting up TPOs. Almost all the current TPOs in developing countries are financed by the government, with supplementary financing in some cases from foreign aid or from charges for regulatory documents. One is predominantly funded directly by taxpayers through levies on imports (Sri Lanka). Two receive some obligatory fees from the private sector (India and Thailand). Zimbabwe is now introducing a surcharge on exports and imports to help support a new TPO.

Countries most inclined to rely on markets and private businesses in their development policies have generally allowed the simultaneous development of private services relating to exports and encouraged the emergence of private associations and chambers of commerce and industry offering some services of their own.

This article is based on The Role of Support Services in Expanding Manufactured Exports in Developing Countries by Paul Hogan, Donald B. Keesing, and Andrew Singer, published in the EDI Seminar Series by the World Bank, 1991, and particularly the authors’ paper, “Development Assistance Gone Wrong: Failures in Services to Promote and Support Manufactured Exports.”

Problems with the basic concept

Our search for successful examples of official export promoting and marketing organizations and our interview findings on what went wrong show that the experience has nearly always been negative. Despite this, most experts interviewed believe that developing country TPOs can be, and sometimes are, effective both in providing marketing assistance and in pressing for needed policy improvements, particularly when (or if) they can achieve four crucial conditions:

  • They enjoy the support of the business community;

  • Are adequately funded;

  • Are staffed with qualified people who are paid commercially competitive salaries; and

  • Are somewhat independent of government.

Advocates of TPOs are almost always striving to achieve these conditions. However, TPOs meeting these conditions are virtually nonexistent in practice except in countries that have already achieved excellent policies and a strong policy commitment to expand manufactured exports.

In most developing countries, the function of supplying support services to exporters has been confused with another function important in the development of exports, that of ensuring a continuing dialogue between policy formulators and the business community. In richer, successful exporting nations, feedback is channeled through a well-developed structure of representative associations or chambers that continuously and aggressively promote the business community’s viewpoint to the government. Many developing countries, however, have used this need for feedback from business as an argument for a specialized public sector agency to promote both the cause of exports and the needs of exporters.

Our research suggests that a public service organization is not well suited to serve as a mechanism for providing feedback from exporters on policy formulation. Unlike business people, public servants are rarely willing to speak out against bad policies or to criticize policymakers in the ministry they are affiliated with. Moreover, in the early stages of a policy transition, when feedback is vital, issues related to advice on policy tend to dominate the TPO’s concerns, to the detriment of its ability to supply useful services. A further consequence of taking a position midway between government and exporters is that neither party to the dialogue is likely to trust the TPO, making it ineffective.

While TPOs in many developed countries have begun to charge for services, public service TPOs in developing countries are expected to provide information services free of charge on a single-supplier basis, as if information for exporters were merely an extension of the public library’s function. However, the free, centralized provision of information services has not served the interests of export expansion. This approach has starved these services of money, hindered private service providers from entering the market, and retarded the exploitation of new information technologies by discouraging commercial information services. New information technologies, such as on-line data bases, mean that much of the information required by exporters can now be obtained on a pay-as-you-go basis, without the need for large, fixed investments in hard copy library materials. Setting up special libraries may be thus no longer the most cost-effective route to providing information for exporters.

Another argument for the state’s continuing role in information services is that its diplomatic posts provide privileged access to commercially useful information from foreign governments. However, this does not justify having a public sector TPO operating as the sole supplier of this information. Even this privileged information can readily be disseminated through commercial suppliers for a fee.

Profile of an ineffective trade promotion organization

Origins

  • Set up initially on donor agency advice and with donor funding, not as a result of demand from exporters.

Planning and objectives

  • No corporate planning, individual targets, or measurable departmental objectives,

  • “Planning” starts with the amount of funds the government will allocate, from which the trade promotion organization then derives its program.

  • Its role is viewed as carrying out the “national export strategy,” policy advice, administrative tasks, and so on, rather than being responsible for export expansion.

  • No consistency in focus; this year it is handicrafts, last year it was spices.

  • Has never conducted, using its own resources, competent, formal, subsector studies of industries with export potential.

Relationship to government

  • Government has no faith in trade promotion organization, but refuses to abolish it.

  • Organization is seriously underfunded, so little or no funds are available for direct assistance to exporters.

Relationship with business community

  • Strong cultural division exists between public servants and the business community, sometimes based on ethnic or caste differences, sometimes merely on lifestyle and attitudes.

  • Business community needs coaxing to take part in any trade promotion organization activities and is solicited using financial inducements such as free travel.

  • Instead of immediately distributing useful information widely to exporters, the trade promotion organization retains it as a bargaining chip.

  • More services are provided to government than to exporters.

Missions and trade fairs

  • Missions and trade fairs represent the only significant impact of the trade promotion organization on the business community.

  • At least one third of missions consist of trade promotion organization staff or other public servants.

  • Other participants are selected partly on the basis of noncommercial considerations, such as maintaining regional balance, favoring indigenous entrepreneurs, giving everyone a turn, or by drawing lots.

  • Missions spend at least one third of their time overseas meeting government officials and other functionaries.

  • Missions are mostly “exploratory,” and rarely generate orders.

  • There is no effective follow-up to assess impact.

Relationship to donor agencies

  • Organizations has been the subject of at least two expert reports proposing major reforms.

  • Organization has been effective at resisting major reform proposals.

  • Organization is effective at playing donor agencies off against each other to obtain funding for its favored projects, such as overseas training for its staff, computers for trade information systems, and trade missions and trade fairs to attractive destinations.

Management

  • Chief executive officer is appointed by a ministry and not by an independent board, and while some managers may be effective, others are political appointees and useless.

  • Most top managers have no commercial experience.

  • Organization has no effective managerial control over overseas commercial posts (for example, those in the diplomatic service may be controlled by the foreign ministry).

Staff

  • Public servants are paid so badly that many have second jobs.

  • Many spend 80 percent of their time at their desks and rarely do “cold” calls on firms to promote exporting or their services.

  • Organization is overloaded with unmotivated clerical staff who spend most of their time reading papers, chatting, or dozing at their desks.

  • Senior staff are actively looking for a way out, preferably a highly paid position with a donor agency in an attractive location.

Why TPOs fail

Policies impeding and neglecting the development of commercial services are a significant cause of the difficulties experienced by developing countries that are trying to expand exports. Reliance on a public sector TPO for services that are better carried out by private commercial enterprises has contributed to this neglect.

The box presents a sample of the typical negative characteristics of the worst TPOs, culled from the literature and from interviews. Although these characteristics are typical of the worst TPOs, they are extremely common in others as well. In our estimation, over half these characteristics are found in the great majority of developing country trade promotion organizations.

Six factors, in particular, have contributed to the ineffectiveness of the public service TPO model: the unsuitability of government employees to the task, the inflexibility of government procedures on expenditures and staffing, the confusion of purpose resulting from the assumption of regulatory and administrative roles, the perpetuation of wrong attitudes and strategies, misguided evenhandedness among potential export firms and producers that prevents a focused approach and limits the information given to potential importers, and the neglect of the development of commercial services.

Why some TPOs succeed

So what does work? The successful newly industrializing East Asian economies appear to have effective and financially efficient TPOs. All but one of these TPOs, however, were started more than a decade after the economy achieved fully satisfactory policies toward exports. Indeed, successful organizations were only set up after long experience by private service suppliers, private associations, and small units of government officials concerned with trade.

Most of the Organization for Economic Cooperation and Development (OECD) countries have generally satisfactory policies toward manufactured exports and also have TPOs, most of which are official. Typically, the central function of their TPOs is to provide traderelated information. But the impact of such TPOs on exports generally seems to be modest.

Both the successful East Asian economies and the OECD countries encourage private sources of information and specialized assistance whose services overlap those provided by official TPOs. Membership associations and chambers of commerce provide advice, training, and information to exporters, as do a wide variety of private service and financial firms. In OECD countries, the private services appear to be typically more important in practice than those of the TPOs.

Conclusion

As policy environments have improved and governments have become committed to somewhat more outward-looking policies, the organizations created earlier to promote exports have proved unsuitable for the needs that have emerged and have become an obstacle to the creation of new and better support services.

In presenting the results of our study, we have put forward recommendations on what works well in assisting exports through services. What developing countries need most to support exports at the firm level is for firms to have access to services—generally from private firms and consultants from more advanced countries—to compensate for their own limited expertise. This is critical not only for selling exports, but also for adapting production so that firms supply what foreign buyers want.

Donald B. Keesing and Andrew Singer

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