Insearch of new market abroad.

One of the challenges facing producers in Kenya’s informal sector is market access. The problem is particularly acute for those making products of a decorative or ‘luxury’ nature. It is thus not uncommon to hear traders lamenting the long periods of ‘slow’ or ‘dry’ business.
As demand in the local market shrinks, traders are now forced to look for alternative markets for their products. Many people are now discovering that the developed world has a high affinity for African products particularly those reflecting the continent’s cultural roots. Local producers have now started making products that target affluent customers in the developed world. Changes in trade policies at the international level are also creating opportunities for producers in Africa. For instance, the African Growth and Opportunity Act (Agoa) gives Kenyan handicrafts duty-free access to the US market. It is now easier to gain access to the large European and Asian markets.

Government agencies are also encouraging traders to explore foreign markets. The Ministry of Trade, for instance, is involved in the promotion of Kenyan products abroad through the Export Promotion Council (EPC), a government exports promotion agency that provides export trade information as well as market and product development services.

The EPC, through partnerships with organizations such as the Centre for the Promotion of Imports from Developing Countries (CBI) and the International Trade Centre (ITC), supplies information on overseas markets. It also has promotional programs and regularly organizes meetings between buyers and sellers. Those looking at exporting to the EU will benefit from CBI’s immense network and experience in European markets.

But even as local producers cast their eyes in industrialized markets, it is worthwhile looking at the regional one. COMESA countries are the leading export destination for Kenyan products. Producers and traders should also not take local markets for granted. They in fact offer the starting point for many small businesses. In future, it is possible that success will go to producers and businesses that deliver export quality products to local customers at affordable prices.

Traders will increasingly have to adopt marketing tactics to reach customers. One way of doing this is by taking advantage of local events such as the Nairobi International Trade Fair, which attracts Kenyan and foreign companies, and other trade events to showcase their products. If well utilized, these forums provide excellent marketing opportunities. Careful preparation is required when participating in trade events. Because the main aim is to sell, product knowledge is critical so that one is able to answer all queries that prospects may ask. Zohra Mohammed, a Kenyan exhibitor during the Sources International Trade Fair held in New York in the middle of this year says: “One has to be well prepared. American customers were very particular about who they dealt with.” Her experience in the handicraft business, which she started in 1988, turned out to be her greatest asset. “I knew what I was talking about and they realized I had what it takes to produce and export handicrafts from Kenya to America. My previous involvement with the American company TJ Marks assured them of the quality of my products.” She also reinforced her presentation with a product catalogue that she had printed and also put on CD.

Local traders will also have to set their businesses in strategic locations. Informal sector producers often operate in the fringes of mainstream society-places where people with high spending power hardly frequent. A small-scale producer of art products based in Nairobi’s Kariobangi Light Industries is better off marketing his or her goods in the city-center-based specialty shops and well-known markets such as the Masai Market.

For those seeking overseas markets, the road ahead is difficult and expensive to travel. Conservative budget for participating in a foreign trade fair is at least KSh.300, 000. But a breakthrough delivers profits that make the investment worthwhile. But it is not just the costs that work against local producers and traders.

Lack of access to information also frustrates local entrepreneurs. Just as urban traders with better knowledge and access to the market take advantage of rural producers, business people in developed markets are able to exploit traders in developing countries. Unless access to knowledge on export dynamics is increased, it will be difficult to empower local small-scale producers and traders to take advantage of international markets.

Strategic reasons to expand abroad
One thing should be clear from the start: exporting is not easy. In fact, it is more complicated, riskier, and more expensive than operating on the domestic market.

Most Small and Medium-Sized Enterprises SMEs) are dedicated to manufacturing rather than trading. As such, trading is of secondary importance and usually restricted to the familiar home market. In any case, selling to foreign customers could be beyond the company’s abilities. That is why you should think twice before deciding to export. You will take a moment to consider that it will require a lot of money, time, talents, and dedication, which could stretch the corporate resources to their limits. The responsibility for the use of scarce resources lies with the top management of the company. Therefore, the decision to secure resources should be well balanced between possible yields and costs.

You are aware that your product can be sold, provided it matches the good value with a low price. But you don’t know whether you could make a profit selling it. You know that profit may be less than normal because you may have to sacrifice some profit when paying for the costs of shipping your goods to the target markets. But you do not know if you could ask for a higher price in far-away, more affluent markets. So, other strategic motives must also be weighed in the decision.

Many exporters have preceded you in trying their luck in foreign markets.

Their motives were, for instance:
• Higher sales, higher turnover, more profits, or
• Cooperating with trade partners in industrialized countries in order to gain access to new technology.
Others have motives of a tactical nature, like:
• The local market is saturated, it does not allow for growth, or:
• Avoiding competition.
• Following the competition in newly opened markets; Others have opportunistic reasons to export:
• To sell overproduction
• To exploit spare capacity
• To spread costs overproduction and/or the cost of product development over more units sold (which decreases cost prices and increases competitiveness)

All these motives are good. However, there have been exporters who ventured into foreign markets for the wrong reasons. Their motives were personal ambition or corporate prestige. Or they were just looking for possibilities to travel abroad. Such motives for export are not realistic and are irresponsible and may lead to failure.

The first strategic task for a manager is to establish the reasons his/her company should export. These motives should be good enough to justify the high investments and the payout period can be long (3 to 15 years!); the costs of exporting can be high.

The right reasons for seeking foreign markets should be:
-You have a unique product or service, which you know, will not meet competition in foreign markets
-Your company sales and profits must keep growing.
-You believe foreign markets will yield higher profits than your domestic one.
-You are looking for more sales opportunities to spread the cost of product development over more units sold because they are too high to be carried by your domestic sales alone.
-The local competition has become too stiff. Maybe you could fight them better abroad, in new markets.
-Your production capacity has become too large for your home market only. You are forced into finding new markets abroad.
-You need new technologies, designs, and skills that you can only get from cooperating with partners from other, more industrialized economies.

It is wise to ask the key people in your organization for their motives for internationalization. If they have not thought about it, you could ask them their personal opinion on the future of the organization and what should be done to improve it. Don’t forget that their views can be valuable. They, too, have the company’s interests at heart and are willing to commit themselves to the continuity of the organization. It is your job as a manager to see to that.

The question you should ask them is: “In what shape do you, in your personal opinion, think the company could be five years from now?” You could use the brainstorming technique for that. Later, when you arrive at the planning stage of strategy building, you will make use of the ideas that are alive within your company.

Centre for the promotion of imports from developing countries (CBI)