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Joining forces to export

Selling in external markets represents a huge challenge for many SMEs not only due to the demand for high quality products but also because they typically cannot keep up with the production volumes required by the buyer or importer. This is why forming alliances with other businesses may be the solution.

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Published by ConnectAmericas

Many SMEs develop quality products that sell competitively in international markets. However, due to their “small” or “medium” size, they cannot achieve the minimum volumes required by the demand to materialize business. In these cases, seeking alliances with other SMEs to increase the export supply represents an interesting option worth analyzing.  

Notwithstanding the above, joining forces with other companies is not an easy task for SMEs due to the following reasons, among others:  

  1. SMEs are mostly managed through informal, non-written procedures that change depending on the will of the owner or manager. Consequently, staff is not used to working under certain formal patters of written procedures or having to abide by collegiate decisions regarding the different company activities. This is a relevant obstacle for associating with another company, that is, when it is necessary to act together in a coordinated fashion in all aspects of the production process, both technical and managerial.    
  2. Typically the technologies for producing goods or services offered by SMEs are not sufficiently modern and also differ among companies. This is why to develop a uniform product or service it is necessary to standardize the available technologies and proceed to distribute and specialize in the different functions of the production process, which often means fully transforming the companies’ structure and operations. The need to standardize production processes and/or to specialize on a specific process represents a significant obstacle for companies associating, not only because of the technical and managerial difficulties implied, but also because a significant investment is usually required for adapting the technologies of the participating companies. 

Supporting policies

Notwithstanding the aforementioned difficulties, the benefits that can be obtained by SMEs through eventually associating with other companies makes it advisable to seek a systematic way of providing support to these companies, so that they may overcome the association challenges.   

In this regard, some countries in Latin America, as for instance in Chile, are fostering public policies promoting horizontal business alliances, that is to say among companies of similar size and pertaining to the same line of business or production segment or to complementary sectors. 

Public policies seek to promote horizontal business alliances (association among companies) for purposes of increasing production volumes, and hence supply, at more competitive levels but this requires working on at least the following two stages:  

  1. Diagnosis Stage: consists of making in-depth analyses of the specific characteristics of the transaction to be carried out and of the capacity of companies interested in forming an alliance to adapt to working in group. This stage should conclude with a Work Plan for each company that takes into account the necessary activities to be carried out, timing, and implementation costs required.  
  2. Development Stage: consists of each company completing the Work Plan designed in the Diagnosis Stage that will lead to the formation of the alliance. 

Typically the programs supporting the creation of business alliances among SMEs provide partial non-reimbursable financial support, or they co-finance a significant part of the costs to carry out the Work Program and Diagnosis. The companies are responsible for providing the remaining financial resources.   

To perform activities throughout the Diagnosis Stage and their subsequent implementation (Development Stage) requires having a team of accredited business consultants, and a wide array of financial and non-financial business development services so that companies can carry out the activities established in the Work Plan.  

Supporting SMEs in their process of forming business alliances to increase production volumes and access markets with the highest demands enhances their capacity to enter international markets and therefore their internationalization.

The Production Development Corporation (CORFO, for its acronym in Spanish) and the Technical Cooperation Service (SERCOTEC, for its acronym in Spanish) are two government public agencies in Chile that since the beginning of the 90s promote and foster association among companies as a mechanism for conducting business and accessing larger markets.    

CORFO carries this out through a business development tool or service known as Associative Promotion Projects (PROFO, for its acronym in Spanish); and SERCOTEC through Market Development Initiatives (IDT, for its acronym in Spanish) and Territorial Development Initiatives (IDT, for its acronym in Spanish).

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