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EJM
37,5/6
728
Received September
2000
Revised May 2001 and
September 2001
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http://www.emeraldinsigh t.com/0309-056 6.htm
Using networks to solve
export-marketing problems of
small- and medium-sized ®rms
from developing countries
Pervez Ghauri
Manchester School of Management, UMIST, Manchester, UK
Clemens Lutz
Faculty of Management and Organization, University of Groningen,
Groningen, The Netherlands, and
Goitom Tesfom
College of Business and Economics, University of Asmara,
Asmara, Eritrea
Keywords Networks, Export, Subcontracting, Small- to medium-sized enterprises,
Developing countries
Abstract The objective of this paper is to review the literature on how networks can be used in
developing countries to encounter export-marketing problems. Several case studies of exportgrouping and subcontracting networks, involving small- and medium-sized enterprises in
developed and underdeveloped countries, are reviewed. The paper presents a qualitative model that
identi®es the determining factors for successful export network organisations: a clearly de®ned
market problem or market opportunity; a willingness to respond together; development of
solidarity, coherence and commitment; initiating foreign market activities. This model is useful to
study similar initiatives in developing countries.
European Journal of Marketing
Vol. 37 No. 5/6, 2003
pp. 728-752
q MCB UP Limited
0309-0566
DOI 10.1108/03090560310465125
Introduction
A number of researchers have made an extensive effort to identify the
export marketing problems of manufacturing ®rms in developing countries
(Figueiredo and Almeida, 1988; Mary et al., 1991; Kaleka and Katsikeas,
1995; Weaver and Pak, 1988; Burges et al., 1999; Katsikeas and Morgan,
1994; Ghauri and Herbern, 1994). These efforts are mainly directed at
exploring and describing the export problems. Although the wider
application of networks in the business context is recent (Ghauri and
Prasad, 1995) many companies in developing countries have used networks
as a mechanism to break export-marketing barriers (Welch et al., 1996;
Visser, 1996; Ceiglie and Dini, 1999; Nadvi, 1995; Sarathy, 1996; Rosenzweig,
1994). The experiences of these networks are useful to other manufacturing
®rms in developing countries. In view of this argument this paper has two
basic objectives:
(1) to review the current state of knowledge on how networks can be used to
solve export-marketing problems for manufacturing ®rms in developing
countries; and
(2) to synthesise the results in a qualitative model comprising the
determining factors for successful export organisations.
Exportmarketing
problems
The article focuses on export marketing problems of manufacturing ®rms in
developing countries. This does not mean that only the literature on these ®rms
is interesting for this survey. In particular the experiences in developed
countries with networks of small and medium sized ®rms, trying to facilitate
access to new export markets, provide useful insights. Although there is a
growing body of knowledge that suggests that export problems are time,
industry, state, and even country speci®c, most of the export problems for
small and medium sized ®rms in developed and developing countries have
similarities. The resemblance stems from the fact that in both cases networks
are expected to enlarge the restricted capacity of individual companies to invest
in the sunk costs involved in conquering export markets.
Easton (1992) identi®es three types of de®nitions for networks. The ®rst set
of de®nitions focuses on the exchange dimensions in two or more connected
relationships (Anderson et al., 1994; Cook and Emerson, 1978). Another set of
de®nitions focuses on the bond or social relationships that link loosely
connected organisations (Aldrich, 1979; Lundgren, 1995). The third set of
de®nitions (e.g. Hakansson, 1989; Van de Ven and Ferry, 1980) describes a
network as a total pattern of relationships within a group of organisations;
®rms recognise that the best way to achieve common goals is to co-ordinate the
business system in an adaptive fashion. Ghauri and Prasad (1995) give a
simpli®ed version of this de®nition and claim that a network could be identi®ed
as a relationship created between two organisations. According to Ghauri and
Prasad (1995) if ®rm A has a relationship with ®rm B, B with C, C with D and so
on, there is a simple linear chain of connection. However, a complex network
relationship can be found if ®rm C is linked to A, and ®rm D is linked to B and
perhaps to A. Each of these de®nitions implies a different level of analysis and
has different implications. The third de®nition focuses on the overall
relationship between business organisations and includes both exchange and
social relationships. As social aspects are important for network formation
(Beije and Groenewegen, 1992), this de®nition is suitable for this article. For the
purpose of the study various groups of alliances and coalitions are grouped
under networks (Ring and Van de Ven, 1994). A major distinction is made
between horizontal networks (export grouping networks) and vertical
networks (subcontracting networks).
The paper is structured as follows. In the next section we will review the
export marketing problems faced by small and medium-sized manufacturing
®rms in developing countries that want to access a new foreign market. The
third section shows how networks are used to solve export-marketing
729
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37,5/6
problems. Section four outlines the procedures followed to collect and select the
articles useful for the study. Section ®ve and six discuss the cases and present
the results on export grouping and subcontracting networks. Finally we will
wind up our discussion with a model useful to study similar experiences of
manufacturing ®rms in developing countries.
730
Exports from developing countries: some marketing problems
Lall (1991, p. 139) de®ned export marketing problems as ªthose gaps, which
need to be ®lled before the competitive producer becomes a successful
exporterº. Export marketing problems often provoke failures in foreign
business operations, bringing ®nancial losses along with negative attitudes
toward international activities among both current and would be exporters
(Leonidou, 1995). Export marketing problems are often classi®ed as internal
and external.
Internal export problems are intrinsic to the ®rm and are usually associated
with insuf®cient organisational resources for export marketing (Leonidou,
1995). For example, problems pertaining to meet import quality standards, and
establishing the suitable design and image for the export market (Czinkota and
Rocks, 1983; Kaynak and Kothtari, 1984; Rabino, 1980), problems related to the
poor organisation of export departments and the ®rm’s lack of competent
personnel to administer exporting activities (Yang et al., 1992), the inability to
®nance exports, insuf®cient information about overseas markets (the
identi®cation of appropriate overseas distributors and communications with
overseas customers). Although quite fragmented, they constitute internal
issues that in¯uence export performance of manufacturing ®rms in developing
countries, penetrating foreign markets.
External export problems are related to the industry, the export market and
the macro environment (Ramaseshan and Soutar, 1995). The intensity of
exporting activities and the nature of export marketing strategies vary
considerably across industries. Porter (1980) noted that, this is largely due to
the varying nature of industries. Kerin et al. (1990) considered industry
structure a key determinant of a ®rm’s strategy in the domestic-market context.
In order to develop a proper export-marketing strategy the differences between
market systems, ®rm sizes and presence of foreign competitors across markets,
should be taken into account. In addition, Jain (1989) stressed that technology
and intensity of price competition in the industry are important determinants of
the marketing strategy.
Macro environment barriers are factors beyond the ®rm’s control, such as
the lack of proper trade institutions, unfavourable exchange rates, absence of a
stimulating national export policy, and international agreements (Ogram, 1982;
Figueiredo and Almeida, 1988; Cardoso, 1980; Ghauri and Holstius, 1996; Mary
et al., 1991; Kaleka and Katsikeas, 1995 and Ortiz-Buona®na, 1984). These
problems are often classi®ed as exogenous economic barriers for the ®rm.
Network organisations as potential solutions for export problems
Firms in developing countries have taken different measures to alleviate the
ªinternalº and/or ªexternalº export problems. Networks are often used for this
purpose. The extent to which marketing systems are characterised by vertical,
long term relationships or networks of ®rms clearly expresses the preference
for non-market governance over market or hierarchical forms of governance
(Iyer, 1997). The decision by ®rms to enter into a network relationship with
other ®rms is in¯uenced by the management’s willingness to abdicate
autonomy in order to acquire resources from the external environment
(Campbell and Wilson, 1996). Firms that recognise the potential for joint value
creation and attach less importance to preserving their own independence, are
likely to link themselves to the external environment.
Networks can be categorised into vertical and horizontal networks. For this
study we de®ne vertical networks as co-operative relationships between
suppliers, producers and buyers, aiming at a solution for marketing problems,
improved production ef®ciency, or the exploitation of market opportunities. In
line with this de®nition we consider subcontracting relationships as networks.
Vertical networks are also termed as marketing channel networks. Marketing
channels are networks that ef®ciently promote, modify and move goods to
markets. In doing so the channel participant adds value to the product and
shares pro®t and market risk with partners in the channel (Zerrillo et al., 1996).
Lewis (1990) stressed the opportunities for co-operation among competitors:
horizontal network relationships. Global competition does not exclude that
some ®rms in the same business may co-operate in order to realise their
marketing objectives. For this study we de®ne horizontal networks as cooperative network relationships among manufacturers who want to solve a
common marketing problem, improve production ef®ciency, or exploit a
market opportunity through resource mobilisation and sharing. Most of these
initiatives are known as export-grouping networks.
In analysing networks we distinguish the emergence of a network from the
process of network development and its performance. Meulenberg et al. (1998)
focused on the ®rst phase when he formulated three conditions for the
emergence of a successful export marketing co-operative network. First, a
common problem or opportunity should exist in the market. This usually refers
to a lack of export market information, limited ®nancial capacity and trained
human power or a lack of capacity to meet market requirements such as
quality, and design. Second, companies should prefer to respond jointly and,
®nally, the product marketed by the co-operative should be important for the
income formation of the related companies. These conditions are in line with
Van de Ven’s (1976a, b) conclusion that inter-organisational relationships are
formed either because of an internal need for resources or a commitment to an
external problem or opportunity. Welch and Joynt (1987) focus their analysis on
the second phase, the process of network development, and outline two
Exportmarketing
problems
731
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732
Figure 1.
Determinants of export
performance of export
grouping schemes
determinants for the successful operation and performance of export grouping
networks.
The ®rst determinant concerns the group’s evolution towards solidarity,
cohesion and commitment. The actual number of companies involved is of
some importance: Group cohesiveness tends to increase with the time members
are able to spend together. However, as group size expands, interaction with all
members becomes more dif®cult, as does the ability to maintain a common goal
(Robbins, 1994). The composition of the group is important: ªthe greater the
substitutability of different ®rms’ products the more this is likely to promote
competition instead of co-operationº (Rosson and Blunden, 1985, p. 4). However
it is not always true that co-operating ®rms have complementary products. To
some extent the element of competition can be managed if the groups export
operation is handled through a relatively independent party (Lawal, 1974). A
common external threat to the group’s members may also draw them together
(Lawal, 1974).
The ability to make the grouping concept work also depends on the key
people involved and in particular on their ability to work together (Stenburg,
1982). Outside change agents or facilitators may facilitate this process. They
are individuals that may initiate the idea of co-operation to the would-be
partners and help them towards its realisation. The outside change agent plays
a crucial role in ensuring that the group is positively guided in its grouping
activities, as well as providing a link to the support infrastructure (see Figure 1).
The second determinant for success in the Welch and Joynt (1987)
framework concerns the evolution of foreign market penetration activities. This
factor comprises initiatives of the network to acquire foreign marketing
experience and market knowledge (solving ªinternalº and ªexternalº export
problems, contacts with foreign partners and support infrastructure). Welch
and Joynt (1987) argue that early market activities facilitate the network’s
evolution towards solidarity, commitment and cohesiveness. However they
also warn that the ®rm should build a strong network relationship before it
starts to penetrate foreign markets.
Based on the above-mentioned literature we identify three stages in the
evolution of a network:
(1) the emergence of the network;
(2) the network development process; and
(3) the achievement of the network.
The relationship is depicted in Figure 2. By network achievement we mean the
extent to which the ®rms are able to achieve their objectives. In all the cases
discussed in the following sections of the article, market penetration is
mentioned as the main objective of the network. Other related objectives
concern improving product quality, achieving product standardisation and
improvement of gross margins. Market penetration in the achievement stage
should not be confused with export marketing activities in the process of
network development. While the former concerns the realisation of network
objectives, the latter refers to foreign market activities undertaken to attain the
objective.
Although Meulenberg et al. (1998), Van de Ven (1976a, b) and Welch and
Joynt (1987), applied their theories to horizontal networks their contributions
are also relevant to subcontracting networks. This is because there is a longterm business relationship between the principal and the subcontractor. Both
work to improve the quality of the product. To achieve this objective the
principal sends his staff to supervise the production process and supports the
subcontractor to improve his manufacturing capability. When the product is
demanded in the market the principal gets a better return and at the same time
the subcontractor secures a larger order. To foster this mutual objective the
existence of solidarity, cohesion and commitment is important. At the same
time, the successful penetration of foreign markets is a prerequisite for a
sustainable contract.
Exportmarketing
problems
733
Method
To collect articles relevant for the study, several information sources have been
consulted. Online content, WebCat, The United Nations Industrial
Development Organization (UNIDO), and EBSCO Academic service were
among the electronic data bases visited[1]. The key words used for a preFigure 2.
A network model to
study the measures
undertaken to encounter
export marketing
problems of
manufacturing ®rms in
developing countries
EJM
37,5/6
734
selection of relevant literature were: export promotion, export marketing,
export management, export marketing channel, networking, subcontracting
and co-marketing alliances. The manual search, based on references made in
major export marketing studies, helped us to track some relevant articles that
consider export problems as a secondary importance.
Three criteria were adopted to identify the relevant publications. First the
network relationship should focus on solving export-marketing problems at the
®rm level. Second, the literature should focus on manufacturing ®rms. Third,
the literature should describe those factors that motivated the manufacturers to
establish the network relationship, the process of network development and
®nally the achievement of the network. Out of the 963 articles generated by
electronic search 46 are found relevant.
Only ten articles concerned experiences in developing countries and
comprised ®rms involved in vertical and horizontal network relationships. In
the ®rst group we found:
.
the Nike/Reebok and Asian footwear producers subcontracting network
(Rosenzweig, 1994);
.
the Brazilian Sinos Valley and Mexican footwear subcontracting network
(Ceiglie and Dini, 1999);
.
the lightening subcontracting network (Sarathy, 1996);
.
the networks of foreign multinationals and their Ukrainian partners
(Bridgewater, 1999); and
.
the Korean business networks (Kienzle and Shadur, 1997).
In the second group we found:
.
the Peruvian export grouping network (Visser, 1996);
.
the Nicaraguan export grouping network (Ceiglie and Dini, 1999);
.
the Chilean export grouping network (Humphrey and Schmitz, 1995);
.
the Jamaican export grouping network (Ceiglie and Dini, 1999); and
.
the Chinese export grouping network, (Welch et al., 1996).
The information provided in the last three articles is incomplete and does not
allow us to verify the relevance of the comprehensive model presented in
Figure 2. For example, the articles on the Jamaican and the Chilean export
grouping networks describe only the positive aspects of the networking
programme. Besides, neither the role of the network members in the
networking programme, nor their interaction, was properly documented.
Similarly, the article on the Chinese networking programme discusses only the
role of the instigators. To remedy this problem we included three welldocumented experiences with export grouping networks in developed
countries. As already mentioned in the introduction, experiences in
developed countries may provide useful insights. The following cases were
selected:
.
the Australian oaten hey processors’ export grouping network (Welch
et al., 1996);
.
the Norwegian manufacturers’ export grouping network (Leonard, 1983);
and
.
the Finland furniture producers’ export grouping network.
Exportmarketing
problems
735
The literature indicates that networking theory is getting more popular. Most
of the reviewed articles have been published in the 1990s (Figure 3). It has been
adopted by international organisations, such as UNIDO, to encounter export
problems. UNIDO supported networking projects have been implemented in
Nicaragua, Jamaica and Chile. The Nicaraguan case will be discussed in this
paper.
Horizontal networks: export grouping
According to Welch and Joynt (1987) the logic of export grouping schemes is
that companies are able to improve their performance in foreign markets by
acting together, with resources being pooled and costs, information and
experiences being shared. Welch et al. (1996) pointed out that the underlying
logic of the export grouping scheme is clearly network-related. Firstly, any type
of export grouping scheme inevitably involves the development of a variety of
linkages between the companies involved. Secondly the bene®ts that arise from
grouping schemes can be interpreted in network terms. In particular the
bene®ts can be understood in terms of changes resulting in the relations among
®rms within the group and with other ®rms and organisations. These changes
occur in terms of three fundamental dimensions of inter-®rm relations as
identi®ed by Hakansson and Snehota (1995), i.e. activity links, resource ties,
and actor bonds.
Figure 3.
Number of articles
reviewed by year
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736
Five case studies of export-grouping networks are described in this section.
These are:
(1) the Australian oaten hay processors export grouping network;
(2) the Norwegian manufactured products export grouping network;
(3) the Nicaraguan export grouping network;
(4) the Peruvian, Gamarra, textile producers export grouping network; and
(5) the Finland’s, Lahti region, furniture producers grouping network.
These cases are selected because they describe the purpose, evolution and
achievement of the export grouping networks.
Case 1. The Australian oaten hay processors export grouping network
Welch et al. (1996) studied a co-operative network of oaten hay processors,
initiated by the Australian trade commission (Austrade), a semi-government
organisation that promotes and supports international operations of Australian
®rms. The vehicle in this case is called a joint action group (JAG). The network
approach used here is demand driven in that JAGs are formed only when a
speci®c opportunity has been located in a foreign market (Welch et al., 1996). At
Austrade’s instigation, a JAG of oaten hay processors was formed in October
1992 in order to develop a more co-ordinated and market responsive
organisation of exports to the Japanese market, particularly addressing the
issues of quality and reliability of supply. Ten major processors ± representing
about 75 per cent of Australian oaten hay exports to Japan ± contributed
®nancially to establish an export company, Australian Hay Pty. Ltd. The JAG
comprises direct competitors, who jointly own a registered trademark:
Australia Oaten Hay, with a distinctive logo. Welch et al. (1996) mentioned that
the network enabled the hay processors to produce a better quality product and
strengthen the co-operative relationship among the members. Through the
network members developed personal bonds and trusting relations which did
not exist before. Several joint initiatives were undertaken like the development
of quality standards, sharing of information about production methods and the
Japanese market, and joint promotion.
Case 2. The Norwegian manufacturers export grouping network
Leonard (1983) studied an initiative in 1981 in Norway, to group small ®rms in
order to improve their export performance. The program re¯ected a wider
concern within the government and the community, to encourage the
internationalisation of Norway’s small and medium sized companies at a time
when the national economy faced a booming oil sector. The initiative for the
scheme came from outside change agents rather than the participating
companies. The instigators were the National institute of technology and a
large Norwegian management consultant with ample international experience.
The gap between the parties at the outset was considerable and much time and
effort had to be put into the process of building a viable group entity. In the
Norwegian case considerable emphasis was given to building a strong support
infrastructure to facilitate foreign market penetration. Out of the three groups
established only one actually became operational in a foreign market. In one
group the main reason for failure was a high degree of interpersonal con¯ict. In
the second group the members could not agree on the targeted foreign market
or distributor.
Case 3. The Nicaraguan export grouping network
Ceiglie and Dini (1999) studied a network project, supported by UNIDO in
Nicaragua, which started in 1995. During the ®rst phase a team of seven
national consultants, assisted by short-term international consultants, created
some 20 horizontal networks. One of the network export organisations is
Ecohamaca, comprising 11 enterprises operating in the handicraft hammock
production sector. What is interesting in this network relationship is that while
the network members all compete with one another in the local market, they are
trying to collaborate in an attempt to enter foreign markets. None of the local
producers had direct exporting experience. Through the project the producers
were assisted in standardising their production in order to collectively reach
quantities suitable for export and, at the same time, improve the quality and
design of the products and the pricing systems. The network relationship was
successful since it permitted the group to export on eight different occasions to
destinations such as Sweden, Finland, the USA, and Peru and over 3,000
hammocks are exported on average every month. In order to consolidate results
and further common work, the group acquired a legal status and hired a
manager. His tasks include the organisation of training for the workers, the
search for technical and ®nancial assistance from a variety of local small- to
medium-sized enterprise (SME) support institutions, and the strengthening of
the marketing strategy.
Case 4. The Peruvian textile producers export grouping network
Visser (1996) studied the co-operative linkages between Peruvian textile
producers. No outside agent was involved in establishing the group. The major
objective of this group was to facilitate export. The motive for one of the
entrepreneurs to take the initiative to establish a network was twofold. In 1992,
he received an export order from a German importer who had favourably
judged his samples. The order was far too large for his production capacity. He
also observed that competition on the local market in Peru increased as a result
of larger imports from Korea and China. Therefore, he took the initiative to
organise ®ve local task groups of ten ®rms specialised in a particular product
(sportswear, jeans, T-shirts, shirts and ties). The objective was to expand
capacity and improve product quality through mutual advice, professional
training and the replacement of equipment, in order to enter export markets.
Exportmarketing
problems
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738
The founding of ®ve task groups involving 50 entrepreneurs only took six
months. The author considered this to be a short time, as the leading actors
initially could not ®nd an appropriate legal status ®tting with the groups’
purposes, whereas the objective to export sharpened selection criteria. The
selection of partners was guided by past business experience, personal
knowledge and relationships, and took place in two steps. First, the initiator
selected the leaders of the subgroups who, subsequently, had to organise the
subgroup. After the export group managed to get a special credit, a
marketing specialist was hired. Initially, this person examined the domestic
market for orders from public and private institutions. In one month the
marketing agent had reeled in three orders, of 10,000 T-shirts each, from two
breweries and an ice-cream making ®rm. These achievements were essential
for generating trust between the agent and the producers. Visser (1996)
mentioned that family ties have been an important factor for the network
establishment and success.
Case 5. The Finland furniture producers export grouping network
Kautonen (1996) studied 14 export grouping networks of furniture producers of
the Lahti region in Finland. According to the ®rm’s managers and the author’s
estimations, these have not been all that successful. Nevertheless it would not
be justi®ed to claim that these projects were of no worth at all. Kautonen
explained that only three to four groups could be evaluated as total failures due
to bankruptcies, personal con¯icts between ®rm managers or incompetent or
even dishonest export consultants. Seven to eight of the projects were partly
successful, for being a start of export activities or the entry of a new market.
The member ®rms exchange information about market risk and customers.
Whenever pro®table, transportation is organised jointly. The experiences of the
networks also serve as lessons for building co-operative inter-®rm
relationships.
Discussion of results
This section applies the network model (Figure 2) in order to test whether it can
explain the observed failures and successes. We note that the authors of the
case studies used different methodologies and focused on different problems.
This explains why not all the variables, as described in the model, are
discussed extensively for all the cases.
Network emergence
The Australian export-grouping network was established to develop the
oaten hay export market in Japan. The objective was to exploit the market
better by co-ordinating the export activities of the individual manufacturers.
The ultimate goal of the Nicaraguan networking project was to develop
exports for some particular commodities through solving problems that
constrain export initiatives. Production was standardised in order to realise
the necessary quantities and the design and quality were improved to meet
export market requirements. The objective of the Peruvian export-grouping
network was similar to that of Nicaragua. It was initiated to expand
capacity and improve product quality through mutual advice, professional
training and the replacement of equipment, in order to enter export markets.
The Norwegian export network was established to facilitate penetration. For
this case no information is given about the ex ante identi®cation of an
export market.
Overall, at least four out of the ®ve network initiatives were taken to exploit
an available market opportunity or to solve an existing export problem. As
network membership was voluntary in all the cases, some willingness to cooperate was existent. Therefore we conclude that the results are in line with the
developed model.
Evolution towards group solidarity, cohesion and commitment
In the Finland case, it was mentioned that personal con¯icts between ®rm
managers and incompetent or even dishonest export consultants were the
reasons for the failure of four groups. Besides, it was reported that two
Norwegian groups failed because of the inability of two individuals in the
group to work together. Personal con¯icts are mainly attributed to the lack of
strong personal relationships and mutual interests.
In the Peruvian case family ties are found important in strengthening the
personal relationships and facilitating network establishment. However,
personal or family ties are important only if they are coupled with mutual
interest. The size of the ®rms involved in the network relationship can affect
their interests to ward a market. In the Norwegian case large differences in ®rm
sizes were observed and put forward as one of the reasons for disagreement
among the group members on the targeted market.
Instigators can facilitate the evolution of the network relationship by helping
network members to solve their internal problems. The Norwegian, Australian,
and Nicaraguan cases support this idea. In the Norwegian case the instigators
of the network relationship were independent institutions, while the Australian
network is initiated by a semi-government organisation. The Nicaraguan
organisation that took the initiative to constitute several export groupings
explicitly aims at the establishment of network relationships between
enterprises and institutions that allow enterprises to overcome their isolation
and reach new collective competitive advantage beyond the reach of individual
small ®rms. However, the Peruvian case shows that export-marketing
networks can be established and remain successful without the involvement of
outside instigators.
We conclude that the case studies support the model we developed by
con®rming that cohesion, solidarity and commitment are crucial factors in the
development of export grouping networks.
Exportmarketing
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740
Evolution of the networks foreign market penetration activity
The literature indicates that the Norwegian network had access to a supporting
infrastructure and the marketing experience of instigators. The Australian
oaten hay producers also enjoyed the marketing expertise of Austrade. The
Nicaraguan export grouping network was strongly assisted by a team of
internal and external consultants. The Peruvian network bene®ted from the
marketing expert hired by the group and he was able to generate sales. Visser
(1996) indicated that the early sale was important to build trust among network
partners. However, market penetration activities or access to support
infrastructure may not lead to success, if the network is not based on a
solid, cohesive and committed group. The Norwegian case supports this idea.
Some of the ®rms were not able to adjust to the group concept and frustrated its
functioning. This shows that some operational issues have to be settled before
concrete activities in the export market can be undertaken: structure,
composition, mode and timing of operation, and other issues representing
potential sources of con¯ict. This helps the group to remain strong enough to
face internal and external problems and ensure that all members have the
potential to gain from the targets chosen. The Nicaraguan experience also
showed the importance of standardisation in order to reduce export problems.
Network achievement
In the Peruvian case Visser (1996) reported that the network members were
successful in penetrating the North American textile market. The Gamarra
textile producers evolved into a large network of small companies. In August
1995, the organisation comprised 157 members and seven consortia. It also
extended its activities towards joint market research and international
marketing with Dutch development aid bringing another external agent on
stage. Strong partner network relationships and family ties were mentioned as
major factors contributing to the success of the group (Visser, 1996).
Welch and Joynt (1987) concluded that the results of the Norwegian
grouping scheme were rather bleak. Out of the three groups, only one actually
became operational in a foreign market. However, also this group failed to
extend its scope of operations. In the Australian case a clear positive market
outcome has been generated (Welch et al., 1996). The increased sensitivity to
the quality requirements of the Japanese customers shows that processors were
trying to meet demand. The informal contacts among processors have been
sustained, even with members no longer part of the JAG and despite
personality clashes. Various joint activities have been undertaken, including
the development of quality standards, sharing of information about production
methods and the Japanese market, and joint promotion (Welch et al., 1996).
Resources have been pooled to obtain government grants and knowledge has
been developed and shared among members. These achievements contributed
to the export performance of the sector in the Japanese market.
In Finland, Kautonen reported that exports of furniture have increased
rapidly ranging between 500 and 600 millions of FIM in the 1980s, 643 million
FIM in 1991, 706 million FIM in 1992 and in 1993 as much as 1,086 million FIM
(187 MECUs). The logistic problems and quality requirements were
successfully addressed by the Lahti export grouping network. Ceiglie and
Dini (1999), mentioned that the network strategy in Nicaragua proved to be
very successful since it permitted the group to penetrate markets in the
European Union (EU), the USA, Sweden, Finland and Peru. The network also
enabled partners to achieve product standardisation, better quality and
improvement in pricing systems.
We conclude that the experiences discussed in this section are in line with
the model presented in Figure 2. The successful networks are characterised by
the existence of a concrete market opportunity (threat), a willingness to cooperate, some form of early market penetration together with a process creating
solidarity, cohesion and commitment among group members. Finally we note
that the three identi®ed articles, not included in this analysis, do not contradict
the ®ndings. The Chinese networking programme acknowledges the
importance of personal relationships and the role of instigators for the
success of the networking project (Welch et al., 1996). The Chilean and
Jamaican cases con®rm that instigators (governments) may act as sponsors for
networking projects. However, instigators should not impose their strategies,
but intervene on the basis of requests for help from the network (Humphrey
and Schmitz, 1995; Ceiglie and Dini, 1999). A summary of the evolution and
experiences of export grouping networks in the ®ve countries is shown in
Table I.
Vertical networks: subcontracting
Subcontracting is an opportunity for ®rms in developing countries to
participate in the international market. Subcontracting networks occur when a
manufacturer sells products to a speci®c buyer for a considerable period of
time, while the latter speci®es the design of the products and supervises the
production process. A subcontracting agreement may also specify how a
commodity is distributed by a third company for a speci®c period of time:
Subcontract manufacture is the process by which a subcontractor (i.e. an organisation with
business objectives which is independent of those of the principal), performs all or part of the
manufacture of the principal’s product, to a customised speci®cation (of varying detail)
provided by the principal. Activities which support this manufacture (e.g. materials
procurement, production planning, etc.) can be carried out by either party, subject to prior
agreement (Webster and Alder, 1997, p. 2).
Subcontracting agreements are made for a variety of reasons. A categorisation
has also been proposed which distinguishes between the ªcapacityº,
ªspecialisedº or ªeconomicº subcontract (Imrie, 1994). According to Imrie the
capacity subcontract, normally short-lived and unstable, is set up to meet
Exportmarketing
problems
741
Group co-ordinator Group
and group members members
Suppliers, ®nancial,
institutions,
marketing
organisations
Gap between
partners
Interpersonal
con¯ict
Bankruptcy
Disagreement
market and foreign
distributor
Internal-group
co-ordinator
External-various
sponsors
Group
establishment and
market penetration
problems
Group co-ordinator
Key facilitator
4. Problems
observed
None
Banks, export
council, etc.
External
contributors
High
government
intervention
Personality
clashes
Strains due to
growing
competition
None
Austrade
Austrade
Australian
JAG
Instigator/facilitator Group co-ordinator
Norwegian JAG
1. Identi®cation of
and contact with
prospective
candidates for
grouping; group
formation.
2. Creation of a
climate of
co-operation;
development of
group goals;
formal
establishment of
the group
3. Business
development:
foreign market
penetration
Table I.
Summary of the
evolution and
experiences of
export grouping
networks in the ®ve
countries
Actors
Group
co-ordinators
Group
co-ordinators
None
Finlands Lahti
Lack of
punctuality in
meetings
Bad perception
of partners on
employees
Tacit knowledge
Risk averseness
Personal con¯icts
Bankruptcy
Incompetent,
dishonest export
consultants
Group
Group
co-ordinator and co-ordinators
members
None
Government
through subsidies
Group
co-ordinators
Group
co-ordinator
Banks (loan)
Peruvian
Gamarra
(continued)
UNIDO and national
consultants
UNIDO
Not mentioned
UNIDO
UNIDO and national
consultants
UNIDO
Nicaragua
EcoHamaca
742
Phases
EJM
37,5/6
Authors of the
articles reviewed
Australian
JAG
Welch and Joynt
(1987)
Welch et al.
(1996)
Improved
quality
Personal
bonds and
trust
Learning
Two failed, one
Japanese
penetrated to the US market
market
penetration
Export support
infrastructure
Learning
Norwegian JAG
Visser (1996)
US market
penetration
Capacity
building
Close personal
ties
Learning
Peruvian
Gamarra
Nicaragua
EcoHamaca
Product
standardisation
Quality and design
improvement
Improvement
pricing systems
Three failed, eight Market penetration
penetrated foreign to EU, USA,
markets
Sweden, Finland
and Peru
Ceiglie and Dini
Ceiglie and Dini
(1999)
(1999)
Product
standardisation
Learning
Finlands Lahti
Source: The literature on Norwegian, Australian, Peruvian, Finish and Nicaraguan export grouping networks
6. Authors
None economic
achievement
5. Achievement
Market penetration
Actors
Phases
Exportmarketing
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743
Table I.
EJM
37,5/6
744
unexpected or exceptional increases in demand. Whereas the specialised
subcontract, by contrast, is longer-term and enduring ± established by the
principal to access specialised expertise or technology, which is not available
in-house. Finally, economic subcontracting is established where cost bene®ts
can be obtained by outsourcing parts of the production process. In all cases,
outsourcing provides the principal with a greater degree of ¯exibility over its
operations. The bene®ts to the subcontractor are rarely considered explicitly,
but as subcontractors are usually small or medium sized companies, the
bene®ts tend to relate to business generation and organisational survival. It is
important to note that the subcontracting relationship only starts after the
identi®cation of a market by the principal.
Small and large companies in different countries have practised
subcontracting networks[2]. The cases included in this section can be
characterised as economic subcontracting. In this section we present two cases
of a subcontracting network between American companies and Asian
producers. The third case compares the Brazilian (Sinos Vally) network with a
Mexican footwear producer’s cluster.
Case 1. The lighting goods subcontracting network
Sarathy (1996) studied a subcontracting relationship between an American
lighting goods company and a group of producers in Asia. Catalina Lighting
began importing and distribution lighting ®xtures into the USA in 1985. It
specialised in the design and distribution of the commodities, while production
was outsourced to factories in the Far East. Catalina’s designers visit lighting
trade shows in the United States and Europe to identify new styles most likely
to appeal to fashion conscious consumers. Catalina then designs similar
®xtures and provides them to factories in the Far East. Initially, Catalina
bought from a few factories in Taiwan. Over time it became the largest buyer of
lighting ®xtures in Taiwan, and it currently subcontracts manufacturing with
over 70 factories in four countries. Using Catalina the Asian manufacturers are
able to get access to the American market.
Case 2. Nike/Reebok and Asian footwear producers subcontracting network
In a similar study Rosenzweig (1994) investigated the subcontracting
relationship between two American footwear ®rms and a group of Asian
subcontractors. Nike and Reebok are specialising on product design and
product marketing. They rely on a network of contractors in South Korea,
Taiwan, China, Indonesia, Thailand and the Philippines who produce shoes
according to the required speci®cations and precise delivery schedules. By
working with subcontractors, Nike and Reebok do not have to manage the
manufacturing operation, and do not have to tie up working capital in raw
materials or work in process. By 1982, Nike imported 70 per cent of its shoes
from South Korea, 16 per cent from Taiwan, 7 per cent from Thailand, Hong
Kong and the Philippines and manufactured only 7 per cent in the USA.
Case 3. The Sinos Valley and Mexican footwear subcontracting network
Nadvi (1995) studied the Sinos Valley footwear manufacturers network in
Brazil. Sinos Valley comprises approximately 500 shoe producers that make up
the core of the cluster. He showed that the shoe producers were successful and
were able to export about 70 per cent of their produce to the USA. According to
Schmitz (1995) three factors are critical to Sinos Valley’s success. First, the
backward linkages that shoe producers have with local suppliers of inputs,
machinery and producer services; second, the forward linkages between
producers and buyers, especially export agents; and third, the strategic
intervention of local support institutions in facilitating the cluster’s ability to
ªshift gearº and move into higher value added product markets. Because of the
importance of ®rst two factors we consider this case as a vertical network.
Nadvi (1995) shows that the shoe producers were linked with suppliers of
raw materials, new and second-hand machinery, shoe-component producers as
well as consultants for managerial, ®nancial, technical and other business
problems. The producers were also linked with the local ranching sector that
supplies the footwear industry with leather. Seventy local export agents, some
of them representing leading US retailers, connect the local producers to outlets
in the USA and Europe, as well as Brazil. Export agents, both local and foreign,
play a crucial function as intermediaries between producers and fashion
conscious retailers. They are a source for technical and marketing know-how in
the cluster; they inspect product quality and production schedules on site and
they organise the transport and payment arrangements.
In contrast to the Sinos valley the Mexican footwear manufacturing industry
did not show much progress. Nadvi reviewed two groups of Mexican shoe
producers in terms of the backward ties with their suppliers and the forward
ties with their buyers. In contrast to Brazil (Sinos Vally), the Mexican shoe
producers are largely inward oriented, and were not successful in penetrating
the US market. The case study draws from Rabellotti’s (1993, 1995) work on the
shoe clusters of Leon and Guadalajara in Mexico. According to Nadvi, the
Mexican shoe sector, despite the advantage of being closer to the US market
and operating in sectoral clusters, has not been as competitive as the network
in Brazil. This raises some obvious questions: Why did the Mexican shoe sector
lag behind? Why were the market opportunities, offered by clustering
(improved ef®ciency and technical progress), not fully exploited by the
Mexican shoe clusters?
In spite of the fact that the Mexican shoe clusters consist of a larger number
of shoe producers and have experience in the shoe industry for more than
seventy years, neither cluster displays the dynamics as observed in the Sinos
Valley. The author explains this by the weak backward ties between producers
and their component suppliers and the weak forward linkages with buyers in
the Mexican case.
Exportmarketing
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745
EJM
37,5/6
746
Discussion of results
Next, we will discuss the reasons for emergence, evolution and achievement of
the subcontracting relationship using our model in Figure 2.
Emergence of the subcontracting network
Nike and Reebok contacted the Asian subcontractors because they wanted to
keep their costs down. The same applies to Catalina and the Sinos Valley
footwear producers. In the latter case the network was established to get raw
materials and components from domestic suppliers with the intention to
produce and export shoes to the US market. All cases show that the market
opportunity was clearly de®ned when the network emerged and therefore we
conclude that the cases are in line with our model.
Evolution towards group solidarity, cohesion and commitment
The authors of the cases did not mention how the principal and the
subcontractors build solidarity, cohesion and commitment. However, it was
indicated that there was a common objective and in all the three cases the
principal was highly involved in the network relationship. Catalina was active
in searching the sample design and its staff supervised the production process.
Nike and Reebok were also engaged in similar relationships with their
subcontractors. In general, it can be said that both the principal and the
subcontractor were eager to improve the quality of the products in order to be
successful in the export markets. This objective could not be achieved without
the partners solidarity, cohesion and commitment to the network relationship.
Evidence from the above cases also shows that the development of backward
and forward ties are critical for network success.
Evolution of the networks foreign market penetration activity
In the Catalina, Nike and Reebok cases, it was indicated that the subcontracting
relationship evolved through time. It started with a few producers and
subsequently, more producers were involved in these type of relationships.
Currently, Catalina has seventy subcontractors in different Asian countries.
Besides, in the course of time, Nike closed its New Hampshire and Maine plants
and, nowadays, it imports all the footwear from Asian countries. These factors
show that there was a gradual progress in market penetration, which ®nally led
to a wider expansion. This is the result of continuous quality improvement
through continuous principal and subcontractor interaction and learning.
Network achievement
In the Sinos Valley case, Nadvi mentioned that the ®nal outcome of the
subcontracting and other network relationships were positive. The producers
were able to penetrate the US market. The Catalina, Nike and Reebok cases are
also examples of successful subcontracting relationships that enabled the
manufacturers to access the US market. However, the Mexican shoe producers
were not successful in the foreign markets and according to Nadvi this can be
explained by the lack of forward and backward ties between producers,
suppliers and agents and distributors.
Conclusion
The paper showed that networks have been used to solve export-marketing
problems of manufacturing ®rms in developing countries. It is a useful
approach to solve ªinternalº export problems concerning quality,
organisational, ®nancial or information problems. It may also accommodate
ªexternalº export problems related to the export market or the industry.
However, the role these networks played is not documented systematically and
there is no agreement on the essential factors for success. Our model (Figure 4)
is an effort to ®ll this gap. It captures the variables related to the emergence, the
development process, and the achievement of networks. The case studies
provide a lot of support for this model and complemented it with some
additional variables: trust, learning, personal relationships and backward and
forward linkages are critical for the network success.
Network development is highly in¯uenced by two key factors. These are:
(1) the evolution of the foreign marketing activity; and
(2) the evolution toward solidarity, cohesion and commitment.
Exportmarketing
problems
747
The network’s success in penetrating foreign markets, access to foreign
marketing experience and marketing knowledge and access to support
Figure 4.
A model to study the
network evolution of
manufacturing ®rms in
developing countries
EJM
37,5/6
748
infrastructure facilitate network development. The experiences of UNIDO
show that it is possible to initiate and develop effective network relationships
even if the entrepreneurs had no previous relationships with each other.
However, it is worthwhile to note that incentives from outside parties will not
substitute for a clearly perceived logic of relationships and bene®cial outcomes.
Mutual interests and active participation of group members are preconditions
for group success and are in fact presupposed by the model.
Network development should be demand oriented. The model makes this
explicit as it stresses the importance of a market problem or market
opportunity. This means that a network must be based on a thorough analysis
of the problems or market opportunities. Here we ®nd an argument for the fact
that outside instigators may play an important role. Manufacturing ®rms in
developing countries face ®nancial constraints and often lack a skilled labor
force, therefore, network instigators can play an important role in the network
emergence and the network development process. Three of the ®ve export
grouping networks examined, rely heavily on the tasks performed by the
outside change agent.
Notes
1. Online content contains bibliographical references of articles of over 12,500 periodicals on all
scienti®c ®elds published since 1992. WebCat is a large collection of full-text electronic
documents, provided by libraries. The UNIDO publications Web site contains reports on
network projects in different developing countries. EBSCO academic service contains
bibliographical references of scienti®c periodicals in the ®eld of business, social sciences,
humanities, general science, physics and education sciences. It contains about 3,000 articles.
2. In the literature there is a vast discussion about subcontracting networks in Japan and
Korea. Modern Japanese subcontracting contracts rely on clustered control, in which ®rms at
the top buy complete components from a limited number of ®rst-tier subcontractors, which
in turn buy specialised parts from a group of second-tier subcontractors, which buy discrete
parts and labour from third-tier subcontractors, and so on. The Korean subcontracting
network is similar to that in Japan in that long-term grouping of companies (Chaebol) exists
in a similar form as in Japan (Keiretsu). Ghauri and Prasad (1995) also contrast Keiretsu and
Chaebol in terms of inter-group rivalry, the dominant type of relationship, the network
functional control and the role of the lead bank. Chaebol are distinguished from Keiretsu by
having less inter-group rivalry. Also, a familial type of relationship exists within Chaebol
rather than having a contractual based relationship as in Keiretsu. In Chaebol, functional
control is by the founding family and not by the lead ®rm. Nowadays the Japanese and
Korean subcontracting networks concern mainly large established multi-national
enterprises. Therefore we preferred to omit these cases from our analysis.
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