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close this bookExporting Africa: Technology, Trade and Industrialization in Sub-Saharan Africa (UNU, 1995, 434 pages)
close this folderPart I. Exporting Africa: an analysis
close this folder5. Main findings of the study: a synthesis
View the documentPosition of exporting firms in the world market
View the documentHistory of exporting: conditions and path followed
View the documentHow firms maintain or improve their positions in export markets
View the documentHow some firms lose ground in export markets
View the documentLinkages and supporting industries
View the documentThe influence of policy on firms' export activity

Position of exporting firms in the world market

Type of product

The position of firms in the market is influenced by the type of product they produce. Many firms' exports are primarily common products differentiated largely by the use of brand names. Except for the subsidiaries of multinational enterprises, very few firms design and develop their own products. Most products are imitations of foreign products, usually products which were being imported and are now manufactured' following the logic of import substitution. Competition in the product market is largely based on price and quality.

Types of target markets

The exporting firms have mainly targeted regional markets, with smaller volumes being exported to international markets. Firms which target international markets are mainly resource-based manufacturers, deriving their initial comparative advantage from access to natural resources. This observation in the case studies corroborates earlier case studies in which it was noted that manufactured exports have tended to be dominated by processed goods destined for the markets outside Africa (Riddell, 1990. p. 35). If major primary processed exports are excluded then the much smaller remainder is mostly destined for neighbouring markets.

While some exporters started as export-oriented enterprises (EOEs), targeting export markets right from their inception, others started as import substitution enterprises (ISEs), targeting the domestic market and later moved into export markets. Firms took various routes in shifting or extending from domestic markets to export markets. Two categories can be identified. Some firms moved from the domestic markets to regional markets and later penetrated international markets. Others developed from domestic to regional markets and stayed there or have not penetrated international markets as yet.

The transition from domestic markets to regional markets has been influenced by the similarity between these markets. Two types of exporting firms were found to have taken advantage of this phenomenon. First, there are exporters who have found the regional market no more demanding in terms of product quality than the domestic market (e.g. steel products). Exporting based on this feature is likely to be short-lived at best, considering that quality requirements are likely to rise as economies in the region become more open. Export opportunities based on lower product quality are unlikely to be sustainable in the face of imports from elsewhere. Such less demanding export markets may produce only limited learning by exporting.

Second, opportunities in the regional markets have been tapped on the basis of product quality and appropriateness to the specific conditions in the region. For instance, regional exports in agricultural machinery and other farm implements were found to be based on products which had been developed to suit agro-economic conditions in the region. Zimbabwean firms exporting agricultural machinery had developed products which suited the soil and climatic conditions in the region. Their competitiveness was a result of many years of continuous investment in searching and learning, as indicated by their R&D activities. The firms started by copying imported designs and made efforts, in response to demands from farmers, to make innovations to suit the specificities of the region. The development of agricultural machinery suited to the conditions of Southern Africa was encouraged by the domestic demand for such innovations from the large-scale farming community. The specificity of the technological adaptations gave the firms natural protection from international competition. Because of the appropriateness of these products to the specific soil conditions in the region, they could even sell at higher prices than their imported counterparts.

However, even where there appears to be a natural monopoly, intra-regional competition has to be faced at some point, as the case of agricultural machinery from Zimbabwe and South Africa has shown. Natural protection is tenable up to a point, beyond which there is danger of losing markets to competitors from other regions. Even if imported products are not as suitable to local conditions, competitors from outside the region have sometimes penetrated the regional market by supplying their products at lower prices or by supplying products whose quality of finish looks better. Thus specific local markets can be lost to others if continuous efforts are not made to develop competitiveness in terms of quality and price.

In some cases competitors from other regions have made products specifically for the African regional market. Kangas coming from some Asian countries (e.g. India and China) or African prints from Europe have been manufactured specifically to suit the demand in the African markets. There are signs that such products are taking a share of the market from firms in the region. The evidence indicates that the specificity of regional markets may make the competition for various products less intense but it does not guarantee a monopoly. The need to exert continuous effort to attain and maintain competitiveness in such markets does not seem to be obviated by any specific characteristics of regional demand.

History of exporting: conditions and path followed

The conditions and factors which influenced entry into the export market were addressed by the case studies, shedding some light on the path which was followed in the history of exporting and providing some insights into the process and activities which led to the first entry into export markets.

Exporting strategy

The case studies have shown that most exporting firms started by serving the domestic market. The strategy of exporting came later in response to developments in their domestic markets. Most of these enterprises started exporting to regional markets, mainly in countries which did not have similar industries. The share of exports in total output is usually small (about 5-15 per cent). With such a small share of exports in their total sales, some of these firms could sell in the export market at a loss, the loss being offset by more profitable sales in the domestic market. Firms in this category have tended to position themselves with a fairly broad competitive scope, reflecting the broad competitive scope they had in domestic markets.

Import substituting firms grew up and built up various core capabilities by producing for the domestic market. The protection of the domestic market allowed them to accumulate resources, which were in turn invested in developing capabilities which enabled them to turn to exports at a later stage. ISEs were either motivated to export by export promotion incentives of various kinds or resorted to exporting as one response to saturated or collapsing domestic markets. Developments in domestic markets took several forms.

In some countries the domestic market contracted as aggregate expenditure in the economy was reduced during the implementation of economic reforms. This kind of development in the domestic markets was particularly experienced by the Ivory Coast and Zimbabwe, with the effects of drought exacerbating the contraction in the latter case. Some firms responded to the contraction of the domestic market by increasing efforts to locate new markets in other countries. The success of such attempts was limited by the fact that the transition towards exporting was rushed, without the necessary preparations. However, this survival strategy failed to compensate for the loss of domestic markets in a sustainable way. This implies that export markets are not likely to be a quick fix for the problem of contracting domestic demand.

In some cases the collapse of the domestic market occurred because a firm was established with one major local consumer in mind and that consumer collapsed. The response of the supplier firms was to turn to export markets. Morogoro Canvas of Tanzania was one such case: it had been set as a supplier of canvas to the Morogoro Shoe factory. When that factory went bankrupt, the canvas mill adjusted swiftly by changing its product mix and entering the export market (uniforms, grey cloth and bed sheets). The firm responded by making the necessary investments in technology to meet requirements of the export markets and the transition seems to have been managed quite well. Today the mill exports about 60 per cent of its output. The breakthrough in the export business is mainly attributed to special machines used for export production. This investment in technology coupled with the employment of foreign management under contract has enabled Morogoro canvas to develop a sizeable and diversified export market in the US, the UK, Canada, Holland, Germany, Saudi Arabia, the UAE and neighbouring countries.

The case studies have also shown that a few firms started as exporting firms from the outset. These firms started with an eye on the export market and showed awareness of changing market conditions from the initial stages. For these firms the export market accounted for a large share (more than 50 per cent) of their total sales. These enterprises tended to target international markets in which they occupied a specific market niche and maintained that niche by closely following changing market requirements. Some of them took advantage of preferential access to the EU markets. This strategy was adopted most conspicuously in Mauritius, for some time following the implementation of the import substitution phase. The critical measure was the Export Processing Zones (EPZ) Act (1970), which provided additional special incentives to exporting firms. The EPZ enterprises were allowed to sell their products on the local market to only a limited extent.

Some firms were motivated to pursue export strategies from the beginning because they faced small domestic markets. For instance, the radiator manufacturer in Tanzania targeted the slow end of the export market where markets are small and isolated. The firm adopted a strategy of striving to attain quality and competitiveness in export markets. However, its real breakthrough in export markets came with Original Equipment Manufacturer (OEM) certificates from well-known manufacturers such as Scania, Valmet and Landrover. Obtaining the OEM certificates facilitated exports to Europe and these achievements were used to promote exports into the region.

Previous experience of key management figures

Previous experience had prepared some key managerial and entrepreneurial personnel for conditions in the export markets and put them in contact with technology suppliers. They acquired their experience as traders in similar products or as representatives of multinational enterprises which were engaged in similar activities.

The typical local private exporting firms started as family trading enterprises and later moved into the manufacture of products which were related to their earlier trade activities. Their activities in trade had given them contacts and connections which were later useful at the manufacturing stage. The capabilities which were developed in the previous stages were put to use in the subsequent stages of development. Foreign technical assistance was sought in those areas where local capability was deficient, so that technology investments were largely in the form of more modern machinery in order to manufacture higher-quality products for the export market.

Various forms of linkages and networks

It may be unnecessary to possess all the capabilities in-house if some of them can be obtained outside the firm. However, in such cases the firm needs at least to have the capability to identify the kinds of capabilities it needs to buy from elsewhere and how best to utilize inputs and services provided by others. It was found that information provided by buyers in the export markets often influenced product specifications. Some firms entered agreements with foreign firms, under which they could have access to information about latest fashions and other market requirements. Networks and interactions with various suppliers of inputs and equipment and buyers of output had affected the choices of technology and products which enabled firms to penetrate export markets.

Foreign partners were found in many exporting firms, with their role varying according to the nature of the product, the scale of operations, the type of market and the kinds of core capabilities that the firms possessed. Typically, foreign partners supplied some form of technical assistance in aspects of technology and marketing. The various roles of foreign partners in providing these services are documented in the case studies. These foreign firms had either formed joint ventures with local firms or were hired agents for specific technology and/or marketing activities. In some cases technical cooperation agreements also involve the use of foreign brand names and trade marks. For instance, a major breakthrough for Orbitsports of Kenya occurred in 1974 when it entered into a technical cooperation agreement with Adidas, the world's largest supplier of leather balls. The firm paid royalties to Adidas for technical services, including training of the company's workers at Adidas in France, evaluating the quality of raw materials, checking the quality of final products and providing technical advice on the purchase of machinery and equipment.

The local firms located the foreign partners themselves. However, in a few cases the government and state promotion institutions played a decisive role in initiating contacts between local firms and their foreign partners. For instance, the sister industry programmes in Tanzania enabled a manufacturer of electrical goods to go into exporting.

Investments in technology

Although some regional export markets were no more demanding, in terms of product quality, than domestic markets (e.g. exports of kangas from Kenya to Tanzania), the case studies have shown that entry into export markets has often been preceded by investments in upgrading technology to meet higher quality requirements. These investments were for technological improvements to equipment and for quality control facilities. In some cases firms established new sites specifically for producing for export markets (e.g. Bata Shoes in Zimbabwe, Northern Electrical Manufacturers in Tanzania) or installed separate production lines for exports, in which special machines were installed for selected processes to guarantee export quality (e.g. Friendship Textiles and Morogoro Canvas in Tanzania, Sunflag in Kenya).

Foreign v. local investment

The positive role of foreign investment in building local technological capabilities has come out quite clearly in Mauritius, where local private capital has been progressively buying out foreign capital. This harmonious nationalization of investments has been facilitated by the existence of an entrepreneurial class which developed from the local plantocracy during the years when sugar production was dominant. The surpluses which were accumulated then were invested in industry. In addition, the macroeconomic environment and the climate for investments have been conducive for both local and foreign investment. For instance, one of the leading exporting firms in Mauritius, the knitwear firm, was established initially by Hong Kong investors with a minority Mauritian participation. After a few years the Hong Kong shareholders were bought out by Mauritians, and since 1977 the company has had an entirely local shareholding. The bulk of the shares are held by a local investment company belonging to a large sugar group. The existence of a capital market and a group of local individuals and institutions who are willing to invest seems to have favoured the process of nationalization in Mauritius.

The transfer of control from foreigners to indigenous owners has sometimes been far from smooth and possibly more destructive than constructive. For instance, the indigenization programme in Nigeria was carried out in 1974 and, together with further phases which were implemented before 1980, resulted in Nigerians taking over the control of several businesses hitherto controlled by foreigners. However, it would appear that the policy-makers overlooked the economic side-effects of the indigenization programme, especially its possible negation of the goal of economic independence. The import substitution industries which had been established were acquiring the capability to manufacture for export but this development was thwarted by the manpower dislocation caused by the indigenization programme. Several of the newly established activities experienced manpower problems and some of them failed as a result.

The contribution of foreign investment in building local capabilities has not always been positive. The case studies showed that some locally controlled firms had been bought out by TNCs in response to the threat of competition (e.g. Trituraf of the Ivory Coast). Another multinational, Saco, had a monopoly for about 10 years, after which many state-created companies started trading in the Ivory Coast. But in the middle of the 1980s nearly all of these newcomers disappeared or were taken over, leaving Saco in control of most of the local cocoa-bean processing and by-product production in the Ivory Coast.

In discussions of the role foreign investment could play in industrialization and in building technological capabilities within firms it is important that the changing forms of foreign investment be recognized. This study has shown that exporting firms in Africa have benefited in different ways from various forms of relationships with foreign firms. Foreign investment is increasingly taking forms other than the traditional direct foreign investment. There is considerable evidence that new forms of investment (NFI) will continue to gain importance in developing countries, superseding traditional FDI in some areas and complementing it in others (OECD, 1989).1 The implication of the debt crisis and foreign exchange shortages for the balance between FDI and NFI is likely to vary from one country to another, reflecting differences in host country policies (macroeconomic policies and policies on foreign investment), the host-country's market potential, perceived degree of bureaucratic red tape, political stability and the availability of local managerial skills and skilled labour. However, it is likely that, as some developing countries acquire various capabilities, they may want to bring in only those assets which they cannot obtain locally in order to minimize foreign exchange losses (through remissions abroad and payments for various services). Such long-term financial and foreign exchange considerations may lead to more selective pursuit of NFI, with government attitudes and policies tending to be more industry-specific, reflecting long-term benefits from learning by doing (OECD, 1989).

The changing perceptions of TNCs may continue to favour a relative increase in NFI, on the grounds that it increases leverage on firm-specific assets and that it has risk-shedding advantages over traditional FDI. In future, the balance between traditional FDI and NFI is likely to be influenced more by the global dynamics of inter-firm competition and by the interplay between those dynamics and host-government policies than by the latter's unilateral decisions (OECD, 1989). This underscores the importance of understanding the global trends within specific industries.

The evidence presented by the OECD (1989) suggests that there is a long-term trend in the division of risks and responsibilities between TNCs, host countries and international lenders, which is characterized by increasing emphasis by TNCs on flexibility and the development of capabilities in relatively protected industry segments (where profit potentials are high), operating upstream of production (as suppliers of technology and management) in some industries and downstream (in marketing) in others. Host-country investors are increasingly retaining partial or total ownership of investment projects, while the degree of effective control depends increasingly on factors other than host-country ownership of equity. International lenders are likely to continue to play a central role in channelling financial capital to developing countries (in the form of new loans and debt rescheduling) and in that way will exert significant control over the international investment process (OECD, 1989).

How firms maintain or improve their positions in export markets

Having entered the export markets, maintaining and possibly improving their market position becomes a major challenge for firms. Understanding this process and gaining insights into the basis of their competitiveness has been a major interest of this study. The likely sustainability of such competitiveness over time and how consistent it is likely to be with overall increases in productivity in the economy were also of interest. Some firms have tried to maintain their positions in export markets by cutting the costs of inputs and other factors of production, while other firms have been improving productivity through searching and learning continuously over time. Only in the latter case is international competitiveness in export markets sustainable.

A competitive strategy would be expected to grow out of a sophisticated understanding of the structure of the industry and how it is changing. The changes that matter may be technological or market requirements. Firms need to maintain and improve their positions in export markets by facing the threats of new entrants and of substitutes and by coping with the rivalry among existing competitors.

The case studies have shown that the main sources of comparative advantage are in the primary activities of production and marketing, with little advantage deriving from the availability of support services such as the providers of purchased inputs and infrastructure. The advantage has been derived from lower-order factors such as low labour costs or cheap raw materials, factors which are relatively easy to imitate and therefore less sustainable. The case studies have indicated that some exporting firms have striven to develop higher-order advantages through sustained and cumulative investment in physical facilities, human resource development and searching.

Making investments in technology improvement

The case studies have indicated that exporting firms maintained and improved their market position by investing in technology and making technology improvements on a continuous basis. Improvements were made either in the production processes or in products. The processes of production were improved in order to cope with pressure to keep costs at competitive levels or to improve product quality (level and consistency). These responses were derived from signals given in export markets.

Older and simpler technology has been found to have an advantage, in that local skills can operate and maintain such equipment more efficiently. The case studies have also shown that efficiency in the use of such technologies can be pushed to its limits by the demands of export markets. For instance, much of the equipment in shoe factories in Zimbabwe is old, but it is also 'appropriate' in that it is operational and is readily maintained with local skills. Productivity, measured in units such as pairs per person per day, is low by international standards (from 7 to 45, with international levels two to three times higher for comparable styles) but the total costs of production, reflecting the written-down costs of the antiquated but operational equipment and relatively low labour costs, would appear to be competitive. This situation may have been favoured by the relatively slow pace of technological innovation in the footwear industry world-wide, as noted in Chapter 4. Productivity could be improved by reducing the number of styles being produced, while cost efficiency is already being improved through more efficient stock control, a spin-off of the present tight monetary conditions. However, given the speed at which technological development in general is moving, such efforts can at best guarantee survival for a while. In the longer run, investment in newer technologies is necessary. Some firms have started to do that already. For instance, Bata installed new export production lines in Gweru in 1993 and has just commissioned a three-colour screen printer at its Kwekwe factory. Coupled with a combined lasting and two-colour plastic sole injection moulding machine, this should make it possible to attain internationally competitive productivity levels for high-fashion sports shoes and sneakers.

Technology improvements have also been made in response to rising costs of labour. In Mauritius, for instance, as labour became less abundant and labour costs started to rise, there was a shift towards less labour-intensive processes. Owing to labour scarcity and the consequent increase in salaries, the paint manufacturing firm in Mauritius has moved to the use of more powerful equipment and less manpower. Although it has a very large share of the domestic market, the paint manufacturer faces strong competition from other domestic producers. The knitwear manufacturer in Mauritius has made significant changes in process and product technologies - the use of more sophisticated equipment and increasing automation. There have also been changes in the type and quality of its products. Fancy knitwear now accounts for 60 per cent of the firm's total output. However, unlike some large leading firms in the developed countries, these changes have not been a result of large R&D investments, since they are based on imported technologies rather than development of production processes by the firms themselves.

Some firms have introduced a number of new technologies in their production processes in order to achieve higher levels of productivity and product quality. For instance, investments in more modern spinning technology in the textile industry have led to higher production rates and higher and more uniform quality than was possible with conventional ring-spinning technology.

The use of new technologies such as computers has started to spread in various fields. Computers are used for general office work in accounting and payroll functions and in some firms they are used in projecting market demand and machine inventories. Most firms also have fax facilities. The use of computers in controlling production processes was limited, although several firms were contemplating the introduction of computer control in selected production processes as a major step towards increasing efficiency, improving quality and raising productivity. The finding that micro-electronic-based technologies are being introduced selectively in some processes suggests that the further development of these technologies in Africa itself may be appropriate and perhaps unavoidable. For instance, Pack (1993) has suggested that, in the short run, relatively low rates of effective domestic protection could be granted to production based on mechanical and chemical engineering but that no protection should be given to production based on electronics or biotechnology The latter industries, it is feared, are associated with rapid changes in technology. However, the separability of these categories (mechanical versus electronic) is more questionable if micro-electronic-haled technologies are becoming widespread, albeit selectively.

Exporting firms have been investing in product design and in quality control facilities as required by export markets. Typical exporting firms have strict quality control systems in place. Quality is regarded as an important part of production, and quality standards are insisted upon at every stage of the production process. In one firm, management said that their in-house training programmes insist that quality and output go hand in hand. A trainee is only brought into the production line after achieving 75 per cent efficiency in both quality and targeted output levels. In other words, the concept of putting quality in the forefront of production is treated as a long-term strategy by companies which have been maintaining their positions in the export business. Investments in product quality sometimes involved moving from labour-intensive methods of production to more automated methods. The introduction of automatic power spraying of paint by Northern Electrical Manufacturers (NEM) of Tanzania was in this sense a necessary investment to achieve the quality standards which were required if the firm was to maintain its position in export markets.

Product design capabilities were found to be limited to copying or making minor adaptations of imported designs following the logic of import substitution. Most of the garment manufacturers said that they had no designers to speak of, except for some women's garments. The local designers generally only copy fashions and trends from overseas. Where firms have, over the years, developed design capabilities, their designs have initially been intended for the domestic market but some have been progressively adapted to the demands and specifications of external markets.

Firms which are manufacturing products whose demand characteristics are specific to the region, such as agricultural machinery, were found to have made the most consistent progress in their adaptations and design capabilities. For instance, Bain and Tinto, making agricultural machinery in Zimbabwe, have design departments staffed by highly qualified engineers and agriculturalists. Both companies have a policy of continuous improvement and innovation, not only to keep up with each other, but with an eye on the export markets in the region. During the fieldwork, it was noted that Tinto was undertaking various capital investments such as the refurbishment of the foundry at the Harare works, the installation of an arc furnace control system to improve energy efficiency and the acquisition of computer-controlled machining centres.

Larger firms have technical development departments which, beside their long-term project development, look into market requirements, especially the need for new varieties of products. However, in general R&D is done on a small scale.

Case studies revealed the introduction of new technologies such as CAD in the design functions. CAD is primarily applicable to small batch-type manufacturing organizations, since resetting becomes merely a matter of selecting and activating different computer programmes For instance, Fashion Enterprises, the leader in women's clothing in Zimbabwe, have acquired CAD/CAM facilities for their long-run production for the export markets. The company's design capabilities have been developed jointly with overseas customers or through promoting its in-house designs for both the domestic and export markets. Both Bata and Superior Shoe manufacturers in Zimbabwe have acquired their own CAD facilities, coupled to laser pattern cutters, in recent months. This technology was first introduced to the Zimbabwean shoe industry through a grant from UNIDO to the Leather Institute, the equipment being installed in the Institute's premises in Bulawayo. It is, unfortunately, not much used at present, although it is available for use by the smaller companies in the industry. The widespread application of such new technologies is still limited by various infrastructural problems.

One major obstacle to the introduction and spread of microelectronics in industry is the lack of resources and the inadequate supportive infrastructure (e.g. constant telephone interruptions and power failures) resulting in constant machinery breakdowns. The telecommunications infrastructure needed for data transmission between user and producer is non-existent or malfunctioning. Already there are problems of inadequate software and difficulties in obtaining specialized components. Moreover, low levels of education mean that most workers are not easily trainable to handle or operate new technologies.

The case studies have shown that firms which maintained or improved their position in export markets had a way of accessing information on changes in technology. The common information channels were international industry journals, international trade fairs and membership of international industry associations. However, it was found that there is very little support by the government and other public institutions in this area. The subsidiaries of TNCs had an edge on other firms because of their connections with the parent companies abroad.

Exporting firms in which important technological functions are performed by foreign individuals and/or firms can have good export performances without necessarily building the local core capabilities which are needed to sustain exports. This phenomenon was found largely in subsidiaries of TNCs. Technological capabilities tend to be limited, since the parent company is responsible for recommending the selection of technology and the recommendations are ordinarily followed by the subsidiaries. The parent companies provide the subsidiaries with the necessary product designs and drawings (e.g. Uniwax of the Ivory Coast gets its product designs from Vlisco of Holland). The subsidiary firms therefore undertake very little technical innovation. At best they possess a technical workshop which undertakes some maintenance and the processing and preparation of designs received from the parent companies. This lack of their own technological capabilities is reflected in the high royalties and technical assistance fees paid by the subsidiary companies to their parent companies, as shown by the case study on the Ivory Coast.

However, it was found that in subsidiaries which had activities which were rather singular, in that they had no exact replica in the activities of the TNC, there was greater willingness to invest in local adaptations and in the development of local technological capabilities. The circumstances make it imperative for the local subsidiary to make modifications and innovations, as the case of Del Monte of Kenya has shown. Many vital pieces of machinery unique to the pineapple industry are made at the firm's own machine fabrication workshop. This innovative workshop produces massive, 120-feet-span boom harvesters in addition to fumigators tailored to local conditions. Some in-house modifications have also been made to mechanical slicers, crushers and sterilizers/coolers. The in-house equipment, though slightly inferior in engineering efficiency, was said 17, to be more reliable, easily serviceable and more cost-effective. In addition, a sugar recovery plant uses waste pineapple skins to manufacture high-grade refined sugar. The refinery provides 20 per cent of the cannery's sugar needs and has helped the company to integrate its activities.

The position of those who have argued that TNCs and their subsidiaries can be effective vehicles for raising productivity because they choose appropriate factor proportions, provide advice on the purchase of appropriate equipment and can advise on marketing (e.g. Pack, 1993) is supported by evidence from this category of TNCs. But the findings from the case studies do not seem to support this position as a generalization for all TNC activities in Africa.

Human resource development as investing in learning

Improvements in the production processes or product technology need to be accompanied by a labour force which has the skills to utilize such technologies efficiently. It was found that many exporting firms maintained or improved their position in export markets by investing in training the workforce and upgrading in-house labour skills and by making efforts to engage expatriate staff for selected activities for which local personnel did not have the requisite capabilities.

It has been pointed out in the previous section that firms have maintained their positions in export markets by making continuous investments in technological upgrading. The human resource requirements to cope with these technologies are also changing. The case studies have shown that the level of formal education among the recruited workers has been rising. The firms indicated that this has been encouraged by the need for flexible labour skills and rapid learning to operate new machinery and more sophisticated technologies. Thus firms which were recruiting primary-school levers in low-skill jobs are now recruiting secondary-school levers (holders of 'O' level or 'A' level certificates). Graduates are increasingly replacing secondary-school levers for middle-level jobs. These trends imply that industrial demands for higher educational levels will have to be met by further investments in education. Governments may be called on to take the lead in this respect. In the light of these findings, the suggestion that African manufacturing should make intensive use of unskilled labour (e.g. by Pack, 1993) should be received with great caution.

The case studies have shown that various forms of training, in-house, in specialized local institutions and in other countries, were used to enhance production capabilities. Many exporting firms have an elaborate training programme and their production managers indicated that trained labour was an important requirement if the firm was to achieve its production and export targets. Overseas training is expensive and has therefore largely been confined to a few managerial and specialized technical and professional skills. Local training in technical and professional institutions had catered for the training of the majority of staff. A major limitation which came out in the case studies is the absence of specialist institutions for specific industries to teach subjects such as textiles technology, and garment- and shoe-manufacturing technical skills. Lower-level skills were acquired through in-house training, either within the production facility or in the firm's training institute, for those which had one. This is an area in which investments by the state will be necessary.

Interactions with foreign partners was found to have enhanced managerial and technological capabilities but only under certain conditions. Top management or entrepreneurs who had previous experience in commerce and/or industry tended to accumulate learning faster. Their visits abroad could be a useful eye-opener when such visits were well targeted (the experience of NEM of Tanzania being a good case in point). The training of local personnel to replace expatriates was found to be more rigorous in TNC subsidiaries. These firms could take advantage of their greater size to achieve economies of training.

Where the subsidiaries were set up to do simple assembly work and sell primarily in the domestic market, very little learning took place. The main motivation in these cases was to gain access to the market of the country in which the assembly activities were located and to neighbouring countries whose domestic markets were not big enough to warrant the setting up of similar assembly activities (e.g. exports to Burundi by Matsushita Electrical Manufacturing Co. in Tanzania). The kinds and level of skills that were required were rather low and could be acquired in-house through on-the-job training without requiring any high level of formal or professional training. In spite of the emphasis these firms placed on local training, there were fewer opportunities for the indigenous workers to upgrade themselves technologically. This is partly because they worked on assembly lines which were labour-intensive and in the least skill-intensive parts of the production process. There is thus little incentive to search for or train more skilled operators and technicians. Recruitment has thus been focused mainly on primary-school levers (seven years of schooling) who are then trained on the job. The lack of opportunities is also partly because the areas with the greatest potential for enhancing capability acquisition are reserved for expatriate personnel. For instance, in the case of Matsushita Electrical Manufacturer in Tanzania, the top management is foreign and most of the training for local workers has therefore focused on manual skills. There has been little training to enhance indigenous management, administrative and marketing capabilities.

The TNCs which were manufacturing locally for world markets were making considerable investments in training. For instance, Del Monte of Kenya placed great emphasis on training local employees in all relevant fields, on both the management and technical sides of its operations. Employees in the agricultural, canned foods processing, management, finance and accounting departments of the firm are all likely to go through the company's training department at least once in their careers. Their training needs are assessed every year. The firm uses both in-house and local training institutions and works closely with the government's Management Training and Advisory Centre, the Directorate of Industrial Training and the Kenya Polytechnic. The firm's internal courses are supplemented by on-going local management programmes conducted by reputable local firms, and several staff members are sent overseas for further training and practical experience within the Del Monte network every year. These on-going training programmes have enabled Kenyans to take up senior posts. In the past two years, the number of expatriate employees has dropped from 20 to 9, all of whom hold highly technical or senior management positions. The productivity of labour also increased. Between 1980 and 1990, the total labour force increased by 20 per cent, while canned pineapple production increased by 142 per cent, leading to a decline in the share of labour costs in total output from 10.4 per cent in 1970 to 7.1 per cent in 1990.

As the case studies have indicated, training is an important source of capability acquisition for even low-technology activities. With the emergence of new technologies, the demands for higher levels of education and professional training are increasing. Many firms have made investments in staff training but this is largely on-the job training and other kinds of short-term training which may not be sufficient to develop the capabilities to handle the more demanding stages of industrial development. Many firms could not train their staff at a higher technical or professional level because they lack resources and face the risk of losing staff after training them. Training within firms can expand the base of required human resources but it cannot be a substitute for investment in basic and higher formal education for higher-level managerial and technical personnel. At higher levels of industrialization, the demands for government intervention in investment on education, especially in technical and engineering areas, is likely to increase. There is a strong case for the government to provide the levels of formal education and training needed to acquire industrial capabilities.

Organization of production

A new technology may or may not conform to the core capabilities of a firm. If it does not, a change in some of the core capabilities may be required. A change in management and organization systems is often necessary. In the long term, organizational changes are needed to enhance dynamic innovative capabilities.

The case studies show that some of the firms which were maintaining their positions in the export markets through undertaking continuous investments in technology, training and marketing had also taken initiatives to change the way they organized production. For example, Bain of Zimbabwe has benefited in recent years from an International Trade Centre project which seconded a master welder to assist in improving performance on the shop floor. Apart from offering training in welding skills and suggesting changes in component design to improve weld strength and overall finish, the person concerned also made suggestions about plant layout, handling equipment and maintenance. The changes implemented have had a marked effect on efficiency. In response to increasing competition, Tinto has taken steps to improve its production management system. By employing a local consulting organization, the Kawasaki Production System has been introduced. This is essentially a 'just-in-time' production system, which has been particularly successful in improving productivity and efficiency at the Norton factory. There have been significant financial savings from reducing the amount of work in progress, which has also allowed for a 60 per cent reduction in working space.

Investing in marketing capabilities

Firms which invested in marketing, either by building in-house capabilities or by engaging various types of marketing services, managed to follow changes in the export markets and to make adjustments in response to the signals which came from the market.

Investments in marketing have taken the form of building in-house capabilities by strengthening marketing departments. Firms chose one or more of the following channels for marketing their products in export markets: using overseas agents, making direct contacts with some chain stores, posting their own agents in export markets and relying on the assistance of national external trade institutions.

Larger companies were more likely to be able to afford to set up their own agents in marketing offices in the export market. The subsidiaries of TNCs had an advantage in that they already had established offices which could handle marketing functions in many countries.

Some firms continued to sell in export markets, even at a loss, for the sake of maintaining their market positions while they were making the investments in technology necessary to improve their competitiveness. This kind of exporting at a loss is an investment, provided it is a matter of temporarily holding onto export markets while specific core capabilities are being built or strengthened.

Small and medium-size firms may find the investments needed to build core capabilities in marketing beyond their means. In these cases public institutions for handling trade matters such as organizing trade fairs and establishing contacts can be very useful. Institutions such as ZimTrade of Zimbabwe, the Board of External Trade in Tanzania and the Kenya External Trade Authority were established to play that role. Many firms in the case studies benefited from the services of these institutions but it was often said that their effectiveness needs improvement.

The trade-production nexus

The trade-production nexus was manifested in two forms. First, the contacts which were made in the trading phase with consumers or with suppliers enabled firms to accumulate capabilities and knowledge about the characteristics of the markets and of suppliers. These contacts were a useful asset when these firms entered the manufacturing stage. Second, as some firms shifted from trading to manufacturing, part of the family continued with trading activities and some of them were located abroad. The local manufacturing firms then made use of the family connections, who acted as trusted agents and 'marketing offices' abroad. Networking with family members in foreign countries has been useful in getting access to information about market opportunities and sources of technology. Such family connections were found very effective in Mauritius, in Zimbabwe within the white community and in Tanzania and Kenya within the Asian community. A large number of these contacts were retained and operated as networks through which new ideas about changing technological and marketing conditions were disseminated, contributing to the improvement of firms' positions in export markets.

Exporting firms which are subsidiaries of TNCs have benefited from a production-trade nexus of a different kind. Through their global networks of companies, TNCs in resource-based activities have engaged in the production and processing of primary resources and trading in the final products. Either they control the source of raw materials by developing their own plantations or, by establishing processing activities at the source of the raw materials, they have priority over procurement. For instance, the production of cotton is highly dispersed world-wide but its marketing is concentrated in the hands of a few big traders (notably 15 cotton traders of whom two are European companies, eight are US companies and five are Japanese trading houses). The coffee market is dominated by a few trading companies (General Foods, Nestlé, Suchard).

Even in areas where TNCs used to procure the raw materials from local producers, technological developments are opening up possibilities for them to establish their own plantations. For instance, tissue-culture coffee trees have already been planted in large plantations (mainly by multinationals such as Nestlé) in Malaysia, Singapore and Indonesia with an eye on the Japanese market (Brown and Tiffen, 1992). Trading activities are also carried out by their own companies.

In clothing production, barriers to entry are low, but in the garment trade large OECD-based buying groups dominate the market, using their vast purchasing power to influence the design, quality and price of garments. The degree of concentration in international buying is very high, so, instead of making direct investments, buying groups use their assets to undertake non-equity forms of investment in developing countries, mainly in the form of international subcontracting and licensing of trade marks and brand names (OECD, 1989).

How some firms lose ground in export markets

The case studies have yielded some insights into the conditions under which firms which were once exporters to regional and international markets have lost or are losing ground in these markets.

Failure to cope with changing technology

Failure to keep pace with changes in production process technology was often reflected in uncompetitive costs of production and/or deficiencies in product quality. Some firms had made initial investments in labour-based production processes to take advantage of relatively low labour costs. However, the state of technology changed and such methods could not provide the quality and precision now required in finished products. Investment in more automated production methods became necessary. Those firms that failed to make these investments lost their markets because they could not meet the product quality demands of export markets.

There are several factors which inhibited investments in improved technologies. Some firms did not have search mechanisms for information on changing technological and market conditions and did not keep abreast of the technological trends in their industries. The gap had not been filled by any institutional arrangements initiated by governments or industry associations. Some firms had not made any investments in improved technology for lack of foreign exchange or of accumulated profits which could be ploughed back into the enterprises. Such firms had either accumulated losses or had failed to generate profits for a long time. Some firms had suffered from the effects of rigid price controls but others had been operating at low capacity utilization rates for a long time for various reasons. Firms which had been in financial problems for a long time had eroded their capacity to make any significant investments in capital equipment, training and innovations. Investment in general had been low or stagnant.

For instance, it was found that Tanganyika Textiles used to export vikoy, mainly to the Muslim community in Kenya, but it has been pushed out of that export market mainly because it could not modernize its 1959 labour-intensive textile technology. Capacity utilization rates have been falling during the last decade, from about 41 per cent in 1980 to around 20 per cent in 1993, leaving the firm too under-capitalized to modernize its technology in any substantial way. Competitors' finished products were perceived as being of higher quality and the export price could not cover the firm's costs of production. Although the collapse of its export market (in Kenya) was triggered by the collapse of the East African Community in 1977, this may have been only the last straw. In fact the firm has not recovered since then and in the meantime Kenya has developed its own textile base. Even in the domestic market this firm is losing its market share to imports from Southeast Asia.

After 1985, one manufacturer of kangas in Kenya (Rivatex) started to lose its markets in the Middle East and to some extent in Tanzania to the Far East, where prices were more competitive. While Rivatex was selling kangas at US$3.20 per pair, similar products from the Far East were selling at US$1.70 per pair. This loss of competitiveness is partly due to lack of technological improvements or innovations over time. The firm's ability to make investments in technology had been eroded by the rising costs of debt servicing on loans denominated in foreign exchange (between 1976 and 1992 the Kenya Shilling depreciated substantially against the Deutschmark). The firm has failed to inject new capital, to modernize its machinery, or to finance training programmes for its staff.

In the import liberalization phase, some firms which had operated profitably in protected domestic markets found it difficult to compete with imports. In response, instead of making efforts to improve their competitiveness, some firms resorted to export markets with the help of channels which were not strictly commercial, e.g. religious groups or charity organizations. This strategy seemed to work for a while but it could not be sustained. This indicates that losers in the domestic markets are not likely to succeed by seeking refuge in export markets, even if it may seem possible at first.

Some firms were found to be putting considerable effort into improving their competitiveness but the results in terms of export performance did not seem to be commensurate to their efforts. Two categories of reasons were identified in the case studies. First, it was found that the efforts these firms were making were blunted by the inadequacy of infrastructural and institutional support, which ordinarily originates from outside the firms. Second, the basic limitations in the technologies the firms were using were not being tackled. Instead, futile efforts were made in more peripheral aspects of technology. This situation was particularly present in areas in which technology had changed to the extent that high product quality was no longer being attained by highly skilled labour working' with labour-intensive technologies but rather by the use of microelectronic controls. In such cases, further investment in training labour and perfecting skills in the labour-intensive methods could not yield much fruit. These firms succeeded in reducing costs and improving product quality but these achievements did not meet the requirements of international markets. This points to the limitations of small-scale, labour-intensive operations, in specific industry contexts, in producing high-quality products for the international market. Investments in more radical changes in technology were needed. This underscores the importance of understanding the pace and trends of technology development elsewhere, as a guide to the kinds of investment that must be made to create and develop new technological capabilities.

The case studies have also shown that technological changes in the materials used in production have undermined the competitiveness of firms which had based their competitive strength on cheap local resources. For instance, Orbit-sports of Kenya had gained a competitive advantage in exporting balls under licence from Adidas. This advantage was based on the domestic availability of cheap, high-quality leather. As a consequence of technological developments in materials, Adidas recommended a shift from leather to synthetic, non-woven fabrics. The problem has been aggravated by high import duties on imported synthetic materials. The firm has been losing some export orders to competitors from Asia and Europe.

Import substitution in importing countries

The countries which had made an earlier start on industrialization in Africa found their export markets in the neighbouring countries, whose level of industrial development was lower. Some of these regional markets have been lost as neighbouring countries decided to establish and protect their own industries. While this may be a necessary step towards industrialization, it poses the question of whether industrialization might not be better pursued within regional cooperation arrangements which could reduce duplication of productive capacities within the cooperating regions.

Problems of reliability of supply and quality of local inputs

Substitution of local inputs for imported inputs has been one innovative step taken to cut down costs or as a survival strategy in the face of import controls. For example, the shift in textiles in Tanzania, from using imported rayon to local cotton, and from imported starch to local cassava starch, was stimulated by cost-cutting considerations and responses to import controls. These modifications have resulted in a considerable reduction in production costs, as import content was lowered. But these are one-off cost cutting innovations and do not necessarily represent continuous efforts. In the past some of these innovations were made in response to foreign exchange constraints. As competitive pressures build up, with import liberalization and competition from export markets, product quality considerations are gaining in importance. Where such import substituting innovations had compromised product quality, these innovations are being reversed.

The case studies have shown that some exporting firms failed to meet product quality requirements or delivery times because of the low quality of local inputs and unreliability of supply. Firms which could not obtain good-quality inputs found it difficult to maintain their position in export markets. This has some similarities to findings on the Colombian clothing industry by Morawetz (1981).2 He made a comparison of Colombian and East Asian clothing exporters and found that, in early 1977, Colombian exporters were offering prices for jeans and shirts which were 44 per cent higher than prices from Korea, 25 per cent higher than Hong Kong and 11 per cent higher than Taiwan. One explanation of the lack of competitiveness of Colombian firms was the price and quality of their inputs. While East Asian firms obtained good-quality fabrics at world prices, the Colombian firms bought from domestic producers at prices 50-108 per cent higher than the world prices. These producers were protected and were too small to take advantage of economies of scale. Locally made zippers and threads in Colombia were two to three times the world price. The case studies suggest that the African situation is quite close to the Colombian one.

The industries which are supplying inputs to the exporting firms have more often developed monopolistic and protectionist structures than competitive ones. In Zimbabwe, for instance, there are about 250 garment manufacturing firms which get their fabrics from only five textile firms. There is little competition between these firms, since two of them account for 60 per cent of the total output of the sector. The local grey cloth which the textile mills manufacture is not competitive in the world market and it is difficult for those using this grey cloth as an input to face competition in export markets successfully.

This implies that local availability of inputs and linkages in the domestic economy are not always a blessing. If the firms using, local inputs have to be competitive, the efficiency of the supplying firms and supporting institutions also needs to be ensured.

The lack of specialization

The case studies have indicated that the degree of specialization in many firms was limited by two considerations: the size and stability of the markets which the firms had decided to target and the supply conditions in the supportive industries, especially those producing inputs.

Target market conditions were crucial determinants of specialization for firms which were primarily targeting domestic markets and became exporters at a later date. While supplying the domestic markets, these firms adopted the diversification strategy as a growth path where domestic markets for particular products were very small (e.g. NEM and Themi in Tanzania and the fertilizer and paints manufacturers in Mauritius). While these firms extended from domestic markets to exports they retained the wide variety of products they were manufacturing. Firms which targeted the export market from the outset tended to be more specialized than those which were primarily catering for the domestic market.

Product diversification has presented further challenges: shorter production runs, the associated loss of economies of scale and having to cope with requirements of marketing. The case studies have identified the lack of specialization as one factor which inhibited attainment of international competitiveness. The textile firms (e.g. those owned by the government in Kenya) had a low average size, of about eight thousand spindles per mill, compared to the minimum economic size of a spinning plant of 25-30 thousand spindles. These findings are corroborated by a previous study of the textile industry in Kenya (Pack, 1987).3 That study employed engineering and economic data to analyse the deviation of textile plants (in Kenya and Philippines) from international best practice. The lack of specialization was identified as the main source of such deviation. Excessive diversification of products (partly reflecting tariff protection) and the consequent short production runs accounted for considerable inefficiency.

Facing the absence of reliable networks for input supplies, some firms have taken steps in-house to tackle the problem. Diversification in the form of vertical integration has been adopted as one way of ensuring reliability in the supply of inputs. For instance, some clothing firms (e.g. Fashion Enterprises of Zimbabwe) have solved the problem of unreliable supply of fabrics by establishing their own fabrics-manufacturing units to guarantee quality and reliability of supply. While this kind of diversification increases reliability of input supplies, it has often led to higher costs. Where the domestic market has been protected, such costs could be passed on to consumers. In the export business, however, this may not be possible. Some firms have tried to check costs by creating autonomous production units under one group of companies. While this option has been feasible for large corporations operating a group of companies, it is more difficult for smaller firms.

Failure to cope with changing market conditions

Employment of high technology may be a necessary condition but it is by no means sufficient. Faulty marketing strategy and failure to develop the necessary marketing capabilities have led to disaster in spite of having invested in modern and advanced technology. For instance, the manufacture of cloth for shirts and trousers started in Mauritius in 1990 as a significant move towards high fashion and high-technology production in clothing manufacture and exports. The firm was equipped with the latest textile machinery available on the European market. However, due to a defective marketing strategy and a narrow and excessively concentrated customer base, sales collapsed and the firm was placed in receivership barely two years after its creation.

Linkages and supporting industries

Inter-firm linkages

The study found that internal linkages (i.e. within the country) are limited. While there were some linkages among firms which shared premises in the industrial estates, there were only isolated cases of subcontracting arrangements outside these networks. There is little subcontracting or local procurement of manufactured inputs in the exporting firms. Large firms have only infrequent relations with small firms except for the purchase of some repair and maintenance services. Information and technology diffusion among firms is minimal except for very informal channels.

Several factors explain this situation. First, import dependence over a long time has pre-empted the search for local alternative linkages. For instance, in the eases of NEM, Afrocooling and Matsushita, the lack of linkages reflects the pattern of import substitution industrialization which emphasizes import-dependent assembly. Second, access to tied donor finance reduced the need to search for local sources of supply. Third, the capability to search for various local suppliers had not been developed. Fourth, some firms competed with their potential suppliers of technological services rather than being assisted by them. For instance' Themi of Tanzania produced farm implements, some at least of which were also being produced for the domestic market by two research and development institutions. The competitive relationship between the firm and the institutions which are supposed to provide technological services was not conducive to the development of technological linkages between them. Lastly, poor inter-sectoral linkages may reflect poor infrastructural facilities for small firms, biases in policies and in credit markets and the lack of an extension network.

Industry associations had made attempts to promote interactions among local firms by harmonizing production processes (e.g. identification of excess capacity in individual firms and possibilities of subcontracting, trading in spares, joint quality control, etc.). The ease studies showed that in isolated incidents firms which receive large export orders have subcontracted some of the work to other firms. Inter-firm trade in unfinished products is very rare.

The creation of linkages or establishment of input-producing activities, have been influenced by government policy. For instance, in the case of textiles and brewing, the establishment of some input-supplying activities was influenced by government policies discouraging imports (e.g. yarn and malt in Nigeria). Some of these firms have achieved such tremendous expansion that they now export as well as selling on the local market. In the case of the brewing industry in Nigeria, the search for local alternatives was intensified with the introduction of restrictions on importing barley. Increasing success with local substitutes for barley malt improved the capacity utilization rate for the industry. The search for local substitutes for imported barley malt involved most of the firms in investment in R&D, as well as substantial plant conversion. Their efforts were complemented by the independent research endeavour at the Federal Institute of Industrial Research, Oshodi (FIIRO), which, through some of its research report series, demonstrated that lager beer could be produced using only sorghum. Today, most of the more successful firms use maize and sorghum in their beer production process.

Buyer-consumer links

The case studies found that buyers and consumers of the firms' products provided useful market information. They were very instrumental in inducing product quality improvements. The interaction with export markets, which are more demanding, was particularly effective in this respect.

Linkages with marketing agents have been common among exporting firms which are not large enough to afford large investments in building their marketing capabilities. The role of marketing agents had been observed to be important in South Korea but there seems to be one difference; that is, Korean firms selectively let foreign buyers do much of the marketing during the early stages of export development but this role was gradually transferred to the firms or to local trading institutions. This progressive transfer process does not seem to have taken place as yet except for some firms in Mauritius.

Infrastructural problems

Various problems of infrastructure have been pointed out in the country studies as obstacles to the attainment and maintenance of competitiveness in export markets. Supportive infrastructure is an important prerequisite for successful exporting. Expensive, sporadic and unreliable transport and communications are a serious impediment to the exporters of non-traditional goods. Reliability of delivery is also critical. High transport costs contribute greatly to the lack of competitiveness of exports. Poor telecommunications and constant power and water interruptions also raise the costs of doing business and compound the problem of lack of information. To obtain electricity, some firms had to purchase generators or other equipment which is ordinarily supposed to be purchased by the national electricity supply authorities. This added unnecessary costs to the operations of the firms.

Information flow is very important if firms are to respond to opportunities which arise from time to time. It was one thing to introduce supportive facilities, it is another to make full use of the facility. Some firms were found not to be aware of the existence of some of the facilities which were supposed to assist them.

The influence of policy on firms' export activity

The macro and sectoral policy environment in which exporting firms have been operating has an influence on decisions taken by firms.

Import policies

Import policies have been mentioned as important in influencing the performance of exporting firms. The competitiveness of some exporting firms was undermined by high duties on imported inputs or difficulties of access to quality inputs required to meet export orders. This study has also revealed that there are cases in which government support had favoured subsidiaries of TNCs which were in competition with local firms. For instance, Cosmivoire would have performed better if the government had been able to guarantee fair competition within its sector: its main competitor is a subsidiary of a powerful multinational which receives many advantages from the government. In the case of Kenya, Sharpley and Lewis (1990)4 have pointed out that the rate of effective protection for foreign private firms (averaging 57 per cent) and especially parastatal enterprises (65 per cent) was considerably higher than for local firms (35 per cent).

One major problem mentioned by all firms in the sample is that of cumbersome, bureaucratic and lengthy procedures for licensing, access to credit and foreign exchange, and export documentation. Some exporters have to travel long distances from the regions to the capital city simply to register themselves. There are also still tight bureaucratic bottlenecks in foreign exchange allocation, resulting in long lead times for imports. Such long and cumbersome procedures involving many institutions impose extra implicit costs (in terms of delays, etc.) on exporters. Delays could be even more disastrous for risk exports such as fresh fruits and fish. Some country studies have proposed the establishment of some kind of export centre which would offer at one location a package of relevant export services such as registration, licensing, proofs of ownership, export advice and export promotion.

Bureaucratic delays at Customs and related obstructionist tendencies increased the operating costs in many ways, making it less attractive for exporting firms to export, or to import in order to export. For instance, several respondents complained about Customs' insistence on sticking to the letter of their duties, even when there is little or no customs revenue involved and delays could cost the country not just one particular export order but perhaps a valuable relationship with an overseas client. For example, in preparing an export order for the UK, Bata was requested to tag the shoes with bar codes. As these could not be produced in Zimbabwe, Bata requested their UK customer to supply the tags, which were duly sent but then seized by Customs and held while they decided what tariff to apply. In the process Bata's ability to meet the deadline was threatened. Similar experiences have been cited in respect of the Customs handling of samples.

Under very restrictive import control regimes, the incentive offered by export retention schemes (where exporters could retain a portion of their foreign exchange earnings to pay for imported inputs) was quite effective (e.g. Tanzania, Zimbabwe). While export retention schemes (ERSs) made it easier for exporting firms to import the inputs they required, the consequences of the schemes were not always positive. Their implementation had side-effects associated with market distortions. The case studies showed that some exporting firms had 'over-responded' to this kind of incentive by selling to the export markets at a financial loss (at the official exchange rate) and by diverting a greater part of their output to exports even if the domestic market was deprived.

The handling of foreign exchange by individual units raises some longer-term concerns. For instance, the case of Zimbabwe has shown that the trend towards individual farmer control over foreign currency could undermine the capacity to support agriculture on a sector-wide basis with adequate supplies of inputs. Not only is it inefficient for companies to go through all the export procedures for each individual farmer, but individual access to foreign currency is leading individual farmers to keep significant stocks of spare parts, while the agent has virtually none. From all points of view (the individual farmer, the agricultural support sector and the nation), this case study found that these unintended consequences of the ERS system amount to a highly inefficient use of foreign exchange resources. The weakening of agricultural support companies not only makes it more difficult for them to compete in export markets, it also disadvantages farmers who produce mainly for the domestic market and do not have access to ERS funds. These disadvantages have led to some policy changes in which tradable ERS funds have become available and are widely used, alleviating these problems.

Trade liberalization

Trade liberalization measures were found to have been implemented in most case study countries in the 1980s. Trade liberalization introduces competitive pressures which may stimulate firms to build capabilities to cope with the new situation but it also carries the potential dangers of deindustrialization, exposes the fragile manufacturing sector to the danger of dumping and other external trade practices and may make it difficult to address major gaps in the sector. The implications of liberalization measures and their impact on the competitiveness of exporting firms varied. Three types of import liberalization regimes were identified in the case studies.

The first regime is represented by countries like the Ivory Coast and, to a lesser extent, Kenya, which were already fairly open. Import liberalization merely lowered and rationalized some tariffs but did not represent a major shock for industrial firms. The second regime is that of countries like Tanzania, where quantitative restrictions on imports had been quite pervasive, so that import liberalization came as a major policy shift. Competition from imports came suddenly, not giving much time for adjustment to the new competitive environment. In the case of Nigeria, the end of the oil boom around 1980 led to extensive use of tariffs and quantitative restrictions. The various foreign exchange conservation measures implemented in the period 1982-85 meant that several industries which were dependent on imported inputs had to operate considerably below capacity, hence reducing growth and worsening unemployment. The adoption of the SAP in 1986 represented a fundamental shift in the basic philosophy of economic management at the national level. The reforms include the adoption of a largely market-determined exchange rate and the removal or relaxation of quantitative restrictions on many tradable goods.

The third regime is represented by Zimbabwe and Mauritius, in which the implementation of trade liberalization was managed more selectively in a situation where the export sector was already quite diversified and firms had attained a reasonable degree of competitiveness. Trade liberalization had a constructive effect in that firms were given adequate time to make adjustments. In Zimbabwe, for instance, import liberalization started with imported inputs through some form of an open general import licence system. The users of these inputs were made aware that the next phase of import liberalization would be applied to outputs. This message induced many firms to invest in technological improvements of various kinds in anticipation of a more competitive environment. Managed import liberalization stands a better chance of providing an opportunity and incentive for firms to build up capabilities which can cope with a more competitive environment.

The influx of imports in the liberalization phase took part of firms' market shares, forcing them to look for new markets abroad. This could be the beginning of intra-industry trade as practiced in the more developed countries, or it could be a futile attempt to conceal inherent inefficiency. In the latter case, such survival would at best be short-lived. In the former case, the level of competitiveness of the firm could be raised if this move meant that less efficient lines of production contracted while more efficient lines expanded and further improved their competitiveness.

Pricing policies

Pricing policies may influence the prices of inputs or outputs of firms. Price controls on inputs affect the cost competitiveness of firms, while price controls on outputs affect the revenue side. The case studies showed that some exporting firms had to procure local inputs (e.g. cotton, palm oil) at prices well above their world market prices, putting users of these inputs at a relative disadvantage to their competitors in export markets. It was pointed out that local users of cotton (e.g. textile firms in Zimbabwe) and steel (e.g. manufacturers of agricultural machinery in Zimbabwe) were paying more for these local inputs than their competitors (in the importing countries) were paying for the same inputs.

Some firms had access to inputs at prices which were lower than the world market prices. For instance, in addition to the fiscal advantages provided by the 1959 investment code, a setting-up agreement signed between Capral-Nestlé and the Ivory Coast government allowed the firm to buy green coffee at local prices, which are sometimes as low as one third or one quarter of world prices. However, in 1984 the government put an end to this arrangement and the fiscal advantages under the investment code expired at the same time.

Rigid price controls on output can run down an otherwise profitable firm to near collapse by depriving it of the resources to plough back into investment in general and technology in particular. For example, in one case it was pointed out that for over eight years the government had failed to adjust prices to levels that would turn around the firm's performance, making it difficult for the firm (Bamburi of Kenya) to secure financial assistance to refurbish the plant. Continuing under-capitalization of the firm placed it in an increasingly poor position, threatening to wipe out its exports.

Pricing, however, has also been used positively to encourage firms to increase efficiency and attain competitiveness in export markets, as in the case of agricultural machinery manufacturers in Zimbabwe. Altering the generous cost-plus pricing system (by allowing lower prices) exposed long-term weaknesses in the firms, which led to the adoption of more cost-effective production methods (Riddell, 1990, pp. 354-8). Some of the actions taken include expansion into the export market, reorganizing production lines to a continuous flow system, staff training and recruitment of more skilled personnel, leading to higher-quality products and improved designs of traditional lines.

Fiscal and monetary policies

High interest rates reduced economic access to export finance and other working capital requirements. High interest rates made working capital and fixed investments more expensive, leading to the postponement of some investments in technology. Affordability becomes more of a problem than availability. In such situations subsidiary companies have an advantage in receiving soft loans from their mother companies.

Provisions for tax rebates or drawback schemes were evidenced in the country case studies. However, implementation has not been commensurate with the intentions of such schemes. The problem of bureaucratic delays in paying export incentives was particularly noted in the case of exporting firms, in all country case studies except Mauritius. The effect of bureaucratic delays was to reduce the effectiveness of whatever export incentives had been put in place.

Relationship between government and the enterprise sector

The relationship between government and the enterprise sector influences cooperation with the enterprise sector and the effectiveness of government policy. In three cases it was found that the rapport between the government and the enterprise sector was good and consultations were made between them on a regular basis. In the case of Zimbabwe during the Unilateral Declaration of Independence (UDI) period, the industrialists and the government of the day shared a determination to overcome the impact of sanctions which the international community had imposed on the then Rhodesia. The system of controls was made to operate effectively and the highly protected system that they constituted did not lead to the gross inefficiency which has characterized other import substitution regimes. The need to adapt and innovate led to the development of a wide range of technical skills, particularly in various branches of engineering. The strong orientation to market requirements led to a proliferation of products, often produced within large, vertically integrated conglomerates.

In the case of Mauritius the government and the enterprise sector cooperated in many ways and held consultations on matters affecting industry. Government policy facilitated the process by which local entrepreneurs continuously gained control of industrial development. In the Ivory Coast the government worked with and was supportive of enterprise sector development in a way which did not threaten the main actors in industry, even if they were non-lvorians.

In the other three countries (Tanzania, Kenya and Nigeria) and the post-independence Zimbabwe, the relationship between government and the enterprise sector (or significant parts of it) was less cordial. Government intervention in industrial development was perceived as intending to address imbalances in society, as a result of which some leading actors in industrial development could be losers. In Tanzania the nationalization policy and the socialist policy were perceived as a threat to the private sector. In Kenya the way the Africanization policy was introduced and practiced was perceived as a threat to the Asian community, who were the leading local private-sector industrialist group. The indigenization policy in Nigeria posed a threat to some foreign investors. In post-independence Zimbabwe, too, the relationship between government and sections of the enterprise sector became less cordial as the government began to address some imbalances in society. The leading white community entrepreneurs perceived that they would be the losers. The application of controls in the absence of the rapport with the private sector that had existed under the previous regime, and the introduction of new controls on wages and labour relations, led to a situation in which bureaucracy became a major obstacle to the running of any kind of economic enterprise.