This autumn the World Bank published its regular report on the economies of the Western Balkans, and its special topic is titled From Market Entry to Sustained Exports. The authors followed exports through customs data, down to the level of individual export relationships. Thanks to that, we can see something the aggregate export figures do not show: how long a single export relationship lasts.
Firms in the region, the report says, are good at finding new markets. The report counts the link between a firm, a product and a market as one export relationship: when a firm starts exporting a product to a market where it has not exported it before, that is a new relationship. Such new relationships make up between 57 and 62 percent of all export relationships every year. Only 23 to 39 percent of them, however, survive the first year, and one to four percent make it to the fifth. Out of every ten new export relationships, six to eight end before a year has passed. Bosnia and Herzegovina was not part of the analysis, since the customs data came from Albania, Kosovo*, Montenegro, North Macedonia and Serbia. Still, it is reasonable to assume that the picture here is similar.
The report explains why a short export relationship is bad for a firm. A firm that loses a buyer quickly has no time to learn, invest, grow and develop new products, and that learning accumulates from year to year. Firms also expand into new markets gradually, one after another, so a relationship that fails in its first year often closes the way to the market that would have come next.
When they look for causes, the authors give most space to trade costs that do not come from tariffs. The average tariff in the region is around six percent. Non-tariff measures, that is, the technical regulations, sanitary controls, testing, inspections and certificates that countries in the region require for imported goods, cost on average as much as a ten percent tariff. For B&H the estimate is 11 percent, and for the EU a little over one percent. Firms in the region spend 12 to 14 percent of the value of what they import on meeting import requirements, roughly twice as much as comparable firms in the EU. Part of these costs, the authors write, comes from a weak quality infrastructure: accreditation, laboratories and market surveillance.
These costs reach exporters through their purchasing. Most of the region’s exports come from firms that import raw materials and parts and use them in production. Such firms, as it happens, keep their export relationships longer than firms that only export: 37 percent of their new export relationships survive the first year, compared with 28 percent for firms that import nothing. The report does not explain why, and the authors note that this is a correlation, with no evidence of cause. Among importing firms there is still a difference: the more regulations, controls and paperwork fall on imported materials at home, the shorter the firm’s export relationships last on average. The authors explain this through the margin. Every additional compliance cost makes the product more expensive, and an export relationship is worth keeping only as long as there is enough margin left.
For firms that export services, the costs are even higher. Restrictions on cross-border trade in services in the region are estimated to be equivalent to a 29 percent tariff. For IT firms and anyone who sells services online, the OECD Digital Services Trade Restrictiveness Index also matters. It rates how much a country’s regulations hinder such sales, on a scale from 0 (fully open) to 1 (closed). B&H scores 0.361, the highest in the region and more than three times the average of the EU countries covered (0.111). Albania and Kosovo* are at 0.061, and Montenegro at 0.083. The report does not say which regulations push the B&H score up.
The report’s recommendations are addressed to governments: review every measure, and then abolish, simplify or digitalise it, recognise it mutually with neighbours and the EU, or keep it where the benefits outweigh the costs. These changes are the job of the state and a firm cannot make them on its own, but it can still take something from the report for its everyday work. The first year with a new buyer is when most things are decided, so it pays to plan the first deal so that it can be repeated: can capacity, quality and raw material suppliers hold up for a second and a third order, and how much time and money goes into testing and certificates before the goods are shipped. Guests at the second ChallengeLab workshop said something similar, drawing on their experience with Swedish buyers: price and quality matter, but cooperation is often decided by reliable delivery, working conditions and the quality of processes. On the purchasing side, it pays to know which raw materials and parts get held up at the border and in inspections, and to build that time into delivery deadlines for the buyer. A firm can also measure its export success by the yardstick the authors propose to governments, the number of buyers who are still there two years later, and not only the number of new markets.
To finish, one question for owners and sales staff, but also for people in production, who are the first to feel it when a buyer leaves:
How many of your export buyers from a year ago are still ordering today, and what was decisive for those who left?
These are the questions around which we are bringing companies together in the Network for Internationalisation and Cooperation with Sweden on the Umreži.se platform. In the network we will go together from assessing export readiness and checking market access conditions, using suitable online tools and databases, to preparing for the first serious conversation with a partner. If the topic concerns you, express your interest at https://umrezi.se/mreze-ucenja-i-saradnje/ by scrolling down to “Internacionalizacija i saradnja sa Švedskom” and filling in the form.
* This blog was translated from Serbian using AI. Original version can be found at https://edabl.org/lakse-je-naci-kupca-u-inostranstvu-nego-ga-zadrzati/