SUPPORT SYSTEMS FOR EXPORT CONSORTIA

UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION SUPPORT SYSTEMS FOR EXPORT CONSORTIA Paul Hesp UNIDO consultant December 2005 This document sum...
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UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION

SUPPORT SYSTEMS FOR EXPORT CONSORTIA

Paul Hesp UNIDO consultant December 2005

This document summarizes the sections on support systems for export consortia in the country papers prepared for the Expert Group Meeting on the promotion of export consortia organized by the United Industrial Development Organization (UNIDO), the Italian Federation of Export Consortia (Federexport) and the Italian Institute for Foreign Trade (ICE) in Olbia, Sardinia, Italy, from 22-24 September 2005. Information on support systems in Chile and Denmark originally included in the UNIDO – Federexport publication A guide to export consortia have been added. Information on Jordan, Morocco and Tunisia has been updated in May 2007. The opinions, figures and estimates set forth are the responsibility of the authors and should not necessarily be considered as reflecting the views ore carrying endorsement of UNIDO. The designations “developed” and “developing” economies are intended for statistical convenience and do not necessarily express a judgement about the stage reached by a particular country or area in the development process. Mention of firm names or commercial products does not imply endorsement by UNIDO. This document has not been formally edited.

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Introduction1 A buoyant export sector can entail significant benefits for national economies. By serving a larger market through exports, domestic production can be increased, enterprises can reach optimum production scale without being constrained by the size of the domestic market, and industrial growth is stimulated on account of specialization. Due to the importance of exports for economic growth as well as due to the size-related difficulties of small and medium size enterprises (SMEs) to enter foreign markets, governments may perceive a need to assist SMEs in developing their export potential. SMEs’ problems to obtain credit from the banking sector to finance their export activities may be seen as an additional justification for public support to SMEs. Because of a leverage effect, assisting SMEs in a consortium2 implies a more efficient use of limited resources than intervening at the individual-firm level. Firms may be reluctant to participate in export consortia since the benefits will only fully be reaped in the long term, in the form of increased exports. Public intervention may thus be justified to demonstrate the value that inter-firm cooperation can have. This can best be achieved by following a project-oriented approach and linking subsidies to promotional activities instead of a consortium’s operating costs. Subsidies have in the past been an important incentive for enterprises to engage in export consortia. Although a specific legislation for consortia (as in Italy) is not essential, a prerequisite to avoid rent seeking is a precise and effective legislative framework for financial assistance from the public sector. Experience shows that many consortia cease operations once subsidies are withdrawn. The incentive for joining an export consortium should be the concept of inter-firm cooperation to overcome joint obstacles, not the desire to obtain subsidies. The possibility of fraud can be reduced if subsidy-granting authorities require that accounts are certified by an external accountant. An alternative to direct incentives for export consortia, which is also likely to decrease the probability of fraud, are the provision of loans at preferential interest rates and repayment terms as well as fiscal incentives. In most countries, export consortia operating on a non-profit basis are eligible for tax exemptions. Government institutions may also support consortia by providing market information or assisting the group to obtain contacts abroad. Embassies may be helpful in promoting the consortium abroad, e.g. by distributing their brochures and providing information to potential clients. The role of the public sector, if present at the outset, should diminish over time. Efficient export consortia must be able to survive without institutional support in the long run. Nevertheless, a gradual withdrawal of external assistance is essential in order to avoid disruptions in a consortium’s operations. Private associations are also well positioned to drive the consortium creation process and to ensure that the real needs of local SMEs are addressed. The relationships developed within business associations are often a first step towards the creation of a consortium. Some associations have created working groups on export promotion, which developed into embryonic export consortia.

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This section draws from the UNIDO-Federexport Guide on Export Consortia A n export consortium can be defined as a voluntary alliance of firms with the objective of promoting the export of goods and services of its members through joint actions.

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Associations support the creation of consortia by: • Organizing awareness campaigns on the benefits of export consortia; • Assisting in the identification of possible member firms; • Providing a venue for interested firms to meet; • Assisting potential members to define future activities; • Providing legal advice. In addition, they assist established consortia by: • Providing office space, computer and internet facilities as well as secretarial services; • Offering training courses; • Providing information (e.g. on possible target markets, credit facilities, etc.) • Allowing the consortium to benefit from contacts in foreign markets and/or with public authorities; • Providing a representative venue to receive foreign clients; • Assisting newly established consortia in the development and implementation of certain activities.

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1. OVERVIEW OF THE COUNTRY-LEVEL FINDINGS Support institutions and programmes The majority of agencies providing support to export consortia are to be found in the public sector. The support is always part of a wider mandate of these agencies to promote exports and/or SMEs; within that framework there may be support programmes specifically targeting export consortia, such as the programmes of Export.Ar Foundation in Argentina and the Spanish Institute for Foreign Trade. Regional Governments in Argentina, India and Italy have in recent years also become involved in export consortium promotion. The emphasis of support is usually on financial incentives. Business associations often play a key role in support to consortia, although in developing countries they may lack adequate capacities. Their contribution tends to focus on advisory and infrastructure (e.g. provision of office space) support, networking and lobbying. Where they provide financial support, this usually involves Government funds, as in Brazil, or international agencies, as in the case of the Ex-Point Programme of the EU-Turkey Business Centre. Characteristics of support Consortia may be eligible for support under programmes specifically targeting export consortia and for support under schemes promoting exports and/or SMEs in general. The focus is here on the former. • Levels of financial support Financial support can take the form of subsidies and loans (the former are more common) and usually covers only a certain percentage of the cost of consortium activities. The consortium members must supply the rest themselves. The percentage varies widely and depends on the type of activity. Occasionally, as in the case of PR costs in Brazil, a full subsidy is available. In addition to a maximum percentage there may be a maximum amount of support, as in India, where a consortium can receive a loan for 20% of a project’s cost, with a maximum of US$ 11,000. • Duration The duration of support is often limited – consortia are expected to be able to ‘stand on their own feet’ after a few years. In Chile and Spain, for example, all support is limited to a period of three years. Different time limits can be set for support for different activities: in Turkey, capital support to R&D is limited to two years, while support to the development of a strategic focus for R&D is limited to one year. • Access conditions A common requirement for access to financial support is the submission of a sound project proposal for the consortium’s activities; funds (or coaching) may be available to help firms during the preparatory stage, as in Chile. In addition, a consortium must usually have three or more members. Sometimes, as in Tunisia, the firms in the consortium must have been operational for some years to help ensure that the consortium is viable. Support under 5

programmes specifically targeting consortia is usually given only to enterprise groups that have created a legal entity separate from that of the individual firms. In India, however, individual firms in a group can benefit from consortium programmes. In countries where consortia have no specific legal status, they often face obstacles in accessing support schemes for SMEs or exports in general. • Ex ante/ex post payment of financial support In many countries, reimbursement of consortium costs takes place at the end of the year, after submission of a detailed report by the consortium. This helps to ensure financial discipline. Such ex-post payment can however be a problem for consortia of very small firms in developing countries and in the start-up phase: even if they join forces they may lack the funds needed and they may face obstacles in borrowing money. APEX-Brasil provides financial support right at the start of a consortium. Types of support Financial support Most of the financial support specifically targeted at export consortia is intended for market exploration (participation in fairs, etc) and marketing, promotion and branding. Funds that are not specifically meant for export consortia but can be accessed by them are available for a wide range of activities. Table 1 shows both types of support. Table 1: Financial incentives available to consortia, by country and activity Country Argentina Brazil Chile

Market exploration/ representation X X X

Market research/ information

Marketing/ promotion/ branding

X X

X

Denmark

Consortium management/ administration X X X

India

X

X

X

Italy Jordan

X X

X X

X X

Morocco

X

X

X

Spain Tunisia Turkey

X X X

X X X

X X X

X

X X

Other

Technological innovation Preparatory analysis, training, product improvements Feasibility studies, planning of consortium activities Product development, export infrastructure, input purchases, training, credit guarantees Training; other capacity and capability building related expenses Start-up support (computers and other office equipment) Consortium feasibility studies Creation of fashion collections R&D, training, joint workshops, testing, industrial property protection, feasibility studies, infrastructure and software support

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Technical support ‘Technical support’ is used here as a collective term for various types of advisory services (marketing, web site creation, quality control, etc.), training and infrastructure support (office space and equipment) provided by public sector agencies or associations, directly or by privatesector specialists contracted by the agencies or associations. Table 2 indicates that these services cover a wide range of consortium needs; again, the services mentioned are in many cases not specifically meant for consortia. (The direct provision of commercial business services to consortia is not included). Table 2: Technical support to consortia Country

Meetings, Training networking

Argentina Brazil

X

Italy Jordan Morocco Peru

X X X X

Tunisia

X X

Research/ Marketing/ information promotion/ branding X X X

X X

X X X

X

X X

X

Turkey

X

X

X

Uruguay

X

X

X

X

Other

General export-related consultancy Tax and legal advice Technical advice, a.o. on product standards, innovation, productivity; legal advice Strategic advice, office infrastructure, applications for subsidies Standards/specifications advice, advice on quality issues, logistics

Fiscal incentives Fiscal incentives are available to consortia in a number of countries: • • • • • •

India: import and export duty reductions/refunds. Italy: tax reductions and exemptions. Peru: tax credit, export duty refunds. Spain: special fiscal treatment of associations of economic interest. Turkey: VAT refunds. Uruguay: tax incentive for exports

These incentives do not target consortia as such; an exception is the tax exemption of consortium profits allocated to consortium reserve funds in Italy.

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2. COUNTRY INFORMATION 2.1 Argentina The Government’s export promotion agency Export.Ar Foundation (www.exportar.org.ar) and the BankBoston Foundation (www.fundacionbankboston.com.ar) have been involved in consortium building since 1998. These assist new export groups and consortia by covering around 50% of the coordinators’ (or directors’) fees for two years. Furthermore, Export.Ar Foundation offers the same services that individual exporters receive to groups and consortia: • • • •

Financial assistance to participation in trade fairs, trade missions and business meetings. Branch Promotion Plans (for leather goods, organic food, honey, agricultural machinery, etc.). Market information. Market surveys.

Some other Government agencies have started their own consortium promotion programmes: • The Secretariat for Small and Medium Enterprises runs the Proargentina programme (www.proargentina.gov.ar), which among others organizes seminars for SMEs on the advantages of export consortia and their creation. • The Government of the Province of Buenos Aires (www.gba.gov.ar) supports groups of SMEs through its Undersecretary of International Commercial Affairs. Support does not include Branch Promotion Plans, but is otherwise very similar to that offered by Export.Ar; for example, it covers 50% of group and consortia directors’ fees during two years. Provinces with similar initiatives include Cordoba, Mendoza and San Juan. An important private sector institution is ConExport Argentina (the Argentine Association of Directors of Export Groups and Consortia – www.conexportargentina.ar), established in 2002. Its main objectives are to: • Promote inter-firm cooperation and an export culture in the country; • Contribute to the improvement of the export performance of Argentine consortia; and • Lobby for laws that promote strategic alliances among firms. ConExport contributes to the training of professionals working in export consortia and aims to foster the exchange of experience by creating links to similar associations in Argentina and abroad, and establishing contacts with Chambers of Commerce and industrial associations. The Association is also creating a database on export consortia, their members and directors and has started a publicity campaign for the development of clusters and networks of SME’s through the creation of a website, a monthly newsletter, and a brochure on the member consortia and their export offer. The services ConExport Argentina can offer consortia and branch associations from other countries in Argentina include: • Commercial services (local and Mercosur representation). • Market identification. • Business promotion services.

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• Information on the Argentinian business environment. • Preparation of PR materials. In June 2003, an agreement was signed between ConExport and Italy’s Federexport (see below). The two federations intend to increase bilateral trade by jointly promoting the establishment and development of export consortia in Argentina and stimulating projects involving firms and consortia in both countries. 2.2 Brazil APEX-Brasil (www.apexbrasil.com.br), an independent agency linked to the Ministry of Development, Industry and Trade and financially supported by the Government, is responsible for export strategy and particularly supports SMEs in achieving and maintaining a competitive edge in the global market. APEX-Brasil´s financial and technical support to consortia is given through ' Consortium Export Projects' . These are one-year projects covering many of the activities mentioned above: participation in international events, market research, preparation of promotional material, etc. The various types of financial support are shown in Table 3 (the technical support covers expertise on export strategies, foreign markets, etc.). APEX-Brasil only assists consortia if there is no relevant national promotion project of the Government that they can benefit from, or if a group of companies has specific needs and needs special support, such as the many regional clusters in Brazil. Financial support can be provided right from the start of a consortium project, as small firms often have difficulties in raising the funds needed. For APEX-Brasil projects, the consortium must have at least six companies. Table 3: Brazil - financial support for export activities

TYPE OF ACTIVITY

FUNDED BY APEX-BRASIL

Market research Promotional material Trade fairs Trade missions Certification (ISO) Training for foreign trade Home page Marketing

100% 100% 50% 50% 100% 100%

ASSOCIATIONS AND COMPANIES 50% 50% 100% 100% -

Other important initiatives are: • The Brazilian Micro and Small Business Support Service (SEBRAE), which works with Brazilian clusters to build export capabilities, providing training and consultancy. • The Research and Projects Financing Agency (FINEP) financially supports technological innovation projects of consortia. 9

• The Fundação Centro de Estudos do Comércio Exterior (Foreign Trade Studies Center Foundation, FUNCEX) among others prepares studies related to consortia and foreign trade. • The Permanent SME Forum, which supports entrepreneurs and public institutions in developing a legal form for consortia. 2.3 Chile Proyectos de Fomento (PROFOs, or development projects) were introduced by the Government’s SME promotion agency SERCOTEC early 1990s. Using the sectoral committees of the Assocation of Export Manufacturers, SERCOTEC channelled funds towards groups of SMEs wishing to export. Funding was available for groups: • • •

Participating in trade fairs or arranging shipping as a group; Carrying out a SWOT analysis for the group; Developing strategies to address issues such as ISO 9000 certification, standards and quality improvements.

SERCOTEC also paid 70% of the costs of a promoter or group manager for the first three years and subsidized the hiring of consultants to diagnose problems and to help initiate improvements in specific areas. Nowadays PROFOs are a more general support instrument for SMEs, but the programme administered by the National Agency for Development CORFO (www.corfo.cl) - continues to aim at strengthening the presence of SMEs in export markets through the establishment of consortia. Support is provided to at least five firms in three stages: • • •

Preparatory phase: identification of future commercial activities, business plan of the group (maximum one year, 50% of total costs up to a maximum of UF3 800); Implementation of the plans formulated during the preparatory phase (maximum two years, 50% of total costs up to UF 3,000/year); Executing a growth strategy (maximum three years, 50% of total costs up to UF 3,000/year).

2.4 Denmark The Danish Network Programme, which ran from 1989-1992, was set up to improve the competitiveness of firms in general, but in practice became focused on improving the export potential of firms. To assist embryonic groups of firms to identify a viable network idea, 40 network brokers were trained. Cooperation projects were developed in three phases, during each of which groups of at least three firms could obtain grants. In phase 1, groups could receive the equivalent of up to US$ 11,700 to help the participating firms establish contacts and carry out a feasibility study. Phase 2 encompassed the planning stage during which groups were eligible to receive 50% of expenses incurred while planning the cooperation (drafting of plans, budgets, agreements, etc.). 3

UF: Unidad de Fom ento, a reference currency updated daily on the basis of inflation figures, currency

fluctuations and consumer prices. 1 UF (early January 2006)

≅ US$

120.

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During phase 3, established networks could obtain 50% of operating costs during the first year and 30% during the second. The programme was mainly Government financed. 2.5 India Some of the agencies and organizations involved in cluster development are also promoting the creation of export consortia – there is no specific organization for this purpose. UNIDO has encouraged ministries of the Central Government and State Governments to adopt cluster development as a policy tool. The creation of networks and consortia is an integral part of the cluster approach. The Central Government ministries are: • The Ministry Of Small Scale Industry. The National Small Industries Corporation of the Ministry has established 15 SSI consortia in different parts of the country. • The Ministry Of Textiles. The cluster policy of the Ministry of Textiles is executed by the Textiles Committee. The Development Commissioner of Handloom and Handicraft has also formulated cluster policies. • The Ministry Of Science and Technology. Its cluster and consortia policy is executed by Department of Science and Technology. The State Governments are: Madhya Pradesh, Andhra Pradesh, Gujarat, Kerala and Orissa. The Textiles Committee (www.textilescommittee.nic.in) and the Kerala Government - see below) stand out as being particularly active in promoting the creation of consortia, including export consortia. The number of private providers of services in the field of export consortia is very limited, partly because the public sector has dominated the field of SME services for such a long time. While, for example, network brokers play a crucial role the initial phase of promoting the consortium idea, their number is very limited. The services of most of the well-established consultancy firms are too expensive for SMEs. There are few special incentives for export consortia, and those that exist are very recent. If a consortium exports directly, it can apply for any scheme, like any other company. The main export promotion incentives are MAI and MDA4. Support under MAI and MDA is provided to exporters on a decreasing scale over time, normally via the Export Promotion Councils (EPCs). While the guidelines of MAI specifically mention support for marketing abroad to associations in industrial clusters recognised by the Minister of Commerce, through the EPC in question, no such association appears to have benefited from this scheme so far. In addition, Indian consortia have access to import/export duty reduction schemes.

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The two main Exports Promotion Schemes of the Ministry of Industry and Commerce are:



Market Access Initiative (MAI): this scheme uses a ' focus product – focus country'approach, developing specific strategies for specific markets and products through market studies/surveys.



Market Development Assistance (MDA): this scheme supports export promotion activities abroad.

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The Government of Kerala has adopted a consortium incentive policy called ' Common Corporate Entities'under its cluster development approach. It provides loans and grants for a range of activities. The Ministry of Small Scale Industry’s National Small Industries Corporation (NSIC – www.nsic.india.com) has initiated a scheme to facilitate consortium formation in 2004. So far, this scheme has resulted in the establishment of 15 SSI consortia in different parts of the country5. Details are shown in Table 4. Table 4: India - specific support schemes for consortia Type Financed activities STATE OF KERALA Margin Money Loan to Sourcing of raw material, mutual consortia credit guarantee for loans, common brand creation, marketing, creation of common service facilities, quality testing facilities Margin Money Loan to Contribution to SSI equity share individual SSIs in a cluster required by the bank or for group, common corporate establishing common facility entity, consortium or centres, quality testing facilities company organized under or other industry-related the Industrial Cluster activities including marketing Development programme facilities. Grant Training of cluster members, stakeholder awareness building, participation in national and international trade fairs and exhibitions, study tours, field visits etc. MINISTRY OF SSI Consortia Marketing and Support in bidding for tenders Brand Building and subsequent procurement of orders, common brands, advertising and publicity support, testing and common facility support.

Economic conditions Loan for 20% of the cost of the project, up to a maximum of Rs. 500,000 or US$ 11,000.

Maximum Rs 2.5 lakhs – US$ 5,500. Loan is limited to 50% of the equity/share contribution at an interest rate of 6%.

Limited to 50% of the actual expenditure subject to a maximum of Rs. 50,000 (US$ 1,100) per cluster per year and activity. Maximum total grant is 2 lakhs (US$ 4,400) per cluster. If a bid supported by NSIC has resulted in orders to members, NSIC charges 1% of the order value.

2.6 Italy The key support institution in Italy is the Italian Federation of Export Consortia (Federexport www.federexportonline.it). Founded in 1974, it currently represents 110 consortia with a total of about 4,000 firms operating in all business sectors. Federexport is the consortia’s representative in contacts with the institutions promoting Italian firms: the Italian National Institute for Foreign Trade (ICE), the Ministry of International Trade, the Ministry of Foreign Affairs, regional 5

For more information, see www.keralaindustry.org and www.smallindustryindia.com

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governments and the Chambers of Commerce. Through its lobbying activities, Federexport was able to achieve the recognition of consortia as a specific legal entity in the Civil Code. In addition to coordinating its members’ activities, Federexport promotes the consortium model in other countries, provides tax and legal advice to consortia and directly promotes the exports of its member SMEs through trade delegations, market surveys and conferences. Federexport also provides technical support to other entities supporting consortia. Furthermore, Federexport has negotiated credit lines from major banks to finance the sale of its members’ goods and services to Central Europe, Mediterranean countries and Latin America. Federexport has created a computerized network linking Italian export consortia. In recent years, especially after the transfer of the authority for regional consortia to the respective regions, regional export consortia federations, belonging to the Federexport network, were created in Lombardy, Veneto, Piemonte, Calabria and Sicily; at the time of writing, Federexport Umbria and Emilia Romagna were being established. The National Confederation for the Craft Sector and Small and Medium Enterprise (CNA www.cna.it) has an Internationalization Department that also deals with export consortia promotion. Law 83/89, which is implemented by the Ministry of International Trade, establishes public funding for export consortia of eight or more SMEs (five or more for consortia operating in Southern Italy and for consortia of craft companies). In 2000, Law 83/89 was altered to transfer the authority for regional consortia to the respective regions, and Figure 1 shows that the regions now provide most of the funding (data refer to 2004). For multi-regional consortia authority has remained with the Ministry of International Trade. Figure 1 Public funding schemes used by FEDEREXPORT-CNA export consortia (%)

71,6 55,8 43,2 20,0 5,3

Regional laws

National laws

Chambers of Commerce

Others

To be eligible for subsidies under Law 83/89, the consortia themselves must be non profit. The law provides for a range of annual subsidies, shown in Table 5. The amount of the subsidy granted in a particular year is calculated on the basis of expenses incurred in the previous year. Consortia wishing to obtain subsidies must restrict their activities to exporting their members’ products and/or to undertaking promotional activities for that purpose. They may, however, import raw materials and semi-finished goods to be used as inputs for their members’

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production. According to Federexport the funds granted in practice average no more than 2530% of consortia expenses. Table 5: Italy - consortium subsidies according to Law No 83/1989 on export consortia Amount

Up to 40% of the annual promotional expenses (up to 60% for export consortia in Southern Italy and up to 70% for consortia in the first five years of activity). - Consortia with < 25 members: 77,000 Maximum - Consortia with 25-74 members: 103,000 annual - Consortia with > 74 members: 155,000 subsidies Promotional programmes: travels and missions, participation in fairs, market Eligible surveys, advertising and public relations, translation and interpretation, exportexpenses related training activities, etc. - General expenses (personnel, telephone, mailing, etc.): up to 20% of the promotional programmes. Method of - Presentation of the promotional programme for the following year (typically application in October) - Presentation of report on the promotional expenses (typically in April) of the previous year and application for payment Consortia are eligible for several tax reductions and exemptions, among them a specific tax incentive for export consortia. The Ministry of International Trade has entrusted ICE with the management of a new incentive for joint projects of SME groups (clusters, consortia, etc.) in the areas of promotion, trade and/or physical infrastructure (such as warehouses or showrooms) abroad. 2.7 Jordan JUMP, (Jordan Upgrading and Modernization Programme), UNIDO’s national counterpart export consortia programme, has started to support consortia and its members by providing technical assistance, financial support, coaching and advice. JUMP is an independent national programme managed by a committee headed by the Minister of Industry and Trade, with equal representation from both the Government and the private sector. The business plans of the two Jordanian pioneer export consortia were recently approved (with percentages of support up to 80% of eligible expenses). The financial support provided by JUMP to export consortia includes legal consultancy, business planning, export promotion, market researches and all activities that can improve the export capacity and competitiveness of the export consortia. In parallel JUMP provides its services to consortia member firms by supporting their managerial and productive capacities. Main requirements for SMEs (and export consortia), to apply for JUMP support are: • • • •

A manufacturing and/ or related services company. Jordanian registered company located within Jordan’s boundaries. Employing 5 or more full-time Jordanian staff. At least two years in business with good financial status and high potential for growth

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2.8 Morocco The Ministry of Foreign Trade (MCE) has set up in 2006 a specific support fund for export consortia for the start-up, the communication tools and the promotional actions for 3 years (see Table 1). The Ministry has signed an agreement with ASMEX (the Moroccan Exporters Association), which entrusts the Association with the management of the Fund and defines the mechanism of the support fund. ASMEX has mainly two tasks: 1. it provides the consortia with assistance in terms of providing information and receiving the applications and transfer them to the Management Board (which is chaired by the Ministry and is composed by a representative from AMSEX, a representative from CMPE – the Moroccan Export Promotion Centre – and one from ANPME – the National Agency for the Promotion of SME); 2. it is responsible for the approval of assignment of funds. The fund is covered through a tax on imports, and the amounts are transferred from the Ministry to AMSEX every year. Table 6: Morocco – export consortia subsidies according to MCE – ASMEX Agreement Eligible expenses

Start-up expenditures

Promotional actions

6

1 DH

Computer and related equipment Web site Promotional material Participation in trade fairs and exhibitions Export markets prospect Market studies Export marketing plans Invitation of buyers Promotional days

% of subvention

Maximum amounts

50%

100,000 DH6

1st year 75%

200,000 DH

2nd year 60%

200,000 DH

3rd year 50%

200,000 DH

0,09 Euros (May 2007)

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The main documents that are required for the application are: copy of the statute; annual estimated budget; detailed business plan; note on the expected results in terms of development of export markets and the performance standards identified by the consortium. A final report on activities, expenses and results (potential and actual), as well as invoices and proofs of payments, are required at the end of the project. This scheme was developed within the implementation of the UNIDO Export Consortia Programme, and it clearly represents the commitment of the main public and private actors involved in the promotion of SME export consortia. The innovation of this scheme is the entrustment of a private organization, such as ASMEX, with the management of a public fund: its expertise in export promotion should ensure a flexible tool, with few bureaucratic bonds, were the focus is on the feasibility and the prospects of the project, rather than the number of documents that are requested to the applicants. UNIDO has presented suggestions for the improvement of the tool: Further conditions for eligibility: minimum number of export consortium member firms: 5; member firms must not belong to the same corporate (or family) group; same corporate share for all member firms; non profit motive of export consortium. Transfer of funds: Funds should not be transferred in advance, without an actual check of the expenditures incurred (through report of activities, invoices, payments, etc.), unless financial guaranties are presented by the consortium. The ASMEX statement that the consortium is eligible for a specific amount of public support, could be used to negotiate with banks the advance of that amount. Besides MCE-ASMEX support, Moroccan export consortia benefit from a preferential treatment among other general export financial support schemes: • • •

The Moroccan Export Promotion Centre (CMPE - www.cmpe.org.ma), a public sector agency under the Ministry of Foreign Trade, now funds consortia up to 85% of their participation in its programmes (mainly trade fairs). The National Agency for the Promotion of SME (ANPME www.anpme.ma) supports groups of firms, willing to create or develop an export consortium, by covering the expenses of advisory services, technical assistance and promotion. The Moroccan Export Insurance Company (SMAEX - www.smaex.com), a joint publicprivate investment company that manages the export insurance system: consortia are eligible to the services of this company as individual exporters (transactions insurance, risks of unsuccessful attempts to enter new markets, credit access facilities, etc.).

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2.9 Peru The Ministry of Production (PRODUCE – www.produce.gob.pe) and the Product and Technology Center for Promotion of Small and Micro Enterprises (PROMPYME – www.prompyme.gob.pe), an agency that reports to the Ministry of Labour and Social Promotion, are the most important sources of public sector support to consortia. The Competitiveness Bureau of PRODUCE is responsible for the Ministry' s Productive Letter programme, which among others is meant to stimulate production for export and company partnership schemes as a tool for boosting market shares. The particular instrument for the latter purpose is the Productive Competitiveness Plan. The following support activities for industrial consortia are available under the Plan: • Partnership programme: value added chains, supplier development, inter-firm cooperation on product development, etc, local and regional clusters, special economic zones; • Standardization; • Innovation; • Productivity culture. PROMPYME promotes the creation of partnerships and the development of small and mediumsized enterprises (SMEs) with financial support from the Interamerican Development Bank, which has made US$ 1,600,000 available for the project ' Development of Entrepreneurial Networks in the Gamarra Clothing and Cusco Conglomerates' . The main entrepreneurial associations such as the Lima Chamber of Commerce (CCL) and the National Society of Industries and the Association of Exporters (ADEX) assist the Ministries in the management of the programmes by disseminating information on the programmes and providing the technical and legal advice that companies require to implement them. There are fiscal incentives for consortia: the Final Exportation Customs Procedure contains a specific modality called ' exports under joint venture agreements' : in the case of consortiums and other joint-venture agreements where firms keep their books jointly, it is the consortium that is the exporter. Customs rules that promote exports (temporary admission, drawback, reposition of goods under franchise) are applicable to the contracts entered into by the consortium. The refund percentage is 5% of the FOB value of the exported product. 2.10 Spain The Spanish Institute for Foreign Trade (Instituto Español de Comercio Exterior, ICEX www.icex.es has operated an export consortia programme for SMEs since 1985. Support can among others take the form of support to a ' destination consortium'– a consortium with a joint representative office in a foreign country. To qualify as a consortium, the minimum number of companies is three (four in the case of a destination consortium). To qualify for subsidies consortia must: • Be legal entities distinct from those of their members; • Have an externally recruited executive director; • Present a business plan with a three-year time horizon for activities abroad;

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• Have at least three member firms (or four member firms in the case of a destination consortium). Consortia can take various legal forms. Those that take the form of associations of economic interest (AIEs) receive special fiscal benefits. The export consortia programme covers part of a consortium' s expenditure: 50% in the consortium' s first year, 45% in the second year and 40% in the third year, with a maximum of 180,000/year. The types of expenditure covered can be for export promotion (marketing research, promotion materials, advertising, etc. – business travel can be fully reimbursed) or for the establishment and functioning of the consortium (feasibility study, staff, office equipment, etc.).

2.11 Tunisia The main public sector agencies supporting export consortia are: • The Industrial Modernization Office (BMN - www.pmn.net.tn) and the eight Sectoral Technical Centres (CTS) of the Ministry of Industry, Energy and SME; • The Export Promotion Agency CEPEX (www.cepex.nat.tn) and the eight Chambers of Commerce under the Ministry of Trade and Crafts. In the private sector, the employers’ organization UTICA with its numerous national and regional associations is the main supporter of consortia. Various financial support schemes are open to consortia, including those provided by the Competitiveness Development Fund (FODEC), the Export Promotion Fund (FOPRODEX) – both funded by the Government - and the Market Access Facilitation Fund (FAMEX www.famex.org.tn)), which is funded by the World Bank. The FOPRODEX support scheme is being reviewed. Since 2005 Tunisian export consortia receive more subsidy than individual exporters under several programmes (see Table 7). To qualify for subsidies, groups must be legally constituted and the presentation of a business plan is required. Some incentives provided by the export promotion agency CEPEX and packed olive oil promotion new fund (FOPROHOC) only require a request accompanied by a marketing plan and some basic documentation. Table 7 summarizes the existing incentives and subsidies.

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Table 7: Tunisia - Existing subsidies and their modalities FODEC Type of activities

Individual companies

FOPRODEX Consortia

Promotional materials (catalogues, CD rom, films) multimedia publicity, publication on Internet

Individual companies

FOROHOC

FAMEX Individual companies

Consortia

Individual companies

Consortia

Subsidy 30% + loan 50% or 35% subsidy

50%

70%

50%

70%

50%

70%

Consortia

Creation of label, design and recording of trade marks

70%

70%

Subsidy 30% + loan 50% or 35% subsidy

50%

70%

Fashion collections and other collections

70%

70%

Subsidy 40% + loan 40% or 45% subsidy

50%

70%

50%

70%

50%

70%

50%

70%

50%

70%

Subsidy 30% + loan 50% or 35% subsidy

Participation in international tenders

Reform in progress

Invitation of foreign clients

Subsidy 30% + loan 50% or 35% subsidy

Foreign representation

Subsidy 40% + loan 40% or 45% subsidy

50%

70%

50%

70%

Market research

Subsidy 30% + loan 50% or 35% subsidy

50%

70%

50%

70%

Assistance for the Design & Implementation of a marketing strategy

Subsidy 30% + loan 50% or 35% subsidy

50%

70%

50%

70%

Design of a marketing strategy

70%

70%

50%

70%

50%

70%

Installation of a web site

70%

70%

50%

70%

50%

70%

Maximum amount of subsidies Technical aid for the consortium or for the companies as a group

No limitation 70% Companies must be 2 years old

Modalities for accessing incentives and required documentation

No limitation

No limitation

120 000 $

120 000 $

70% No age condition

Manufacturing, IT and engineering companies only Documents: an exhaustive strategic diagnosis and a business plan

50 000 $ for 3 years 70%

No limitation 70%

Companies must be 2 years old, no age condition for the consortium

One of the members of the consortium must have at least once exported packed olive oil

Members can be from any economic sector

Packed Olive Oil Producers & Exporters only

A 3-5 page argumentation only

5 pages Marketing stratégy and Action Plan

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The more important Tunisian support institutions are : BMN, the Industrial Upgrading Office of the Ministry of Industry, Energy and SMEs. This office assesses strategic business plans of industrial companies for funding under FODEC. BMN has been designated by the Ministry to implement technical assistance to the export consortia programme with UNIDO. CEPEX, the export promotion agency, providing training, information and incentives and organizing grouped participation to international exhibitions; Régional CCI, the Chambers of Commerce and Industry. There are 8 regional chambers providing advise and support for the export opérations at the local level; CTS, the Sectoral Service Centres. 8 of these provide support to existing companies, including technical information, training, productivity coaching, laboratory services, technical support for standardisation of products and certification of management systems, and the formulation of business and technology development plans; Business Centers, promoting and guiding the creation of new companies “Pépinières” which are incubators lodging and coaching entreprises creators UTICA, the employers union active in managers training PMI, which is financed by the European Union. It supports private companies development of productivity, economic and technologic studies and Institutions’ development. Consortia can also be supported by this progam FIPA, the Foreign Investment Promotion Agency; API, the Industrial Promotion Agency. It supports entreprise creation, industrial investments, strategic studies, training, and coaching of promoters. Table 8 presents the role of each actor in supporting export consortia.

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Table 4 : Roles of institutions and private sector in supporting export consortia Actors Ministries

Others

Main operators supporting export Kind of support consortia

Motivation and intensity

Strategic advice and group coaching (with support of UNIDO experts)

Ministry Industry, & SME

of Energy

BMN - Industrial Modernization Office

Authorizing FODEC subsidies

The 8 CTS – Sectoral Service Centres

One CTS (the Technical Centre for the Textile Industry, CETTEX) gives strategic advice and coaches groups (with support of UNIDO experts) Low except for 2 out of the 8 centers (CETTEX & CNCC) CETTEX & CNCC are supporting consortiums “Sourcing” projects

General Direction for alimentary sector (DGAA)

Agro

General Direction for Electric and Mechanic Sector (DGIM)

Strategic advice and group coaching (with support of UNIDO experts) Authorizing FOPROHOC subsidies Strategic advice and group coaching (with support of UNIDO experts) Marketing advice and group coaching (with support of UNIDO experts)

CEPEX – Export Promotion Agency

Ministry of Trade and Crafts

Authorizing FAMEX subsidies First, basic advice for groups (with support of UNIDO experts)

The 8 CCIs - Chambers of Commerce and Industry Employers' organizations

UTICA with its numerous national and regional associations

Very high

Space for meetings and dialogue for new groups, act as an incubator First basic advice for groups (with support of UNIDO experts)

High

High

Very high, especially for FAMEX fund High, but only for the CCIs of Sfax and Sousse, two of the main industrial regions

Low

Space for meetings and dialogue for new groups, act as an incubator First, basic advice for groups (with support of UNIDO experts)

Private consultancy sector

Coaching formalized consortium Private export advisers

Provide space for new consortia in their offices

High, but only for consortia which include firms purchasing specialized services from the consultant

Act as executive directors

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2.12 Turkey Turkey’s Prime Ministry' s Undersecretariat for Foreign Trade (DTM – www.foreigntrade.gov.tr), which is responsible for export strategy, has created a legal structure known as Sectoral Foreign Trade Companies (SFTC). This structure encourages SMEs to engage in foreign trade activities by establishing a new joint company. Legislation for SFTCs became effective in December 1996. Firms must be in the same sector, and an SFTC must be founded by at least 10 firms (five in the case of Turkey’s developing regions). Government subsidies from 50-75% are available for a variety of SFTC promotional and training expenditures. Value added tax (VAT) refunds, which are available to all enterprises, are much faster for SFTCs (1-2 months, as opposed to 4-6 months); this is considered an important incentive, given the country’s high inflation rates. The Ex-Point Programme of the EU-Turkey Business Centre (ABIGEM – www.abigem.org), an organization financed by the EU and the Turkish Chambers of Commerce, was developed and launched in 2003 by ABIGEM Izmir and by ABIGEM Gaziantep. This is a special programme targeting SMEs in Turkey’s industrial regions. Five SMEs from the same industry are grouped as an export consortium and an expert with sector and export experience is assigned to each group. The expert works in each company to establish its export department, helping the enterprise in a wide range of areas (see Table 9). Each company pays 150/month for this service. ABIGEM subsidizes the monthly fees of the experts (approximately 1,100/month). Seven groups with a total of 35 companies in the Izmir region are involved in this programme. ABIGEM also offers free monthly training on various subjects and provides some services at a 50% discount to ExPoint participants. Table 9 ABIGEM’s services under the Ex-Point Programme Expertise

Training

Support discount

Export product specifications

Industrial design

Quality certification

Brand development

Marketing

Pricing

Quality certification

Finance management

Market research

Costing and pricing

Human resources management

and

Participation exhibitions

in

fairs

Identification clients

of

prospective Competition law

services

with

50%

packaging Strategic planning

and Export marketing

Electronic marketing Web and brochure design Export logistics

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The experts continuously participate in ABIGEM training programmes for personal development in different fields; they also visit international fairs and exhibitions to meet companies, represent their Ex-Point clients, and transfer know-how and information about potential partners back to the enterprises. Finally, ABIGEM organizes sector specific or multi-sector business missions to target countries in the EU; these are primarily meant for Ex-Point companies. The Small and Medium Industry Development Organization KOSGEB, a non-profit, semiautonomous organization whose board had an equal number of Government and private sector members, provides a number of financial incentives for export development to which firms in consortia have access. A number of private sector organizations have an impact on consortium development. Turkey’s 13 Exporters'Unions carry out support activities on behalf of DTM. The Foreign Economic Relations Board (DEIK), a non-profit, private sector organization established in 1986 by the nine principal private sector institutions in Turkey, among others coordinates joint efforts by firms to improve information on trade.

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