There is much talk across Europe of a new Baltic economic miracle: strong governments making tough choices, turning their economies from credit-fuelled delinquents into export-lead dynamos, with no devaluation required.
Those of us who work here know that this is not the full picture, but whilst UK Prime Minister David Cameron and other European leaders want to talk up the achievements of the Baltic governments, it is important that we take advantage of the positive publicity, and work to persuade international companies to look again at investing here.
But for the long term growth of the Baltic economies, the continued growth of exports is vital, and I have some serious reservations about the sustainability of the current impressive growth in export statistics. My reservations are not theoretical or academic, but purely practical.
For the past ten years we have been trying to help Baltic companies export their goods and services to the UK and Irish markets, and, to be honest, during the good times there was little interest from the majority of local businesses who were making easy money in the local markets, and naively could not see the need to invest in developing new ones.
During the crisis we saw a lot of action from Lithuanian companies who suddenly understood the need to have access to new sales, and little from the Latvians, who were trying to understand and cope with the scale of the economic tsunami that was overwhelming them. Now that things have calmed down and confidence has begun to return, we are faced with a range of businesses of all sizes who now understand they need new markets, but have no understanding of how to go about entering them.
The Baltic export mentality seems to be based on the premise “We will go, and they will buy.” They do not see the need for research into their products’ suitability for the market, and do not even begin to understand how the various distribution channels work. We often have companies who think that they just need to ring up Tesco, fly over, show them the product, give them a price and then start selling. They have no concept of how to market, package and present their products for the relevant customer or market.
Perhaps most worryingly as confidence returns, we are already seeing the start of “extravagant pricing,” where a Baltic company assumes it will be able to extract more money from UK buyers, as they are not as commercially astute as their Baltic counterparts. This mindset is proving to be disastrous; if companies are lucky enough to get products considered by a UK retailer or distributor, they will only get one chance, and if they go in with ridiculous pricing then they will be laughed out of the building.
My own company had an experience with a Baltic-based bakery company a few weeks ago. We had got their goods into one of the major distributors for a taste test; it passed and they came back for pricing. The prices we were given by the Baltic client were simply ridiculous, and we went back to them to say they needed to drop them substantially before we would show them to the distributor. They told us they could not, that this was the true cost. I sent one of our staff to Maxima to find out the retail cost in Latvia, only to discover it was considerably less that the cost they were offering the UK distributor.
This attitude of “trying to take advantage of the stupid foreigners” seems to be increasing, and it risks putting the entire export-led recovery at risk. There is no reason why Baltic businesses cannot do well in export markets; many produce very high-quality products, and are able to supply at competitive prices. However, if the governments want to keep pushing exports, they are going to have to try to educate their companies in the basics.
Firstly, a company needs to understand which market it should be looking at, and why. Then it needs to conduct research into those selected markets to see if there are opportunities for their products, looking at current local competition, etc.
It then needs to understand who its client will be, will they sell through distributors, retailers, or, in some cases, direct to the consumer? When this is decided, it needs to develop its marketing material (very important) and packaging and identify and contact the relevant organizations and persuade them to look at the products. If this is all done well, and the subsequent pricing and contract negotiations are conducted realistically and professionally, then sales will follow. After the sales comes the account management, and again this needs to be a priority, and too often it is not, and orders and customers are lost.
In Scotland, our government has started a “Smart Exporter” scheme, which aims to support companies with practical training and advice on exporting. The scheme is also able to access UK government trade support in embassies, or if more appropriate, allow companies to get financial support to use private consultancies to help with export facilitation. I think Baltic governments need to look closely at the support and, more importantly, the training they are offering to local companies, and make sure that they have a full understanding of what it means to export successfully.
If they don’t, we will see the export-led recovery slow down and eventually stop, and that is in nobody’s interest.