International Business Engagement: Key to Jamaica’s Prosperity
The following is an article published in the March 2015 edition of the Mona School of Business and Management Business Review.
The economic indicators in Jamaica are trending in the right direction. The economy has been performing credibly under the extended fund facility (EFF) arrangements with the International Monetary Fund (IMF) since the agreement was signed in 2012. The country has passed all tests with the Fund since the agreement. Importantly, there have been significant improvements in the country's fiscal accounts, net international reserves, competitiveness position, doing-business ranking, and logistics-performance ranking, among other areas.
All these positive improvements suggest that the economy is on the right path to a turnaround from its long period of anaemic growth over the last 40 years. Indeed, setting the right economic framework, including making the business environment become more enabling, is critical to economic growth. However, an enabling business environment is necessary but not a sufficient condition to spur economic growth. A critical condition for growth is the improved performance and productivity of the firms that make up the economy. Therefore, looking forward to 2015, a number of critical areas will have to be addressed in order to move the growth agenda forward.
It is critical that for the long-term development and growth of the Jamaican economy, more firms become engaged in international business. The small size of the Jamaica market - and, in some extent, the Caribbean market as well - will not allow locally run enterprises to gain economies of scale in production and distribution. Further, economic activities will not be bolstered by any significant increase in Government spending as Jamaica's fiscal situation is still very tenuous despite the strong performance under the IMF programme. Similarly, local investments will not be bolstered in any significant way as the local private sector does not have sufficient capital to drive all the projects that are needed to improve the growth momentum in Jamaica. Although the international private sector may come on board to invest in projects that will drive growth, it will still require a tremendous amount of resources to be invested by the state bureaucracy to attract these investments. This may not materialise in the very short run.
Therefore, the only real and pragmatic avenue for Jamaican firms to pursue a strong growth path is to improve, significantly, their export performance. This is even more so for the small-and medium-size enterprises, which form the largest mass of businesses operating in the economy.
While there is an export push from larger and more multinational enterprises such as GraceKennedy, Jamaica Producers, among others, these will not lead to any significant growth and job creation as they do not have the critical mass to reach the entire population. It is the smaller firms, that have greater reach in the economic landscape, that will need to improve their performance in export in order to make a big difference to the growth performance of Jamaica. It is small firms that have been at the centre of economic growth in the Italian economy for a long time. This is also possible in Jamaica as well.
The big question when the subject of exports is discussed is: What does Jamaica have to export? On the surface, this may be a reasonable question. However, a closer interaction with the data suggests that there is great potential for exports from Jamaica and, especially, among the small firm sector.
A close reading of the standard industrial-trade classification code shows that of the 79 codes at the two-digit level, only about five items account for over 97 per cent of the country's export. The other 70-odd items account for a mere three per cent of the country's overall merchandise exports. Interestingly, when one looks at the items that are not generally exported, the data show that they do have a demand on the world market and also, most of these items are produced by the small-firm sector. A simple example is the export of fish crustacean. Jamaica exported less than US$100-million in 2013 of this item. However, the demand for this item in the USA is roughly US$13-billion. Jamaica has less than one per cent of this market. There are clearly greater opportunities to export more of these products to the USA, given the size of the market. This is just one example of the many opportunities for export expansion among small firms.
Another important area in which small firms have been active in the local economy, but which there are tremendous opportunities in the global economy is in the services sector, especially creative services. Although services account for almost 70 per cent of Jamaica's GDP, there is still no greater urgency than in this area to make services export an important part of the growth strategy.
Opportunities abound for small firms engaged in a number of creative services, from entertainment to high-level technical services such as legal services, accounting services, and architectural services, among others. Engaging in legal process outsourcing, accounting process outsourcing, etc., are important ways for small firms to grow their export business.
Further, the level of mergers and acquisitions taking place in the telecommunications industry in Jamaica is signalling a shift from voice to content as the main product offering in the marketplace. Small firms engaged in entertainment services will have great opportunities to export their content via local telecommunication companies to markets across the world. This is a growth area that they should not miss.
NEED To Change mindset
For Jamaica firms to take advantage of the many opportunities available a critical mindset change has to occur. Extensive work done by the author in 2009 on export performance of Jamaican micro and small firms revealed that a critical factor which hinders expansion of exports is the mindset of the owners of these firms. In the small firm, the owners are the key decision makers. If they do not buy into an idea, despite the external or internal push factors, it will not happen.
So, for exporting to become an important part of the growth strategy for these firms, the owners in these enterprises must have that mindset shift from local to global. They must realise that although they may be able to survive by being solely focused on their domestic operations, future prosperity will rest on
their critical engagement in international business especially through exporting. Once the owners of the small firms buy into this thinking, it will be an easier task to get more small firms to be engaged in international business activities via the export route.
As we look to 2015, Jamaica has to push forward with activities geared towards strong growth in the economy. An important element of this growth strategy will be the critical engagement of more Jamaican firms in international business. The economy is too small to accommodate all the activities necessary to drive the growth and development of industry sectors, and also the firms themselves. For this to happen, the correct economic framework has to be put into place to facilitate increased productivity of the enterprises, and a secondary condition is that owners and decision makers in the firms will have to change their mindset from local to global.
The improvements that are being seen in the business environment, and also in the macro-economic variables, are important steps in the right direction. However, to stimulate the growth in the economy, more needs to be done at the enterprise level as well.
- Densil Williams is executive director and professor of international business at the Mona School of Business and Management, UWI.