August/September, 1998

From the Editor

New Courses Of Action

Is the telephone ringing? The fax spewing out paper? The mailbox over-flowing? Do you hear a knock at the door? If you are from a non-Asian country, you might expect so. The contacting party is likely to be a U.S. exporter that has been, until now, neglecting your market.

Asia, East Asia in particular, is so large a market and so convenient for exporters on the West Coast of the United States that many got fat and lazy serving it. For years, U.S. exporters experienced solid sales and profits by focusing on this area. Now, however, with economies suffering across the region, these exporters are paying the price. In many cases, the loss of the East Asian business would mean the loss of all the export business, so many U.S. exporters are waiting with baited breath to see if orders from Hong Kong and China will go the way of orders from Indonesia and Korea.

Much more is at stake than the prosperity of a few exporters with excessive concentrations on select markets. For many commodity items, the loss of East Asian business will cause substantial oversupplies back home.

One solution will be for U.S. producers to build up domestic demand. Recently, the Washington Apple Commission appealed to the apple growers of Washington State for a substantial increase in funds for consumer advertising in the United States. The goal is to boost domestic consumption to compensate for a booming crop and declines in exports to Asia.

Another certain tack will be for U.S. producers and exporters to work hard to find new markets and expand non-East Asian markets. To some extent, this task is made easier by the domestic surplus of many items caused by East Asia’s collapse as a market. The large surpluses will reduce prices, which will make the products more affordable and attractive to various markets around the world.

The next shoe to drop will be with carriers. Much of the cargo capacity in the trade between the United States and Asia is being under-used as boats travel half-empty or worse. In all likelihood, carriers will seek to redeploy this capacity to other routes. This added capacity is likely to mean sharply discounted freight rates.

With bargain product, discounted freight and aggressive salesmanship by U.S. producers and exporters, we have the makings of an export boom to many corners of the globe.

The question is whether U.S. exporters will learn their lesson. And whether importers of U.S. food and agricultural products will insist on getting long-term commitments to market development from their U.S. exporters.

All too often, U.S. producers view export markets opportunistically. The large domestic market spoils the producers, and they turn to export only when the producers have volume or product types that the domestic market can’t handle. This attitude is different from that of producers in smaller or poorer countries, who from their earliest days, learn of the need to pursue export markets.

Many U.S. exporters are not committed to individual markets. If Japan is paying the highest price this week, the product goes to Japan. If Korea is top bidder the next week, Japan is out of luck.

In this short term, this maximizes returns, but long term, it precludes the building of markets. It can take years to develop a market. An alternative strategy is to market via an allocation system, ensuring that a certain quantity or percentage of production goes to country X and another quantity or percentage to country Y with the goal being to develop these markets. In the meantime, the producer accepts market price in the country as payment.

Importers around the world would be wise to not simply look for the cheapest price, but look for U.S. exporters willing to make a commitment to building demand. That may include advertising and promotional support, as well as an assurance not to cut and run because some other market offers a dime more next season.

As importers demand commitment to market development from U.S. producers, they can draw satisfaction from knowing they are urging U.S. producers to new courses of action in those producers’ best interests. Today, the producers are receptive to the message. They sit looking at product intended for Asia and looking for a home and wish they had done more to develop markets during the rich years in Asia. Unfortunately, memories are short, and the window of opportunity to influence U.S. producers will not last forever. Carpe diem.  EXP