Anyone who knows my father knows he’s a man of ideas. It takes a short amount of time around him to realize he’s bursting at the seams with them. He constantly invites people to his hotel in Tanzania or explains how middle class housing will transform Africa.
One of his recent big ideas caught my attention so much I decided to share it. During one recent dinner conversation, he explained to the table why business incubators in East Africa could boost American exports.
At first, this seemed implausible. Business incubators are usually designed to help the development of start-up businesses. Incubators vary, but most offer office space at a modest price, along with support resources, services and mentoring for new companies. How would starting new companies in another country help American exports?
He explained. His idea is to use incubators as a tool to initiate the movement of American products into developing markets. He thinks American consumption has peaked — at least, for now. Thus, successful companies will need to find new consumers for the economy to grow, and incubators could help them test emerging markets. He said the first barrier to entering these markets is scale. Without material market share, companies are presented with the dilemma of determining how much risk one should be willing to take on the unknown, even the unknowable.
Incubators, though, could decrease the risk of entering such markets. For instance, with leadership from the USA government, a location could be negotiated as the hub for the entry into Tanzania, thereby into the broader East African Community, of American products. Administrative functions, sales forces, transportation, storage and other services could be shared expenses of the businesses in the incubator. Companies could stay with the incubator until their volume reached a level where independent operations were warranted. This allows a variety of products to be introduced into the market in a short period of time, some of which will succeed and others that, of course, won’t. But each enterprise’s risk and financial exposure can be kept low until a niche in the market is proven.
He said the idea came from his recent international experience. The requirements for construction of his hotel ranged from steel for foundations to roofing tiles. He had to confront problem as diverse as finding the accessories for restrooms, sleeping quarters, large meeting spaces and dining areas.
Many of the products and services he wanted from American could not be feasibly or economically exported. Chinese and Indian manufacturers, on the other hand, had a mature delivery system ready to export the same goods and services. Even in areas where the USA’s prices were competitive and more efficient, there was not a system for purchasing much of the materials necessary; nor was there a support system within the region.
He said these other countries have better systems because they got involved when the markets were tiny and are therefore better positioned to take advantage when the markets grow. And, more specifically, because the Chinese government embarked on a program of extending low interest loans to Chinese’s companies based in Africa. Thereby, over decades, this allowed these companies to build an infrastructure to do business in Africa with cheap money.
Despite our disadvantages, some self-inflicted and others geographic, my dad argued the USA had a trump card that could quickly increase our access to these markets: our currency. By holding the reserve currency, our businesses can offer long term financing that no other nation can beat. Its stability means that even transactions without USA involvement are priced in US dollars and modeled after USA legal documents. This advantage means incubators, if operated and managed well, could reap big rewards for domestic growth.
I left the table convinced. You?
Scott Colom is a local attorney. His e-mail address is email@example.com.
Scott Colom is a local attorney.
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