Massey News 9 - 23 may 2006

Massey News 9

23 May 2006

Trust drives success in the international market - 670w Auckland - Tiny Kiwi businesses can succeed in niche international markets if they pick the right partners – then trust them.

They also need more customised support from the Government, according to Department of Commerce researcher Dr Paul Pickering.

His PhD research on what makes micro enterprises successful in international markets is one of few studies of this important but largely overlooked business sector.

So-called micros - ventures with five or fewer staff - make up around 90 per cent of all New Zealand businesses. They provide 11 per cent of employment and 20 per cent of GDP. Dr Pickering says they are involved in a wide variety of activities, from manufacturing and information technology to retail and consulting services.

His research involved case studies of seven enterprises specialising in new voice-recognition technology, high-tech interactive visual production, remote mobile data communications, tropical pharmaceuticals, organic condiments, element-resistant baby-shades, and traditional wooden toys. All seven had successfully taken their products into international markets within 12-18 months of start up and Dr Pickering set out to find out how.

He says the common element was trust: "It’s essential for micros to trust those they have chosen to deal with, which may include manufacturers, distributors, customers or others significant in the value chain. Furthermore, this trust must often be proffered at a time when only a short relational history exists. This seems like a risk which is opposite to accepted 'best practice', but it can make the difference between success and failure.

“This often doesn’t happen because fledgling businesses fear the exploitation of their ideas or innovations and then devote too much of their limited resources towards monitoring and controlling their value chain. The usual result is that they don't get the right equity partners on board and fail to gain entry into critical market networks to leverage the required resources. The venture is then stalled before it starts, runs out of money and disappears.

"The key to overcoming the fear is time spent early on in the venture filtering prospective partners, so that the relationships eventually entered into have the greatest chance of becoming long term, mutually beneficial, business marriages - as opposed to a series of self seeking interactions.

"These contrasting scenarios can be described as either adopting a relational approach underpinned by social exchange (characterised by trust, commitment, and benevolence) or transaction cost analysis (based on predicting and managing partner opportunism).”

Dr Pickering found that those micro enterprises taking a social exchange approach perform better internationally. "The small window of opportunity afforded by their meagre resource profile is spent on relationship marketing rather than the enforcement of contracts and confidentiality agreements. They enter markets more efficiently, and their interaction style greases the wheels of supply and distribution.”

He acknowledges that the high cost of entry to some industries demands that intellectual property be protected but "once these tasks are taken care of, the emphasis should be on developing robust, reciprocal relationships with those who want the same outcomes and who warrant the trust to get on with achieving them.”

Dr Pickering says micro enterprises are not well recognised or understood in New Zealand. “Most researchers and decision makers ignore them, regarding them as too small and too transient to make a difference economically.

“There is also a feeling that the Government and its export-promotion agencies are not willing to give tailored support to a business that isn’t doing multimillion-dollar deals at the time.”

He says there is a need for the Government to allow these agencies to back the ones that look like winners internationally, and evaluate them on the potential marketability of their innovation rather than on immediate revenue streams. He says this is particularly valid for higher technology offerings.

Dr Pickering has presented his research at three international conferences, including a meeting of marketing academics in Copenhagen where he won a best paper award. He has also been published in the Asia Pacific Journal of Marketing and profiled two of his cases in The Global Garage, a book edited by Massey academics Janet Sayers and Nanette Morin, who are also based at the Albany campus.

ENDS

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