Europe's export superstars: Austria, Denmark, Germany Part 1

Last week the head of the British Chambers of Commerce said that "The UK has too few exporting companies" but even at official level there is a wide gulf in the estimates of the number of British exporting firms. In an analysis of European economies, we have determined that the export superstars are Austria, Denmark and Germany.

In the 15 years 2001-2014 only 7 countries in the 34 member country Organisation for Economic Cooperation and Development (OECD) achieved straight goods and services trade surpluses in the period. These countries were Austria, Belgium, Denmark, Germany, Ireland, The Netherlands, and South Korea.

Europe's export stars: Ireland and UK as laggards Part 2

The US and UK both recorded deficits every year in the period — the US last posted a trade surplus in 1975 and the UK last achieved a surplus in 1998.

In a majority of OECD economies 50% or more of exporting enterprises trade with only one country. These one country exporters, however, typically account for a small share of the total value of a country’s export. The think-tank says that typically firms that export to more than 10 countries dominate trade, reflecting around 90% or more of total exports in Finland, France, Germany and the United Kingdom.

The OECD says most enterprises are not exporters: in most countries, fewer than 10% of firms are exporters. The propensity to export increases with enterprise size. Across countries, less than 5% of micro-enterprises (<10 employees) are exporters, while typically half of large enterprises export.

There were more than 750,000 EU firms exporting outside the EU in 2011, of which more than 80% were SMEs (over 600,000 exporters). The value of SME exports was €500bn worth of goods and SMEs accounted for over a third of EU exports. These exporting SMEs employed more than 6m people throughout Europe, according to the European Commission.

We have selected Austria, Denmark and Germany as superstars as at least 10% of enterprises are exporters based on OECD goods firm data and total enterprise data from the countries themselves: Austria, Denmark and Germany. They are also able to win exports beyond the European Union. 

While FDI (foreign direct investment) is important for small economies, it isn't dominant in Austria and Denmark giving opportunity for more value added from local companies.

The per capita standard of living in Germany and Austria are among the highest in the world.

About ninety per cent of the value of Ireland's tradebale exports are made by foreign-owned firms. OECD data show that foreign firms account for 42% of Austrian goods exports, 36% of Danish exports and 26% of German exports.

Relative to France and Italy, Austria and Denmark have a big number of large firms compared with their populations while Germany has a big number of both medium and large size exporters — the firms that are likely to be global exporters.

In 2012 Austria had 950 large firms (250+ employees) and 2,959 medium size exporters (50-249 employees); Denmark had 447 and 1,687; Germany 5,678 and 19,168; France 3,243 and 9,767, and Italy 1,912 and 10,523.

Germany, Austria, Denmark and Switzerland (not included in the TEC database: see below) have the best dual education systems in Europe which comprise both conventional education and modern apprenticeship systems. DK (Denmark), DE (Germany), AT (Austria) and CH (Switzerland). See report

Data cited above is mainly from the OECD-Eurostat Trade by Enterprise Characteristics database (TEC).

The project is a work-in-progress and only goods data are currently available. It answers questions like who are the firms that are engaged in foreign markets, and what are their characteristics. Both the export and import values and the number of exporting and importing enterprises are available for 26 OECD and 6 non-OECD countries: including 27 EU member states (except Ireland) plus Canada, Norway, Israel, Turkey and the United States.

The TEC includes some Irish data that are not reliable. For example the number of exporting firms is at 17,679 in 2011 and depending on the selection is either 6,223 or 15,631 in 2012.

Last February Richard Bruton, enterprise minister, in a reply to a parliamentary question from  Peadar Tóibín TD of Sinn Féin, appeared to have been using the unreliable data as he cited the high number of large firms in Ireland but the OECD in its total sample of enterprises has Ireland with about 4,200 manufacturing firms with 130 large ones - which is second lowest of the 34 countries with Luxembourg last — See page 25 in Entrepreneurship at a Glance 2015.

In 2014 the Central Statistics Office (CSO) could not supply Finfacts with data on the number of exporting firms and referred us to Enterprise Ireland, the public agency for indigenous exporting firms.

We were informed that EI had about 3,000 client firms — an evaluation report published this year (see International Financial Supports section) shows that the agency has a database dating back to 1972 with 18,784 company names. In short, the agency does not know how many active clients it has but given the range of grants administered it is likely that active exporters would have made claims in the past 10 years and 2,000 to 3,000 firms is estimated.

We have added 1,200 foreign-owned exporters to give a total of 4,200 Irish exporters.

The TEC data for the Netherlands appears unreliable but it is also a successful exporter with agri-food exports valued at over €80bn in 2014, and second only to the United States — there are over 4,000 companies in the sector and 12 of the world’s largest agri-food companies have major production or R&D sites in Holland, including Cargill, Heinz, Monsanto, Unilever, Mead Johnson, ConAgra, Mars and many more.

The exports/GDP ratios in the chart below are boosted by 'the Rotterdam effect’ in respect of the Netherlands due to the importance of Rotterdam as a transit port while Brussels is the air freight hub for Europe. Ireland's ratio is boosted by the tax strategies of multinational companies.

Last February, Stefan Löfven, Swedish prime minister, and Mikael Damberg, enterprise minister, in an op-ed in the Dagens Nyheter newspaper wrote:

In recent years, Sweden’s GDP has been driven by consumption, not exports. Between 2000 and 2013, Sweden’s export growth was 93% measured in US dollars. This can be compared with global export growth of 166%. The state of Swedish exports worries us. The figures may show a certain rise over time, but compared with other countries’ export growth and looking at the prospects in the longer term, the situation is troubling. Put simply, Sweden finds itself in the foreign trade ‘comfort zone’. Of Sweden’s exports, 70% go to the EU internal market. Trade with our closest neighbours is very significant in this regard, and it is important for our economy. But we consider that trade in the internal market needs to be supplemented so that Sweden as an export nation does not lose market shares.

The Cole Commission's June 2015 report on British export strategy said that the "UK has more than 5m small and medium sized businesses. However, in February 2014, according to the BIS Small Business Monitor, just 21% of SMEs said they sell goods or services or license their products overseas."

The UK doesn't have 1m exporters.

This week the Office for National Statistics reported the estimated the number of goods and services exporters at 221,300 in 2014.

Exporting is not easy and the French Treasury said in a 2009 report on SME firms (the European Commission defines micro, small and medium size firms here)

When they export, they export to just one or two countries, generally to neighbouring countries, and 30% fail to hold onto their market for more than a year. German SMEs, which are larger and more innovative, are also bigger exporters, with exports accounting for a larger share of their total revenue, and they also export more regularly.

An OECD paper in 2011 noted:

there is mounting evidence of significant entry and exit in the export sector and that success should be measured on the basis of continued and lasting penetration in export markets over time. For instance, a study carried out by the Office of the chief economist of the Department of Foreign Affairs and International Trade of Canada (2010) revealed that about 50% of exporters who started exporting in 2000 were no longer doing so in 2002. After six years, only a quarter were still exporting. The study also shows some of the dynamics in export paths: new exporters often start out exporting to a single export destination and initially generate very small export sales.

A 2015 paper published by Bruegel, the Brussels-based think-tank, finds that a focus on quality rather than price can see European firms tripling their export market share when they meet competition with foreign rivals by introducing decentralised management and by offshoring production to low wage countries. The authors examine the export business model of the median exporter and of the top 1% of exporters in each country, accounting for 20 to 55% of total exports:

In this paper we examine the exporting and organisational behaviour of 14,000 firms in seven European countries [Germany, Austria, Spain, UK, France, Italy and Hungary]. We argue that the superstar exporters of each of the seven countries have much more in common in terms of performance than the country’s macro performance suggests, with Austria, Germany and Spain as very successful exporting countries and France, Italy and the UK with more moderate export growth. The top 5% of a country’s exporters account for 69 to 86% of total exports in the respective countries. Therefore, looking at these superstar exporters sheds lights on the country’s performance. We take a closer look at the organisational choices of these superstar exporters on the one hand and the median exporter on the other to evaluate why some of these countries have been more successful than others. We find that Austria, Germany and Spain base their export business model on product quality making their exports less responsive to price and cost increases. Exporting firms in these countries introduce decentralised management as a way to incentivise workers in firms to come up with ideas for improvements in product quality. By contrast, France, Italy and the UK base their exporting strategy more on prices by offshoring part of their activities to low-wage countries.

Dalia Marin, the lead author who is chair of International Economics at the University of Munich, writes:

The Volkswagen scandal has raised questions about the German model of production. If the success of the company’s diesel-powered vehicles was due in part to fraudulent efforts to conceal the amount of harmful pollutants they emitted, will similar revelations at other companies call into questions the country’s transformation from “the sick man of Europe” to an export-driven economic powerhouse?
Fortunately, the answer is almost certainly no. Germany’s competitive advantage has less to do with chicanery than with how its firms are structured and the culture in which they operate. Germany’s leading car company is an exception to the manufacturing rules that have driven the country’s success, not an example of them.

The Bruegel paper finds that Germany is the leading quality exporter in Europe followed by Austria and Spain. Among the top 10% of exporters there is no single firm with low quality in Germany and Austria.　

Europe's export stars: Ireland and UK as laggards Part 2

Pic above: Austrian Alps, Bergseen Photo: Pixabay