Back to FSM
An Alternative Strategy for Developing a Micronesian Export Economy
 |
|
C.L. Cheshire
Micronesian Counselor #47 (June 2003)
Introduction
Over the past fifty years, successive Micronesian governments have labored to achieve economic self sufficiency. Since the Compacts of Free Association were established in the late 1980's, the island states that make up the Caroline and Marshall islands have tried to meet this challenge through a variety of export development initiatives. In addition to developing a local tuna industry, Micronesians have attempted to establish an aquaculture industry (giant clams, trochus, sponges, black pearls, and hard and soft corals). They have worked to wring profits from the region's traditional export, copra, and have constructed two coconut soap factories. Rather than reduce Micronesia's dependency on foreign aid, however, these efforts have been, for the most part, a drain on its aid funds. The challenge of developing a thriving export industry to achieve self-sufficiency still remains.
For an export industry in Micronesia to be truly Micronesian, it needs to be locally owned and operated. Some commentators, however, have suggested there is no export in Micronesia because there is insufficient business experience to develop a locally owned export industry. As the argument goes, successfully exporting a locally manufactured product is more complicated and requires a different set of business skills than those possessed by local business owners. This argument overlooks the considerable business experience and expertise that is in Micronesia. There are several large diversified service and retail businesses in Micronesia that employ scores of employees and have annual sales in the hundreds of thousands or even millions of dollars. These businesses can be viewed as an important asset in a strategy to develop a locally owned export industry in Micronesia.
Others have argued that the reason various export development initiatives have not been successful in Micronesia is its geography and scant natural resources. Micronesia, with its small, remote islands, simply cannot compete in the global marketplace with countries like Indonesia and the Philippines, with their large local markets, cheap labor, and well developed infrastructure. Yet, one can also argue that had Micronesians focused on producing export products where Micronesia possesses a competitive advantage, the results may have been different. Tahitians, for example, who are no less geographically challenged than Micronesians, were able to transform their abundance of black lip oysters into a multi-million dollar black pearl industry that they now dominate. Pohnpei, for a short time, marketed a successful pepper product that was unique to Pohnpei and was sold not simply as pepper but as "Pohnpei Pepper". The product was admittedly a high end, niche product without a large volume of sales, but the potential of the product was barely tapped before production ceased. Likewise, Yap betelnut is prized throughout the region and could also be developed as an export product. All of these examples suggest that given the right products and the right development strategy, Micronesia, too, could develop a competitive export industry.
This paper is a proposal for an alternative export development strategy for Micronesia that is organized under the following three headings: product, team, government support. The purpose of organizing the proposal this way is to examine those aspects of export development that are particularly significant for Micronesia but are often overlooked in the standard approaches to developing an export industry.
Product
One can find example after example of export products such as fresh tuna, Kosrae limes, coconut soap and giant clams that make economic sense (ie, a good market and a price that exceeded the cost of production and delivery) and resource sense (an abundance of natural resources such as coconuts and tuna to make high value products such as coconut soap and sashimi grade fresh tuna), but did not succeed in Micronesia for reasons that have little to do with economics and resources.
In contrast, the list of successful export products from Micronesia (products that actually produced a profit for local producers) is very short: copra, betelnut, and reef fish. All of these products were "low tech" with low start-up costs. All were relatively easy to ship. The market was readily accessible; there was a fairly simple distribution chain to connect producers with end users and demand was consistent and in line with the available supply. And most important, local Micronesians willingly produced these products consistently over an extended period of time. In summary, all of the products that succeeded "fit" Micronesia geographically, economically, technically and culturally. Those that failed did not.
Geography
Geography affects product viability in Micronesia in several ways. On a small remote island, the business developer has only a small local market that is quickly saturated with product. To get beyond the local market requires exporting, and the closest export markets can only be reached by sea or by air. The one airline that serves all of Micronesia (Continental) has limited space for freight. Moreover, there is no guarantee that this space will be available. Producers of fresh limes in Kosrae have repeatedly brought their produce to the airport to ship it to Pohnpei only to learn that there was no freight space.
For almost all fresh products like limes and tuna, surface carriers are not a viable alternative because they are too slow. Those products that can be shipped by surface carriers must be shipped in container loads. LCL (less than container load) space is expensive and is often unavailable. This means that the local producer has to increase production to 20,000-30,000 lbs. of product per month if the shipping rates are to be affordable. Furthermore, the schedules and routes for surface carriers reflect the fact that most of their business comes from goods delivered to Micronesia rather than goods being exported from Micronesia. Thus, a local producer often has trouble finding a vessel that will stop to make a backhaul to the U.S. mainland. Increasing production from a few thousand pounds a month of local sales to 20,000 to 30,000 pounds a month of export sales is very hard to do overnight. It may be no harder, though, than convincing a shipping line to change its route and schedule just to pickup a single container once a month.
Given the uncertainties of shipping, the product must be hardy: it must have an indefinite shelf-life and be immune to the effects of delay. This requirement automatically eliminates many fresh products or forces the producer to develop an expensive, and often elaborate, transportation system to get the fresh product to market. For example, fresh tuna requires its own jet airplane or tank ship (for shipping live fish); bananas require refrigerated containers and equipment to retard the ripening process until the bananas reach their destination.
Business Economics
Business economics have also been a limiting factor in the history of product development in Micronesia. The commercial banks have been better than business developers and development banks in identifying these limits. Commercial bankers have recognized that products that have high start up costs and require highly leveraged loans (80% debt to 20% equity) leave the business with a debt burden that the business usually cannot support. But this has not prevented business and development advisers from helping their clients to apply for these loans, nor has it prevented the development banks from making these loans. Yet, the poor performance of these loans speaks for itself.
Recently, the Asian Development Bank has been critical of some export industries, like aquaculture, because the length of time required to generate an income is so long. While this should not eliminate agriculture and aquaculture products as possible export products, it does highlight the need for a developer to have sufficient financial resources of his own to cover the costs of product development until the product becomes profitable.
The product also must have a competitive advantage by being produced in Micronesia. It is not enough just to be able to produce a product in Micronesia; the product must be able to compete in a global market. What constitutes a competitive advantage, however, is not always apparent. It is just as easy to overlook a competitive advantage as it is to see an advantage where none exists. For example, Micronesia's remote atoll lagoons have often been dismissed as commercially un-developable because they are so remote, possess few developable resources and have so little commercial infrastructure. Now, however, they are being seen as excellent sites for open ocean aquaculture because they are pristine and relatively inexpensive to develop. On the other hand, Micronesia's often touted "cheap" labor continues to be mistakenly viewed as a competitive advantage.
Technology
The technology needed to produce a potential export product is another component of the export business that must fit its Micronesian environment. Too often business planners are content to assume that because a piece of equipment worked well in another part of the world, it will also work well on a remote island in Micronesia. But can this outside technology be supported in a remote environment? Something as common and "low tech" as an outboard motor must be maintained regularly. This maintenance requires a certain amount of expertise that is not always locally available. Outboard motors also have parts that wear out and must be replaced. These parts must be ordered from factories and suppliers that are usually several hundred miles away and often do not ship to Micronesia. On many of the remote islands in Micronesia it is difficult just to communicate with suppliers. As a result, an outboard motor may sit for months before anyone can repair it. If the motor and the boat are essential to the business, this part of the business suffers. The issue here is not whether a specific kind of technology is appropriate for the job, but whether it is appropriate in a remote Micronesian location. To determine whether a particular technology is appropriate in Micronesia, one must recognize how much outside support is required, estimate the costs of this support, and include them in the project budget.
A similar caution applies to training. In those cases where the technical expertise required to operate and maintain a piece of essential equipment is lacking, there is a tendency to gloss over this lack of local "fit" with the promise "we will provide training." Too often what the training can accomplish is overestimated while the cost of the training is underestimated. When the training takes too long or costs too much, it does not occur. The result is an inadequately trained staff or one that must be replaced by outsiders who possess the necessary skills. This latter scenario defeats the whole purpose of creating a local economy: that is, to create jobs for Micronesians.
Culture
A cultural or social fit is also essential for a successful Micronesian export product. It has been assumed that unemployed Micronesians will take just about any job offered to them. But this assumption has been shown repeatedly to be incorrect. Just because a person is technically "unemployed" does not mean that the person needs or wants a job. Many of the "unemployed" are active participants in the subsistence economy and so receive many of their basic needs from the extended family. The reciprocal obligations that come with membership in an extended family in Micronesia can take up much of a person's time. In fact, a person who wants a job may not be able to take and keep one because of the demands placed on him or her by the extended family.
Several export development projects like commercial fishing, agriculture, handicraft production and even tourism have been promoted in Micronesia on the grounds that they fit the local culture. The promoters have argued that since Micronesians have traditionally fished, planted gardens, produced handicrafts and hosted each other on a regular basis, they will be equally adept at doing all of these same activities commercially. This argument fails to recognize how much commercialization changes an activity. The obvious differences between the traditional subsistence activity and its commercial counterpart are completely overlooked. Yet the importance of these differences is evident in the difficulty of getting Micronesians to work on commercial fishing boats; the numerous unsuccessful attempts to develop a local handicraft industry; and the absence of sustainable commercial agriculture, even on islands that have excellent soil and abundant rainfall.
Why the transition from traditional to commercial has not been as smooth and rapid as some expected is a question too complex to answer here. Part of the answer, though, is that most commercial activities, regular nine to five jobs, are too inflexible to accommodate the many traditional obligations that take precedence over the desire for a cash income. Also, commercial activity is often too impersonal and the benefits are too indirect. When a Micronesian fishes for subsistence, for instance, he goes out on a daily basis and catches fish which he either takes home to eat or gives away to someone he knows. Subsistence fishing is far more personal and the rewards are far more immediate than commercial fishing, where the fisherman is required to be away from his family for weeks at a time and receives wages that are paid out at the end of the season. Subsistence fishing and commercial fishing are, socially and culturally, two very different activities. The same can be said for growing food and producing handicrafts. The benefits from these subsistence activities are personal, social and immediate. These are qualities that, more often than not, are missing in most commercial employment. In the end, what is needed is an awareness of the fundamental differences between the two economies and the development of management strategies that take into account those differences and address them in the commercial workplace.
Team
A typical export business employs people who produce products, people who market and sell the products and people who oversee the whole operation. Looking back at the various attempts to develop an export industry in Micronesia, one finds that all of these positions were identified and people were hired to fill them. Nevertheless, almost all of the export ventures in Micronesia failed: because production was inconsistent both in respect to quantity and quality or because the markets disappeared or could not be reached competitively; or because the managers, whether expatriates or local managers, failed to find a way to manage effectively. To prevent the same failures from being repeated over and over again, we need to assess what is required to develop and manage a successful export business in Micronesia. Continued on Alternative2
 FSM News | The FSM | FSM States | FSM Religion | FSM Health Issues | Our Troops | WW2 Stories | Love Potion | Products | Micronesia Books
© 2006 nopukob.com
|
|
|
|
|
|