Business opportunities from regional integration

Benefits from Caribbean Business Integration
How to take advantage of the Challenges and Opportunities in the CSME
Feature Address delivered at the 4th Annual Awards Banquet, Antigua and Barbuda Employers’ Federation
Mistress of Ceremonies, Ms. Sharon Knight; Mr. Hesketh
Williams, Labor Commissioner; Mr. Maurice Christian, President
of the Trade Union Congress; Mr. Pedro Corbin, President of the
Antigua and Barbuda Employers’ Federation and Mrs. Corbin; Mr.
Henderson Bass, Executive Secretary of the Antigua and Barbuda
Employers’ Federation; other invited guests, Ladies and
Gentlemen, Good Evening to you all.
I have been asked to speak on the subject of the “Benefits from
Caribbean Business Integration”, with specific reference to the
question of how to take advantage of the Challenges and
Opportunities in the CSME. First, I would like to thank the
Antigua and Barbuda Employers’ Federation for extending such an
honor to me and to be a part of your Awards Dinner tonight.
Second, I want to say that I am no stranger to Antigua and Barbuda
and consider it to be my third home having lived here for five
years. It indeed feels good to be in the company of friends again.
Introduction
I would like to commence by providing an overall context in which
to situate the question for this evening. The context is that of
* The author is with the Caribbean Regional Negotiating Machinery (RNM) and serves as Trade Policy Advisor and Representative to the OECS. The views expressed in this paper are those of the author and do not necessarily represent the views of the RNM or the OECS. Comments and suggestions may be sent at: globalization, which is propelled by the need for private firms to
become more competitive in the World Economy. In their pursuit
of this competitiveness, the global environment is increasingly
characterized by liberalization of trade, not only in goods, but also
services, investment and the protection of intellectual property
rights, among others. The desired end result of all of this is the
elimination of all barriers to doing business and exchanging goods
and services in the World Economy.
Context
Liberalization agenda is propelled multilaterally in the World
Trade Organization (WTO). But it also exists within our own
Hemisphere – the negotiations to create a Free Trade Area of the
Americas (FTAA); and bi-laterally at several levels:
CARIFORUM and the EC are negotiating an Economic
Partnership Agreement (EPA); CARICOM has completed several
Free Trade Area Agreements (FTAs) or Cooperation Agreements
with countries in the Hemisphere including Costa Rica, Cuba,
Colombia, Venezuela and the Dominican Republic; and
CARICOM is contemplating FTAs with the United States, Canada
and MERCOSUR.
What all of this is geared at is bringing about greater efficiencies
across the world. The thinking underpinning all of this originates
in the principle of comparative advantage:
“A country should specialize in the production of goods or services in which its absolute disadvantage is least”
However, even when the country specializes according to
comparative advantage it may find itself at a “competitive
disadvantage” relative to other countries. Competitive advantage
implies that:
“One country is more efficient and cost competitive in producing a product or service than another”
Innovation
What seems to be causing one country to be more prosperous than
another is innovation. I view innovation on three levels. At one
level it is about developing ways by which the cost of an
established product or service can be reduced by performing the
processes in a sequence and manner that results in greater
productivity. Here, technology looms large in this type of
innovation.
At another level innovation is about how to create a differentiated
product or service, thereby conferring some degree of monopoly
advantage to the innovator. Here, it is the vision of the
entrepreneur and his ability to understand the market for the
product or service that allows him to produce new variants that
others cannot readily identify.
Yet another level of innovation might be the creation of a
completely new product or service. This generally requires lots of
research and development, entails considerable risk, involving
sunk costs that may or may not be recoverable. Here, the innovator
has vision beyond that which already exists in the world around us.
Economies of scale
A well known and documented limitation of a small, open
economy like that of Antigua and Barbuda is the difficulty of
realizing economies of scale in production of both goods and
services. The small population of the country induces investors to
limited investment in plant and equipment with operations that
tend to be characterized by high per unit cost. If the market can be
expanded, then the entrepreneur perceives a larger business
opportunity and invests in larger plant and equipment. As such
investments are made, the cost of production per unit of output
declines and profitability rises.
Now, one obvious way to expand the size of the domestic market
is through regional integration – in its loosest sense it is about
creating an FTA, in a deeper sense it is about creating a common
or single economic space in which there exists free circulation and
ideally, a single currency.
CSME
This takes me to the region’s pursuit of the CARICOM single
market and economy (CSME). Of course, the region already has a
fairly deep degree of integration within CARICOM. There is a
Common External Tariff (CET) for goods – duties are zero-rated
for goods produced and traded intra-regionally, while non-zero
tariffs apply for goods originating from extra-regional sources. The
CSME wants to take that integration process further to include full
liberalization of services trade, investment, capital and labor. The
full liberalization of services trade means that any service supplier
is free to provide his service to consumers throughout the Region
without having to face any restrictions on supplying that service.
Restrictions, especially with respect to his mode of supply of the
service cannot be allowed – commercial presence for instance
means he will have the right to enter Antigua and Barbuda and
establish his plant and equipment there for the purpose of
providing this service. He is also entitled to do the same if he seeks
to provide a product within the territory. Of course, in a reciprocal
manner so too will any citizen of Antigua and Barbuda be able to
enjoy similar rights in other CSME member countries.
It is important to note that there already exists a significant amount
of integration within the OECS countries and such integration is
scheduled to deepen even more, with the formation of an economic
union. The Draft Treaty for the Economic Union already exists and
consultations are taking place in member states with the view to
implementing it by 2008. I must also say that an economic union is
the deepest form of economic integration possible. The only deeper
form of integration beyond this is a political union – the formation
of a single state or Federal Republic of States.
It is my view that the OECS governments were right to see the
need for their own accelerated deepening of economic integration
as a prerequisite to deepening integration with the greater
CARICOM. It is the only way to preserve the integrity of the
concentric circles of the regional integration processes. However,
the private sector now needs to follow that lead and re-think the
manner in which it conducts business to reflect the vision of
regional integration as has been developed at the political level.
Challenges to Integration
Regional integration everywhere in the world comes with its
challenges. In some way the participating countries are each giving
up some of their own sovereignty to the other, but in the process
they all share in a greater sovereignty – that created by the sum of
all participating countries.
Within any regional integration process the challenge is for each
participating country to identify and “lock-in” on the sectors in
which it has comparative advantage and to utilize the single space
created to increase efficiency and profitability in targeted sectors.
The movement of labor is generally seen as a potentially
problematic thing in the Region’s integration – waves of nationals
from a less developed state are feared to move to a more
prosperous one and in the process, driving wages downwards and
undermining the value of social security in the recipient country.
However, how credible might such a perception be? The evidence
of integration experiments elsewhere, such as the European Union,
suggests that not to be the case. Labor tends to move only to
destinations where there is a demand for it. If there is a demand,
then there must be economic activity and so the movement of labor
stimulates economic growth. The potential difficulty that I see is a
scenario whereby some countries are at low skill levels and others
at high skill levels – in such a case movement can result in
structural unemployment. But this can be corrected if the
government is focused, in terms of the areas where its country has,
or wishes to develop comparative advantage. What is then needed
of the regional integration system is to secure resources for
appropriate training and education for progress.
What about availability of financial capital, is that a challenge? I
argue it is not necessarily a challenge. The problem most often is
that our business people fail to innovate - they fail to sit and
visualize what it is they want to accomplish. The power of all
innovation originates in human minds, i.e., our thought processes
are creative. So if we are failing to innovate it is because we are
failing to think constructively. Yet, no one country has a monopoly
on ideas for business. Business ideas originate from individual
minds, so the success of business is directly related to the quality
of thought that has gone into its creation. Thought is the only
creative power and is possible to be found in all of us if we so
desire to make the appropriate application.
So I argue that provided sufficient concentrated thought has gone
into conceptualization of a business, it will automatically attract all
the financial capital needed to infuse life into it. No venture
capitalist will pass-up the opportunity of investing in a profitable
business regardless of the origin of its conceptualization.
Opportunities from Integration
A major opportunity from integration is market building –
expansion of a small national market to include those of all
integrating entities as part of it. Market building implies a larger
consumer base and serves as a catalyst for investors to develop
larger plants in which they will realize economies of scale.
So, in the CSME context a firm established in Antigua and
Barbuda that finds its operations too small to be optimally
profitable can establish subsidiaries in other member states where
conditions no less favorable to it than those enjoyed by the firm in
the foreign country obtain.
Business integration should therefore infuse a concept of
production sharing – coordination of all activities of the
“commodity or service chain” not only nationally but also across
the single economic space. Rather than being restricted to being a
national entity, the Caribbean firm can operate as a regionally
integrated entity, where decisions on output volumes are made
jointly by all parts of the regional firm. This would provide the
“launching pad” for the firm to operate internationally.
Of course labor movement within a regional integration context
implies that employers can seek the most skilled labor within the
region to accomplish the tasks of the firm. In so doing we have an
increased sum game - labor gets the best possible wage, while the
firm gets the best possible product or service for its market.
Concluding Remarks
In order to take advantage of the challenges and opportunities
under regional integration the Caribbean firm needs to see itself
not merely as a national entity servicing a domestic market, but as
a regionally-integrated entity facing a market several times its
domestic size.
Success in the conduct of business nationally will be influenced by
how the firm positions itself as a regional or international player.
Caribbean firms must, therefore, first use the regional integration
process to increase their efficiencies and productivities regionally.
Simultaneously, they need to keep their eyes on the international market. Every Caribbean firm should consider establishing a presence in each others’ markets and in extra-regional markets – United States, Canada, and the European Union. Establishment of businesses in those markets is predicated upon the fact that there already exists a significant Diaspora and the fact that tourists who have visited the Region should have acquired a demand for its products and services. Caribbean firms should also seriously consider their role in innovation, protection of their ideas through patents, then implementation of the businesses that derive from them either regionally or internationally. Ladies and gentlemen, in conclusion, it must never be forgotten that the heart of any business is the power of the thought processes behind it and thought is found in each and every one of us. It is time that the Region views itself differently and starts engaging in right thinking. Rather than concentrating on the weaknesses of small size, businesses should concentrate on integrating regionally to build efficiency. The CSME provides an optimal opportunity to pursue this. And, once they have done so, as in Richard Branson’s advice, they should immediately seek to establish a presence abroad, as no firm is too small to do so. Ladies and gentlemen, I thank you.

Source: http://claudiuspreville.com/files/Speaking_notes_-_Antigua.pdf