The Internationalisation Monitor describes trends in internationalisation and the consequences thereof for the Dutch economy and society. It is published quarterly as part of the Globalisation programme at Statistics Netherlands (CBS), which is commissioned by the Dutch Ministry of Foreign Affairs.
In this edition, we focus on export strategies and revenue models of exporting companies within the Netherlands. The Netherlands has a limited domestic market combined with an extensive foreign market, giving rise to countless revenue and business models. The speed of changes driven by globalisation and IT innovations means that the value created by existing business models can decrease rapidly as well. Businesses have to compete and thus continually adapt their strategies in order to stay profitable. In the process of becoming international players, these businesses may develop international trade relationships or apply more complex international strategies such as foreign investment. A considerable number of exporting manufacturers in the Netherlands follow the export strategy of expanding their product range with commodities they did not produce themselves. They export these – sometimes imported – products bundled with their own unique firm products, the so-called carry-along trade (CAT) strategy . An examination of this CAT phenomenon and its development will provide insight into the dependencies that exist within production chains and how future-proof the revenue models of Dutch manufacturing companies are.
Listed below are some of the main findings in this edition:
Chapter 1: Export strategies in brief
- 2017 was a significant year for Dutch international commodity trade. The value of both imports and exports increased by 6 percent. In terms of volume, imports and exports were up by roughly 10 percent.
- Around 54 percent of commodity imports is sourced from within the EU-28. These imports increased by 10 percent in 2017, while imports from outside the EU grew by 11 percent.
- The share of commodity exports to other EU-28 countries is decreasing. In 2002, around 80 percent of Dutch goods exports were destined for the EU-28, against 71 percent last year. Exports elsewhere saw a greater increase (by nearly 15 percent) than exports to destinations within the EU-28 (8 percent).
- In 2017, the total value of commodity imports stood at €397 billion. Around 48 percent of these imports were destined for re-exports, e.g. smartphones imported from China destined for the German market. The bulk of imports (€205 billion) was destined for the domestic market to be consumed or further processed.
- In 2017, the total value of commodity exports stood at €462 billion. More than half consisted of re-exported commodities such as smartphones, computers or coal. Domestically produced exports amounted to €228 billion. Such commodities include cheese, cut flowers and refined oil products.
- In 2017, there were approximately 51 thousand two-way traders, 90 thousand businesses solely importing goods, and 23 thousand businesses focused entirely on exports as part of the Dutch economy.
- Over 40 percent of two-way traders were active in wholesale trade and nearly 20 percent in manufacturing. Businesses focused exclusively on either importing or exporting of goods are relatively more often found in retail trade or commercial services.
- The share of commodity traders in the general enterprise population is highest in wholesale trade, retail trade and manufacturing. When smaller enterprises (<20 employees) are excluded from the analysis, the share of traders increases significantly. Around 94 percent of larger manufacturing companies trade in goods and 96 percent of large wholesalers.
- Around 1 percent of Dutch enterprises make investments abroad.
- In absolute terms, businesses investing abroad are active in wholesale or service trade, in relative terms the majority operate within the various branches of industry.
- Relatively few small and medium-sized enterprises (SMEs) make investments abroad.
- The top five destinations for Dutch enterprises investing abroad are Germany, Belgium, the United Kingdom, France and the United States.
- In general, between 45 and 65 percent of enterprises combine investments in a particular country with goods trade. In most cases, this involves a combination of investments and exports. In the case of China and India, the main focus is on a combination of investments and imports.
- Investments combined with imports often concern intermediate goods, which could indicate a vertical integration of supply chains.
- Investments in low-income countries are relatively often combined with the export of consumer goods.
- The transport equipment manufacturing industry is characterised by a high share of two-way traders among the investing enterprises. This could be a reflection of the fact that this industry is a good example of the increased fragmentation of production processes.
- Businesses engaging in CAT export goods to 15 EU countries on average, while those without CAT export goods to 9 EU countries on average.
- Enterprises that employ an export strategy of carry-along trade have on average more export partners than enterprises without CAT. Also the number of bilateral trade relations is higher. Carry-along traders have on average 27 bilateral trade relationships within the European Union, as opposed to 16 trade relationships for similar-sized businesses without carry-along trade.
- In the years 2010 – 2015, approximately 36,000 businesses received government support for their internationalisation activities, ranging from participation in trade missions to receiving tailor-made information from diplomatic representations of the Netherlands abroad.
- The most prominent destinations for which the Dutch government provides support are Germany and China, followed by a large group of countries including the United States, Turkey and Russia.
- A relatively large amount of government support is directed towards activities in less easily accessible countries such as China and Turkey.
- In absolute terms, wholesalers receive the most support for their internationalisation activities.
- Most businesses seeking government support are already exporting and intend to increase these exports or break into new destination markets.
- Small and medium-sized enterprises (SMEs) receive relatively little support for their internationalisation activities.
- The number of businesses exporting to a particular destination generally shows an increase in the years after government support.
Chapter 2: Trends in carry-along trade by exporters in the Netherlands
- By combining data on the production and export of goods, we provide an overview of goods which are manufactured and subsequently exported by Dutch manufacturers as well as goods exported as CAT.
- The term CAT refers to goods which are not manufactured by the businesses themselves, but exported together with the company’s self-manufactured goods. This is an export strategy which enables businesses to increase their revenues by generating value added for their clients through product enrichment.
- By focusing on the distinction between the export of self-manufactured goods and CAT, we reveal several patterns in direct and indirect exports as well as dependencies within supply chains and the sustainability of business models of exporting manufacturers in the Netherlands.
- A few case studies of certain industries illustrate that Dutch businesses indeed export goods that are not self-manufactured on a considerable scale. However, the case studies also reveal that in many cases this concerns small or incidental transactions that do not necessarily fit into a CAT-type business model.
- In support of this notion, we have developed an algorithm that separates all goods exports which are not self-produced in ‘true’ carry-along trade from all other exports.
- The results of this process show that about 35 percent of all exporting manufacturers enrich their product portfolio by exporting carry-along type products. This percentage remains quite stable over time. The share of CAT in total goods exports shows a modestly increasing trend over the years 2010 – 2016, from around 18 percent in 2010 to over 20 percent in 2016.
- The distribution of CAT exports over the destination countries broadly correlates with that of total goods exports, which is more or less by design. In addition, the growth in CAT exports per destination country generally shows the same direction as the growth in total exports, with the exception of countries such as China. Exports to China are growing fast, but CAT exports to this country are not. This indicates that, apparently, China is not an ideal destination for CAT exports.
- CAT is relatively more dominant in exports to a number of distant markets such as the United States, Japan and South Korea. This is likely related to differences in the traded product portfolio.
- The share of CAT exports varies greatly across the industries. In most industries, the share of CAT exports does not change much over time, neither upward nor downward.
- By far the largest three industries – food manufacturing, electronic products and machinery and transport equipment – show average CAT export shares of 21 to 22 percent. Of these three, only the share of CAT exports in total exports by the manufacturers of electronic products and machinery is showing a modestly rising trend.
- Manufacturers of wearing apparel show a surprisingly low share of carry-along exports. This industry manufactures products that seem highly suitable for product enrichment through CAT. Nevertheless, the clothing industry is characterised by the highest share of self-produced exports, i.e. around 80 percent.
Chapter 3: The interaction of production and exports: strategy and revenue model of the Dutch manufacturing industry
- In the period 2010 – 2015, the Dutch manufacturing sector showed 18 percent growth in export value and 3 percent growth in the number of product-destination country combinations.
- A number of branches of industry including car manufacturing show above-average growth in export value alongside a decreasing number of product-destination country combinations. This may be an indication of industry specialisation in particular commodity exports, or serving particular destination markets. This increasing concentration in certain markets could pose a threat in the long run.
- In the branches of the manufacturing industry which were selected for further elaboration (food products, chemicals and chemical products, machinery and equipment and electrical equipment), carry-along trade grows faster than self-manufactured exports.
- The branch manufacturing of electrical equipment stands out as the share of CAT in total exports increased to around 37 percent in 2015, which is roughly equal to the share of self-manufactured exports.
- Overall, the rise in export values and in number of product-destination country combinations appears to take place simultaneously. Some industry sectors such as electrical equipment manufacturing, appear to be successful by specialising in particular product-destination country settings.
- By analysing the observed ‘export bundles’ (combinations of self-manufactured products and carry-along products), we reveal several types of, or motives for, carry-along trade. For example, manufacturers of shavers bundle their equipment with complementary products such as brushes, hair dryers, additional razor blades and cosmetics such as aftershave. A similar business model is adopted for example by manufacturers of loudspeakers.
- Manufacturers frequently provide spare parts to their clients as a form of carry-along trade. This is a common strategy among manufacturers of machinery or furniture. In doing so, the manufacturer provides an additional service to his clients and it could also enable the manufacturer to remain involved in the maintenance of his machinery.
- Merchandising is a different type of carry-along trade, frequently observed among manufacturers of food and beverages, for example beer brewers. They not only bundle the export of beer with items such as refrigerators and beer barrels, but also with promotional materials such as calendars, T-shirts, sunglasses and playing cards.
- The most common product exported by manufacturers as carry-along trade is packaging material. Almost every branch of industry exports packaging materials in a CAT-setting. This makes intuitive sense as the manufacturing of packaging is generally outsourced to specialized manufacturers and the packaging of a product is usually tailor-made in terms of design and production.
- Within the Dutch manufacturing sector (20 employees or more), 35 percent of enterprises engage in CAT. The majority are large two-way-traders – often multinationals – with over 80 percent at least ten years old. Small, independent enterprises are least likely to be involved in CAT.
- Manufacturers involved in exports including CAT are 7.6 percent more productive than their counterparts without CAT. The former possibly rely on a larger network of distributors and suppliers than the latter. Only the more productive businesses are able to carry the extra costs to manage these networks.
- Businesses with a relatively high share of CAT exports are more productive than those exporting relatively many CAT products.
- The model shows that the relationship between CAT exports and productivity is topped by a ceiling. Productivity is at its highest among businesses with a 42-percent share of CAT exports.
- The same goes for the number of CAT products, with a share of 36 percent of exports providing the optimum correlation in terms of productivity.
Chapter 4: Exporters and their trade relationships within the EU
- In 2017, around 52 thousand Dutch goods exporters were active on the EU market, according to intra-Community transaction data of the Dutch tax authorities. Almost three-quarters of these businesses have at least one buyer in Belgium. This corresponds to more than 37 thousand exporters. Germany follows in second place with over 33 thousand businesses.
- The 52 thousand goods exporters account for more than 2.1 million intra-Community trade relationships. This means that the average goods exporter in the Netherlands has about 41 trade relationships within the EU. An exporter who exports goods to Belgium and Germany has an average of 21 and 16 trade relationships respectively within these countries. In the smaller and more remote European economies, this average is many times lower.
- Exporters of services – in total nearly 40 thousand – show a similar picture, although the size of the customer base is much smaller. With an average of approximately 18, service exporters have fewer trade relationships within the EU than goods exporters. Belgium and Germany again top the list with the highest number of trade relationships per exporter on average.
- Businesses that export goods or services to the United Kingdom show the highest dependency – in comparison with the other major trading partners – on one relationship in that country. More than 7 thousand exporters of goods have only one buyer in the UK, which corresponds to 43 percent of all goods exporters who export goods to the UK. This is more than half for the service exporters.
- The study shows that exporting independent SMEs generally have fewer trade relationships than large businesses. Businesses with relatively large export payments rarely depend on one or more intra-Community trade relationships. The average wholesaler and manufacturer have the largest number of export relationships in the EU. This applies to exporters of both goods and services. Only transport and transport companies are less dependent on one party in the EU in terms of exporting services.
- Approximately 7.5 thousand independent SMEs started exporting goods in 2014 and a similar number became engaged in export of services. By 2017, only 43 percent of the goods exporters and 40 percent of service exporters who started in 2014 were still active as exporters.
- Approximately 40 percent of all businesses which started exporting goods in 2014 had one export relationship in the EU in that same year. In their first year, only 6 percent of new goods exporters were active in more than five EU countries. Three years later, 19 percent of these starters were still exporting to one trading partner in one country, while the share of businesses operating in more than five EU member states increased to 18 percent.
- The results indicate that it is relatively more difficult for independent SME-sized service businesses to expand trading relationships after getting started in exports, both in terms of the number of trade relationships and in the number of markets. In ten out of the 27 other EU countries, service exporters saw the number of trade relationships decrease during the period 2014–2017. Remarkably, over the same period, goods exporters were able to increase their export relationships in each EU country.
CBS (2018a). Bbp groeit met 0,6 procent in eerste kwartaal 2018. Centraal Bureau voor de Statistiek: Den Haag/Heerlen/Bonaire.
CBS (2018b). Bbp groeit met 0,7 procent in tweede kwartaal 2018. Centraal Bureau voor de Statistiek: Den Haag/Heerlen/Bonaire.