Promoting Export in Least Developed Countries: Canadian Market Entry Strategy for Ethiopian Specialty Handloom Woven Textile Products Submitted by: Tsegaye Ginbo Gatiso Research Officer, Ethiopian Development Research Institute (EDRI) Addis Ababa, Ethiopia; Cellphone: +251910695336; Email: [email protected]Wondwossen Shiferaw Woldemichael Senior Marketing Expert, Ethiopian Textile Industry Development Institute (ETIDI) Addis Ababa, Ethiopia; Cellphone: +251961642679; Email: [email protected]Submitted to: Trade Facilitation of Office Canada (TFO Canada) and International Development Research Center (IDRC) September 2016
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Promoting Export in Least Developed Countries:
Canadian Market Entry Strategy for Ethiopian Specialty Handloom Woven Textile
Products
Submitted by:
Tsegaye Ginbo Gatiso
Research Officer, Ethiopian Development Research Institute (EDRI)
Trade Facilitation of Office Canada (TFO Canada) and International Development Research
Center (IDRC)
September 2016
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Abstract
This study investigated practical strategies for exporting Ethiopian handloom specialty textiles
and fabric products to the Canadian market. It presents an overview of the sector taking the
demand and supply side factors into consideration. Following a thorough selection process, the
study identified 10 small and medium size enterprises (SMEs) using criteria such as product
quality, potential to expand production and export readiness. Moreover, the SMEs selection
process benefited from the consultation of Trade Facilitation Office Canada experts who
reviewed the company profiles developed for the study purpose. To gather the required data,
we conducted individual discussions with each company owner as well as focus group
discussion. The latter focused on the production, distribution and marketing processes in order
to determine the prospects and challenges that small enterprises face when exporting their
products to Canada and other international markets. In addition, the study reviewed the market
access challenges on the Canadian market for specialty textile products and for least developed
countries including Ethiopia. By matching the Canadian market demand to the supply of
Ethiopian handloom products, the study identified various handloom woven specialty products
categories namely home accessories, gift hand‐woven textiles, clothing, and fashion
accessories to export to Canada. The samples of these products from participated small
enterprises taken to Canada for the three‐city roadshow. Finally, the study developed both
indirect and direct exporting strategies considering the associated levels of commitment, risk,
control and profit potentials. The purpose of this study is that small enterprises selected for the
roadshow can use either or both the indirect and direct exporting strategies and establish long‐
term business relationships, joint venture schemes and direct investments with Canadian
buyers. Furthermore, for the purpose of immediate market linkages, the study recommended
that Ethiopian small enterprises venture into direct exporting through a Canadian based agent,
distributor or wholesaler as this would be a viable strategy for selected small sized exporters to
take advantage of low resource requirement, low controls.
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Table of contents
Abstract ......................................................................................................................................................... ii
List of tables ................................................................................................................................................. iv
List of figures ................................................................................................................................................. v
List of acronyms ........................................................................................................................................... vi
Source: Authors’ computation based on the survey data
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Chapter four: Canadian market penetration strategy
4.1. Marketing strategy development approach
A well-designed marketing strategy is required to penetrate the Canadian market, since the
products will be facing strong international competition. The following illustration provides an
overview of the various phases the study pursued to develop the market entry strategy for
Ethiopian handloom woven products.
Figure 10: Marketing strategy development design
Source: Authors’ computation based on the survey data
Focus group discussion and evaluation of companies’ capacity and product analysis
SWOT analysis
Marketing strategy
Marketing mix instrument Product identification for Canada market Price analysis Communication Distribution
Developing market entry strategy
Canada market and companies’ analysis through: Factory visit and making one to one discussion Focal group discussion Secondary data review
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Selection of potential exporters
In order to select exporters of handloom woven products to Canada, we categorized producers
into three main segments: home accessories and gift exporters, hand-woven textile and clothing
exporters, and fashion accessories exporters. But since none of the entrepreneurs exclusively
produce products which fall under one segment, we selected unique products for the targeted
Canadian market.
Furthermore, the study considered different important factors for the selection. In order of priority,
the selection criteria included: Export readiness and commitment, actual or previous export
experience, production capacity and quality standards, number of employee (considering this
project focused on SMEs having less than 500 employees), organizational structure/management
structure, ability to finance export orders and previous and intended investments to upgrade
production set up.
Based on the above criteria, we initially selected 13 small firms and submitted their profiles for
the first audition by experts from TFO Canada. Then, TFO Canada approved the selection of
finally 11 handloom manufacturers. The selected firms are listed in Table 10 below. The two
companies that didn’t pass the first audition are Abeba Knit and Cultural Dresses Production and
Distribution and Yoas Handloom woven (Tibeb) P.L.C due to their low production and financial
capacity.
Selection of products for potential export
After analyzing the Canadian hand-woven market (demand) and Ethiopian product categories
(supply), we selected different products in each category. The selected products for potential
export to Canada are:
Home accessories and gift: Table cloth (table runner, placemats, napkins), cushion cover
and pillow cover, bed cover /bed runner, and cotton/wool made flat rugs
Hand-woven textile and clothing: Caftans (poncho), traditional cloth, baby blanket,
butterfly dress, and kaftans top
Fashion accessories: Scarves (woven and knitted) and knitted hats, tote bags, throws
(woven and knitted), cotton shawl, and beach towels
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After undertaking factory visit, focus group discussions and analyzing each company’s product
category with respect to the demand of Canadian market, the study has selected different product
items in each company. The table below lists the companies with their selected products for export
to the Canadian market. These products were selected in collaboration with TFO Canada,
researchers and companies’ owners (see the Appendix for the detailed description of selected
companies and their sample products).
Table 8: Selected potential exporters and products
S.N Name of company Selected product items for export*
1 Sabahar/Sabasilk P.L.C Towels (beach towels, bath towels, hand towels), and shawls
2 St. George Interior Decoration and Art Gallery
Cushion cover, and sets (table mats, table runner & napkins)
3 Salem’s Ethiopia Bath rug, throws (woven and knitted), knitted hats, and tote bags
4 Paradise Fashion Kaftans top, shawl, and scarves (woven) 5 Sami Mohammed Abdela Export P.L.C.
(Nigist Ethiopia P.L.C.) Scarves (woven), and ponchos
6 Muya Ethiopia P.L.C (Sara Abera Garment) Baby blanket, and scarves (woven) 7 K design weaving and dress making Top dress (tonique), ponchos, scarves
(woven), and butterfly dress 8 Don Door Handi-Craft P.L.C. Scarves (made of silk), and tote bag 9 Ellilita products Scarves (woven) 10 Trio Craft P.L.C Rugs, cushion covers, throw, scarves
(woven), and table runner 11 Sabatibeb P.L.C Scarves (woven and knitted neck scarf),
shawls, and knitted hat
Source: Authors’ computation based on the survey data
Note*: Even though the Canadian market is saturated by Indian and China made table runners, towels and napkins, we selected some items because their uniqueness.
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4.2. Strategy for Ethiopian handloom woven products
4.2.1. Distribution channel
The figure below illustrates the possible distribution channels that can be used by the exporting
handloom manufacturers of Ethiopia.
Figure 11: Potential distribution channel for entering Canadian market
Source: Authors’ computation based on the survey data
Focusing on importing wholesalers, importing manufacturers and agents in Canada: It’s
strongly recommended to create market linkages with these actors for the following reasons:
Since these channels are selling their products to importing retailers or non-importing retailers,
their profit margin over Ethiopian manufacturer is high because they are going to compensate
from selling to importing wholesalers or non-importing retailers.
As mentioned in the SWOT analysis, Ethiopian handloom woven manufacturers are facing
market inconsistency. As these channels are big in size, their market linkage will be more
sustainable.
Since these importing wholesalers are giving bulk or high quantity order, Ethiopian handloom
woven producers will subcontract to cooperatives and hence create market opportunity.
Furthermore, this will help them to increase their production capacity.
5 Sami Mohammed Abdela Export P.L.C. (Nigist Ethiopia P.L.C.)
Scarves (woven)
Ponchos
6 Muya Ethiopia P.L.C (Sara Abera Garment)
Baby blanket 17.00
Scarves (woven) 30.00
7 Top dress (Tonique) 23.00
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S.N Name of company Identified product item Product size Price of the
product (USD) K design weaving and dress making
Ponchos 16.13
Scarves (woven) 18.43
Butter fly dress 32.23
8 Don Door Handi-Craft P.L.C. Scarves (made of silk) 20 x 170 cm 30.00
Tote bag 20.00
9 Ellilita products Scarves (woven) 60 x 210 cm 80 x 210 cm
9.79 – 10.44 15.00
10 Trio Craft P.L.C Rugs 93 x 150 cm 52 x 80 cm
46.24 13.80
Floor cushion cover 65 x 65 cm 50 x 50 cm
20.11 12.07
Cushion cover 40 x 40 cm 12.07
Throw 150 x 250 cm 20.11
Scarves (woven) 70 x 210 cm 54 x 210 cm
14.00 6.00
Table runner 33 x 133 cm 18.11
11 Sabatibeb P.L.C Scarves (woven and knitted neck scarf)
35 x 180 cm 11.00
Shawls 70 x 200 cm 12.5
Knitted hat 8.00
Source: Authors’ computation based on the survey data
4.2.5. Strategy for increasing production capacity
As we stated so far, the production capacity of handloom woven producers is limited due to the
nature of the business. One way to increase the production capacity would be to establish
linkages between weavers’ cooperatives with input suppliers, loom and accessories suppliers,
designers, training institutes, exporters and trading houses. This would help to:
Improve quality and productivity through the use of improved looms and accessories
Standardize pre-weaving and weaving activities
Source good quality raw materials collectively and
Share knowledge on weaving, neatness, design, quality
4.2.6. Marketing strategy
Market intelligence: The accessibility of the right information on new processes, technical
advances, adaptable technology, market trends, design trends are vital to the long-term
sustainability of the industry.
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Marketing channels: There are several channels of communications that can be used to link up
with potential buyers. Some of these are sub-contracting networks; direct contacts and marketing;
brochures, catalogues, information exchange platforms, sales representatives or agents, trade
shows in Canada, and B2B sellers meetings.
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Chapter five: Recommendations
The selected foreign market entry strategy is likely to have a major impact on the export performance overseas. Moreover, each mode
of entry has its associated levels of commitment, risks, and control and profit potentials. Taking these in to account, the study developed
both indirect exporting and direct exporting strategies.
The following recommendations aims to reduce the constraints facing handloom woven producers.
Table 10: Recommendations of the study with their responsibly bodies
# Strategic issue Possible actions Major players
1 Increasing production capacity
Increase awareness on the benefits of working together (vertical and horizontal linkage) FeMSEDA, UNIDO, ReMSEDA
Establish linkages between weavers’ cooperatives FeMSEDA, UNIDO, ReMSEDA
Support producers by providing improved looms and accessories Private BDS, GTZ Standardize pre-weaving and weaving activities ETIDI, UNIDO Teach middle and top managers how to evaluate productivity (time study techniques, work measurement, effective production management techniques, line balancing, product costing and cost controls; and other techniques)
ETIDI, UNIDO
Develop industrial engineering techniques to improve efficiency of the industry ETIDI, UNIDO Develop a system to reward workers on productivity, rather than attendances Producers
Establish linkages between weavers’ cooperatives (vertical linkage) FeMSEDA, UNIDO, ReMSEDA
Accept bulk orders done in collaboration (sub-contracting) with other producers (horizontal linkage)
FeMSEDA, UNIDO, ReMSEDA
Offer finance support for exporters to import raw material if importing is the only option UNIDO, ReMSEDA, Private BDS, GTZ
Create a union of Ethiopian handloom woven exporters and import raw materials to be stored in a bonded warehouse
Producers, Ministry of industry, ETIDI
Create a B2B platform between local raw material producers/importers and manufacturers/exporters
FeMSEDA, UNIDO, ReMSEDA
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# Strategic issue Possible actions Major players
Use a voucher system (export incentive scheme in which exporters are not expected to pay import tax) to get raw material at a lower cost
Ministry of Industry
3 Weavers skill development
Enhance weavers’ design skills through training and create a platform of knowledge transfer FeMSEDA,UNIDO, ETIDI, GTZ
Establish institutions to give formal technical training Government (it may be Ministry of Industry)
Increase communication with the government offices to share information more easily ETIDI, FeMSEDA Give job training for weavers when a new technology is launched ETIDI, FeMSEDA Clarify the company organizational structure to assess if weavers can become specialized in a specific area and hence increase their productivity
ETIDI, FeMSEDA
Improve the design of the loom by keeping its cultural touch/identity ETIDI, FeMSEDA, UNIDO Create new pattern designs, garment engineering and efficient garment construction techniques
ETIDI
4 Technology upgrading
Ensure technological improvement (government should give attention to the modernization of the equipment)
Private BDS, GTZ, UNIDO
Train weavers to enable them to use technology and increase their productivity ETIDI, FeMSEDA, UNIDO
5 Quality assurance
Facilitate quality certification system for exportable products at affordable cost (it may be product quality or management quality like ISO)
ETIDI, FeMSEDA, ReMSEDA
Standardize pre-weaving and weaving activities ETIDI, UNIDO Offer skills development in fabric quality, material utilization and control ETIDI Develop common facility for quality checking systems ETIDI, FeMSEDA Create standard or homemade physical performance test ETIDI Increase the awareness of the importance of quality assurance with training ETIDI, FeMSEDA, ReMSEDA
6 Business environment
Formulate favorable public policies and review the existing policies for adjustments Government (mainly Ministry of Industry and ETIDI)
Offer adequate financial services for cooperatives Private BDS, GTZ, UNIDO Encourage micro-financial institutions to develop specific need based financial services for handloom woven product exporters
FeMSEDA, ReMSEDA
Continue the discussion with micro-financial institutions on financial service problems Government (mainly Ministry of Industry and ETIDI)
Encourage group savings and credit associations to increase their financial capacity FeMSEDA, ReMSEDA Integrate the regional supply chain, thus benefiting from knowledge expertise, important facilities, trade routes, positioning, etc.
FeMSEDA, ReMSEDA, GTZ, UNIDO
Convergence of domestic & export oriented markets through: Sales distribution synergies, relying on common distribution channels
ETIDI, UNIDO, FeMSEDA, GTZ
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# Strategic issue Possible actions Major players
Operational synergies such as bulk orders, higher capacity utilization, creation of more jobs, improving production efficiencies, especially supply chain channels such as grouping of orders, especially smaller ones, availability of accessories, etc.
Investments synergies – joint use of plants, common raw materials, stocks and leftovers, etc.
Improved workplace organization, through better management, industrial engineering practices, worker welfare, etc.
7 Marketing capacity building
Develop producers’ market research skills specially for niche markets ETIDI, UNIDO, FeMSEDA, GTZ
Create a platform for sourcing and sharing market information. It may be by organizing B2B discussions, website development etc.
IDRC, TFO Canada, UNIDO
Establish organized sale outlets for producers to prepare them to reach the quality standard of international market
UNIDO, GTZ, Private BDS
Facilitate establishment of organized market places FeMSEDA, ReMSEDA, UNIDO
Establish an organized marketing system for the producers FeMSEDA, ETIDI, UNIDO
Enable the handloom woven producers to use standard marketing tools & materials for exporters/export oriented producer such as: Emails are the most efficient and effective tool for direct contacts and marketing Business cards contain contact details of the company representatives Company profile having the information of:
o Company information (company registered name, contact details, legal status, owners, management structure, experiences and references).
o Product information - main products/manufacturing experiences, production capacity, labor, delivery information, quality standards, price list and photos of samples, website and other
o Service information – order schedule, terms of delivery, terms of payment, logistics, agencies in different country, partners, customer service
o Price list, this document can be annexed to the company profile, containing payment methods accepted, payment terms and delivery terms
Websites are rapidly replacing printed catalogues which are considered expensive to design and print. They are the most effective tool for marketing and communication.
Produce a video to tell the story of the weavers in which buyers are interested in.
IDRC, TFO Canada, in collaboration with the researchers, UNIDO
Marketing support to the sub-sector through: Advertisement on catalogues, brochures, leaflets, newspapers and magazines B2B meeting arrangements and participation in international and national trade fairs
Government (mainly Ministry of Industry and ETIDI), Ethiopian embassy found in Canada, IDRC, TFO Canada,
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# Strategic issue Possible actions Major players
Tailor-made trainings to help weavers improve their marketing and management know how
Link producers with trading houses and specialist retailers in big cities Establish information centers and common show rooms specially for the cooperatives Facilitation the participation of exporters/potential exporters to local trade fairs Build the image of the rich traditional skills and designs of Ethiopia
in collaboration with the researchers, UNIDO
Once marketing practices are in place, suggest to the producers to make a budget for promotion
FeMSEDA, ETIDI, UNIDO
8 Enhancing their export readiness
Promote government export incentives given to the manufacturers Government (mainly Ministry of Industry and ETIDI)
Enhance domestic competitiveness of their products and hence they will be fitted for international market
FeMSEDA, ETIDI, UNIDO
Enable the producers to use scientific costing and pricing system FeMSEDA, ETIDI, UNIDO
Support producers’ export financing UNIDO, GTZ, Private BDS, financial institutions
Increase awareness on quality standards of international markets FeMSEDA, ETIDI, UNIDO Teach producers how to handle bulk orders i.e. subcontracting across each other or sourcing to cooperatives
FeMSEDA, ETIDI, UNIDO
Teach factories about the importance of maintaining sales records and an updated customer database
FeMSEDA, ETIDI, UNIDO
9 Policy advocacy
Conduct further research to identify policy interventions that would help all actors work more closely, coordinate their efforts and enhance the growth of the sector
Government (mainly Ministry of Industry and ETIDI)
Carry an assessment to diagnose the viability of a cluster development approach on the basis of empirical evidence and to draw important lessons or experiences from other developing countries
Government (mainly Ministry of Industry and ETIDI)
Evaluate the effectiveness of the legal frameworks in place Government (mainly Ministry of Industry and ETIDI)
Souce: Authors’ computation based on the survey data
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References
Abdella, Merima, and Gezahegn Ayele (2008). Agri-chain analysis of Cotton Sub-sector in Ethiopia; Report No.10 ed. Alan, M. R., Chang, H. O, and Dominic S.K. (2011). The Regional and Global Competitiveness of Multinational Firms, Journal of the Academy of Marketing Science, Discussion paper No. 2011-003. Ageze, P. (2006). Business Development Services (BDS) for Micro and Small Enterprises (MSEs): Performance and Sustainability of Programs in Addis Ababa. Central Statistics Agency (2003). Main Report for the 2002 Cottage/Handicraft Manufacturing Industries. Addis Ababa.
Central Statistical Authority (2010). Report on MSE and Urban Informal Sector Sample Survey, Addis Ababa.
Council of Ministers Regulation No. 180/2010 (2010). Textile Industry Development Institute
Establishment Council of Ministers Regulation, Retrieved from http://goalgoole.com/regulation-no-1802010-textile-industry-development-institute-establishment-council-of-ministers-regulation/ (20 July 2016) Dhyana van der Pols (2016). Business opportunity in Ethiopia: Textile and apparel sector; Addis Ababa. Ethiopian Revenue and Custom Authority (2016a). Ethiopian Textile Sector Export Performance Report (2014 – 2015). Ethiopian Revenue and Custom Authority (2016b). Ethiopian Textile Sector Export Performance Report (2009 – 2016). Ethiopian Textile Industry Development Institute (2010). Large and Medium Textile and Apparel Industry Development Plan (2010/11 – 2014/15). Addis Ababa. Ethiopian Textile Industry Development Institute (2010). Ethiopian Textile Sector Profile. Addis Ababa. Ethiopian Textile Industry Development Institute (2016). Ethiopian Textile Sector 2015 Annual report. Addis Ababa.
Federal Democratic Republic of Ethiopia, (2011). Growth and Transformational plan I, Addis Ababa
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FeMSEDA (2009). Export Market Performance Annual Report of year 2008/09. Addis Ababa: Federal Micro and Small Enterprise Development Agency.
Hibret Nigussie (2009). Impact of Business Development Services in Local Economic Development: The Case of Gullele Handloom MSE in City place Addis Ababa, Graduate School of Development Studies, The Hague, Netherlands. Mission for Community Development Program (2012). Ethiopians Driving Growth through Entrepreneurship and Trade (EDGET). Retrieved from http://mcdpethiopia.org/EDGET.html
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Appendix: Selected exporters and their products
The table below lists the companies that were selected for this market-entry study along with their selected products for export.
These were selected in collaboration with the owners of the companies, the team of TFO Canada and the researchers.
Table 1: List of companies and selected items for export
S.N Name of companies and selected items
1 Sabahar/Sabasilk P.L.C
Beach towels bath towels
hand towels Shawls 2 St. George Interior Decoration and Art Gallery
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S.N Name of companies and selected items
Cushion cover Sets (table mats)
Sets (table runner & napkins) 3 Salem’s Ethiopia
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S.N Name of companies and selected items
Bath rug Throw (woven)
Throw (knitted) Knitted hats
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S.N Name of companies and selected items
Tote bags Baby wrap 4 Paradise Fashion
Kaftans top Shawl
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S.N Name of companies and selected items
Scarves (woven)
5 Sami Mohammed Abdela Export P.L.C. (Nigist Ethiopia P.L.C.)