Chapter Four: Know When and When Not to Integrate
Summary from book page 74-75

Exporters from the developing world face a wide variety of challenges regarding not only the production of their goods, but also those goods' distribution and sales. Wide variations in the macroeconomic environment, political and social instability, inconsistent government policies, and poor infrastructure are the problems most often associated with poor export performance. Correcting those problems is a prerequisite to creating sustainable and profitable growth in many exporting industries, but it is not enough. The many strategic challenges that firms face cannot be postponed any longer; as companies wait to make decisions about critical strategic issues, they actually cede control of their future to more nimble competitors, and to buyers.

If exporting firms in the developing world are to have any hope of capturing more of the economic rewards they now create for others, they must address the three problems we have just discussed: poor knowledge of channel needs, a failure to leverage channels, and a failure to capture market feedback.

Because exporters rely on brokers and distributors who typically do not pass along valuable information about market trends and dynamics, they are inherently less able to understand customers' needs than either the brokers or the competition can. That reduces their ability to differentiate themselves in the marketplace through service, better understanding and fulfillment of customers' needs, or an ability to anticipate market trends. In light of the changing market dynamics, that also poses a problem because exporting firms tend to be relatively unaware of the relative performance of their competition in key market areas, which could mean they will face some unexpected and painful realizations about their industry's development down the road.

Lack of forward positioning contributes to yet another problem we have observed: groups of companies in the same industry are unable to cooperate with each other to improve the consistency of supply, the quality of products, and the scale needed to export efficiently. That fact has hampered the growth of dynamic groups of industries that could help upgrade the broader competitive environment. We call those kinds of dynamic industry groups clusters, and we will examine their value in more detail in the next chapter when we discuss the specific problem of interfirm cooperation.

Poor thinking about forward integration is part of a system engendered by other patterns we discuss in this book. For example, a tradition of depending on natural resource based products -- what we have called factor or comparative advantages-- forces competition to be based simply on price and scale. That, combined with a historic dependency on government policies to facilitate exports, has inhibited firms' ability to think "outside of the box" about how to distribute their products. Forward integration would go a long way to mitigate some of the challenges facing firms and industries in developing nations, and for this reason we consider it an underutilized strategy; another hidden source of growth.

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