In today’s globalized world, logistics are a decisive factor in the competitiveness of companies. According to a report by the Inter-American Development Bank (BID), logistics costs measured as a percentage of the GDP are between 50% and 100% higher in Latin America and the Caribbean than in Organization for Economic Co-operation and Development (OCDE) countries. Likewise, inventory allowance – a key component for companies – shows a similar proportion. 

Logistics costs measured as a percentage of GDP are between 50% and 100% higher in Latin America and the Caribbean

IDB reveals that the high costs of land transport services are partly due to obsolete infrastructure and complicated and slow clearing of goods at customs, generating border crossing bottlenecks. These factors have a negative impact on competitiveness, especially for small producers in the region who pay between two and three times more on logistics costs than large producers to move their products from crop areas to the border or port. Internationalization, thus, becomes expensive and a high risk for small producers.   

However, the United Nations Industrial Development Organization (UNIDO) reports that export consortia enable members to optimize logistics costs for marketing products in foreign markets. These groups are designed for members to share knowledge and costs related with inventory, operations and distribution strategy development. 

For instance, export consortia can reduce transportation costs through the development of joint strategies and logistics studies. Another advantage of these alliances – affirms UNIDO – consists of improved access to large logistics operators and increasing bargaining power with them.   

In fact, IDB sustains that large logistics operators are present in most countries in the Americas but that they focus their activity on foreign transnational companies or big clients in the region. They generally offer more competitive rates but require high cargo volumes; this is why export consortia enable small producers to compete on equal terms with the major players.

Grandes PYMEs reveals that small producers in Latin America and the Caribbean generally target exports to regional markets. It is not typical for them to export to developed countries on their own since entry requirements are more demanding and require large volumes. 

To access these markets it is essential to carry out prior research and promotion activities to learn about the demand and to launch product marketing initiatives. The problem that small producers face is that these activities imply an investment that only has economic justification given a certain volume of export supply. This is why by joining forces it makes it more feasible to achieve the necessary levels of supply to justify the expense and it enables small producers to access high value markets.  

Increased profit

According to a report on SME consortia by Antoldi, Cerrato and Depperu, economies of scale may be achieved when consortia members combine their resources to jointly acquire logistics services, resulting in improved bargaining power and better terms.

Likewise, members may build and use transport facilities such as storage yards or silos for joint export purposes, achieving additional time and cost economies. The report by Antoldi, Cerrato and Depperu describes how consortia can help its members go from simply supplying products to clients (“reactive”) to developing a more competitive and authentic export strategy in addition to increasing their international integration with greater control over costs and risks (“active” exports). 

When several companies join forces to promote their exports they increase their bargaining power with distributors and buyers. Grandes PYMEs adds that in some cases a consortium can even establish its own distribution channels. This way it can bypass the intermediaries on which small producers are usually over-reliant.

By improving the producers’ access to valuable information such as overseas market studies, consortia can achieve greater export diversification. According to Grandes PYMEs, this is achieved by increasing the number of destination markets, resulting in a reduction of seasonal fluctuations of exports, especially in geographically dispersed markets.