If you are into services marketing, it might be useful to know a little bit about how receptive certain regions of the world (this article concentrates on the EU) might be to your offering. Even more useful is gaining an insight whether the central government would perhaps be willing to help you establish a firm presence in its market in return for improving its national Balance of Payments.
Most agree that operating in the red is not a good idea, still governments do it all the time. Our last economic crisis is often referred to as the ‘credit crunch‘ which basically means that access to loans – credit – was reduced. That problem is apparently being solved by increasing credit in the markets through bodies such as the IMF (which is likely to lead to another – and even larger – economic crash as the first wave hit individuals and businesses but the next will hit nations) which will increase the amount of red in the national accounts.
What are the politicians talking about?
In corporate terms, the Balance of Payments is simply how much is bought versus how much is sold. One way of thinking about it is Sales versus Cost of Goods Sold. A company would rarely sell its products for less than its CGS, but as stated, governments do it all the time for various reasons such as maintaining certain social standards like healthcare, daycare, elderly care and a wide range of other care services. In short, governments are supposed to care for their subjects and that is a large expense item. They hope to get this back through the income tax system and this is why unemployment becomes a big problem. There are four major reasons for this:
- the higher the unemployment rate, the less income tax which creates …
- more pressure on the social security system and …
- reduces consumption which in turn …
- increases unemployment as more businesses go under.
This is the world today. For marketers, this is perhaps not the best environment to operate in but it does have significant opportunities for those that know what to look for. Marketers come in various shapes and sizes. Some are social marketers while others are more involved with advertising. All work with numbers and statistics, but few are comfortable working with economic figures such as the Balance of Payments. What this national account item does – point-blank – is that it reveals market opportunities at the macro level. For instance, the Current and Capital accounts are, in corporate terms, the financial statement of a country (the national profit / loss statement) and is usually reported quarterly.
As of the 4th quarter 2009, the only regions in the EU that show positive results in their profit / loss statement are Belgium, Denmark, Germany, Estonia, Latvia, Lithuania, Luxembourg, Hungary, Netherlands, Austria, Finland, and Sweden. That is 12 out of 27 or 44.4% which means that if the EU was a company with 27 divisions, less than half are generating a profit. Countries that have mostly shown positive results for five consecutive years are Germany, Luxembourg, Netherlands, Austria, Finland, and Sweden. Now we are talking about 6 out of 27 or 22.2%. This indicates that almost 80% of the EU should be heading straight toward bankruptcy. As it turns out, however, is that the 12 can carry the entire deficit of the rest and still generate total gains of € 15.9 billion. The matter now boils down to politics and this question:
“Why should profitable regions carry the load of the unprofitable regions?“
A very valid point and we hear political leaders relay that message in addresses and public speeches. 4th quarter 2009, Greece was € 7.9 billion down whereas Germany was € 47.0 billion up. Why should the Germans help the Greeks? Enters the UK with its string of negative results totaling € 200.1 billion between 1st quarter 2005 to 4th quarter 2009. As seen in the chart, both Greece and the UK have been putting an increasing load on Germany to keep the EU above water; is there any wonder the Germans are becoming increasingly irritated with the situation?
Since 1st quarter 1997, Greece’s accumulated losses total € 165.7 billion and the UK’s € 392.4 billion. If we assume that Germany is expected to cover these losses to keep the EU running, its profit margin of € 844.8 billion will shrink to € 286.7 billion as a result. Germany is also forced to do something or the euro will collapse. This is why there is a real danger of the EU falling apart. The EU simply will not work properly unless the countries and their political systems be assimilated into a larger entity and the entire union realigned as a business enterprise concentrating on core competencies of each region. The likelihood of that happening, however, is next to none.
Anyone providing services that fit the public sector and want to target regions that have a window of investment for that particular offering (their Service balance is positive) are advised to concentrate the marketing efforts on Belgium, Bulgaria, Czech Republic, Denmark, Estonia, Greece, Spain, France, Cyprus, Latvia, Lithuania, Luxembourg, Hungary, Malta, Netherlands, Austria, Poland, Portugal, Finland, Sweden, and the UK. These have room to buy services at the political level (which means public institutions can be safely targeted). Note that the presentation at this stage is critical. The reason they show gains may well be that they are exporting more than they are importing simply because they do not want to buy services. Public institutions are constrained by the national accounts as these accounts set the budgets for next fiscal period. Still, while service gains should mean a greater budget, that may not necessarily be the case.
It may well be that Service gains are of strategic nature to offset gains from Goods. Germany reported net Service losses of € 265 million 4th quarter 2009 while its Goods and Service gains totalled € 43.6 billion. In like manner, the UK reported net Service gains of € 13.5 billion while its Goods and Service losses totalled € 8.9 billion. There are many ways to spin the marketing approach such as approaching regions reporting Service losses with a plan to locate offices there and export to other regions. Such a move would impact the region’s Balance of Payment positively and thereby gain political support. Regions showing service losses are resistant to Service imports at the government level unless it can shown that these services will impact the region’s future Balance of Payments positively. Listen to the news and put the words of the politicians in this context and a whole world of opportunities opens up.
Consider the situation in Greece in December 2009 with its € 7.9 billion loss in the Current and Capital accounts and 10.2% unemployment. Loss on Goods and Services amounted to € 5.9 billion yet Services yield € 1.2 billion gains.The chart to the left illustrates the development of Service gains 4th quarter 2000 – 2009. Gains are shrinking rapidly and measured -26.7% between 4th quarter 2008 and 2009. If this trend continues, Greece will find itself deeper into the red and facing greater difficulties meeting debt obligations. The Greek government should therefore be supportive of businesses seeking to establish operations in there with the intent of increasing service exports.
Italy reported Service losses of € 3.5 billion 4th quarter 2009 whereas Spain, Cyprus, Malta and Portugal all report gains. All have negative Current and Capital accounts and high unemployment rates. The obvious targets for service export are Denmark, Germany, the Netherlands, Austria, and Sweden where unemployment levels are far lower which translates to stronger consumer market. With its Service margin in the red but overall situation in the green, Germany stands out as a buyer of services. This is the primary target for service marketers. The German government is likely to be more supportive of assisting the troubled regions through trade rather than loans or financial aid programs as it ultimately leads to a recovery of the consumer markets as service companies grow and begin to lower the unemployment rates.
Concentrating on the core issues on how to make the EU stronger goes a long way toward penetrating these markets and carries with it a fair amount of goodwill. Strategic trade between the EU members will strengthen the whole and should be at the forefront on the political agenda. Focusing on that agenda is extremely useful when approaching either public or private organizations in the region as there are several support mechanisms in place to cut through red tape and help accelerate market penetration.
All data used in this article is from Eurostat.