The next big hit
Progressive policymakers should bet on exports – like spekboom jam 😊 – and back them
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In 1922, a young and ambitious Belgian jam maker, Édouard Materne, acquired a small apple processing factory in the town of Boué on the French border. With his vision and determination, he steered the factory towards expansion, reaching markets in Paris and central France. His efforts bore fruit, and he soon found himself among the top five jam-makers in France.
But jam-making was a competitive business. By the 1980s, consolidation was necessary. In 1989, the Danone group bought Materne together with two other jam companies, including the Confipote brand, to create the fruit processing company Materne. Five years later, and with little prospects of further growth, the Danone group sold Materne to the British food group Hillsdown Holdings.
And, then, something rather dramatic happened: someone, somewhere within the company, decided that there might be a market for processed fruit … in a pouch. Voila Pom’Potes, the first fruit compote pouch, created in 1998. A decade later, Materne began exporting its fruit pouches to the United States, now under the brand GoGoSquueZ. Its first two flavours were Apple Strawberry and, well, Apple Apple. You might think that there would be little appetite for an adult puree with such a terrible name. But you would be wrong.
GoGoSquueZ’s innovative packaging and convenience as a healthy snack option quickly caught on, conquering the US and becoming a global leader. It is what the authors of a new paper in the Journal of Development Economics call a ‘big hit’. Big-hit exports are defined as products that contribute to rapid export accelerations at the country pair-product level, meaning, in short, an export product that suddenly takes off. They are rare events, representing less than 2% of all export spells, yet remarkably they account for over two-thirds of a country’s export growth.
The authors examine the determinants of these big hits. First, big hits come not from one large firm or many small firms but from a few medium-sized firms. This has interesting implications from a competition perspective: perhaps oligopolies, when considering their likelihood to generate big-hit exports, are not all bad. Second, such firms are also able to leverage external financing to scale their operations rapidly. For instance, Materne’s access to funding within the larger company allowed for rapid market expansion and dominance. Third, the authors find that firms driving big hits often increase their use of external finance years before their export surge to make strategic investments in production capabilities.
Big hit makers like Materne are also not one-hit wonders. Says the authors:
They are multiproduct and multidestination firms that initiate within-firm spillovers, replicating export success across destinations and to a lesser extent, across products. These results support the idea that big hit makers build core competencies that they then exploit repeatedly.
Though Materne is a French firm, the authors test their results across 100 countries of which 54 are classified as developing. They find, unsurprisingly, that developing countries have fewer such big-hit spells: 1.2% compared to 2.4%. (Sub-Saharan Africa has the lowest incidence of 0.5%.) But, interestingly, once a big hit is created, they ‘are, on average, sharper and more persistent for developing than for developed countries’.
Economic historians know that trade is pivotal for growth, particularly for poor countries. During the 19th century, Britain’s export of textiles helped fuel the Industrial Revolution. Japan’s rapid post-war economic growth in the mid-20th century was significantly driven by its export-oriented industrial policy, which focused on producing and selling high-quality goods to international markets. Today, exports boost economic growth, provide foreign exchange, create jobs, and diversify the economy. Globalisation, as Christopher Meissner explains in his recent book, has reduced global poverty on a scale few could have imagined.
And yet, international trade is facing its stiffest test in decades. In May, US President Joe Biden substantially increased tariffs on several Chinese imports, including car batteries, computer chips and medical products. Europe has followed suit, imposing tariffs on EV imports from China for four months starting July 4. China retaliated by announcing an anti-dumping investigation into pork from Europe.
This greater protectionism continues a trend that began some time ago. Fears of deglobalisation were evident after the global financial crisis in 2009. The rise of populist movements in many developed countries further stoked the fires of autarky on both sides of the Atlantic. Britain exited Europe in 2016. Two years later, Donald Trump raised tariffs on steel and aluminium. Covid-19 accelerated the trend, as nations scrambled to secure their own supply chains for essential goods like medical equipment and pharmaceuticals. And it is not just the developed world that is isolating itself. This year, Brazil announced higher tariffs on steel imports, and India is considering doing the same.
The inward turn by right-wing nationalists has led progressives to champion the cause of free trade. It should not be that surprising. In his new book – Pax Economica – historian Marc-William Palen shows that free trade and globalisation have roots in nineteenth-century left-wing politics. He reveals how left-wing globalists, beginning in the 1840s, led peace and anti-imperialist movements, and by the early twentieth century, an alliance of liberal radicals, socialist internationalists, feminists, and Christians saw free trade as essential for a prosperous and peaceful world order, countering the era’s nationalism, protectionism, and colonial expansion.
The good news is that, just as Africa has escaped the rise of populism, it has also largely escaped the protectionist backlash. The African Continental Free Trade Area (AfCFTA) has been a significant step forward in this regard. But challenges remain, as John Maré notes in Business Day. Externally, new EU regulations like the carbon border adjustment mechanism and other environmental policies impose significant hurdles, while internally, there is a need for smarter regulatory frameworks and better infrastructure. Just consider the (lack of) road connectivity. One new study, also published in the Journal of Development Economics, shows how poorly Africa’s road network is designed to optimise internal trade. Argues Tillman Graff:
African countries would gain between 1-6% of welfare if they could reorganise their networks from scratch, representing substantially higher gains than in other world regions. Yet at the same time, my findings also imply that similar welfare gains can be achieved by a large one-time infrastructure investment program. While this would undoubtedly represent an ambitious endeavour, it might not be out of reach.
As global protectionism rises, African entrepreneurs will need to focus on intra-African markets to find new export opportunities and test their products before seeking global expansion with their ‘big hits’. African governments can help. Signing a free trade treaty is a positive step, but other policies – covering competition, financing, and infrastructure investment – are pivotal to providing future exporters with the best opportunities for success.
Last week I purchased my first jar of Spekboom jam. Who knows, it might just be the next big thing to hit the global market.
An edited version of this article was published on News24. Support more such writing by signing up for a paid subscription. The image was created with Midjourney v6.