SMEs have been paying more attention to green products and services in an effort to build a more responsible image and reach new customers. Dr. Ashraf Mahate, Head of Export Market Intelligence, Dubai Exports, and Vice Chair of the Economics Policy Committee, Dubai Economic Department, explains how SMEs can tap into this growing sector.
The traditional problem that faces all SMEs looking to export is to find growing global markets that are relatively easy to penetrate with low investment. As much as any business consultant would like to say that they have the answer to this problem, the reality is no such market exists. However, SMEs need not despair because there are some sectors or markets which are very close to meeting the ideal solution.
One such area that is becoming extremely lucrative and one that SMEs can tap into, for both profitable as well as ethical reasons, is the green product and service sector. Although, various estimates have been produced by different organisations the general view is that it is increasing each year and is projected to reach USD 3.5 trillion by 2017.
The attention towards green products and services has been greatly assisted by an increasing awareness about the environment among consumers, governments and businesses. The latter have used the environmental concern to develop green marketing. This is essentially creating customer perceptions largely about the brand, but can also refer to the products or services based on the company’s practices and policies related to the wider environment issues.
Academic studies have shown that consumers value the green credentials of a company and are prepared to pay a premium price. This is also the case in a recessionary period and as such it has been a means of survival for many firms. Due to both its ethical foundation and good business sense, many SMEs are becoming green even with their limited resources and rather tight budgets. The interesting trend in the last few years is the diversity of companies that are embracing green marketing.
Initially, green marketing was carried out by a few firms in food production or technology related areas such as solar power. Today, the market has changed considerably and even local grocery stores are adapting their business towards green products and processes. For instance, the range of products stocked tend to be organic and from nearby supplies so as to reduce the carbon footprint.
There are of course very good financial reasons for embracing the green revolution; it can help a business reduce its energy costs, reduce wastage and improve its brand recognition, as well as popularity. A study by Carnegie Mellon University shows that energy efficient upgrades and sustainable building practices can go a long way towards enhancing productivity of employees. The study showed that improving indoor air quality and installing energy efficient lighting can increase employee productivity by an average of 20%. Furthermore, installing high-efficiency lighting can increase productivity by an average of 7%. Non-environmentally friendly work areas have also been argued to have an impact on an employee’s health, leading to sick days. Other studies have shown that the benefit through increased productivity and reduction in days lost due to sick leave is on average USD 45 per square foot, or an annual gain of USD 6,500 (in 2009 prices) per employee. The increase in productivity, together with savings in energy costs, represents a strong case for any SME to implement the green changes.
Embracing green solutions does not only reduce costs, but also makes an SME more likely to increase or even start exporting. SMEs have benefited greatly from new green laws which have been enacted in a number of countries. These new laws clearly state the requirements a company must satisfy in order to sell their products or services in the country. In most cases the new laws have been supported with actual financial support.
For instance the US government has allocated USD 20 billion in tax cuts for wind, geothermal and bio-energy. The UK government has set aside EUR 250 million to develop low-carbon vehicles. The German government has promised a USD 67 billion subsidy to the car industry to develop green vehicles. Although, these policies are designed to primarily support domestic firms, in the process of doing so, they also benefit foreign companies. Foreign companies cannot not only export products and services that allow domestic companies to comply with the green regulations but also seek long-term relationships.
SMEs from the region can look at green business as a means of examining alliances and joint ventures in overseas markets. Working together with foreign counterparts can deal with two of the major challenges that SMEs face; namely capabilities and local knowledge. In the case of the latter, SMEs seldom have sufficient information regarding the green aspects in overseas markets. Even if they have the knowledge they still face the problem of appropriately integrating local views regarding the environment into their marketing initiatives.
Secondly, international alliances allows for a coming together of capabilities and capacities. This is more so the case for SMEs who tend to have limited financial resources.
However, SMEs cannot automatically assume once they have adopted the green credentials that consumers will then purchase their products. There is no guarantee for green products and they have to compete with conventional products. In this sense, even though producers can charge a premium, they nevertheless need to provide value to the consumer. In fact, consumers are well aware of greenwashing and SMEs need to be very careful not to over exaggerate their green claims. Academic studies have shown that over claiming a green policy can have a negative impact on the demand of the SMEs products and services. Consumers are quick to spot companies that are seeking to use green initiatives as a means of improving their public image or generating additional sales without environmental concerns actually being the firm’s core objective. As such SMEs cannot simply wear the green coat and need to be sincere to the environmental concern.
So how can a SME become sincere to the green cause, while also enhance its business opportunities? In the first instance the SME needs to examine its processes and products to evaluate which of them can be changed, or at least modified so that there is less wastage and a lower carbon footprint. Not all the processes or products can be immediately changed or modified and the SME may need to put into place a programme of small changes over a period of time. It’s important for an SME to realise that it cannot be completely green, but need to demonstrate their commitment.
Second, the company needs to select which of its products are appropriate for the green market. In some sense, this decision is made by the products which already meet the green regulations set by many importing countries, or those that can be changed to meet these requirements. The changes can be greatly assisted through independent certification. There is considerable evidence to suggest that the final buying decision is impacted by the presence of an independent certification.
In essence, the green marketing strategy is really about following three steps: to make a genuine effort to understand the environmental impact of a firm’s activities; take action that either avoids or reduces the negative impact and thirdly, to inform the customers through certification and appropriate labelling.
Once a company can achieve this, the opportunities are huge. With greater concern for the environment your company has a better chance of reducing costs, increasing employee productivity and becoming international.
Dr. Ashraf Mahate is the Head of Export Market Intelligence at Dubai Exports (formerly known as the Dubai Export
Development Corporation), which is an agency of the Dubai Economic Department. Dr. Mahate is also the Vice Chair of the Economic Policy Committee with the Dubai Economic Committee with the Dubai Economic Department. He has written a number of journal articles, chapters in books and edited books in the areas of economics, finance and banking. He has also presented papers at major international conferences. Dr. Mahate has provided extensive consultancy services to various organisations in the areas of banking, economics and finance. He has been a director of a number of companies including a venture capital company and a private equity fund.
Dr. Mahate received his doctorate from Cass City University Business School in London (UK) which was ranked by the Financial Times newspaper as the 12th best university in the world for finance. He read Economics at University College London, followed by a Masters in International Economics and Banking at the University of Wales in Cardiff. Dr. Mahate is a professional educator and received his training at the Institution of Commercial Management (UK). He is also a member of the Association of Certified Anti-Money Laundering Specialists. (ACAMS)