Now that there are signs that the global economy is picking up again exporters are also hopeful. Many observers assume that export sales will return to previous levels as the economy recovers. Standard economic models largely support this optimism. However, in the view of the authors of a policy brief entitled Back to Normal? The Future of Global Production Networks after the Crisis, from the German Kiel Institute for the World Economy, this position is too optimistic.

Oliver Godart, Holger Görg, and Dennis Görlich say that export economies depend upon global production networks and that these have also been damaged by the global economic and financial crisis. Further, they point out that companies that have pulled out of export markets will have to bear considerable costs to reenter them.

The current global trade networks are also much more dependent on the globalized production of goods and services. Companies that export finished products import the intermediate products they need to produce their own products, from companies in numerous other countries. The Apple IPod is cited as an example.

The authors say the networks that this creates have been weakened considerably by the global economic and financial crisis. The reason for this is that the crisis caused consumer demand to decrease, and this fall triggered a domino effect: the plunge in consumer demand caused a slide in exports, which, in turn, caused a decrease in the demand for intermediate products. The hesitancy of banks to grant loans intensified this effect because it made it more difficult for companies to pay for intermediate products.

The authors say the high costs of reentering the global production networks are also impeding a quick recovery in export economies. Exporting involves high initial costs (such as market research costs, the costs of setting up foreign distribution networks, the costs of consulting attorneys who specialise in foreign legal systems), costs that are lost for the most part when a company pulls out of export markets. If a company decides (perhaps involuntarily) to stop exporting because foreign demand has fallen dramatically, then it will be difficult for the company to reenter export markets even if foreign demand picks up again. The company may thus decide to stay out of export markets altogether, or if it does decide to reenter export markets again, it will need some time to do so successfully.

In commenting on the brief, Holger Görg, co-author and globalization expert at the Kiel Institute, stressed that “the crisis will affect export economies much longer than the standard economic models predict. Especially given the global production networks, it is unlikely that export economies will return to normal as soon as the global economy recovers.”

The paper cites plans by Sony, the Japanese electronics giant, to reduce its current network of roughly 2,500 suppliers to about 1,200 by March 2011 with the expectation of cutting its procurement costs by roughly $ 5.3bn as a result. It says Ford is quoted by the Financial Times as engaging in a similar exercise. They have cut back from more than 3,000 suppliers to around 2,000, with a target of reducing this further to 750.

Export ratio to GDP

• Ireland was at 20.7% in 1970; 40% in 1988 and 93% in 2009
• United Germany was at 21% in 1991 and 49% in 2009
• Japan was at 6.8% in 1970; 23% in 2009
• US was at 4.3% in 1970 and 14% in 2009

Singapore' exports/GDP ratio was 186% in 2008; China 33% and Malaysia was 90%.