SOVIET COMPETITION AND WESTERN MANUFACTURERS
By a Correspondent THE Communist economic offensive which became apparent just over a year ago and has since been pursued with an increased vigour is beginning to affect Western manufacturers to an increasing extent. It is likely to do so even more in the future because of the growing intensity of the Communist export drive, its concentration on exports of capital goods and manufactures, and the unorthodox methods employed which combine both hard commercial advantages and political em- phasis on the development of the less developed countries, While the world exports during the last year increased by less than 9 per cent., the Soviet bloc's exports to the rest of the world rose by 30 per cent. In contrast the UK exports rose only by 9 per cent., those of the USA by some 3 per cent., and the results achieved by Germany (17 per cent.) and Japan (23 per cent.), the other two highly industrialised countries of the world, while impressive, still fell short of the performance Of the Soviet bloc. Not only have the Communist countries been highly successful in increasing their total exports but they have also achieved astonishingly good results in their trade with the countries outside Europe. The one-third increase in exports to these countries during the last year, when they reached the level of some $700 million, while admittedly due in no small measure to the low absolute value of trade before, is nevertheless no small achievement. At the same time, exports to Western Europe rose by some $300 million, repre- senting about 30 per cent. increase above the level reached a year ago.
An even more striking feature of the expansion of the Soviet exports is the fact that it consisted for the most part of increased exports of manufactured goods. This has been especially true of exports to the less-developed countries of South-East Asia, the Middle East, Africa and South America.
Capital equipment for industry, transport and agriculture is beginning to play an increasingly important role in exports to these countries. Furthermore, the Communists are placing an ever-increasing emphasis on the 'package deals,' comprising the export of complete industrial objects, their installation and technical help in training the personnel needed to run them.
Alongside capital equipment, the Communist countries have also begun shipping manufactured goods and consumers' durables on an increasing scale. Motor-cars, textiles, matches and cement are appearing in growing quantities in the West at prices not infrequently substantially below those quoted by the West. Russian motor-cars are priced in Argentina at 142.000 pesos, as compared with 170,000 pesos for the cheapest West-European cars, and Eastern-European cement is sold at some 20 per cent. below the British quotation in Saudi Arabia. These goods are not only shipped abroad, but have also begun invading the markets of Western Europe. The inroads these goods make in the Western markets may not, in terms of quantities shipped, be large but are sufficient to intensify competition. The difficulties encountered by the British motor-car manufacturers in the Scandinavian markets may not be entirely unconnected with the simultaneous increase in the number of cars imported from Eastern Europe. Norway, for example, is to import this year some 2.000 cars from Russia and 800-900 from Eastern Germany and Czecho- slovakia, and Finland as many as 10,000 from Russia, against much smaller quantities last year. Low prices of the Eastern- European textiles, said to be some 40 per cent. below the Swedish levels, have already led to strong prbtests from the Swedish trade unions and have resulted in the Government reducing imports of these goods and threatening to impose anti-dumping duties should the position remain unchanged.
The attraction of low prices is strengthened further by the favourable delivery dates, lavish exhibitions, frequent visits by commercial missions abroad, the bilateral trading policy and extensive offers of technical assistance. Prices quoted to the under-developed countries are said to be on the average 30 per cent. lower than those demanded by the West. This margin is sometimes even greater, as. for example, in the case of the tenders submitted for supervision of the Hedjas railway. The price quoted by the Polish company, SIDKOP, Which obtained the contract was only E80,000, some 000,000 less than that of the nearest competitor. Favourable deliveries promised are, on the whole—as proved by the Indian experience—adhered to.
The bilateral trading policy reflected in a growing number of trade agreements provides the necessary framework for the expansion of the Communist exports. In these agreements the Soviets and their satellites agree to buy primary products from overseas countries and thus supply them with the funds source of their foreign earnings—the Communist undertaking to purchase these goods, often for a few years ahead, is a valuable safeguard in comparison with uncertain markets ' and a widely fluctuating income if sold through the commodity exchanges in the West.
The doubts about the Communist ability to provide the goods needed for exports have been dispelled by an increased flow of goods during the last few months, by the Leipzig exhibition—impressive to both overseas buyers and the Western observers alike—and by the reports of the numerous technical missions which have visited the Communist countries recently.
The marginal nature of the Soviet and the satellites' exports in relation to the total of world trade must not detract from its effects on the bargaining power of the importers and profit margins of the exporters. These two effects are likely to press even stronger in the future because the Communist export drive is spreading at a time when the spectacular growth in world trade may be beginning to tail off. The average annual increase of 5 per cent. in the volume of world trade in manufactured goods during the last five years (as against the long-run rise of 3 per cent.) has been, in fact, a reflec- tion of the recovery after the war, particularly of Germany and Japan. Now that this period is about to come to an end, the slowing down in the rate of expansion of world trade is likely to make the threat of Soviet competition even more dangerous. It is likely to grow stronger and press to an increasing extent on the profit margins of the Western exporters as the Com- munist export drive gathers further momentum.