The promotion of foreign trade and internationalisation of Luxembourg companies in a changing world – some reflections on the background

Luxembourg’s economy is distinguished by being extremely open internationally (share of exports and imports in GDP) and, on the basis of this indicator, ranks among the most open in the world (as are Singapore, Hong Kong, etc.). This is explained by the considerable weight in its foreign trade of exports of services, nearly 50% of which are of a financial nature. But the fact remains that foreign trade in goods also plays a decisive role in the creation of economic value and Luxembourg companies are increasingly adopting the path of selling their products to clients residing abroad – an obvious choice, since the chances of increasing sales are limited within the confines of the home market. The business plans of many companies established in Luxembourg are exclusively targeted at international markets and the Grand Duchy offers numerous advantages as an international platform for developing import/export activities with partners located throughout the globe.

“Made in Luxembourg” continues to attract a lot of attention around the world, with Luxembourg goods and services enjoying a strong reputation for quality and reliability.

Providing guidance and support to Luxembourg companies in their drive to internationalise as well as promoting the Grand Duchy’s economy abroad are key missions for the Chamber of Commerce, given that 80% of the country’s national production of goods and services is exported. The Chamber of Commerce International Affairs team is in permanent contact with 1,400 Luxembourg companies that do business in over 150 countries. It supports them in their initiatives and activities aimed at expanding their international presence. State visits, official and economic missions, specialised trade fairs, the hosting of foreign delegations, market information seminars, as well as regional and international matchmaking activities, give companies of all sizes from every sector access to new partners in the Greater Region, in Europe and on other continents.

A more detailed analysis of recent developments and the geopolitical context from the perspective of foreign trade and international economic relations leads us to the following conclusions:

  • It is essential that our socio-economic policies once again become more pro-business. Europe in general and Luxembourg in particular have fallen into the trap of excessive rules and regulations in recent years, considerably increasing the amount of administrative, environmental and other types of red tape. Many observers speak of an inefficient extension in the scope of governmental action and unnecessary interference by public authorities in managing the private sector, which hampers private initiative, entrepreneurship and the ability of businesspeople to increase their profitability and their resilience in a world marked by the new phenomenon of “poly-crises”. Only profitable companies offering promising and competitive goods and services will be able to succeed internationally. Only attractive, competitive companies will be capable of enticing the talent that our economy sorely needs if it is to successfully navigate the digital and environmental transitions.
  • Luxembourg has a support network for internationalisation, trade promotion and foreign investment; though limited in size (about thirty Embassies and a dozen “Luxembourg Trade and Investment Offices” throughout the world) compared with our larger neighbours, the exemplary collaboration between the Ministry teams, Chamber of Commerce and Luxinnovation, etc., overcomes this disadvantage. We must continue to work on optimising and appropriately using this network to best effect and along the lines of what the Chamber of Commerce has achieved in partnership with the Ministry of Foreign Affairs by creating economic and commercial attaché posts in Berlin, Paris, Brussels and London.
  • The Luxembourg economy is very open to exports, with 60% of its goods and services being sent abroad. Foreign trade is thus decisive in maintaining prosperity. Despite the very high international component in our GDP, the absolute number of companies engaged in foreign trade remains limited. We must continue to provide the best possible support to companies active in international markets and succeed in convincing those that are not yet active but have the potential to be brave enough to take the plunge. In addition to traditional approaches to international expansion, digitalisation is playing an increasingly significant role as a gateway to the market. Interested companies are therefore advised to consult the specialised guide at www.digitalguide.tradeandinvest.lu.
  • Working in close consultation with the private sector, the Government must continue to implement strategies for sector development and diversification of the Luxembourg economy. This will be achieved by creating a favourable framework for the emergence of new industrial, commercial, craft, service and R&D activities with high added value and where the country has specialised skills and a competitive advantage. This diversification of the economy usually has an international aspect, meaning trade in goods and services can be further stimulated and the range of products and services exported and/or imported can grow.
  • Alongside the continued diversification of activities as well as goods and services produced and provided in Luxembourg, market diversification needs to be continued in order to limit geopolitical risks in an ever more bipolar world. If efforts to expand international activity are concentrated in a limited number of markets, this represents a significant risk of bottlenecks in terms of dependence on raw materials, intermediate products, availability of technological components, capacities, as well as logistics and supply chains, etc. With this in mind, we need to focus on those countries with which we have a free trade agreement and encourage the introduction of new free trade agreements between the EU and third countries (Mercosur, CETA, TTIB, etc.).
  • The Covid-19 crisis is one of a series of deep ruptures that have affected the world economy over the past decade and a half, including the financial and economic crisis of 2008/2009, the euro crisis, Brexit and the trade dispute with the United States. Although these crises were triggered by different causes, they all have one thing in common: it was possible for them to develop because of the international interdependence of financial markets and the real economy. At present, the war in Ukraine is disrupting commodity markets, creating food shortages (Ukraine is Europe’s main supplier of wheat) and increasing transport costs to Asia by blocking transport corridors. This is pushing up consumer prices, which is fuelling inflation. Confronted with this complex situation, many companies are responding by seeking trade or business partners elsewhere – often closer to home – in order to ensure greater security of supply in the event of a crisis, which in essence is a move away from globalisation and the emphasis on efficiency and cost-effectiveness. In addition, the pandemic has shifted the trend from just-in-time production, which is intended for immediate consumption, to stockpiling.
  • Securing supply chains and production within Luxembourg, or at least within the EU, will play a greater part in the future. To achieve this, a much more active industrial policy is needed. At EU level, the “strategic autonomy” concept – which originated in the defence sector – was for a long time viewed with scepticism by Member States but is now gaining in popularity. The European Commission considers it essential for a new attitude towards partners, including China, and for a reorientation of EU industrial policy. The aim is to strengthen EU multilateral action and promote a level playing field, to reap the full benefits of EU integration, to achieve better economic returns, to reduce dependence on external actors and to make the EU less vulnerable in areas such as energy, disinformation and digital technologies, ensuring that businesses are more resilient to global crises and external threats.

In the Grand Duchy, discussions are under way on adjusting the country’s economic and commercial development policies to the new international situation, which has become significantly more complex in the face of the numerous recent crises. The position of the Chamber of Commerce on this question is clear: we must promote international trade that is open and fair while respecting certain shared values and rules. International trade is there to build bridges of mutual respect and to lay the foundations for equitably shared prosperity.

It is therefore necessary to institute a sustainable economic development policy that is as resilient as possible in the face of future crises, while helping companies to implement a sustainable and pragmatic export and sourcing strategy.

Future foreign trade must be based on the principles of prudence, ethics and transparency, as well as meet new customer expectations. The latter are increasingly concerned about the supply chain, traceability, human rights, fair prices, employee remuneration, product characteristics and their environmental and social impact. In the end, these criteria must be pragmatic, practicable and regularly reviewed. Thus they can be integrated into companies’ business plans, alongside the essential criteria of profitability and costs.

The Luxembourg economy must continue to expand and diversify relations in international markets, in the firm conviction that the change towards a sustainable, responsible model in keeping with our values requires multilateral trade and a “revisited” globalisation. Thus we need to be moving away from the modelofchange throughtrade to the more nuanced model of sustainable change through responsible trade.

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