The situation is much more difficult for handicrafts, which face fierce competition in limited international markets. The basic strategy for handicraft exports must therefore start by fostering demand, ie markets must be created in developed countries for a particular handicraft item. The initial stages of market creation are generally beyond the capabilities of micro- and small producers and export houses due to their lack of individual influence and difficulty in attracting the attention and collaboration of foreign partners. In these early stages, leadership and financial support might come from government agencies.
Small producers can hardly be expected to carry out export functions by themselves. The question that then arises is how to get the product to export markets. Three main models of distribution channels, including varying numbers of intermediaries (whose involvement is absolutely vital for the participation of micro-enterprises in international trade):
Three main types of buyers can be distinguished in business relations of this kind. First, large retailers (department stores or independent retailer buying groups), which buy finished products directly from foreign manufacturers and often maintain networks of international representatives both to seek out potential suppliers and to maintain overseas buying offices. It is estimated that about 20 per cent (more than 50 per cent for garments and textiles) of developing countries' manufactures are exported through buying offices of large retailers. Second, importers-wholesalers, which buy from foreign manufacturers for resale either to domestic retailers or to other intermediaries. A large proportion of trade in handicrafts thus passes through importers, which have usually specialized in a particular product range (basketry, carpets etc). Third, manufacturers in the same line of products, which buy finished goods or components from foreign manufacturers. The proportion of goods imported directly by manufacturers may well exceed the amount accounted for by retailers' buying offices.
2. The second model is more complex and serves mainly dispersed artisans and cottage-industry workers. Clearly, these informal producers would not be in a position to organize their production single handed, nor, in general, could they gain access to markets on their own, much less export directly. For these reasons, between the large number of primary producers and the export houses there are one or more layers of intermediaries which perform a range of production and marketing functions for small producers (providing raw materials, dyes, colours and designs, and buying products for resale to exporters). In most countries these intermediaries are perceived as "rent-seekers", since they tend to extract maximum profit from each transaction, leaving the producer little incentive for development and thereby stifling the spirit of enterprise and ultimately the enterprise itself. In this context, an interesting initiative has been undertaken in Sri Lanka, with strong support from the government, to build up an alternative intermediary in the form of the Export Production Village Company, to take care of the management, financing and marketing of rural producers' exports. A similar objective has been pursued through the organization of small producers into cooperatives (with a highly variable record of success, however), or through a government agency's involvement in the organizational part of the task.
In the above example, intermediaries then supply the products to export houses. These do not usually engage in production, but instead handle the export of a wide variety of products on the basis of export licences issued by the government. In many countries, state-sponsored agencies such as handicraft corporations perform the commercial function of an export house, in addition to carrying out a developmental role, although also with varying success.34' The advantage of large export trading houses in general is that they have greater bargaining power vis-a-vis importers and are better able to negotiate conditions of sale with them than smaller operators. 3. The third model is in fact a subcontracting arrangement between a micro or small enterprise and a larger manufacturer. The first form of subcontracting consists of the physical incorporation of small unit-generated semi-processed goods, components or sub-assemblies in exports by larger (domestic, foreign or multinational) manufacturers. In the case of local manufacturers, specialized exporters may be used for export purposes, whereas transnational corporations and their subsidiaries export without going through intermediaries. The second frequent option for large manufacturers is to contract out the most labour-intensive operations involved in products for export to enterprises in the smallscale sector, which are often of an informal nature.