SMEs can add up to big exports

Updated: 2016-08-26 08:39

By Gianfranco Casati(China Daily Europe)

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With a little more help from governments, small businesses could become bigger players in the global export market

How to stimulate global growth has long been a topic of debate. Early in September, when world leaders meet in Hangzhou at the G20, they should pay more attention to the role of small businesses in driving economies.

Small and medium-sized enterprises generate 50 percent of gross domestic product in the G20, account for 75 percent of formal employment and create 80 percent of net job growth.

With some government support, they could contribute more to trade, too. Although they are major providers of goods and services to exporters, SMEs often struggle to reach new markets, due to scaling-up costs, logistics and myriad varying international rules for exporting and importing.

But the emergence of digital technologies is changing everything. The costs of identifying customers, striking new partnerships, establishing brands and delivering digital products and services are surmountable. Research by Accenture and Alibaba shows that the value of cross-border business-to-consumer e-commerce is set to grow from $230 billion in 2014 to $994 billion in 2020, accounting for almost 30 percent of all B2C e-commerce.

Still SMEs have challenges. For one, they need access to affordable finance. The unmet demand for micro and SME credit is between $3 trillion and $4 trillion, according to the International Finance Corp. They also need access to information about local laws and regulations. As it stands now, the cost of compliance for SMEs can be 10 to 30 times greater than for larger businesses.

SMEs can add up to big exports

G20 leaders could follow the example of the Chinese government, which is launching a series of cross-border e-commerce experiment zones. For example, Hangzhou, the host city of the G20 event and home to Alibaba, was the first to create a cluster of like-minded businesses benefiting from government support and subsidies, after it became a cross-border e-commerce comprehensive pilot zone in 2015.

In January, the State Council approved the establishment of 12 more zones in Tianjin, Shanghai, Chongqing, Hefei, Zhengzhou, Guangzhou, Chengdu, Dalian, Ningbo, Qingdao, Shenzhen and Suzhou. These zones are designated exclusively for the development of the cross-border e-commerce industry and have preferential tax policies and streamlined customs clearance procedures.

In short, the government is supporting efforts to build new small businesses. No wonder, then, that the Ministry of Commerce has forecast that the volume of cross-border e-commerce in 2016 will reach 6.5 trillion yuan ($977 billion; 864 billion euros) and will soon account for 20 percent of China's foreign trade.

By any standard, China has had success with its use of economic zones to spur growth. From the early 1980s, when market-oriented reforms were introduced in selected special economic zones such as Shenzhen, to the more recent introduction of the Shanghai free trade zone, China has leveraged zones as a way to develop new market approaches.

In addition, some countries, including China, are encouraging bilateral approaches to e-commerce. For example, in November, China signed a cross-border e-commerce cooperation agreement with Turkey. It called for a platform to provide a series of services in both Chinese and Turkish, including skills training, online exhibition and Internet financing. As of April, SMEs from China and Turkey could log onto the platform to trade with each other.

Laos established a special economic zone that is being developed in Champassak province to encourage Japanese SMEs to invest in the country.

But bilateral approaches are slow processes. Globally, more can be done to give SMEs greater access to global value chains. For example, SMEs should have access to electronic certification programs so that they can compete more fairly on their credentials. Governments should work more closely with financial institutions to create a framework for nonbank finance to boost equity and debt financing for SMEs, as well as to stimulate greater use of alternative sources, such as crowdfunding.

They also can open up government procurement to SMEs by simplifying tender processes and committing to greater transparency that puts SMEs and large businesses on an equal footing.

During the G20 event, business leaders gather at what is known as the B20. As part of our work for the B20's SME Development Taskforce, we support its recommendations to the G20. One of the most important recommendations made by the B20 SME Development Taskforce has been the Electronic World Trading Platform. The eWTP would be a private sector-led initiative.

The goal of eWTP is to promote inclusive trade. To do that, governments and SMEs, executives from major companies and a variety of other organizations need to come to the table to discuss how to create common norms for customs, compliance and taxation.

Specifically, the eWTP would focus on eradicating the barriers to online trade. This could be a massive boost for SMEs that offer services to remote customers and other small businesses. With a little more help from governments, SMEs could become bigger players in the global export market. This could stimulate economies and serve as a counterbalance to the power of multinationals.

The author is group chief executive, emerging markets, for Accenture. The views do not necessarily reflect those of China Daily.

(China Daily European Weekly 08/26/2016 page12)