Are SMEs getting the most out of the eTrade opportunity?

Signaling a strong level of enthusiasm for unlocking the potential of eCommerce at the global level, more than 100 delegates from over 30 countries – representing governments, international organizations, NGOs and the private sector – gathered last week in Geneva for UNCTAD’s eCommerce Week.

The topic is hot. eCommerce is growing by leaps and bounds, and it is now well accepted that it is a powerful driver of economic growth, inclusiveness and job-creation. eTrade in particular (or “cross-border eCommerce”) is proving to be a game-changer by facilitating trade in “traditional” goods and services and by providing a platform for digital products.

Many development challenges remain, however. Even in countries with good Internet and broadband connectivity, several obstacles keep consumers and companies from maximizing the economic opportunities opened by eTrade. How can we help SMEs to maximize the opportunities offered by eTrade and the continuing digital revolution?

The new face of trade is electronic. eTrade is booming, and it is expected to continue to grow dramatically. According to recent Accenture-Alibaba research, while international trade based on digital technologies remains a small fraction of global trade, it is growing much faster than traditional trade. The value of the global cross-border eCommerce business-to-consumer (B2C) market will grow from US$ 230 billion in 2014 to US$ 994 billion in 2020: It will then account for 13.9 percent of the global consumer-goods trade. Its compound annual growth rate (CAGR) between 2014 and 2020 is projected to be more than three times as fast as the global consumer- goods trade. In 2014 alone, eCommerce sales worldwide grew at more than 20 percent – compared to a global GDP growth of less than 3.5 percent. China is an even more extreme case: novel policy experiments, such as “cross-border eCommerce zones” have been boosting cross-border eCommerce sales at an annual growth rate above 60 percent between 2010 and 2014, and they are expected to double by 2019, whereas its exports of goods and services grew at just 10 percent per year in the same period.

Although only a few countries include eTrade as a matter of official trade policy, businesses and governments are waking up to this new reality. A number of global organizations (such as the World Trade Organization, UNCTAD and the International Chamber of Commerce) that previously focused on the promotion of offline trade are now working to ensure that existing trade mechanisms can adapt smoothly to e-trading. The China Business 20’s (B20) first joint Taskforce Meetings , which were held in Washington in mid-April during the Spring Meetings of the World Bank Group and the International Monetary Fund, also witnessed passionate discussions on the topic, with officials of both the public and private sectors weighing in on the issue.

Micro-MNCs are born: Good! According to research by the McKinsey Global Institute, SMEs that use the internet extensively tend to export about twice as much by export value when compared to SMEs that use the internet sparingly, and they tend to reach a larger number of countries. Recent research looking at the exports of goods traded through eBay shows that in several countries nearly every e-Bay-based SME sells to foreign markets, compared to a median of around 20 percent of traditional brick-and-mortar firms.

Exporting is good for SMEs, and thus eTrade can be good for SMEs. SMEs that export generally enjoy higher productivity, better wages and are more innovative, because they are exposed to competition, best practices, new technologies and higher-quality products.
eTrade brings all of these benefits one step closer to SMEs, because it offers market access to an unprecedented number of customers and lowers the costs of cross-border trade. Through mechanisms such as seller-rating, it mitigates information asymmetries and generates trust. Finally, large retail platforms and service providers are making it easier than ever, as they now provide or are developing ancillary services and payment systems to facilitate exports by even the smallest sellers.

In short, eTrade offers a new and efficient channel for SMEs to conduct cross-border trade directly or through Global Value Chains (GVCs). And this opens unprecedented opportunities.

Offline barriers are hindering an opportunity online. Unfortunately, some of the frictions found offline persist online, as well. Capturing the e-trading opportunity requires appropriate skills, a conducive legal and regulatory environment, a means of electronic payments, reliable transport and logistics services, and data management – and those are not available to all.

SMEs are the ones who suffer the most because of this. According to UNCTAD and the World Bank, SMEs in most countries are lagging behind their larger counterparts in online buying and selling. The World Bank’s “World Development Report 2016” estimates that only 9 percent of small companies and only 16 percent of midsize companies in low-income countries sell online, while adoption is only 35 percent for midsize companies in upper-middle-income countries.

SMEs tend to find it harder than large firms to keep up with technological change, because they employ fewer technical specialists and lack the financial resources that are needed to continually upgrade technology. Even simple information and communications technology (ICT) solutions, such as access to the internet or the creation of a business website, often represent a significant challenge for SMEs. As recognized by eTrade experts, traditional trade capacity-building won’t suffice: We need all the ingenuity that we needed before, and more. In addition to traditional trade issues, such as meeting foreign product standards, participation in cross-border ecommerce requires SMEs to have a range of new capabilities, from marketing via social media to using online payment systems used by overseas customers.

The World SME Forum and Aid for eTrade. This is where Aid for eTrade comes in – and this is why the World SME Forum decided to actively participate in it. During UNCTAD eCommerce week, one full day was dedicated to discussing the current draft proposal on Aid for eTrade, which is being created as a concerted effort from the international community to ensure “that the shift to online transactions does not leave any people, enterprises or countries behind, but empowers everyone to realize their full economic potential for trade and development.” Aid for eTrade aims to generate knowledge and provide advocacy and support on e-commerce readiness assessments and strategy formulation; ICT infrastructure and services; trade logistics and trade facilitation; payment solutions for e-commerce; legal and regulatory frameworks; and eCommerce skills development. The initiative will also be a catalyst for the transition of trade transactions involving SMEs, which will help create opportunities for growth, more production and more active participation in GVCs.

The World SME Forum has been engaging in an SME cross-border eCommerce experiment zone project between Turkey and China. Even if one’s imagination can be easily captured by the online component of such an initiative, we can attest that all of the factors we’ve mentioned here are essential to unleashing the inclusive side of eCommerce and eTrade. It turns out that the most difficult challenge involves issues that are very much “brick and mortar,” which continue hindering SME cross-border trade.

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From consultations with our partners, members and affiliates that are engaged in the SME space, we can say that eTrade probably represents the biggest opportunity that SMEs have had in decades: It lowers barriers to entry, it dramatically increases market reach, and it helps level the playing field. If it is well-leveraged and well-managed, eTrade can pave a path toward more inclusive growth.

Like it or not, the future is digital. WSF is actively engaging in this space, together with our partners, and we are eager to contribute to the Aid for eTrade agenda and other initiatives that have the potential to enhance SME development globally.
Stay tuned for our next blog post on cross-border eCommerce experiment zones!

Stefano Negri is Associate Director at the World SME Forum
Berna Ozsar Kumcu is Secretary General at the World SME Forum
Ece Idil Kasap is Adviser to World SME Forum