Shifting the Global Approach to SMEs
Effective engagement with SMEs – to facilitate finance and boost trade – demands a change of approach. The first step is to recognise that small businesses are, by definition, resilient, creative and unfazed by risk. They are empowered, so must be at the heart of efforts to address the recurring challenges they face.
SMEs are the backbone of the global economy due to their crucial role in job creation and economic growth, building broad-based prosperity. Those that survive the tenuous first years of operation face a range of recurring and persistent challenges. Attempts to address these issues in commercial, academic and policy circles have tended to position the SME as a victim of harsh market conditions, arguably underestimating the resilience and degree of empowerment of those SMEs.
The World Trade Board (WTB1)’s White Paper, entitled “The Empowered SME: Solution from the Source” seeks to reposition SMEs as central to both the “problems” they face and the solutions that must ultimately be developed to solve those same challenges.
The layers of additional complexity in international trade contribute to an exacerbation of the problem. At the same time, SMEs successfully pursuing opportunities in international commerce are commensurately more resilient and more empowered, thus well-suited to be core to the development of a set of effective solutions.
Yet SMEs face greater challenges in international trade. Amongst OECD countries, 98% of companies involved in import and export activities have fewer than 250 employees, while they only represent 43% of goods traded in dollar value. In other words, the 2% of trading firms are large organisations representing over half of the total trade value. The disparity becomes even more significant in developing economies.
“International trade and SMEs, taken together, account for very significant levels of global economic value-creation, growth and international development. Both will be instrumental in our collective recovery from the Covid crisis; it is critical to bring SMEs and their leadership to the heart of discourse, action and solutions.”
Alexander R. Malaket – World Trade Board
The importance of the public sector in helping SME survive and flourish in the arduous world of trade has been often discussed. Taking a different approach, “The empowered SME” advocates the idea that instead of being a passive recipient of help from the public sector, SMEs themselves should become a part of the solution, tackling the problems and challenges proactively.
“The Empowered SME” addresses SMEs’ challenges in four areas: capacity and competencies, access to finance, access to market/global value chains and navigating trade agreements, standards, regulatory and compliance requirements. It speaks to both SMEs and the public sector, outlining what they should do to overcome these challenges.
The WTB believes that these areas of challenge are not to be seen separately but rather should be treated as typical sources of “pain” that the WTB diagnoses as SME’s pain-points. For instance, by improving SMEs’ capacity and competencies, they are more likely to receive trade finance or launch products in new markets; understanding trade agreements and standards allows SMEs to operate more smoothly in trade activities. Actions proposed to both SMEs and public sectors are centred around the idea that SMEs will be empowered when these “pain-points” can be relieved.
Taking access to market and global value chain as an example, the World Trade Board acknowledges that developments such as digitalisation can be a catalyst for SMEs to increase their overseas trading capability. However, digital platforms, unless carefully designed, might primarily serve the interest of the larger enterprises that control these platforms.
“Large enterprises nearly always use their market power to force SMEs to use digital solutions that help automate the processes of those large enterprises. There are very few solutions out there that enable SMEs to digitally connect SMEs to their own ecosystem seamlessly. This idea captures both the “empowered SME” and the notion of creating enabling conditions, environments and capabilities.”
Michael Vrontamitis – World Trade Board
In the white paper the WTB identifies SME pain-points and proposes innovative, actionable solutions aimed at addressing some of the common challenges faced by micro and small businesses. Several concepts, practical tools, techniques and processes have also been introduced in the white paper to complement the concept of the “Empowered SME”: namely the Global SME sandbox, SME cluster value chain model, Digital Roadmap (ICC) and the Ease of doing international business index (the World Bank).
The “The Empowered SME” white paper shows that international trade for SMEs can be a non-zero-sum game. The WTB envisages an enabling environment, cultivated by the public sector combined with SMEs’ proactive problem-solving attitude, which will drive international trade to a new era – characterised by fairness, diversity, inclusion and sustainability.
World Trade Board 2021
1 The WTB, comprising a group of senior international leaders across a range of disciplines covering trade, financing, technology and development/inclusion, offers a contribution to the dialogue about SMEs with a particular lens and approach. In developing the notion of “Empowered SME”, WTB aims to change our collective approach to shift the conversation and propose actions to address persistent elements of the “SME challenges”.