Making E-Commerce and Digital Trade Work for Smaller Firms

Making E-Commerce and Digital Trade Work for Smaller Firms

The list of obstacles could go on.  The point is that the promise of selling globally comes with increasing challenges.  Hence the very good news that the World Trade Organization (WTO) has launched talks in Geneva to begin to create some global rules to sort out some of these issues.  For smaller firms, global rules can at least ensure that added expense and time becomes a necessary part of doing business, rather than an irritating element of doing business with some countries. The size of the “prize” is huge.  Estimates are all over the place on the current size of the digital economy, but Asia tends to lead the way.  An extremely useful series of reports just released by the Hinrich Foundation on eight economies in the region (five out now: Vietnam, China, Indonesia, Malaysia and Australia) shows how much additional trade might be gained from eliminating barriers to digital trade. 

Flipping the E-Commerce Cart

E-commerce and digital trade are certainly upending retail patterns globally.  It is important to note that these changes are not a random act handed down from the heavens.  Instead, these changes flow from millions or even billions of companies and consumers increasingly demanding goods and services to be delivered digitally. The plan in India is to stop firms like Flipkart from selling goods in the market.  This—it must be assumed—will help keep small, largely inefficient shops in business for longer and keep consumers spending more on products than they clearly would like.  After all, if consumers did not want e-commerce goods, they would not be buying off Flipkart in the first place and would not be driving demand for more goods. Customers have clearly expressed their preferences.  They are unlikely to completely abandon the corner shop, but their purchases are becoming increasingly diversified and digital orders play a key role. While India represents the more extreme end of regulations on e-commerce, other governments are starting to take actions to increasingly constrain the actions of players.  Most are still aimed at large firms with limited understanding of the collateral damage to small firms and consumers.

Wrecking the Promise of the “Micro-Multinational”

Amazon’s move was in response to a decision by the Australian government to both impose a 10 percent tax on all imported goods into Australia and lower the de minimus threshold (DMT) for entry into the country from AU$1000 all the way to $0. The DMT is a government-imposed limit under which imports are exempted from taxes, import charges and most customs duties, and have a limited clearance processes and data requirements.  A higher de minimus, in particular, can make it much easier for smaller firms to ship goods globally since most are not sending 40 foot containers anywhere, but small size packages.  Under the new law, businesses located anywhere in the world that experience an Australian annual turnover of AU$75,000 or more are now required to register with the Australian Taxation Office. The combination of the removal of the DMT and the imposition of tax is very problematic.  It creates a triple burden for firms shipping smaller value packages into the country: they must now deal with duties or tariffs, they must handle often complex customs forms and paperwork; and they must be prepared to pay tax in Australia whether or not they are based in Australia. 

E-Commerce from Remote Locations

The promise of e-commerce and digital trade is that it can empower individuals and firms from anywhere to find customers, suppliers, and engage in trade globally.  It has enabled the tiniest companies to become “micro-multinationals.”  A first customer can literally be found across the world.  But this promise is sometimes harder to implement than it first appears. In Fiji and other Pacific island states, the potential seems to remain largely just that—a promise rather than a reality. Why this might be so is a bit puzzling.