One of the fastest, easiest and lowest cost ways for smaller companies to join the global marketplace is to use e-Commerce. By harnessing the power of the Internet to connect with suppliers, producers, lead firms, and consumers, firms can sell their goods and services to a much wider audience than would otherwise be possible.
As the clearest example of this phenomenon, check out the attached policy report. This document, Challenges of e-Commerce for Small and Medium Sized Enterprises in Asia, benefitted from the skills of a graphic designer in Pakistan. The staff of the Asian Trade Centre in Singapore never met the designer. Instead, the entire process was handled via the web.
This designer charged one-tenth the price of a locally engaged person. In the end, the magic of e-Commerce allowed one small firm in Singapore to support an even smaller firm in Pakistan and create a win-win situation for both companies in delivering a high quality service to a wide range of readers and government officials in Asia.
The report examined many of the challenges and opportunities for small and medium enterprises (SMEs) in the region that are engaged in e-Commerce. It was generously financed by the British Foreign and Commonwealth Office and is intended to provide a small sample of case studies to launch our larger project on the topic.
Despite the promise of greater economic growth available by using e-Commerce, the cases highlight a set of challenges that smaller firms often face.
Small firms, by definition, have limited resources including, especially, fewer staff members. This makes getting things done more challenging and increases the premium on hiring and retaining quality workers. Manpower issues of all sorts are a challenge for many of the SMEs profiled in our study.
The Singapore-based firms have particularly struggled with tight access to foreign talent at various levels. But most of the firms in the region have also faced escalating wage requests and difficulties keeping employees adequately trained for their tasks.
Rising costs elsewhere, including ever-increasing rental charges, have also proven difficult to manage. Purchasing facilities like office, warehouse or factory space may not be possible, depending on the type of firm and ownership structure. Land acquisition is often difficult or time consuming.
These problems may plague all types of smaller firms, not just those trying to work in the e-Commerce space. For companies that want to buy and sell online, they have additional issues to consider. Creating and maintaining an excellent web presence is very difficult for smaller companies. A lack of knowledge about existing online platforms has lead many companies to create their own customized solutions.
However, creating a functioning website can be quite expensive and often requires hiring staff with specific skills. Getting employees with website skills can be particularly problematic for smaller companies that may not need someone full time and have to pay a premium wage to get skilled workers to join smaller firms.
Companies do not have the time or resources to invest in expensive hardware and storage systems. Hence, most smaller firms need to be able to find other vendors with dramatically better abilities to manage e-Commerce platforms at lower cost, greater reliability, and improved security.
Finally, our firm-level interviews turned up many examples of companies struggling with payments issues. These challenges ranged from getting online payment mechanisms set up on the websites in the first place to crazy high fees imposed on companies wanting to set up online shopping carts. The charges for online card processing can be very steep for smaller firms with limited cash flow.
Government officials trying to address the specific challenges faced by such an assortment of companies struggle to respond appropriately. Because SMEs are small and numerous, getting feedback from such firms is always harder than finding out about the concerns of larger companies with greater resources.
Most small companies do not recognize that many of their specific challenges could be addressed by government policies. They often regard their situation as simply part of a background environment that is immutable. For example, firms may have a hard time managing multiple bank terminal machines as required by different bank and financial institutions. Government could fairly easily sort out this obstacle to firms by requiring that terminal machines function for multiple financial institutions.
When asked by government, however, most companies might not complain about the banking terminal issues to agencies or ministries. This is not because the issue is insignificant, but because firms think that a problem like this could only be addressed by banks. Such a complaint is not seen as a policy or regulatory issue. Hence, officials that ask for “policy feedback” may not receive as much useful input as they might have expected.
Governments in the region, and particularly Singapore, offer many different types of support programs for small firms. These range from seed capital to training courses to salary supplements for different types of staff. However, for a small company, managing these programs may require significant investments from staff members.
Such programs also frequently take time—up to six months—to completely process through complex bureaucracies. For companies, speed to market can be critical and delays along the way can be disastrous. Hence, many firms do not bother to take up government assistance at all because they would prefer to just self-finance or otherwise sort out their own issues than face time and paperwork delays and hassles.
Another challenge many types of companies face in trying to manage e-Commerce operations is a lack of understanding by government officials of how e-Commerce can work. Many officials have a very limited view of e-Commerce possibilities with a narrow focus on delivering goods to final customers. Instead, e-Commerce programs ought to focus on a broader definition of possibilities, including delivery of both goods and services, as well as business-to-business (B2B) applications and final consumer demands.
A broader perspective on e-Commerce possibilities and obstacles should help governments in Asia focus attention on a wider range of issues that must be considered and addressed in creating supportive policies. For example, smaller firms that do export or import goods need a set of policies for smaller size or smaller value shipments. Delays at the border of any kind can be catastrophic for firms since it ties up inventory and prevents payment. A small firm can easily go out of business waiting 45 days or longer for money to reach their bank account.
Government needs to recognize the possibilities for small firms to provide a wide range of services. For many developing countries, especially, firms can plug into wider regional or global value chains through the provision of services much more easily than they can engage in trade in goods. Again, barriers to entry for services providers can be substantial, even if firms do not recognize that their own specific challenges in this regard are related to policy decisions by government to, for instance, limit foreign firm access to certain markets.
The Asian Trade Centre is using the information provided by this range of companies in different parts of the e-Commerce world to create a set of policy proposals for governments in the region. We have already presented the proposal highlighted at the back of the report to the 16 party trade negotiators meeting as part of the e-Commerce deliberations in the Regional Comprehensive Economic Partnership (RCEP). We are also working to put these ideas into practice as part of ASEAN’s Vision 2025.
Finally, we are working within the APEC framework to encourage governments across the Asia-Pacific to consider e-Commerce in a broader, more holistic manner. APEC has created an ad-hoc committee on the internet economy that should help guide policy across a wider range of issue areas than just a focus on telecommunications policy.
Getting the right policies into place to unleash the creative and entrepreneurial spirits of smaller firms like those featured in our report should lead to greater opportunities for economic growth and development across the region. Thinking carefully about e-Commerce provides an ideal space for government officials to consider and address next generation barriers to trade. We are looking forward to hearing from more firms and governments trying to operate in this space.
***Talking Trade is a blog post written by Deborah Elms, Executive Director, Asian Trade Centre, Singapore***