MSMEs

Digital Trade Supports Economic Development

Digital Trade Supports Economic Development

Perceiving the digital sphere as winner-takes-all leads to an incorrect assessment of the market forces shaping the digital economy and suboptimal policy responses. In particular, the suggestion that developing countries should enact technology transfer, data localization, and internet filtering requirements, or force the breakup of large e-commerce firms, ignores both the benefits of these platforms to development and the potential consequences of pushing platforms out of small markets. Instead, governments should focus on creating an enabling environment for MSMEs to pursue digitalization, enacting regulation that encourages firms to leverage digital tools for growth and development. For MSMEs, there are several key reasons participating in digital platforms can beneficial. Firstly, digital platforms increase visibility for participating MSMEs, as large platforms are accessed by large numbers of customers. Participation in digital platforms contributes to lowering operational costs, as economies of scale and their marketing abilities reduce the burden of logistics, payment methods, and marketing on individual firms participating in the platform. For example, a small firm may struggle to navigate customs rules when engaging in cross-border trade, adding risk and increasing costs. E-commerce platforms with sufficient scale and expertise can easily navigate the complexities of cross-border trade, reducing costs for participating MSMEs. This has enabled the emergence a growing number of ‘micro-multinationals’ in the Asia-Pacific region, wherein small business engages in cross-border e-commerce. A further benefit in participating in platforms for MSMEs is access to their analytics capabilities and optimization programs. Using data analytics to collect information about customer preferences, MSMEs can leverage the platform’s data to optimize offerings to customers. Digital platforms, like any other business, are profit-seeking. But this does not mean that this profit-seeking behavior functions to stifle MSME growth or development. Instead, the opposite is true. Platforms tend to push capacity-building efforts to enable MSMEs to participate in their platforms, unlocking new growth opportunities. For example, Meta, Amazon, Gojek, and Flipkart offer training, advisory services, and more to MSMEs to boost capacities to participate in their platforms. From this arrangement, the companies benefit from an increased number of suppliers, and MSMEs unlock new growth opportunities, increasing access customer pools and addressing key barriers to growth.

Financing for Smaller Firms

Financing for Smaller Firms

Many of the ICC recommendations involve updating antiquated processes. Trade finance transactions are unnecessarily complex with, as the report shows clearly, complicated shuffling of mostly paper documentation. Firms attempting to work in multiple markets also face regulatory disconnects with unclear processes. To add to the mix, there are three primary product categories for trade financing with different demands and requirements for each: documentary business, supplier-side financing, and buyer-led financing. While unraveling these complex processes would be helpful, with significant gains available, it does not go far enough in providing basic financing to the millions of MSMEs that are currently underserved by the market. What is needed is a new approach that leverages a range of new technologies to reconceptualize the way that small businesses are evaluated and pull in new financing providers. By starting with an MSME-first approach, it is possible to reimagine the provision of capital and start to unlock and unleash the potential trapped inside small firms. The ICC report (full disclaimer—I was part of the conceptual team to help develop recommendations) begins to sketch out some of the conditions for a new ecosystem to support financing for MSMEs in the near term.

Making Payments Easier in Asia

Making Payments Easier in Asia

Digital payments are at the centre of digital trade expansion and serve as a key enabling factor for digital commerce. Firms will not provide goods or services if they cannot be paid. Payment services, therefore, are a critical component of the online services ecosystem that allows consumers to conveniently make purchases for goods and services from merchants globally and for firms to sell around the world far more easily and cheaply than ever before. Cross-border digital payments, in particular, are instrumental for the development of the regional economy and the growth and resilience of micro, small and medium sized enterprises (MSMEs) looking to thrive in a post-Covid pandemic environment. New innovations within the e-payments space, like e-wallets and blockchain, and initiatives by governments aimed at fostering increased use of digital payments, will likely improve access and lower the costs of cross-border transactions, especially for MSMEs. However, most of this innovation has taken place in the domestic space, where payments are experiencing improvements in terms of speed and convenience. Conversely, cross-border e-payments remain slow, costly and opaque, and difficult to manage. A lack of access as well as regulatory and payment network interoperability means that payments remain one of the most challenging issues for MSMEs hoping to engage in cross-border e-commerce in the region. As governments in the region continue to promote initiatives that improve access and use of digital payments, the challenges of managing cross-border transactions are often under-appreciated by policymakers. MSME merchants and financial service providers continue to struggle to develop and sell their products and services across borders.

Pivoting the Business: Small Business Survival in Travel and Tourism

Pivoting the Business: Small Business Survival in Travel and Tourism

It might be assumed that MSMEs that deliver services to travelers will be unable to manage at all. As an example, if no one is coming to the visit the city, site or beach, what good are tour operators or local guides? However, smaller firms should not despair. For many companies, it is possible to pivot and offer travel and tourism services online. AirBnB, for instance, has been developing an innovative lineup of “experiences” from their local hosts that are in hot demand. Many of these offerings even come with substantial price tags for customers, allowing firms to generate revenue in a purely virtual world. It may even be the case that some firms offering extremely popular experiences make more money in the downturn than before, as a global audience can provide more customers than those requiring a physical presence. What do these travel experiences look like? Could be learning the secrets of Japanese whiskey, frying spring rolls with a street vendor in Bangkok, creating a storybook for the whole family with an author in Mexico, or taking a scuba “tour” with a local guide in the Maldives. Customers might sign up for virtual walking “tours” of far-flung locations like temples or forests in Bhutan or opt to make sangria with drag queens in Spain. Innovative offerings from creative MSMEs could dramatically expand the concept of travel, leaving customers even more eager to experience something similar in person once flights and travel resume. Destinations that weren’t anywhere on a personal “bucket list” could shoot up during a time of lockdown and travel disruptions.

Supporting the Small in a Pandemic

Supporting the Small in a Pandemic

The impact of COVID-19 continues to threaten the global economy, with the effects keenly felt in communities, businesses and homes. The challenges are disproportionately borne by smaller firms, as our survey of AMTC firms in Asia this week clearly indicates. Close to 50% of businesses have only a month or less than a month of cash reserves. Nearly 30% expect to have to lay-off more than 50% of workers. These figures are unlikely to be different from the experiences of smaller firms around the world. With both supply and demand crashing at the same time, companies are in a struggle for survival. The World Trade Organization (WTO) has just released an updated global trade forecast and the numbers are equally grim. Trade is expected to fall by 13-32% this year. This is the steepest contraction since 2008, with the strong possibility that COVID-19 results in worse outcomes than the Great Recession. But perhaps the most serious damage of collapsing trade flows to smaller firms can be found in the disruption to services.  Many small companies are engaged in services.  Some, of course, are obviously affected, such as restaurants, travel and tour companies. Others may be less clearly connected to global trade flows. For every box that is now stuck somewhere or not being filled in the first place, services can be 30-50% of the total value of the goods inside. These services can range from logistics and delivery; cleaning and maintenance of equipment; legal and HR services; graphic design and marketing; and the like. Many of the services of even giant multinationals are supplied by smaller firms. Services are affected not only by slumping demand for goods and their embedded services, but also by direct challenges like the inability of people to meet or travel.