Enabling Asian SMEs to thrive in a digital world

By Dr. Deborah Elms, Executive Director, Asian Trade Centre, Singapore

e-commerce-digital-business-dmA young lady in a remote village in northern Vietnam is using new technology to create and sell her family’s traditional silver necklace designs to customers across the region and even globally who can collect their purchases directly from 3D printing facilities.

Another small firm in Bangkok has transformed its eyewear company to sell online using a mobile app that allows users to visualise glasses from different angles as the phone tilts. Shoppers are finding and increasingly buying these products from all across the region.

These small companies — and many more like them — show the promise of e-commerce and digital trade to transform business in Asia. The tiniest firm in the most remote location can become a “micromultinational.”

But this promise comes with a catch: such business practices work if, and only if, governments in the region are able to build a supportive and enabling policy environment. For smaller firms, complicated or difficult policies that cause delays and drive up costs can be impossible to overcome.

Micro, small and medium enterprises (MSMEs) have limited time and resources. While larger firms can cope with complexity and manage to find solutions to challenges, smaller firms cannot.

Hence, it is vitally important that government think hard about policies from the perspective of MSMEs. This means continuously consulting with the widest range of firms, including companies in goods and services, to determine the impact of possible policy choices.

Four elements are especially important to smaller firms in digital trade.

First, MSMEs need to have access to information. Companies need to find customers and transfer information about their consumers. Smaller firms have no ability to separate data into “sensitive” and “non-sensitive” data, nor can they handle complex requests from governments to split out data in other ways. Companies collect and process their own data simultaneously. MSMEs need to rely on other firms to guarantee the safety and security of their information, including cloud-based solutions. This typically lowers costs for smaller firms while ensuring that they have access to best-in-class providers.

Second, MSMEs — like the Bangkok-based eyewear company — are often placed at a disadvantage by complicated and expensive delays at customs and challenging issues related to duties. E-commerce for smaller sized firms works best when small size, small value shipments can travel across borders with minimal delay. Suggestions to implement this may include minimum paperwork requirements, a minimum threshold below which there are no duties, simplified clearance for returned items and the creation of a trusted trader program for SME vendors to gain access to the same expedited clearance procedures that larger firms use.

Third, since many MSMEs are involved in services trade it is critically important that governments allow cross-border trade in services to proceed with as few restrictions as possible. This includes limiting or eliminating local presence requirements that stymie smaller firms that lack the resources to set up offices in every country where they might do business. In addition, licensing or qualification requirements need to be limited.

Smaller firms typically thrive on services. Even companies that sell goods rely on their customer service, including after-sales service, to distinguish their products from those sold by larger firms. If these services are difficult to access or expensive to deliver, then it unfairly handicaps smaller firms.

Finally, it does no good to open up e-commerce and digital trade if payments are not simultaneously opened. MSMEs need to be able to count on the widest range of payment options for their customers and suppliers at the lowest possible cost. In Asia, many governments are turning to national payment gateways to handle payments. This is deeply problematic for MSMEs. A national system risks trapping the smallest firms in the domestic market, as firms will increasingly set up their internal processes to match the local payments system and be unable to handle foreign purchases.

Of course, governments could provide other policies to help support MSMEs engaged in e-commerce and digital trade. In this rapidly evolving landscape, it is important that rules be as technology agnostic as possible to help support future growth and not close off important new options for smaller firms.

Getting the economic framework right to support the smallest firms is critical. Without such efforts, the promise of the “micromultinational” will be lost and some of the most innovative firms will be unable to compete.

The 2 March 2018 business meeting of the OECD’s Emerging Markets Network (EMnet) will focus on “Accelerating Digitalisation in Emerging Markets,” with a special focus on Asia.