By: Pawan Gupta, Founder, Connect2India
It is a well-known fact that SMEs are key building blocks of any nation. As per WTO, Micro firms and SMEs account for the majority of firms (95% on average)and for the vast majority of jobs in most countries.
As per the 2015-16 Annual Report published by the Ministry of Micros, Small and Medium Enterprises, India is home to 51 mn MSMEs which contributes to 37.5 % of India’s GDP and 37 % of the manufacturing output, underlining their strategic important to the Indian economy.In other words, they are the backbone of the Indian economy.
So the significance of SMEs to growth of country’s economy is beyond question, however, to date, SMEs contribution to global trade is relatively much less as compared to large enterprises.
SMEs Low Participation in Global Trade
Global trade across the world has long been dominated by large companies.In India, even though SMEs constitute 97% of total enterprises, they contribute to only around 46% to exports. Of 51 mn SMEs in India, less than 1 mn participate in global trade and even a lesser number exports. Inspite of the fastest growing economy in the world, India’s share in the world exports is mere 1.6% only.
This begs the question; why only large firms take advantage of the huge potential of global markets? The objective of every business is to grow financially, so businesses are constantly looking for newer markets to serve by definition. Yet SMEs foregoes the huge potential that can be the big-break for their business and it seems that we may be missing an opportunity to support this vital part of every economy.
The answer is simple; global trade is complex and risky with lot of unknowns, and the more so in case of developing nations like India. The SMEs does not have the courage to step in to the unknown, mostly due to their financial constraints.
The Reason for This Low Participation
A firm, whether small or large, needs to be globally aware, globally competitive and globally visibleto make for itself global market and all of these incur high costs. As per the WTO report 2016 on levelling the trading field for SMEs, a key finding is that all types of trade costs, whether they are fixed or variable, adversely affect the ability of SMEs to participate in global trade, to a greater extent than large enterprises.
Technology and Internet are Changing This Scenario
The SME Competitiveness Outlook 2015 (ITC, 2015b) report finds that the biggest gap between small and large firms performance related to global trade is in “e-connectivity”. The right application of technology isopening up multiple avenues and opportunities at low cost for SMEs to internationalize and connect to the global markets through technology and internet are particularly relevant for SMEs. Here are some of the ways the technology is helping SMEs go global.
a) Trade Platform:
According to the International Trade Commission, for countries where there is a lack of reliable information about the identities and activities of companies, or where the cost of obtaining such information is high, many of the international firms that issue trust or security tools are unable or unwilling to provide their services and hence the global trade for those countries suffers.
Global trade platforms make trade safe and easy for SMEs by providing end-2-end global trade offerings such as trade intelligence, trade counterparts, trade resources and multi-channel trade enablers in hosted cloud environment. Moreover, these platforms provide readymade marketing and infrastructure, vastly lower the costs and technical obstacles to establishing an online presence & visibility (compared with stand-alone websites), and make it possible to offer integrated trade engine, trade stats and counterparts, customer services and data analytics, all on cloud.
Trade platform also mitigates risk by enhancing overseas suppliers’ and buyers’ information and trust by turning a series of discrete snapshots into a more holistic view of customer’s behavior and couple that with trade history and overall trade intelligence.
b) Global E-Commerce:
The global growth opportunities to SMEs through e-commerce are significant for developing countries like India as E-commerce reduces the costs related to physical distance between sellers and consumers by providing information at a very low cost. The role of e-commerce platforms in domestic trade is well known but these platforms could facilitate global trade as well at a low cost. Since there are no geographical limitations, online search costs are not necessarily correlated with how remote markets are.
Exports of goods traded through eBay confirm that e-commerce reduces the costs associated with physical distance between sellers and consumers by providing both trust (e.g. through seller-rating mechanisms) and information at a very low cost.
c) Digital ecosystem
One of the originating purposes of internet infact was to bring the world closer and this is highly relevant in the case of global trade. So it won’t be an exaggeration when the Internet is sometimes portrayed as a global market place that knows no borders, where entrepreneurs can find customers globally.
With a strong communication structure in place and high internet penetration rates, there can’t be a better time for SMEs to build online presence. An online presence and global visibility is a must for a SME to make world aware of its product and services.
Further, as per the recent Google-KPMG report studying the impact of internet and digitization on SMBs in India, digitally enabled SMBs find themselves in an advantageous position to access global markets with the rapidly improving local and international digital ecosystem. The SMEs could leverage the increased connectivity through the digital ecosystem across the globe for the growth of their business.