What can trade digitalisation do for SMEs? 

The statistics on small and medium-sized enterprise (SME) participation in global trade are well-known and sobering. SMEs frequently account for the majority of businesses, yet their share of exports remains disproportionately low. 

Within the Association of Southeast Asian Nations (ASEAN), SMEs and micro-enterprises make up 97% of the private sector, but account for just 10-30% of exports. While over half of them might want to enter foreign markets, they face institutional, regulatory, and financial barriers in doing so. 

The travails of women-owned SMEs are even more severe. Women-owned SMEs tend to skew towards the micro-size rather than medium size; they face 30% lower sales growth in their early years and account for just 2.3% of global venture capital funding, despite accounting for almost a third of formal SMEs worldwide.

To close the gender gap, as well as the income gap, it is pretty obvious where action is needed: empowering growth among SMEs would yield the double bang of promoting growth at the bottom of the pyramid, while empowering women employed therein.

Trade digitalisation can be an effective tool in achieving this, but only if it’s gotten right. 

The SME financing gap

This is a problem in which the received wisdom about the $2.5 trillion trade finance gap are actually true: that SMEs fail to get financing from banks because they lack the required collateral and the records that would allow them to be certified as creditworthy. 

SME programs by banks, multilaterals, and government institutions have attempted to address this problem by offering guarantees that lower the risk of lending to SMEs, or by approaching the issue on the supply side and directly screening SMEs to receive financing. 

Trade digitalisation, on the other hand, addresses this problem on the demand side: by driving efficiency and transparency across transactions and scoring processes, it improves enterprises’ ability to build their own credentials..  

If digital trade records across every single one of an enterprise’s supply chains can be aggregated, analysed, and packaged as to assert their trade-worthiness, it should be easier for a bank to understand who they are, even in the absence of collateral. 

The key to this is to collect the necessary electronic records in forms that will allow the data to be easily ingested by bank scoring systems. This requires adherence to recognised data standards, as well as the exportability of all records from a given trade platform. 

Sometimes, trade service providers will have pre-established deals with particular banks that will allow an enterprise to receive financing solely based on its records within that trade platform. And although this can be an effective service, users should be able to transact with whomever they like, with their own records, and on their own terms.

The global expansion of SMEs 

40% of SMEs see international expansion as a way to improve innovation, while 35% believe it will help them improve their product quality. However, despite the apparent desire to go global, only a small portion are able to actually do it. 

At the same time, SMEs that attach themselves to global value chains (GVCs) tend to succeed in achieving globalisation.  The key difference is that GVCs offer ways to navigate the complexity that arises from different trade forms, protocols, platforms, and compliance requirements at every border.  

To support SMEs’ global expansion, the harmonisation of trade processes and data, taking place through the World Trade Organization (WTO) Trade Facilitation Agreement (TFA), must continue. 

On the other hand, by standardising paper documents into electronic records that comprise standardised data elements, digitalisation offers a crucial means to bring transparency into trade processes. 

Data, when tagged and secured, can be trusted and actioned immediately, thereby eliminating the need to accompany each record with reams of supporting evidence.

Trade single windows (TSWs), particularly those standardised along multilateral best practices, further streamline processes at the border and lower the complexity of cross-border trade processes. 

This is especially important for SMEs, which tend to lack large compliance and government affairs teams whose job is to understand and navigate the sometimes-arcane rules of trade.  

Trade should be accessible; you shouldn’t need a consultant just to get your goods across the border.  Digitalisation can help level the playing field for SMEs by streamlining the electronic records needed for financing, making their submission process easier, and hopefully, with standardisation, allowing enterprises to transact across multiple countries without having to reorder or recut their data multiple times.    

Hope for the future 

Trade digitalisation is ultimately about simplifying trade and giving enterprises control over their trade processes and data as they go about innovating and transacting.  

Today, the trade digitalisation project has unfortunately not made things simpler structurally. Rather, it has spawned trade service providers and trade platforms that use digitalisation to help enterprises navigate what is still an extremely complex trade universe. There are too many document and data standards, too many protocols, and too many trade rules, which means that anyone who wants to trade likely needs a platform or service provider.  

It may be time for a rethink.   

If banks are not proceeding with digitalisation because of the fear of being ‘held captive’ by one system while being incompatible with others, SMEs have even less of a chance to take the same route. 

The question has to be: how can we simplify trade to allow enterprises to trade without pledging allegiance (data and all) to an intermediary?  

And the answer has to be: standardise digital data and forms; adopt technologies which allow these electronic records to be trusted, traced, and secure; and streamline global rules at the border.