E-Commerce and Developing Country SMEs

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On October 11, 2017, Thomson Reuters organized an event in Washington, D.C. on “Innovative Approaches to Advancing Small & Medium Sized Enterprises (SMEs) Globally.  It was definitely timely given the Annual Meetings of the World Bank Group and the International Monetary Fund to have conversation about the role that innovation plays in advancing SMEs.  Moderated by Howard Schneider (Federal Reserve Correspondent), speakers included Matthew Gamser (CEO, SME Finance Forum), Dr. Kim Bettcher (Senior Knowledge Manager, Center for International Private Enterprise), Tina Ghanem (Head of SME Business, Global Growth Operations, Thomson Reuters), Dr. Nicole Goldin, President, NRG Advisory & NonResident Senior Advisor, CSIS), Chad Ford (Associate Vice-President, Trade & Market Agriculture, International Executive Service Corps), Dr. Wanda Lopuch (Chair, Board of the Global Sourcing Council), Kathleen Neumann (President and COO, SerenityShares), and Gabriel Thoumi (Director, Capital Markets, Climate Advisors).  They all provided excellent insights into what they do to promote SMEs.   

The reason this topic is important is that whatever one’s views are on trade and/or ICT policy, there is plenty of evidence showing that SMEs that use the Internet, including in the developing world, engage in cross-border E-commerce to a greater extent than companies that do not use the Internet.  And more SMEs in developing countries are gaining access to the Internet, albeit at too slow a pace. Policymakers should consider these factors as they determine how best to promote E-commerce.

The ebay Small Online Business Report, for example, has a revealing chart on page 26 which shows that ebay enabled SMEs engage in exports to a far higher degree than “traditional” companies.  This includes data from developing countries such as Mexico, Brazil, Chile, Colombia, China, India, Indonesia, Thailand, and South Africa.  This suggests that to the extent that developing nations choose to engage in export-led development strategies, digital trade should be a component in that strategy.

For more data on SME participation in E-commerce the International Trade Center’s (ITC) report, “Bringing SMEs on to the E-Commerce Highway,” is well worth consulting.  It provides statistics on E-Commerce participation in Brazil, China, Indonesia, India, and South Africa.  There is an excellent discussion of the barriers faced by SMEs in engaging in cross-border trade and issues that need to be addressed to promote developing country SME E-commerce growth.  The policy discussion will be left for another blog.  The point here is to demonstrate that SMEs from developing countries do engage in E-commerce.

The World Bank’s Digital Dividends’ report reinforces this point.  The report finds that a 10% increase in Internet use increases bilateral trade value per product by 0.6%.  The “Facts” section of the report starting on page 51 should be reviewed by policymakers all over the developing world.  There is a lot that needs to be done, including in what the World Bank calls the “analogue” (non-ICT) policy space to get more SMEs to participate in E-commerce.  But the fact remains that firms in the developing world are increasingly using the Internet.  According to Digital Dividends, “the share of firms with at least five employees using broadband internet in lower middle income countries rose from 39 percent to 68 percent from 2006-09 to 2010-14.”

Although the subject of this blog is developing country SMEs, it should also be underscored that developing country access to services provided over the Internet by developed country companies, including SMEs, can be very important.  Zach Marks from Tala, a California-based company that provides financial services over mobile phones to small borrowers in Kenya and soon in the Philippines (often individuals engaged in microenterprise), explained earlier this year at an event in Geneva for WTO E-Commerce delegates how his company can provide these services.

So as policymakers gather for the World Bank/IMF meetings, they should consider how an enabling environment for SMEs from both developing and developed countries can be promoted. 

Carl Carl Schonander is Director of International Public Policy at SIIA.