Trade and Investment

The digital divide: Why SMEs must cross borders

Despite the resiliency of many SMEs during the pandemic, they still need to master the new digital trade environment.

Despite the resiliency of many SMEs during the pandemic, they still need to master the new digital trade environment. Image: Pressfoto/Freepik

Penelope Naas
Advisor & Board Member, TradeExperettes
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Small and Medium Sized Enterprises

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  • As trade becomes increasingly digital, SME success hinges on their ability to expand across borders.
  • SMEs are in urgent need of digital infrastructure, training and processes.
  • Cross-border commerce should be simplified and enhanced to allow SMEs to benefit.

In most economies, small and medium-sized enterprises (SMEs) are the backbone, driving growth and employing a large proportion of the working population. Amid the COVID-19 crisis, they had a matter of weeks to expand, or create online operations and find new markets to survive the accelerated shift towards selling online in a volatile business environment.

According to the OECD, between February 2020 and April 2021, 70 to 80% of SMEs across 32 countries lost up to 50% of their revenue. Thanks to their resiliency and ingenuity, many have been able to weather the storm. However, as markets become increasingly digital, full SME recovery and success hinge on their ability to expand across borders.

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When we look specifically at the European Union, fewer than half of online businesses, representing only 8% of the SMEs in the bloc, sell to other EU countries – and only 4% sell outside of the Union. This is an opportunity for the world economy – or a major threat to global prosperity.

SMEs and international trade barriers

Through our research with SMEs, we know that they are crying out for access to digital infrastructure, training and processes to make trade easier. Buyers, sellers and intermediaries now rely on technologies that enable commerce at a speed, scale and efficiency unimaginable just a few decades ago. According to 83% of Indian SMEs surveyed in our research, they still need to learn more about complying with digital laws and regulations, a knowledge gap that then hinders the ability of one of the fastest growing e-commerce markets in the world to efficiently trade and grow.

When these SMEs do try to trade internationally, they often encounter customs administrations that continue to rely on hard-copy documents and manual processes, ill-suited for businesses operating digitally. If we look at the Global Express Association’s Customs Capability Database, 46% of the 139 countries surveyed do not accept or electronically process the data required for the release of shipments in advance of their arrival, even though it has become a global benchmark for efficient and secure customs processing.

These kinds of barriers affect firms of all sizes, yet SMEs shoulder disproportionate burdens in the face of this complexity, particularly in delays and added costs presented by non-digital customs procedures. In the January 2019 World Trade Organization Joint Statement Initiative on Electronic Commerce, WTO members agreed to initiate exploratory work towards negotiations to simplify cross-border trade.

These ongoing discussions seek to establish a more enabling environment for electronic commerce by creating trust in digital trade and providing better access to foreign markets. It’s no secret that when policy-makers take steps to enhance trade facilitation and connectivity and reduce digital barriers to trading in goods and services, whole economies benefit.

We have the capacity to enhance and simplify cross-border commerce, especially for small businesses, by applying the following digital processes to customs procedures:

  • Electronic submission of customs documents
  • Process simplification and digitization for low-value shipments and related duties and taxes
  • Customs simplification for cross-border returns processes
  • Online government publication of information on customs procedures and rates in an easily digestible format

Digitalizing trade can play a positive role in creating more resilient SMEs and help authorities mitigate border bottlenecks.

If we are to truly create an inclusive, prosperous and sustainable economy in this moment of post-pandemic recovery, we must first seek to ensure that SMEs can leverage the benefits and opportunities generated by engaging in global markets to the greatest possible extent.

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Strong economies and thriving businesses are the very foundation of prosperous communities; we can’t let this opportunity to set a new course for global trade slip by.

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