Expanding the horizon for MSMEs in international trade: Role of e-services

Event report

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The conference was opened by Ms Maria Ceccarelli (Director, Economic Cooperation and Trade Division at UNECE) who explained that the focus of the conference is electronic solutions for micro, small, and medium sized enterprises (MSMEs) and for their services. She noted that MSMEs face many challenges, notably due to lack of knowledge about global regulations, ICT know-how, and skilled personnel. Ceccarelli highlighted that the conference would explore the rise of digital economies and ways to reduce barriers for MSMEs and said that closer collaboration will not only produce greater market access for MSMEs, but that it will also benefit the societies in which they operate.

Session 1 opened with Mr Salehin Khan (Associate Economic Affairs Officer at the UNECE), who spoke about ‘Opening the Global Economy to MSMEs: Progress and Prospects for e-services.’ He started by describing the work of CEFACT as an intergovernmental organisation focused on trade facilitation. He noted that there are about 160 million MSMEs across the world, but that their participation in international trade amounts to approximately 10-15% in member countries of the Organisation for Economic Co-operation and Development (OECD). He explained that MSMEs are a good source of local knowledge and are usually based locally, but have difficulties scaling up their operations due to various obstacles.

These challenges arise mostly from trade barriers such as lack of skills and professional knowledge regarding how to go about regulations. Even when information about regulations is available, MSMEs are faced with the difficulty of interpreting them correctly for their needs. Moreover, access to loans and financial support to widen their operations is difficult to obtain. Other obstacles are related to issues of digitalisation, which brings the proliferation of e-services, online platforms, and competition.

The goal must therefore be to prepare MSMEs to adapt and catch up with the rapid developments of e-commerce. Empowerment must thus be built through appropriate legal and regulatory frameworks. He further introduced the conceptual framework of Integrated Services for MSMEs in International Trade (ISMIT), which was developed by CEFACT to reduce business transaction costs, create a more inclusive international e-commerce ecosystem, foster better cash flow for MSMEs, and establish a better credit system for MSMEs.

Ms Virginia Cram-Martos (Triangularity Consulting & UN/CEFACT Domain Coordinator) explained that micro-enterprises are the seed of economic development. MSMEs, which are usually composed of 5-10 employees, are often not listed in global MSME indexes, given that many of them are informal. She noted that the numbers included in these indexes are usually provided by governments and that, especially in developing countries, informal MSMEs are not listed. Therefore, these enterprises must be provided with paths to formalise by helping them with enhancing fiscal policies that are inexpensive and easy to implement. Additionally, tax burdens that could limit the growth of MSMEs must be avoided. Another step to encourage MSMEs is through the provision of stable electricity and affordable Internet connectivity as well as basic necessary infrastructures (road, rail and port, postal infrastructure).

Regarding the knowledge gap of MSMEs, Cram-Martos noted that much information about product standards and requirements, marketing and other business skills (i.e. packaging, quality control) is already available, but that of this information is available only in the most common languages. Therefore, entrepreneurs from countries that do not speak those languages are at a disadvantage. To overcome these knowledge gaps and providing access, Cram-Martos proposed to strengthen the development of the business-service sectors through e-commerce platforms for services (i.e. ISMITs, but also service markets such as Craigslist) and by providing MSMEs with access to qualified staff.

Finally, Cram-Martos also mentioned that entrepreneurs of small companies often underrate the interest that their services and products might spark. These confidence issues could be addressed through the implementation of MSME working and exchange groups in chambers of commerce and similar organisations.

Ms Fatou Ndiaye (Co-founder, The Great Village) spoke about the opportunities in digital transformation for logistics services and implications for MSMEs. Through the example of a customer wanting to export her products, Ndiaye spoke about the challenges entrepreneurs are faced with when trying to participate in cross-border trade.

Ndiaye identified artificial intelligence (AI) and machine learning as having the potential to help alleviate the MSME challenge of access to information and data. Predictive systems enhanced by AI can find ways to implement smart solutions such as grouped shipping, or product traceability, which could reduce the costs of doing business. However, she pointed out that data can be biased and that this fact needs to be taken into account. Moreover, Ndiaye spoke about the Internet of things (IoT), which could help establish trust with customers abroad, since IoT allows customers to trace products and follow its route. She noted that these systems are quite costly, but that there could be customers interested in paying more in exchange for being able to track their products. Another important technology that might foster MSME access to international trade is blockchain. The technology has the capacity to increase transparency, which is highly valued in many markets and could be utilised to reduce costs and bureaucratic efforts through its secure nature.

Mr Lance Thompson (Secretary, UN/CEFACT) spoke about the standardisation in promoting cross-border e-services for MSMEs. He emphasised that CEFACT worked, contrary to the World Trade Organisation, with a definition of e-commerce that stipulates that every transaction initiated online is to be considered e-commerce.

Thompson retraced the value chain of the underlying elements of e-commerce starting from an order placed online by a customer that sends a notification to the logistics agencies to send a parcel, which in turn needs to go through customs and other stations before delivery at the customer’s door. He highlighted the need for international standards to alleviate the burden on MSMEs. These standards should consist of consolidating existing rules and making them easily available and understandable to MSMEs.

He noted that traditional e-business usually operates on large quantities, but that e-commerce usually involves small volumes. The problem for regulators that arises from this is the appearance of an increase in shipping volume and decrease in overall value. Regulators should therefore use common standards across borders to facilitate trade and make those standards openly available and free-of-charge for MSMEs. Additionally, MSMEs should get the opportunity to participate more in the development of standards free-of-charge to ensure that their needs are taken into consideration during the elaboration of new standards.

Session 2: ‘Establishing the business ecosystem for MSMEs to participate in international trade’ (country examples) was moderated by Ms Virginia Cram Martos (Triangularity Consulting & UN/CEFACT Domain Coordinator). She introduced the discussion points, which revolved around the questions of:

1. What are the implementation challenges of cross-border e-services for MSME participation in international markets?
2. How can standards and policy guidance play an active role in promoting e-services for MSMEs?
3. What are the economic, social, or environmental impacts in local communities through MSME participation in international markets?
4. How can e-services address ‘the last mile’ problem of MSMEs?

Ms Eva Chan Chaw Peng (Head of International Business, Dagang Net Technologies) presented an example from Malaysia where an e-services platform has been created for MSMEs based on Alibaba’s OneTouch Platform. The platform is connected to the national single window and Digital Free Trade Zone (DFTZ) Platform.

She further spoke about the challenges for MSMEs to participate in international trade. She mentioned that they face strong competition from overseas that forces them to find a niche for their products, and that MSMEs often lack knowledge about cross-border trade. These enterprises often do not have mechanisms in place to provide insurance or track records for their products, are unaware of the requirements of the different customs regulations, and very often underestimate the demands that can come from e-commerce marketplaces. Additionally, MSME staff often lack the skills to provide services on online platforms such as product information management, product content quality, or online customer-relations management.

Ms Evelyn Eggers (Director Business Development, Dakosy) provided an example of the German company, Dakosy, which provides national single window solutions and works closely with the shareholders of the Seaport Industry of Hamburg.

Dakosy’s main product lines are cargo communication, customs, and logistics for which they developed a port community communication system and incorporated the single window principle. She mentioned the definition of the single window principle which is ‘a facility that allows all parties involved in trade and transport to lodge standardised information and documents with a single entry point to fulfill all import, export and transit-related regulatory requirements. If information is electronic, then individual data elements should only be submitted once.’ (UN Recommandation No 33 (2005).

Dakosy’s Port Communication System (PCS) thus connects traders, operational processes, and administrative processes and acts as neutral platform to build a community of as many participants as possible (including large, medium-sized, small and micro enterprises) to which it provides non-discriminatory access. Eggers noted that in their decision-making process, all interests are heard and solutions are found in ways that are also acceptable to MSMEs to build a strong community.

Mr Jalal Benhayoun (Vice-Chairman, African Alliance of E Commerce (AAEC)) gave an example from Morocco and pointed out that MSMEs are often not involved in international trade due to the complexity of regulatory processes.

To help MSMEs, Morocco has created a platform in partnership with the private sector: PortNet, an accelerator of business competitiveness. Its goal is to enhance the business climate, trade, and logistics. The platform also runs on the single window principles and unites shareholders of the entire trade ecosystem. To avoid a proliferation of intermediaries, PortNet is open to importers and exporters and is also connected to banks, which are important to fund MSME operations.

Additionally, Benhayoun introduced Tradesense.ma, a tool that allows MSMEs to obtain insights into all procedures and regulations in different markets. The decision-making aid was to provide MSMEs with the right information at the right time. It informs its users about necessary procedures and formalities and offers a platform to share information among MSMEs.

Additionally, Benhayoun spoke about the national community, multi-channel payment solution that allows all users of the platform to process payments through the platform itself, thus streamlining trade processes. Benhayoun explained that the Trade Direct initiative was created to foster MSMEs’ inclusiveness by connecting enterprises directly to money donors. Finally, he spoke about the Morocco Easy Export initiative through PortNet, which relies on the national postal services. MSMEs can directly deposit their shipments at the postal services and they will take care of the bureaucratic formalities based on the information they have on PortNet.

Mr Steven Capell, (Enterprise Architecture, Department of Home Affairs, Australia) presented solutions from Australia. He noted that MSMEs manage to tap into a world of opportunities in international markets. However, obstacles include logistics concerns, complexity of regulations, and obscurity.

He further explained that MSMEs often have to rely on third parties to help them navigate international trade, which often comes at a very high cost. According to Capell, e-services can thus be helpful by giving MSMEs exposure, creating trust in their products and facilitating logistics.

Since most transactions are already digitally lodged, Capell explained that governments should avoid favouring only a single platform based on the single window principle. He noted that Australia made its regulatory Application Programme Interface (API) open to all. Additionally, the Australian government is working on an inter-customs ledger that will reduce the bureaucratic exchanges of paperwork by digitally certifying the origin of a certain product.

Moreover, Capell noted that payment trade finances in Australia can take up to 60 days. These long time periods can prove critical for MSMEs who might rely on that capital to operate and thus ways should be found to automate small volume transactions.

By Cedric Amon