Business views: Empower SMEs by supporting ‘next generation’ trade and investment issues
SMEs are a driver of growth in all APEC economies – realizing this and implementing policies that address their concerns will result in rewards that go beyond individual companies.
One of APEC’s priorities in 2011 is to strengthen regional economic integration and expand trade in the Asia-Pacific.
In Montana in May, APEC Trade Ministers identified three ‘next generation’ trade and investment issues: facilitating global supply chains; enhancing SME participation in global production chains; and promoting effective, non-discriminatory and market-driven innovation policy.
The APEC Bulletin asked Dr. Yang Yunsong and Fauziah Talib, members of the APEC Business Advisory Council (ABAC), their views on these ‘next generation’ trade and investment issues. Dr. Yang, Chair of ABAC’s SMME & Entrepreneurship Working Group, is CEO of the Beijing-based XY Group and Fauziah Talib is a Brunei Darussalam-based entrepreneur and serves as the group’s Lead Co-Chair.
APEC Bulletin (AB): How essential are facilitating global supply chains, enhancing SME participation in global production chains, and promoting innovation as ‘next generation’ trade issues to business?
Dr. Yang Yunsong (YY): These are three critical issues that can enhance business productivity, which will, in turn, raise the value of goods and services provided to end-users. SMEs in APEC economies play a significant role in cross-border trade, so they have much to gain from a more efficient supply chain and a more accessible global production chain. Likewise, because SMEs are hotbeds of entrepreneurialism, policies that support innovation will also contribute to their growth. Because SMEs employ the vast majority of people in APEC economies, policies that are favorable to their health and growth have a broad socio-economic impact.
Fauziah Talib (FT): One only need to look at the way business is done in the 21st century to realize that all these areas need to be effectively addressed to successfully meet the needs of businesses, especially the needs of SMEs.
Competitive advantage, as a result of globalization, the rapid adoption of information and communication technologies, and the development of multilateral and international rules, have opened up the door for a very sophisticated global trading environment, where the movement of goods and services involves modern processes that are increasingly fragmented and complex. These challenges have impacts on productivity and cost.
Rules of origin, varying labelling standards across the APEC market, varying goods and services standards, different customs forms and, for some, arbitrary interpretation of customs procedures, all make for a challenging course – one that is full of hurdles – for businesses.
Integrated and seamless logistics would help tremendously to improve the conditions of doing business in the APEC region.
It is hard enough for large well-resourced multinationals to successfully export through these barriers across economies. But for SMEs who do not have the time and resources, it is just a complete nightmare to navigate through what would seem more like walls of resistance, where the risks and costs associated with exporting to new markets is just not worth the effort.
AB: In particular, how will facilitating global supply chains impact business?
YY: Better supply chains reduce costs both directly and indirectly. If goods are stuck in customs or on a congested road, someone is losing money. Likewise, if there are potential providers of goods or services that a company does not know about, they may be forced to choose a less attractive supplier. In the latter case, better market information can increase competition, thereby lowering costs. Making sure that both goods and information flow freely is important to business.
FT: Facilitating global supply chains would help improve the conditions of doing business within the APEC region, making it technically possible for more businesses to participate in global trade.
It will help ensure that global businesses are able to productively meet customer demands, allowing the trade of goods and services to be efficiently moved from point A to the end user – from supplier to customer, ensuring integrated efforts of organizations, people, technology, activities, information and resources involved in meeting business demands to serve their customers.
This would be a major breakthrough specifically for SMEs, who would be able to take advantage of opportunities in the support industries, made especially possible in global production chains.
AB: What steps need to be taken to better enhance the participation of APEC’s small businesses in global production chains?
YY: SMEs sometimes lack the expertise and financial resources to take advantage of potential opportunities because the associated cost of doing business can be too high. Big companies, in short, get volume discounts. So, for example, a bank will charge proportionally more for a smaller loan, and a lawyer will not charge less because it involves a smaller company or transaction amount. In addition, we are living in an increasingly complex and interconnected economic environment that is awash with data, and it can be hard for SMEs to obtain reliable information about markets and business partners. Governments can help by facilitating information sharing. And whatever can be done to make trade-related regulations more transparent and accessible can also help to level the playing field.
FT: First and foremost, providing access to finance to support the creation and growth of small businesses is critical in ensuring their sustainable growth, as this will in turn provide a better footing for stronger participation in global production chains.
There is a need for enabling frameworks, especially for start-ups, that make available alternative financing such as venture capital and micro-finance solutions. There are also considerable benefits from closer public-private sector partnerships in seeding the formation of innovation-based micro-enterprises through co-investment approaches such as matching government grants or initial funding schemes.
Small businesses also lack the resources and knowledge necessary to proactively seek business opportunities in foreign markets where developing resources to assist them would further encourage participation in global production chains. Hence, creating market knowledge centers, encouraging the participation of domestic small businesses in multinational supply chains, promoting better use of online technology and improving ICT infrastructure would help.
Furthermore, small businesses need to be taken into consideration when setting trade liberalization policies and agreements, especially in the context of next generation agreements.
Leveraging on technology advancement provides greater competitive advantage for small businesses. In this case, e-commerce is a powerful enabler for taking small businesses global as it provides small businesses with a virtual global storefront. And important to continued growth of the use of online tools are policies and regulatory frameworks that promote the use of e-commerce. Policy environments and support mechanisms that are already contained in the APEC Digital Prosperity Checklist need to be established to enable small businesses to further harness the benefits of ICT.
There is also the need for a transparent and open business environment, efforts to develop and adopt voluntary codes of ethics, and a need to address the inability of small businesses to protect intellection property rights (IPR).
AB: How will promoting effective, non-discriminatory and market-drive innovation policy help businesses in the APEC region?
YY: Governments first have to recognize that policies that support SMEs will lead to economic growth. All companies, including those that are now huge multinationals, had modest beginnings. After these companies grow large and occupy significant market share, the barriers to entry for SMEs can be formidable. Governments should not allow larger companies to use their superior resources to compete unfairly with SMEs. Intellectual property protection goes hand-in-hand with innovation. Governments can help SMEs to develop and protect IP rights by maintaining a regulatory scheme that is transparent, efficient, and inexpensive.
FT: In times of increasing global competition businesses will be pushed to introduce new products and services, new processes or go about their business in a new way. The goal would be to take an idea from concept to commercialization and improve business performance. This is where an environment that promotes innovation is critical to business.
The pace of innovation around the world is increasing and businesses will fare better when positioning themselves to take advantage of its benefits, most especially when there is an environment that supports innovative growth.
However, innovation cannot exist without the ability to protect and enforce Intellectual Property Rights (IPR) and this is where policies on IPR need to be addressed.
AB: In your view, what are the challenges to addressing these ‘next generation’ trade and investment issues? And what needs to be done to overcome them?
YY: Helping SMEs will take change, and change can be difficult because maintaining the status quo is the most comfortable option. So we have to work harder to teach lawmakers and bureaucrats about the broader benefits of creating a positive environment for SMEs. Because SMEs are often new companies with limited resources, they are at a disadvantage when trying to articulate their concerns. But SMEs are a driver of growth in all APEC economies---realizing this and implementing policies that address their concerns will result in rewards that go beyond individual companies.
FT: The first challenge would be in taking the mindsets of stakeholders involved in translating the value of “next generation” trade and investment into supporting policies, and accelerating them from the 20th century traditional type of business, toward the modern way of doing business in the globalized environment of the 21st century. This would require better understanding of the type of challenges businesses encounter, taking the abstract view of challenges and further translating into practical terms what the impacted industry sector encounters in terms of business cost and contribution to development of the economy.he second would be the ability to meet the needs of businesses from both industrialized and developing economies where one would have to address the common areas of interest and prioritize the issues to ensure that the benefits are enjoyed by all – most especially the needs of SMEs, micro-enterprises, women in business and young entrepreneurs.
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APEC continues to bring the region’s economies together to find solutions for SMEs to meet the challenges that could hinder the free flow of goods and services and to support innovation especially among small businesses. In September, these ‘next generation’ trade and investment issues will once again be at the forefront of the agenda when APEC officials meet in San Francisco, California to deliberate on the competitiveness of the region.