SMEs - A Tool for Development

Hangzhou, People's Republic of China, 02 August 2008
  • Speech by Ambassador Juan Carlos Capuñay, Executive Director, APEC Secretariat
I would like to begin by expressing my pleasure that this sort of Summit can take place. APEC's Leaders can only make informed decisions if they are aware of the actual experiences of the economic sector and people most directly affected. Your participation is a great service to APEC and, in turn, to the Leaders they will advise this November in Peru. I would also like to thank ABAC for allowing me this opportunity.
This year, APEC has taken a less conventional approach to trade liberalization and facilitation. We believe that it is impossible to accurately assess anything without considering all of its dimensions. Often, economic issues are seen to be flat - objective, indisputable: numbers always tell the truth. But numbers can also be misleading. In an increasingly globalized world, the variables are many and sometimes the numbers just don't add up.
Today our world is in a period of fluctuation; escalating food prices continue to affect those from the developing economies; the consequences of climate change can be seen everywhere and dramatic increases in energy prices impinge on businesses the world over with SMEs perhaps experiencing the most adverse effects. After no less than seven years, the inability of developed and developing nations to identify common ground has brought WTO negotiations to an indefinite impasse. The need for an international body, dedicated to the promulgation of free trade has never been so compelling. It is in this context that I would like to talk about SMEs and APEC.
In the APEC region, small and medium enterprises account for over 80 percent of all businesses and employ as much as 60 percent of the work force. SMEs are of critical importance to APEC: employment opportunities lead to community stability. The freedom of small businesses stimulates innovation and competition. And their flexibility allows them to quickly accommodate market demands.
Moreover, stable, confident communities facilitate the flow of capital and contribute to a healthy macro-economic environment. In fact, encouraging the entry of smaller players into the global market is a precursor to long-term sustainable development.
Nonetheless, SMEs presently account for only 30 - 35 percent of exports. Despite the large number of small businesses in the region, many SMEs feel that their participation in the global economy is undermined by a number of internal and external factors. The fact is incongruous; the numbers don't add up.
The ability to engage in the international arena is both important and urgent. If SMEs are not able to compete, they will not reap the benefits of globalization. This would not only be damaging to those SMEs but to the economies to which they contribute. After all globalization is a two-way road.
If we are to approach this challenge optimistically, we will see the enormous potential for economies to increase foreign revenue sources. For example, intra-APEC trade has doubled since 1994 to reach US$ 3 trillion. Imagine, then, the potential impact, were SMEs encouraged to contribute and to extend the reaches of their business beyond their domestic markets.
The ability of SMEs to enter into the international marketplace is largely shaped by good governance and good policy. To this end, focused initiatives aimed at making it easier to do business in the APEC region began in 2003 and have consistently developed as needs and opportunities have been revealed to Ministers.
In 2008, APEC Peru has emphasized the need to address the social dimensions of APEC's agenda. Specifically, it is argued that by addressing challenges and opportunities at community levels, smaller players are enabled to participate more fully and to better reap the benefits of globalization. In fact, as one considers the impediments to SMEs, many are actually social - and not economic - factors.
The ability to communicate in a common language, to operate freely and with ease, to access technology and to use it skilfully are among the most important factors affecting the propensity of SMEs to succeed.
In 1990, an average of only 0.6 percent of those living in APEC member economies were cellular subscribers and only 0.08 percent used the internet. Ten years later, in 2000, Leaders met in Brunei and marked a progression in their commitment, aspiring to a policy framework that would enable the people of urban, provincial and rural communities in every economy to have access to channels for Internet trade. And by 2005 cellular phone subscribers were at over 85 percent and internet use over 44 percent in most of APEC's developed economies.
However, while connectivity has increased ease and opportunity in the business and lifestyles of some, the converse has been true for others. In effect, many in developing economies are excluded from the global marketplace.
In March of this year, recognizing their notable progress to date, APEC Telecommunication Ministers met in Bangkok and set before themselves an additional challenge and declared their ambition to achieve universal access to broadband by 2015.
This will also have a transformative effect on the landscape in which we operate. Still, the benefits of technology can only authentically be realized if they are paired with education and this is another social aspect, particularly relevant to SMEs.
While technology should serve to expand the reaches of business and increase interaction, it can also further alienate those who lack practical skills in information and communication technology. To bridge this gap in the most practical way, access must be matched with ability. Data processing is an unparalleled medium for entry into the global arena and the US pilot project "Freedom Digital Initiative" has been of great benefit to the small and micro enterprises of Peru.
APEC Digital Opportunity e-Commerce centers, another APEC initiative, have provided information and communication technology- related training for small and medium size businesses. Member economies including Chile, Indonesia, Papua New Guinea, Peru, Philippines, Thailand and Viet Nam are being enabled to take full advantage of the business opportunities afforded by the internet.
In a knowledge-based economy, comparative advantage has come to mean competitive advantage. To young entrepreneurs of a global world, skills are the common currency and innovation an asset.
The rules are changing. Economic prosperity is a collective phenomenon. In a globalised world, no longer can a single economy be sustained independently. In fact the advancement of SMEs can be further promoted by including them in the new generation of Free Trade Agreements.
The economy is developed through private initiatives. But it is up to governments to ensure stability and a climate in which enterprises of all sizes are able to thrive. This could include the development of business-cooperation models such as extending regional industrial fragmentation or perhaps by spotting potential niches in which SMEs can cooperate with each other. Or it could mean developing a policy on regional alliances as a way to smooth transitions for business between countries. Indeed increased interaction amongst businesses can lead to fruitful common business goals.
The ability to make sound policy benefits people at all levels. In shaping a business-friendly atmosphere we can create an environment in which competition soars, profits increase, business is ripe and lives are made richer.
I would like to wrap up by saying that SMEs are an integral part of the business environment of the Asia Pacific - they are the tool for the future economic development of the region. It is people such as you, SME owners, who will make the greatest contribution to the wellbeing of our region, and I encourage you to continue to meet and cooperate with like-minded people so as to ensure the continued growth of our economies.