SMEs - A Trans-Pacific Bridge for Sustainable Development

Chiclayo, Peru, 24 August 2008
  • Speech by Ambassador Juan Carlos Capuñay, Executive Director, APEC Secretariat
Mr. Rafael Rey, Minister of Production and Development for Peru, Distinguished Ministers, and Delegates, it is with great pleasure that I join you today. Your contribution to APEC's achievement of its objectives is invaluable. This is particularly true within the context of rapid globalization.
Since the last SME Ministerial Meeting in Hobart, Australia last year, APEC has endeavoured to improve the regional business climate, removing behind the border barriers that have been prohibitive to many businesses wishing to compete in the international marketplace. In addition, measures have been taken to promote transparency and to protect intellectual property rights as a way to encourage participation and to ensure that the playing field is effectively equal. The multilateral trading system has been a priority and, while APEC continues to support the WTO process, the suspension of negotiations will be an impetus to accelerate movement toward a Free Trade Area of the Asia-Pacific (FTAAP).
Under the leadership of Peru 2008, 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.
The 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. For APEC, this is disappointing, but it is not discouraging. The need for an international body, dedicated to the promulgation of free trade has never been so compelling. Indeed, this is our raison d'etre.
In the APEC region, small and medium enterprises account for over 90 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. 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 capacity 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.
On the other hand, one might consider 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 facility 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 2006, a symposium hosted in conjunction by New Zealand and Canada lead to the establishment of a multi-year Private Sector Development plan to improve the business environment in APEC economies. According to the experiences exchanged within the group, the greatest impediments to small and medium sized enterprises are regulatory burdens - a lack of transparencies and the complexity of labor laws and taxation. The next topic in the series of seminars will be Tax Administration and Business Licensing.
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.
Being able 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.
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. Globalization brings with it opportunities as well as challenges
APEC Digital Opportunity e-Commerce (ADOC) centers, another APEC initiative, as well as the Digital Freedom Initiative of the US have provided information and communication technology-related training for small and medium size businesses. 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.
Earlier this year, APEC Education Ministers acknowledged the fact that, in newly globalized economies, what matters most is the ability of students to communicate across cultures, through technology and the acquisition of foreign languages. This would be fundamental not only to their ability to cope in ever more diverse social environments but to adapt to and flourish within a changing business environment.
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, or by giving them preferential treatment when placing bids on relevant international tenders.
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. It is often argued that globalization benefits large businesses but remains elusive to small and medium sized enterprises, which cannot cope with the amount of time and money needed to conduct international trade.
To this end, structural reform has been a priority to APEC and business regulations are already becoming less costly and time-consuming. Ultimately, all procedures will be carried out through a "single window" so that legalities can be a convenience, rather than an impediment. Similarly, anti-corruption and the protection of intellectual property reduce the risk of market expansion. International trade is getting easier.
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.
In closing, success for SMEs in the 21st Century will be determined by their aptitude to be creative, and innovative. Successful SMEs will have a holistic view of the market and will focus on expanding beyond their domestic borders.