In the second of our articles delving into the recent Social Market Foundation (SMF) report on SMEs and export opportunities created by e-commerce, we look at how emerging markets could spur significant growth.
In Small Business, big world: Ways to boost UK small business exports, written with the support of the Chartered Institute of Export & International Trade and the E-Commerce Trade Commission (E-CTC), the authors found that emerging markets could be a great source of untapped potential for SMEs if barriers to accessing them can be removed.
The report spoke to 525 SMEs, some already exporting and some interested in doing so (“considerers”), as well as using the expert testimony, two focus groups and three expert working groups convened by the E-CTC.
Emerging markets
SMF identifies emerging markets – defined as low- and middle-income economies – as providing significant growth opportunities for exporters.
The report states that “developing countries have been growing at around three percentage points more per year on average, than developed countries.
“Imports into low and middle-income countries have grown similarly substantially”.
The report also notes that UK businesses are not currently taking advantage of the opportunities presented to them. It cites Department for Business and Trade data that shows India and China to be the only “emerging market” economies in the top 20 UK export destinations.
Barriers
The report suggests that the reason for low exports to these nations it that traders are encountering considerable barriers to accessing low- and middle-income markets. These barriers were higher than those facing traders who sold to higher-income nations.
The Emerging Markets Working Group highlighted particular challenges experiences by SME’s attempting to sell to China, India and South Africa. These included “external obstacles such as customs, demand conditions, regulatory complexity and risks associated with the transportation of products to customers in emerging markets, as well as payment reliability and the existence and strength of relationships with in-country partners”.
Given these challenges, and the greater time and effort required to overcome them, “resource constraints” were also noted as an internal factor holding SMEs back from exporting to emerging markets.
The report’s authors say:
“The scale of the opportunity associated with emerging markets for SMEs will be in large part, determined by how much the challenges facing SMEs, such as the cost of exporting to developing economies, can be alleviated.”
Recommendations
Building relationships with partners and agents in target countries was the report’s main recommendation for mitigating some of the barriers.
It also centred e-commerce solutions within this recommendation, adding that e-commerce platforms can be used to enable traders to build these kinds of cross-border connections.
Trade tech was also highlighted as a possible solution, offering cost-saving measures at the border, especially regarding “the digitisation of the export paperwork”.
Single Trade Windows (STW) – wherein only one online portal is required for traders to submit and monitor all customs documentation – are all positive steps forward. The report noted that “developing states such as Columbia, Indonesia and Vietnam had already made considerable investments in STW systems.”
Market appeal
The report suggests that, barriers aside, there is interest among all firms in exploring emerging markets.
Existing trade deals were cited by firms already exporting (27%) as a key factor in making emerging markets more attractive, in addition to demand for their products (33%).
This sentiment was echoed by those already exporting to developed nations, for whom prospect of untapped customers (25%) and existing demand for their products (25%) was the biggest draw of emerging markets.
Similarly, 28% of considered who weren’t yet exporting said that “untapped demand” proved the most attractive feature.