trade policy brief
Small and medium enterprises and trade
January 2019
Although SMEs are significant contributors to economic activity and employment, their participation in international trade, and therefore their ability to benefit from globalisation, remains limited. However, participation in GVCs and digital trade can provide new opportunities for SMEs to benefit from internationalisation. rade facilitation reforms not only lead to more exports and imports for firms of all sizes, they T also contribute to levelling the playing field between large and small firms.
What's the issue? Small and medium-sized enterprises (SMEs) make up the majority of companies and employ the bulk of the domestic workforce, but their contribution to GDP and exports in relative terms is much smaller. The shortfall is associated with lower productivity arising from their small-size and limited experience reducing access to scale, international markets, finance for new investment, information, skills and technology. However, recent changes in the global trading landscape, such as the rise in global value chains (GVCs) and the digital transformation, offer new channels for addressing some of these constraints and provide new opportunities for SMEs to integrate into the global economy. Now more than ever, creating a supportive domestic and international operating environment can help SMEs overcome remaining participation constraints so that the benefits of globalisation are shared more widely.
SMEs can benefit from further integration into GVCs There are two broad ways in which SMEs can engage and benefit from GVCs. On the output side, SMEs no longer having to master entire production processes to deliver a finished good, can slot into segments of GVCs by selling intermediate goods. This can happen directly through exports, or indirectly through domestic sales to other firms that export (indirect exporting). On the input side, SMEs can increase their economic performance through a better use of foreign inputs, technology or knowhow.
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Recent and ongoing OECD work combining firm level data with the Trade in Value Added (TiVA) database offers new insights into how firms of different sizes engage in GVCs. It highlights that: •
SMEs tend to use less foreign value added than larger firms when exporting – suggesting that SMEs might face constraints limiting their ability to source competitively priced intermediates from abroad, affecting their competitiveness.
•
SMEs are more specialised than larger firms in directly exporting intermediates traded in global value chains – suggesting that GVCs may provide new opportunities for developing the economic activity of SMEs.
•
An important pathway for SME internationalisation is indirect exports – SMEs rely on larger national or multinational firms to engage in GVCs (see figure).
SMEs can also leverage the digital transformation to increase international exposure Digitalisation enables SMEs to reach larger numbers of digitally-connected customers across the globe, and facilitates outsourcing of non-core activities: this enables easier scaling of production. For example, digital inputs like cloud computing services can help SMEs access IT services with little upfront investment and scale up (or down) IT functions in response to changes in demand.
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Small and medium enterprises and trade
Direct and indirect exporting activity of SMEs in selected OECD countries, 2014 SMEs' share in gross exports
SMEs' share in value added exports
70% 60% 50% 40% 30% 20% 10% 0%
AUT
BEL
CZE
DEU
DNK
ESP
FIN
FRA
GBR
HUN
ITA
MEX
NLD
POL
PRT
ROU
SVK
SVN
SWE
TUR
USA
Source : Miao and Fortanier (2018)
Better and faster access to critical knowledge and information can also help smaller firms overcome informational disadvantages, notably with respect to larger firms, and compete on a more even footing. By helping firms better connect, the Internet and data flows allow firms to improve their product offering.
Trade facilitation can help reduce costs of trading for SMEs Across both developed and developing countries, improvements in the trade facilitation environment increases the ability of SMEs to handle the fixed costs associated with crossing the border, helping them export and import. At the same time, trade facilitation also helps reduce variable costs, increasing the value of imports and exports, as well as supporting timely delivery to consumers. Moreover, recent OECD work shows that trade facilitation reforms benefit SMEs more than they benefit large firms, meaning that improvements in the trade facilitation environment not only lead to efficiency gains for firms of all sizes, but also that they can help level the playing field between large and small firms.
www.oecd.org/trade
tad.contact@oecd.org
Further reading • OECD/The World Bank (2017), Inclusive Global Value Chains: Policy Options in Trade and Complementary Areas for GVC Integration by Small and Medium Enterprises and Low-Income Developing Countries, The World Bank, Washington, D.C., https://doi.org/10.1787/9789264249677-en • Lopez-Gonzalez, J. (2017), “Mapping the Participation of ASEAN Small- and Mediumsized Enterprises in Global Value Chains”, OECD Trade Policy Papers, No. 203, OECD Publishing, Paris, http://dx.doi.org/10.1787/2dc1751e-en • OECD (2017), Small, Medium, Strong. Trends in SME Performance and Business Conditions, OECD Publishing, Paris, http://dx.doi. org/10.1787/9789264275683-en • Lopez-Gonzalez, J. and Sorescu, S., (forthcoming) “Helping SMEs internationalise through trade facilitation”, OECD Trade Policy Papers • Miao, G. and Fortanier, F. (2018) “Accounting for firm heterogeneity in global value chains: The role of Small and Medium sized Enterprises”, STD/CSSP/WPTGS(2018)5, Room document for Working Party on International Trade in Goods and Trade in Services Statistics. https://oe.cd/ heterogeneity-gvc
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