SMEs contribute the most to the global economy yet are the most underrepresented in international trade. They account for 70% of employment, 50% of global GDP, and 90% of businesses.
According to World Trade Report, while large enterprises account for 66% of exports, SMEs account for only 38%. And the trend is the same for imports.
For instance, in the United States, large importers account for 67.9% of import value, while SMEs contribute only 32.1%. These numbers reveal SMEs’ limited participation, yet so much contribution to the global economy.
Considering SMEs’ contribution, how much more could the global economy gain by boosting their participation in international trade to even 50%?
One of the leading contributors to SMEs’ hesitation to engage in international trade is limited financial and human resources. Also, others are unsure how profitable importing or exporting to global markets is.
However, some SMEs have yet to identify the available opportunities in the global market. Others, even knowing the opportunities, are unsure how to navigate international trade barriers such as compliance.
So, how can SMEs make the most from international trade?
This article discusses SMEs’ challenges and opportunities in the global market. You will learn how an importer of record can help navigate the challenges and make the most from international trade.
SME expansion opportunities in the global market
The global market presents millions of opportunities for SMEs to tap into and diversify their income streams.
Here are the three most significant opportunities that SMEs should invest in:
1. The rise of global value chains (GVC)
Global value chains refer to the international division of economic activities through multinational corporations (MNCs) production networks.
It entails breaking down the production process of goods and services into various stages that can be spread across different countries.
Each stage in the global value chain is executed in the country with the most efficient and cost-effective resources, such as raw materials, technology, and labour.
Here are the various opportunities for SMEs to venture into the global market courtesy of GVCs:
SMEs can focus on specific stages of the production process where they have a competitive advantage. For instance, an Asian SME can specialise in fabric production while another European SME imports the fabric to design and brand it.
Export intermediate goods to firms or individuals overseas
Rather than producing a final product, SMEs can contribute specific parts of the production process to be integrated into the final product.
For instance, an electronics SME in Taiwan can produce specialised microchips imported into China for integration into a smartphone.
Supplying domestic firms with products for exports
SMEs can act as suppliers to local enterprise firms engaging in international trade. By supplying goods and services to large firms, they indirectly engage in international trade as their goods become part of the GVCs.
For instance, a textile company in India can supply high-quality fabric to a garment manufacturer who, in turn, exports the finished product (clothing) to the global market.
Access to competitively priced imports
SMEs can leverage GVCs to import competitively priced raw materials, intermediate goods, or components from international suppliers. This can reduce product costs and improve the quality of final products.
For instance, a furniture manufacturer in Italy can import high-quality wood from Southeast Asia at competitive prices.
Acquiring technology knowhow from firms they supply
SMEs engaged in GVCs can access and adopt advanced technologies and best practices from large enterprises collaborating with them.
2. Digital trade (ecommerce)
Digital trade, also known as ecommerce, refers to exchanging goods, services, and information via the Internet. It involves online transactions, digital payments, and electronic data interchange.
Ecommerce has become a significant driver of success in the global market in diverse ways.
Here are the five ways SMEs can use digital trade to drive global sales:
SMEs can tap into the global market through digital marketing strategies such as Search engine optimisation (SEO) and social media.
For instance, an artisan crafting homemade products can showcase their skills and talent via online platforms such as Etsy and eBay.
Reduced product entry barriers to global markets
SMEs can quickly set up an ecommerce store to showcase their products and services to the global market.
Setting up an online store is less expensive than setting up a physical shop abroad. Even better, businesses can establish where the target market is via the online store since analytics tools can help understand consumer behaviour and insights.
Streamlined cross-border transactions
Digital payments such as PayPal and blockchain technology solutions have reduced the complexity of cross-border transactions.
SMEs can settle payments online and track cross-border transactions for transparency throughout the supply chain.
Customs compliance facilitation
SMEs can conduct due diligence for potential importers online. They can even integrate tools such as compliance software to ensure compliance with international trade regulations.
Collaborative platforms and networks
Online marketplaces like Facebook Marketplace and B2B platforms like Amazon Business and Thomasnet connect potential customers, suppliers and partners worldwide.
3. Globalisation
Globalization refers to the interconnectedness and interdependence of economies, cultures, and societies. It entails the flow of goods, services, capital, information, and ideas across national borders.
The world has become a global village where businesses and potential customers connect and partner regardless of the distance between them.
Even foreigners can sponsor significant projects beyond their borders if they contribute to the global economy. Hence, SMEs should use technology and showcase their products and services worldwide.
Also, SMEs can identify gaps in the global supply chain that their businesses can bridge and seek partnership opportunities. They can even seek government financial intervention once they identify potential opportunities in the global market.
Challenges facing SMEs’ engagement in international trade
Undoubtedly, GVCs, ecommerce and globalisation are open opportunities for SMEs to participate in international trade. However, various challenges still prevent SMEs from exploiting their potential in the global market.
Here are the challenges facing SMEs’ engagement in the global market:
Costly and burdensome border procedures
Customs procedures are among the most significant barriers to cross-border trade for SMEs.
In developed countries, customs are designed to enforce the law and protect national economies. That’s contrary to developing countries, where duties and taxes are designed to provide a source of revenue for the national budget.
As such, some SMEs in developing countries encounter costly cross-border charges, which may blur their profit margins. Even the developed countries protecting their economies may discourage importation to support local production.
Lack of information about the import requirements in foreign countries
Each country has regulations, tariffs, and standards that businesses must comply with for a successful importation. New SMEs may struggle to identify these regulations, making it difficult to enter the global market.
Diverse legal rules and regulations
The diversity of legal rules and regulations across countries poses a significant challenge for SMEs. Navigating the complex legal frameworks, compliance requirements, and trade agreements can be daunting for businesses with limited legal resources.
For instance, think of a tech startup looking to export IT equipment to multiple countries, each with its own data protection and privacy laws. Identifying the varied regulations to ensure compliance can be time-consuming and costly.
Limited knowledge of how international markets work
Cultural differences, consumer preferences and market trends keep changing. As such, businesses engaging in international trends must stay ahead of these changes by adopting tools that offer insights for informed decisions.
Some SMEs may lack the financial capacity to adopt and manage such tools.
Logistics management issues
Logistics challenges, including transportation, warehousing, and distribution, can hinder SMEs’ participation in international trade. This is because coordinating the movement of goods across borders requires a high level of expertise—from safe packaging to safe transportation.
How IOR services can help SMEs in the global market
A study on the impact of customs procedures on business performance education and expert guidance as the key contributors to a high turnover growth in cross-border trade. And one of the significant experts in international trade is the importer of record.
Here are ways importers of record (IOR) can help SMEs make the most out of the global market:
Reducing compliance costs
IORs identify tariff and non-tariff rules in the destination country to ensure compliance and avoid penalties and seizure of goods at the border. They also ensure the accurate classification of products for accurate valuation and payment of duties and taxes.
IORs also leverage free trade agreements, eliminating product entry barriers and cutting unnecessary costs.
Promoting digital connectivity
Established IORs have invested in high-end technologies to centralise the import supply chain management. These technologies help ensure the visibility of goods from source to destination.
The technologies also optimise routes, ensuring goods move from door to door within the shortest time possible and in good condition.
With the technologies, they bridge the digital divide as SMEs can access these services without necessarily acquiring the tools.
Streamlining logistics management
Importers of record partner with specialised logistics providers to offer global freight forwarding and forward stocking services. As such, they ensure products move safely from source to destination, avoiding damage and delayed deliveries.
Hence, SMEs can focus on producing and marketing their products and services and leave the global order fulfilment to IORs.
Mitigating non-compliance risks
IORs leverage their expertise and experience to ensure customs requirements are met. Even when regulations change abruptly, IORs are at the forefront of updating their databases and ensuring your products comply with new regulations.
Promoting transparency and trust in cross-border transactions
With IOR services, there are no hidden costs, no overestimation, nor underestimation. This is because IORs account for every penny in the supply chain management.
You are updated with the status of your goods and when they are expected to be delivered in real time. Additionally, you can track all the costs incurred and trace them back, ensuring transparency and trust throughout the import transactions.
Over to you
Are you an SME looking to import to a new destination? What is your challenge? What is stopping you from extending your profit margins? We are your global logistics partner, always happy to help make the most in the global market.
Hence, if you are looking to venture into cross-border trade or are already at it yet unable to reap the most, we are only a message away. Let’s discuss how you can drive massive global sales with our IOR services.
