Making it easier and cheaper to move goods across borders benefits businesses of all sizes but is particularly helpful to small and medium-sized enterprises (SMEs).
That’s because SMEs are disproportionately affected by burdensome and costly border procedures. Trading costs represent a higher share of the value of their exports[1]. For example, compliance costs are greater relative to the profits of small companies than large companies – in fact, proportionate compliance costs can be 10-30 times greater for SMEs than for large businesses[2]. SMEs also tend to have fewer financial and human resources to deal with bureaucracy and cannot as easily absorb the additional time and cost involved.
Trade costs in many developing countries are not only high, but they can also be unpredictable. Since profit margins for SMEs are narrower, that unpredictability makes trade riskier for SMEs and can deter them from trying to participate in global value chains. Research suggests that despite accounting for 90% of all businesses worldwide, up to 33% of GDP in developing economies[3] and 51% of employment in low-income countries[4], their participation in cross-border trade remains limited. SMEs are responsible for an average of only 18% of exports in developing countries[5].
Trade facilitation can reduce the cost and unpredictability of trade and increase opportunities for SMEs. Making it easier, faster and more cost-effective to move goods across the border increases the probability that SMEs will become exporters. Research suggests that trade facilitation reforms could trigger a 60-80% increase in cross-border SME sales.[6] What is more, if simpler border processes mean large companies begin to export more, the SMEs in their supply chains could benefit too.
Why it matters
Research shows that SMEs that export grow faster, employ more people, and even offer higher wages[7]. Furthermore, reducing compliance costs for SMEs by 25% could increase global growth by 1%[8]. Unleashing the export potential of SMEs in developing countries through trade facilitation can thus offer a pathway to economic growth and development. Since the majority of women-owned businesses are SMEs, supporting SMEs can also help to support women’s economic empowerment.
At the Alliance, we believe that a thriving SME sector is central to social and economic development. Our trade facilitation projects introduce reforms which make it easier for SMEs to trade, sparking competitiveness, productivity, innovation and growth. Since SMEs tend to be under-represented in public-private dialogue and are often affected by issues which larger companies may not prioritise, we include them in our public-private dialogues and count on their participation in our projects. Our goal is to ensure that the trade facilitation reforms we implement are inclusive and even the playing field.
[1] OECD, 2018, Fostering greater SME participation in a globally integrated economy.
[2] ITC and WTO, 2014, SME Competitiveness and Aid for Trade: Connecting Developing Country SMEs to Global Value Chains.
[3] ITC and WTO, 2014, SME Competitiveness and Aid for Trade: Connecting Developing Country SMEs to Global Value Chains.
[4] ITC and WTO, 2014, SME Competitiveness and Aid for Trade: Connecting Developing Country SMEs to Global Value Chains.
[5] OECD, 2019, Helping SMEs internationalise through trade facilitation.
[6] World Economic Forum, 2013, Enabling Trade Index 2013: Case Examples
[7] Export Council of Australia, 2018, Increasing SME participation in international trade
[8] ITC and WTO, 2014, SME Competitiveness and Aid for Trade: Connecting Developing Country SMEs to Global Value Chains.