Reduced trade barriers, improved transportation links, information technology and the emergence of global value chains give small and medium-sized enterprises (SMEs) the potential to become successful global traders, according to the WTO’s flagship report launched on 27 September 2016 at the WTO Public Forum.

Director-General Roberto Azevêdo delivered the opening remarks at the book launch. He said: “SMEs are responsible for the largest share of employment opportunities in most economies – over 90% in some countries. And they are big employers of women and young people. In developing countries, for example, one in three SMEs is owned by women. By enhancing SMEs’ opportunities in the global economy, we can help improve the lives of many individuals and communities. If we are to ensure that the global trading system is truly inclusive for SMEs, we must look at the challenges that they face to join trading flows and look at how we can tackle them.” His full speech can be found here.

Today’s increasingly interconnected global economy is transforming what is traded and who is trading, says the Report. Participation in international trade, once exclusive, can progressively become more inclusive.

The Report looks at how the international trade landscape is changing for SMEs, where new opportunities are opening up and old challenges remain, and what the multilateral trading system does and can do to encourage more widespread and inclusive SME participation in global markets.

The Report finds that small businesses continue to face disproportionate barriers to trade and highlights the scope for coherent national and international policy actions that would enhance the ability of SMEs to participate in world markets more effectively. It underlines that participation in trade has an important role to play in helping SMEs become more productive and grow. For open trade and global integration to fully benefit everyone, it is crucial to ensure that all firms – not just large corporations – can succeed in today’s global marketplace.

The World Trade Report is the WTO’s flagship annual publication. It aims to deepen understanding about trends in trade, trade policy issues and the multilateral trading system.

The Report was launched at a plenary session of the Forum attended by Liam Fox, the United Kingdom’s Secretary of State for International Trade, Robert B. Koopman, Chief Economist of the WTO, and Hildegunn Nordas, Senior Trade Policy Analyst at the OECD. The panellists discussed the findings of the Report and how SMEs can participate more actively in world trade.

Liam Fox said: “The World Trade Report on more inclusive trade is important and timely. It rightly focusses on the currently unfulfilled potential of SMEs in the global market place. SMEs are the lifeblood of any economy.”

He added: “We must resist calls for protectionism and isolationism. These voices seductively promise protection and security from outside forces, but ultimately result in greater instability and economic insecurity, with often the poorest in society bearing the brunt. Either we shape the forces of globalisation or they shape us”. His full speech is available here.

Robert B. Koopman said: “The World Trade Report helps us to have a better understanding of how SMEs’ role in trade and economic activity is contributing to both trade and domestic production and how this landscape may be changing.”

Hildegunn Nordas said: “We have at the moment a fragmented picture about SMEs in world trade and the World Trade Report brings it all together. It also adds an insight of its own which is highly appreciated. It will be a source of information for a long time to come for both policy makers, researchers and other interested parties.”

The panel also included Kati Suominen, Founder and CEO of the Nextrade Group and Founder and Chairwoman of TradeUp Capital Fund, Miguel Angel Aldrete Pelayo, Manager of Chicza Rainforest, and Sherill Quintana, Owner and Founding President of Oryspa, who brought the perspective of SMEs into the debate.

They shared their personal experiences of starting SMEs in their own countries and the difficulties they faced along the way. They spoke about attempts at including indigenous communities and women in global trade. They also touched upon the role of the WTO in bringing different stakeholders to the table, such as financial institutions, donors, governments and SMEs.

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Introduction

Today’s increasingly interconnected global economy is transforming not only what is traded and how it is traded, but also who is trading. Large companies continue to dominate international trade, because they have the critical mass, organizational reach and relevant technologies necessary to access and supply foreign markets. But thanks to the Internet, the emergence of new business platforms, and the increasing openness of the global economy, many small and medium-sized enterprises (SMEs) now have the potential to become successful and important global traders as well.

The World Trade Report 2016 examines the participation of SMEs in international trade. In particular, it looks at how the international trade landscape is changing for SMEs, where new opportunities are opening up and old challenges remain, and what the multilateral trading system does to ensure inclusive participation of firms in global markets.

Some key facts and findings

• In every country’s population of firms, most are small. Small and medium-sized enterprises – SMEs (excluding micro enterprises, non-employers and informal firms) – account for 93 per cent of enterprises in non-high income, non-OECD countries. Micro firms and SMEs account for over 95 per cent of all enterprises in OECD countries.

• Micro firms constitute the bulk of MSMEs in all countries. On average, 83 per cent of the more than 12 million firms covered by the IFC’s MSME Country Indicators are micro firms. Information for five developing countries indicates that, among informal firms, the overwhelming majority (between 80 and 95 per cent) are micro firms.

• Most MSMEs (85 per cent of micro firms and 72 per cent of SMEs) operate in the services sector, and in particular in wholesale and retail trade.

• MSMEs account for around two-thirds of total employment in developing and developed countries alike. Their contribution to GDP is lower, at around 35 per cent in developing countries and around 50 per cent in developed countries; SMEs are 70 per cent less productive than large firms.

The world economy is changing rapidly – for companies, as well as for the goods and services they produce. In the nineteenth and twentieth centuries, scale was often critical to success in international trade. Firms needed to be big in order to create integrated production systems, build global distribution networks, and cover the relatively high transport, communications and border costs associated with international trade. But as the world economy enters the twenty-first century, a number of important changes are diminishing the advantages of scale in international trade, with the result that smaller, nimbler “micro-multinationals” are also beginning to succeed in a global marketplace once overwhelmingly dominated by big multinationals.

One important change is the dramatic lowering of trade costs. Traditionally, trade was often a costly, complex and time-consuming process. This meant that only large businesses – usually manufacturers or primary resource producers – could typically engage directly in global commerce because of the enormous organizational, financial and infrastructural investments required; smaller firms often lacked the resources to advertise in foreign markets, to ship and distribute overseas, and to navigate the complex and costly tariff and regulatory obstacles at the border. But today’s dramatically reduced trade barriers, improved transportation and telecommunications links, and breakthroughs in information technologies now make it possible for smaller companies – from software programmers to precision instrument manufacturers to boutique winemakers – to gain the global reach and market presence of larger companies at a significantly lower cost. This is symbolized by the rise of online marketplaces such as eBay or Alibaba which, by globally linking buyers and sellers, simplifying international payments, and leveraging express delivery systems, has allowed SMEs to enter markets and supply customers almost anywhere in the world.

Another important, and related, change is the disaggregation or “unbundling” of global production. In the past, most trade was in finished goods manufactured by large, vertically integrated conglomerates. But today almost two-thirds of world trade is in intermediate goods and services produced by firms specializing in just one stage of the production process – from components to assembly to back-office services. These value chains extend within countries, as well as between them, meaning that many small and mediumsized businesses are indirectly involved in international trade, even if their products are never directly exported. Not only are the competitive advantages of large-scale industrial integration, bureaucracy and infrastructure diminishing across a number of tradable sectors, but big multinational firms can often be at a disadvantage when fast-changing markets demand rapid innovation and organizational flexibility.

In many ways these changes are only in their infancy. While some SMEs may benefit considerably from access to global markets in general, and niche markets in particular, the reality is that large firms continue to dominate the global trade landscape. SMEs’ direct or indirect penetration of overseas markets is still limited to certain sectors and to a handful of countries. Connecting to world markets is important. SMEs that manage to sell abroad successfully can take advantage of increasing returns to scale, hone their competitive and innovative edge, and thereby increase their productivity – growing, if not into bigger firms, then into even more valuable small ones.

Small businesses continue to face disproportionate barriers to trade, whether in the form of tariffs and non-tariff measures, unnecessary regulatory burdens, customs red tape, financing gaps or information deficits – meaning that there is scope for coherent national and international policy actions that would enhance the ability of SMEs to participate in world markets more effectively. For open trade and global integration to benefit a larger share of the population, it is important to ensure that those SMEs with the potential to succeed – not just large corporations – gain access to the global marketplace.

This report documents SME participation in today’s fast-evolving trading system and contributes to a better understanding of the determinants and consequences of this participation, with the aim of adding to the debate on the role of SMEs in making growth more inclusive.