While transformative in possibilities, access is still too tough for SMEs who need clearer “explainers” and “how to” guides
Karen Reddington, President, FedEx Asia Pacific
Never before have Asian small businesses and start-ups been so connected – in technology, access and ideas. Everywhere we operate, innovators are counting on connectivity to expand their businesses across borders, seize niche opportunities and shape our global economic future.
So why then does evidence show that SMEs are failing to access trade deals – one of the most significant tools for multiplying business growth and opportunity? What can agreements like the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) or the Japan-EU Economic Partnership Agreement (EPA) offer?
Many SMEs unaware of potential
Trade agreements are designed to lower the barriers between participating countries – giving domestic companies better access to more customers and larger, international markets – while reducing tariffs and customs duties.
That’s why the CPTPP is arguably one of the most important trade deals in decades – it removes tariffs on about 95 per cent of goods traded between member countries.
The agreement, which went into effect in December 2018, creates a trade community accounting for an extraordinary 14 per cent of the global economy. That figure is projected to rise to 18 per cent as more countries join the bloc – already comprising some of Asia’s most dynamic economies including Vietnam, New Zealand, Japan and Singapore.
Then there’s the Japan-EU EPA – a new deal that went into force in February 2019 and is expected to spark more than a 30 per cent rise in trade volume.
We at FedEx would like to believe that year on year, more SMEs take advantage of trade deals to enter into new markets. But the biggest surprise is just how few “born global” SMEs and entrepreneurs know about these deals – let alone how to translate their potential into business success.
The knowledge gap
In markets like Singapore, there’s broad recognition that SMEs are having difficulties reaping the benefits. In Australia, similar concerns have triggered a government inquiry. What’s more, SMEs are telling FedEx that agreements remain too tough to interpret or navigate, especially for those who are inexperienced in international trade.
This is not a new issue – a few years ago, HSBC’s research on 800 companies across Asia gauged the take-up of trade agreements – only around one in five businesses were using them.
A simple explainer
It starts with making trade deals part of business strategy – and ensuring that the benefits of improved terms of trade are widely understood.
For instance, companies that leverage agreements experience stronger export growth, access to new markets, a wider client base and new business opportunities. Such developments can be transformative for small business growth.
In reality, SMEs often lack the resources and expertise to navigate complex trade rules, and do not know how to reap the benefits of trade agreements. So many need “hands on” manuals to guide them through the labyrinth of information that exists on any one deal.
Other than lowering tariffs for almost all goods traded between members, the CPTPP also makes moving goods among member states easier by streamlining paperwork, increasing transparency, and setting up rules that reflect modern supply chains. That means SMEs will be able to trade in 11 CPTPP markets with a single set of rules and document requirements, simplifying access to markets representing almost 500 million people.
When it comes to the Japan-EU EPA – the largest trade community in history – the majority of the 1 billion Euro in duties paid annually by EU companies exporting to Japan have now gone. This has opened up a market of 127 million consumers.
So where to from here?
For FedEx, it’s the “how” that’s increasingly critical in equalizing opportunity.
For instance, Style Nanda – a Korean fashion e-commerce site recently bought out by L’Oréal. The company only saw its business really take off when it began leveraging different global markets.
SMEs in different CPTPP markets can team up to target a third, entirely different market – saving time and money by pooling resources. SMEs should also make full use of business, government and SME bodies – as well as work alongside companies like FedEx to understand where the quick wins for their business might be.
Counsel and technology tools are also critical. For instance, FedEx offers SMEs knowledge and resources to clear customs confidently and quickly. We also advocate automating as many shipping processes as possible to facilitate easier cross-border shipments. Tools like FedEx Global Trade Manager, which helps SMEs estimate duties and taxes, or locate necessary documents, are seeing strong uptake.
Then there’s our work with customs authorities across the region to expand clearance solutions for cross-border e-commerce. In China, for instance, we recently launched a “one stop” Business to Consumer (B2C) import customs clearance solution for e-retailers.
No matter what, the goal is clear – ensure innovation flows from all deals to all kinds of businesses. If SMES can put these benefits into practice, the possibilities are endless.