An obsession with building trade platforms

Why?

I understand the impulse for officials.  Digital trade and e-commerce are rapidly becoming critically important channels for survival.  Companies that have no online presence at all have not weathered the Covid-19 pandemic well.  Firms that have experience working digitally tend to be doing better. 

Given this situation, it makes sense for officials to urge more companies to get online.

However, having the government build a platform to manage e-commerce is a recipe for disaster.  Even the biggest, most well capitalized companies in the world with large groups of extremely talented individuals working together have often struggled to manage building successful online platforms for trade. 

Governments are not likely to be able to compete at any level.  In fact, it was especially striking that this particular government had trade officials literally unable to get online for the session on Zoom.  It was a combination of connectivity disruptions, caused by a thunderstorm, coupled with bandwidth challenges, merged with what I can only assume was “operator error.”

The e-commerce platform game is one of scale.  I could build a stunning digital platform for trade, but if I cannot convince enough firms to use my system and I cannot find sufficient buyers for the goods or services I am offering online, it does not matter how elegant my offering might be.

Worse, in the early phases of my project, I am subjecting my participating firms to less-than-stellar growth opportunities.  As my platform is new, few people will know about it and most will not be willing to check it out.  Absent buyers, my firms could also have amazing offerings but be unable to close a single sale. 

Governments may argue that they will invest in significant marketing that will automatically drive customers to the site, but most governments have never been known for having a “Midas touch” for marketing. 

The need for new platforms, especially in Asia, also makes little sense.  The region is literally crossed with multiple types of platforms to facilitate trade, especially for goods companies. 

Of course, the fact that platforms exist does not automatically mean that smaller firms can easily get onboarded.  In many instances, the requirements for working with a major platform can be too challenging—too many pieces can be needed with consistent quality demands that can be hard to satisfy.  Not every firm will be a good fit for every platform.

My bleak assessment of the odds of government-led platforms does not mean, however, that governments have no role to play in encouraging the growth of digital trade in their domestic economies. 

Rather than invest money in building flawed platforms, governments need to focus with laser-like intensity on building the right domestic infrastructure and policy settings to support digital trade.  For many governments, this starts with clear knowledge and understanding of what the digital economy looks like today and what sort of support will be needed for the future.  Officials need to remember that firms deliver both goods and services online and build systems to support both types of companies.

Another default decision made by many governments seems to be to insist that individuals be given coding skills.  If companies are going to be competing online, it makes sense to officials that firms need the ability to craft webpages, apps, and other complicated pieces of programming.

While this is not entirely wrong, for most smaller firms today, there are already ample free or low-cost solutions that solve most basic needs for companies moving online.  Many firms no longer need a website at all, but can set up virtual storefronts on a range of platforms.  Companies can, and regularly do, sell directly off their Facebook or Instagram pages, as an example. 

Digital skills training need not be so complicated.  Again, there are a wide range of companies that have already solved many of the issues related to getting online, with a growing list of applications available to anyone who can navigate a smart mobile device. 

Governments should instead focus on delivering the kinds of results that only government can provide, rather than (badly) duplicating what the private sector has already invented.

For instance, as the session this week showed, it does no good to urge firms to go digital if a thunderstorm can disrupt connectivity.  Increasing the infrastructure and bandwidth available to firms and consumers at affordable rates is critical.

Companies, especially small ones, cannot navigate complex regulations for engaging in trade. 

Firms that are being encouraged to think of larger markets struggle with customs.  As I have repeatedly noted, trade facilitation does not appear to be sexy.  Officials have been talking about wide ranging changes to border procedures for a long time.  But delays at the border and unnecessary costs simply kill opportunities to engage in digital trade where customers expect instant access and delivery.

Border challenges are growing worse, instead of better.  The pandemic has flattened trade flows, making customs officials in a wide range of countries more eager than ever to collect revenue anywhere and any way that they can. This means stopping shipments for a wide variety of new or stepped up inspections, cracking down on paperwork, and applying tariffs or duties to a growing array of packages arriving at the border. 

Only governments can tackle border issues, which are critically important to getting trade flowing. 

While I think governments should focus on making the best enabling environment for digital trade, with a strong focus on what works for smaller firms, this argument may not be convincing enough for some.  Some officials will continue to insist that they provide direct support to local firms getting online.  In this situation, it may make more sense for governments to gather up a group of firms with attractive offerings and work with platform providers to better showcase these companies. 

This is surely a better outcome than spending limited time and financial resources on building another bad platform for local firms.