Making e-commerce and digital trade work for smaller firms

Many who will say, “Well, the company should have had a better cushion to absorb such a delay,” have clearly never run a small firm.  Funds are typically lumpy, with cash flow a constant challenge.  If the border delay hits at the wrong moment or with the wrong customer or order, it can literally be the end of the line.

E-commerce and digital trade have dramatically altered the markets available to smaller firms.  As we have often noted, companies now have the promise of becoming a “micro-multinational,” able to find customers for goods and services anywhere in the globe at the click of a button.

Increasingly, however, the promise is being eroded by various barriers being erected by governments.  In a supreme piece of irony, many of these new obstacles are being imposed in the name of “helping” level the playing field for small firms.

For example, new laws, rules and regulations are making it harder to ship small sized, low value goods across borders.  When sending items to Europe, for example, companies are going to need a responsible person located inside Europe.  This adds complexity and costs for micro, small and medium enterprises (MSMEs) outside of Europe.  Companies will need to have someone on standby, on the possibility that a customer inside Europe will buy a product.

The imposition of new regulations on data flows, like Europe’s GDPR system, can also be extremely challenging and costly for firms.  While it does not currently apply to very small firms, it does not take much to get captured by the regulation—companies above 50 people need to comply.  Again, smaller firms outside of Europe are stuck spending money on a system that may not even apply to their typical customers—just in case. 

As other countries and regions develop their own rules on data flows or privacy rules or requirements on data hosting and so forth, companies will get stuck creating different sets of compliance frameworks.  Alternatively, firms will simply be operating outside the law in different jurisdictions and run the risk of getting caught—often by rules they did not even know existed.

Increasingly, governments are looking to impose a wide variety of taxes on goods (and services) coming across borders.  This also adds to the burden on smaller firms that need to comply with tax registration systems in foreign countries in foreign languages. 

The list of obstacles could go on.  The point is that the promise of selling globally comes with increasing challenges. 

Hence the very good news that the World Trade Organization (WTO) has launched talks in Geneva to begin to create some global rules to sort out some of these issues.  For smaller firms, global rules can at least ensure that added expense and time becomes a necessary part of doing business, rather than an irritating element of doing business with some countries.

The size of the “prize” is huge.  Estimates are all over the place on the current size of the digital economy, but Asia tends to lead the way.  An extremely useful series of reports just released by the Hinrich Foundation on eight economies in the region (five out now: Vietnam, China, Indonesia, Malaysia and Australia) shows how much additional trade might be gained from eliminating barriers to digital trade. 

For Vietnam, as an example, the economic value of digital trade-enabled benefits is estimated to be worth VND 81 trillion (US$3.5 billion) but this could grow by 12-fold under the right settings by 2030.  Indonesia, currently home to some of the most innovative unicorns in Asia, could grow 18-fold under the same time frame. 

Some of the needed policy adjustments in places like Vietnam and Indonesia are domestic.  Some changes that would benefit smaller firms are not, strictly speaking, digital at all—just improving trade facilitation for smaller size, low value shipments would dramatically improve trade prospects for e-commerce companies.

But rule changes at the global level in the WTO would also help lock the trade gains noted in the Hinrich Foundation reports. 

Not all WTO member states are included in the current negotiations in Geneva.  Only 76 of the 164 members are signed up to participate.  This is a missed opportunity.  As the WTO’s Director General Roberto Azevedo noted yesterday, countries have only two options: to participate and help make the rules or not participate and take the rules as given. 

The obstacles to joining are many.  Countries involved in UNCTAD’s e-Commerce week offered a long list of issues of concern, including: big gaps in the ability to participate at all in digital trade and e-commerce given infrastructure issues and skills challenges; worries over data privacy and leakage of data to the hands of foreigners and foreign companies; issues with the rise of platforms and the dominance of technology companies; and fears over how such dominant companies treat firms and consumers from the developing world. 

The WTO cannot and will not solve all of these issues.  It is a trade organization and will need to stay focused on the trade aspects of e-commerce and the digital economy, while relying on others, like UNCTAD, to manage many of the crucially important developmental dimensions.  The donor community will need to remain engaged in capacity building for both government officials and companies.

The launch of talks in Geneva, however, has given renewed hope to smaller firms that—at some point in the future—some of the challenges attached to trading globally will be minimized.  Trade will never be easy for MSMEs.  But it can certainly be made less complicated than it is today.