Global trade is an ever-shifting sea. The waves of growth go up and down, but one thing remains certain: both barriers and opportunities are always present.
Global trade tensions have been rising since 2018, and with tariffs on some widespread goods having a comeback in the last couple of years, international export/import activities face some challenges up ahead. According to projections of WTO’s experts in 2019, global trade growth is slowing down and whether it will rebound is a question of easing international trade tensions.
Some of the factors that have dampened international trade in 2018-2019 have been:
- Weaker import demand in Europe and Asia (which affects global trends)
- Trade conflicts between large economies
- Wariness of macroeconomic shocks and financial volatility (which slow down global trade overall)
However, where one person finds issues, another may find opportunities. For example, developing countries are slight beneficiaries of the situation, as their GDP growth is in a generally positive trend (especially compared to developed countries). Likewise, trade growth for such regions is expected to outpace GDP growth. In 2018, developing countries’ export value clocked in at $8,779 billion. $193 billion of that volume was from the least-developed countries.
This highlights the possibility of businesses with low domestic costs (which are generally found in developing economies) having opportunities for success on the global market. The growth trend for the last ten years has been in favor of developing countries: they have consistently outperformed or equalled developed economies. The leaders in growth trends have been (in order): Vietnam, Bangladesh, China, India, Mexico, UAE, Turkey and Brazil. A stark example of the power of manufactured goods combined with the dynamic growth of developing countries: between 2008 and 2018, Vietnam’s export of electrical machinery increased almost 30 times.
Following WTO statistics further, manufactured goods firmly remain the top global export category, followed by fuel and mining products, and then - by agricultural products. However, their trade growth in 2018 followed different dynamics: fuels and mining products grew fastest (23%), manufactured goods took second place in growth (8%) and agriculture finished last (at 5%). Going into more specific data, clothing was most dynamically growing product among manufactured goods (+3.3% worldwide).
Overall, WTO’s October 2019 estimates on the nearest future of global trade remain conservatively pessimistic: the April forecast of 2.6% expected growth has been lowered to 1.2% for 2019. The 2020 expectations have gone down from a 3% increase to 2.7%.
The place and opportunities of local businesses in global trade.
In this uncertain situation, flexibility, mobility and lower costs (in some aspects) of local businesses may be the positive outlook for active entrepreneurs seeking international expansion.
According to OECD analytics and discussions in 2018, the concept of Global Value Chains (GVCs) is one of the vital elements to understanding these opportunities: with different processes of businesses (manufacturing, sales, marketing etc.) spread out across various regions, local businesses can leverage their competitive pricing to enter foreign markets and even become industry leaders.
OECD highlights several key aspects for local businesses (or SMEs) to utilize the power of GVCs and become international exporters:
- Strengthen ties with other companies worldwide
- Secure positions in global production networks
- Integrate into the global market as suppliers of large companies
- Utilize digital tools to reduce trade costs
- Gain access to information, technological solutions and trade connections.
Furthermore, while the growth of global export giants is seldom meteoric, local businesses or SMEs can skyrocket by participating in global trade. Entering foreign markets allows them to scale up and considerably increase innovation.
There is a glaring (or incredible) opportunity for local businesses to enter global trade: in most OECD countries for example, SMEs account for 95%+ of all companies and ⅔ of employment. However, at the same time, the share of exports for local firms is between 20% to 40% in the same regions.
While some may see this as an issue, companies looking to go global should see this as an opportunity.
Through the power of Global Value Chains (which diversify business operations and provide competitive costs), as well as the power of digital tools, local businesses and SMEs can gain a competitive advantage over even large companies in certain areas (due to the ability to adapt and customize their operations to customers).
As an example of this, some international markets are already dominated by smaller enterprises and local companies. They can either be partners and suppliers of large corporations, or sell goods on their own. OECD data shows some vibrant examples: small and medium size German companies maintain 70-90% of global market share in certain specialized manufacturing segments (2016 data). In 2015, SMEs in twelve different OECD countries accounted for 61-66% of the shares of the total volume of textile, apparel and wood manufacturing.
This shows that with the right circumstances, export and business strategies, and the ability to recognize niche opportunities (as well as mass trends), local firms can become formidable export businesses.
Export barriers: understanding, minimizing and avoiding them.
OECD and WTO analytics show that local businesses are much more affected by tariff and nontariff barriers to trade. This is due to the fact that trading costs make up a higher share of SME export values. Unlike large corporations, smaller businesses do not have the benefits of scale. As a general rule, only the most productive and efficient of such companies can successfully enter multiple foreign markets and considerably boost their operations.
Apart from tariffs having a bigger impact on the expenses of local businesses, non tariff barriers pose a serious challenge as well. Information, skills, technology and connections are valuable (and sometimes - scarce) resources for local businesses.
The survey cooperatively conducted by OECD, Facebook and the World Bank showed the following factors limiting export: finding business partners (63% of respondents), market access limitations (41%), difference in national regulations (38%), customs regulations (35%), poor online payment alternatives (29%), large distance from home country (26%).
What’s the solution to these challenges? In the digital age, it’s all about employing tools and platforms that circumvent, streamline and avoid export obstacles. Being a part of a larger digital platform and community can rectify the lack of information.
- Having digital analytics and statistical tools at your disposal can close the gap both with information and technology.
- Digital platforms and b2b marketplaces are also an extremely powerful tool for forging international ties, finding business partners and buyers. This helps jump-start the entrance to a foreign market.
- Addressing the factors related to tariffs and customs regulations, Free Trade Agreements may be the salvation for local businesses looking to sell their goods abroad.
Digital tools are now addressing the latter opportunity as well: for example, the Trade Assistant digital instrument of Tradalaxy offers powerful guidance to fresh exporters not only in analyzing global trade data, but also in finding the most lucrative opportunities for bilateral trade using FTAs.
Needless to say, the opportunity to avoid or minimize customs procedures, avoid tariffs and other trade costs and obstacles is a huge boost for any local businesses. Using an online b2b marketplace also solves the issues of finding business partners and buyers that more than 60% of SMEs note as the number one obstacle.
The rise of more diverse and powerful digital tools, platforms and marketplaces may be the last piece of the puzzle needed to help local companies of smaller and medium size enter the export market.