Internationalization of MSMEs crucial to inclusive growth Doris Magsaysay Ho is the APEC Business Advisory Council (ABAC) 2015 Chair The recently concluded APEC Economic Leaders Meeting was held in Manila under the chairmanship of the Philippines, and saw the attendance of leaders from 21 member economies. Created by the APEC Economic Leaders in November 1995, ABAC comprises up to three members of the private sector from each economy. ABAC members are appointed by their respective leaders, and represent a range of business sectors, including small and medium enterprises. As the voice of business in APEC, ABAC provides advice to leaders–recommending policy and regulatory reforms, as well as initiatives to pursue, that would best contribute to the achievement of the Bogor Goals of free and open trade and investment in the Asia-Pacific region, as set out in 1994. The ABAC members meet four times a year, each meeting runs 3-4 days long–and with this limited time, we prioritize our work to focus on specific business concerns. Every year we submit to the APEC leaders a report which contains our key recommendations on trade and investment issues that made it to the ABAC agenda. We also provide advice to ministers whom we write to every year to share with them our thoughts on how to address challenges faced by businesses on these following areas: Finance, Trade and Investment, MSME development, Energy, Health, Transportation and Structural Reform. We also represent the private sector in APEC committee and working group meetings including sub-fora discussions, in order to provide additional business information and opinions to guide on their deliberations. There are also multitudes of initiatives put forward by APEC economies on various areas of cooperation, and ABAC’s endorsement and/or partnership is often sought to factor in the business element in those projects. This year, ABAC went above and beyond its regular mandate of simply serving as an advisory body by pursuing action-driven initiatives, championing and funding our own projects, as a way to deepen our contribution and engagement with APEC. ABAC’s underlying key message is that business believes that free trade policies continue to be the key to unlocking the remarkable human potential in the region and improving the quality of life for the people of all 21 economies. With 94 to 98 percent of enterprises in the region employing 50 percent of the region’s workforce, MSMEs are vital to the region’s economy. And we have a shared mission to build the environment to have more MSMEs participate in global trade. In this context, the work we do at APEC and ABAC for regional economic integration and free trade should be as relevant to MSMEs as they are to big business. ABAC’s four work pillars for MSMEs are: Promoting the internationalization of MSMEs; Building innovation and value-adding activities in MSMEs; Facilitating MSME access to regional and global finance; and Harnessing women’s participation in the economy. ABAC sees the opportunities brought about by more inclusive business models adopted by big business on one hand, and the need to encourage MSMEs to take the initiative to offer goods and services as part of supply chains. This inclusive business model is best achieved with long term, value-driven partnership, facilitating the transfer of skills, knowledge and technology from the buyer to supplier. Knowledge inputs and policy measures, based on careful analysis of behind-the-border, at-the-border and across-the-border issues that hold MSMEs back are important to address. We encourage policy makers to develop policies that will support and strengthen trade and investment linkages between MSMEs and big businesses. We also recognize that fostering innovation towards creating new technologies and innovative business solutions is key for MSMEs to move up the value chain. We urge policy makers to adopt a holistic view of the global value chains and international production networks in designing policies toward strengthening trade and investment linkages among MSMEs and big business. We recognize that enterprises can move up the value chain and become creators of new technologies and high-impact business solutions through innovation. The greatest opportunity for MSME internationalization is through e-commerce; however, existing international trade frameworks and regimes have been designed for traditional forms of trade and investment. These don’t work anymore. One of ABAC’s key initiatives in this area is the research study on Accelerating MSME Growth through Cross-Border e-Commerce. The study, carried out by the USC Marshall School of Business, focused on identifying and addressing barriers and impediments to cross border e-Commerce and how these impact MSMEs. The key findings and recommendations arising from the study are enumerated below: MSMEs capacity and reach must be improved. The single most critical limiting factor was the lack of readiness and capability of MSMEs to engage in e-commerce. Problems of awareness, technical ability, access to talent and financing all limit the potential of MSMEs, especially in developing economies. Getting e-payments right is crucial. For cross-border e-commerce to grow, e-payment solutions must expand beyond traditional banking solutions. Governments must allow for new, innovative e-payments solutions and avoid the vested interests of incumbents. E-commerce marketplaces are critical enablers for MSMEs but they are not benign players. Marketplaces and platforms must be encouraged and supported, but care must be exercised to avoid allowing market control. Complexity and cost of customs and trade rules destroy MSME opportunities. If major improvements ‘at the border’ are not made–online processes, simplified procedures, special customs clearance accommodations for MSMEs–MSME participation in global trade will remain limited. A harmonized coherent cross-border e-commerce regulatory framework is critical. The lack of comprehensiveness and compatibility of e-commerce laws and regulations across economies remains a major impediment. Cross-border logistics for MSMEs remain an insurmountable challenge. MSMEs need innovative logistics solutions to participate competitively in global trade. The multi-ministerial ‘oversight’ challenge is perhaps the single most critical impediment to meaningful policy leadership in e-commerce. Fragmented, overlapping ownership, or lack of ownership, was found to be a core problem across all APEC economies. Building on the success of the Cross Border e-Commerce Training or CBET Workshop in China last year, ABAC is currently undertaking efforts to expand the CBET program. The CBET Localisation Programme aims to bring professional experts to APEC economies to share their insights and experiences with MSMEs to encourage direct interaction and provide MSMEs an opportunity to build their business networks. We have also reached out to possible partners from the World SME Forum and the B20 as we seek to create online curricula for e-commerce, with the view to expanding the reach of our capacity building efforts for MSMEs. Part of this effort is to establish a network of MSMEs from the region, including innovation centres that can help them grow and avail of the opportunities of global value chains. To ensure that our work continues to promote the internationalization of MSMEs, ABAC submitted the following recommendations: Adopt simplified and harmonized domestic policies and processes that enable internet-based business and trade; Undertake more capacity building initiatives that promote the adoption of internet-based tools and assist MSMEs to explore cross-border e-commerce; Promote greater sharing across APEC economies of successful training programs, especially online training courses designed to educate MSME firms on cross-border e-commerce (including ABAC’s Cross Border E-Commerce Training Program (CBET); and Establish an APEC-wide action plan focused on creating forward-looking e-commerce policy frameworks. The digital economy plays a key role in the ‘innovation revolution’ that is taking place in the region. In the 2014 APEC Accord on Innovative Development, Economic Reform and Growth, leaders acknowledged that Innovation would be the next driver of growth. ABAC recognizes the need for economies to create an ecosystem that supports enterprise creation and innovation towards giving entrepreneurs and start-ups a chance to succeed on the new technology driven economy. There are several crucial elements involved in encouraging the development of the new digital economy, particularly for MSMEs. Outlined here are the strategies and recommendations ABAC proposed in order to achieve this. One is a clear strategy to integrate a digital/internet economy, as the basic infrastructure. ABAC also calls for innovation. A digital agenda is about investing in the future and this is where innovation plays an indispensable role. Economies will need to cultivate the best and the brightest talents for innovation through a commitment to develop STEM and engineering in schools, establish research centres in universities and support inclusive innovation centres to allow young entrepreneurs to network and collaborate across the region. Allow me to further elaborate on our work in this area. A key component in promoting innovation among MSMEs is strengthening partnerships and networking among innovation systems–including those involving small and large businesses–as well as the public sector. In support of this, ABAC, with the Asia Pacific Foundation of Canada, has commenced an interactive mapping initiative covering incubators and accelerators across all APEC economies. This involves the mapping of incubators in China, Philippines, Canada, and Hong Kong, China, and hopefully, Malaysia, by November 2015. On MSME financing, ABAC called for steps to enhance MSME access to finance as this remains a significant barrier to MSME expansion. In 2015, ABAC actively engaged the private and public sectors to consolidate best practices for increasing women’s representation in the boardroom, corporate family responsibility, and integration of women-owned businesses into the global supply chain. In APEC, the bulk of our work may seem to focus on removing barriers to trade and promoting regional economic integration towards the achievement of the Bogor goal of free and open trade and investment. However, the advancements we have made in moving toward free trade will be meaningless if we are unable to ensure that the benefits of free and open, and the opportunities they create, are made available to MSMEs as well. ABAC looks forward to working with governments as we build on APEC’s extensive work on regional integration and trade facilitation toward ensuring that these efforts remain relevant and responsive to needs of MSMEs as much as they are to big business. ABAC believes that these recommendations are important to encouraging, facilitating and supporting the development of MSMEs, the backbone of virtually every economy in the Asia-Pacific region.
... the advancements we have made in moving toward free trade will be meaningless if we are unable to ensure that the benefits of free and open, and the opportunities they create, are made available to MSMEs as well