Capturing the Digital Opportunities for MSMEs

13.02.2018 Lisa McAuley
Capturing the Digital Opportunities for MSMEs

BANGKOK--Digital technologies have the potential to transform business in ASEAN. McKinsey Global Institute has estimated the total impact of technologies such as mobile internet, big data, cloud technology, and the Internet of Things, could unleash up to US$625 billion in annual economic impact in ASEAN by 2030.

Micro, small and medium-sized enterprises (MSMEs) have the greatest potential to benefit from digital adoption given the ability of these technologies to overcome many of the typical barriers faced by MSMEs to exporting and growth, such as building a global business network and promoting their products overseas.

However, a new report by the Asia Pacific MSME Trade Coalition (AMTC) warns that if certain key trade-related regulatory issues are not addressed, many MSMEs will not be able to capture this opportunity.

MSMEs are the economic backbone of ASEAN. They comprise over 97 percent of firms and employ more than half of the ASEAN’s workforce, with the share being similar in Thailand to the ASEAN average. Yet, most MSMEs across the Asia Pacific have yet to tap the export opportunity. Despite their overall impressive contribution to the regional economy, less than one in 10 SMEs in the Asia Pacific are currently exporting.

Policymakers across ASEAN are aware of the issue and tackling digital adoption is at the heart of the ASEAN Strategic Action Plan for SME development 2016-2025. They have stepped up efforts in recent years to improve the exportability of small and medium-sized firms, partially through digitalisation. Several countries have launched initiatives to support MSMEs in this area, such as Digital Thailand strategy and Singapore’s “Smart Nation” plan to boost the global competitiveness of MSMEs.

At the same time, many are beginning to scrutinize the rules of doing business in the digital economy, as global tech giants and other large multinational companies have expanded their reach into new markets. The problem: while much of the current regulatory debate revolves around these large-scale companies, it tends to overlook the concerns of MSMEs as some of the main beneficiaries of digital innovation.

To better understand this challenge, the Asia Pacific MSME Trade Coalition (AMTC), the largest voice of MSMEs in the Asia Pacific, released a report today examining how digital technologies could transform the export capabilities of MSMEs, but also how poorly thought through trade regulation could risk undermining these benefits.

Based on extensive literature research and data analysis, as well as numerous interviews with MSMEs from various industries and countries, this report establishes, for the first time, a fact base on the benefits of digital technology for MSME exporters in the Asia-Pacific region. It finds that digital tools can lower market barriers and stimulate economic growth by significantly reducing the time and cost of exporting for MSMEs.

An analysis of existing data and evidence from case studies suggest that digital tools could lower export costs of an average MSME by as much as 82 percent and reduce time involved in exporting for MSMEs by up to 29 percent.

Yet these benefits may prove elusive. In a critical assessment of the current push to create new regulation for the digital economy across the Asia Pacific, the report highlights a risk: the digital trade rules are not being discussed or built with smaller enterprises in mind, and may undermine the substantial global trade opportunity for Asia’s MSMEs. To facilitate MSMEs capturing the digital opportunity, beyond tackling well-known issues such as access to affordable internet services, a few key regulatory priorities need to be addressed:

  • Minimizing border frictions. Establishing local branches in exporting markets can quickly become cost prohibitive for MSMEs and effectively serves as an additional tax on their operations. Likewise, low thresholds for when customs thresholds are applied to goods can also impose significant administrative costs. In ASEAN, thresholds for customs duty exemption vary from less than US$1 to US$150. Coverage also varies – ranging from applying to air express only, to all modes of transport. Countries should look to review de minimis thresholds, plus carefully consider local presence requirements.
  • Building flexibility into copyright and intermediate liability regulations. Addressing copyright concerns and removing undesirable content (such as hate speech) are clearly important priorities. The challenge is to balance those objectives with a system that is sufficiently flexible that it does not imposes undue burden on MSMEs. Ensuring clarity on issues such as the ‘fair use doctrine,’ which aims to balance the interests of authors and inventors in the control and exploitation of their writings and discoveries on the one hand, and society’s competing interest in the free flow of ideas, information, and commerce on the other hand, will be an important component of this.
  • Ensuring open information flows. There is a considerable opportunity to improve transparency on data management requirements across Asia and to identify areas to enhance performance. Data privacy laws and regulations have been introduced in many Asian Pacific countries in recent years, but many areas of uncertainty remain. Clarity is required around the type of data that can be shared, the boundaries of sharing, and the type of consumer consent that is required. [Last week's Talking Trade reviewed some of the issues of data privacy in greater detail.]
The digital revolution is upon us. Tackling these issues can help ensure that MSMEs are active participants and not bystanders to this transformation of the business landscape.
***This Talking Trade has been written by AlphaBeta, a strategy advisory business in Singapore and Sydney, working with the Asia Pacific MSME Trade Coalition (AMTC)***