Trading has been a major part of the world economy for a long time. The member nations of the World Trade Organization (WTO) alone contributed to a whopping $23 trillion last year in exports only and the global trade is expected to grow at a rate of 4-5% year-on-year. This goes on to show that there are huge scopes in the global markets to be explored by businesses around the world. This huge growth is going to create a vacuum between the current supply and the new demand—a vacuum which is there for the taking and small- and medium-sized enterprises (SMEs) are the ones who can take most advantage of it.
SMEs are an integral part of any economy; they form the backbone of the economy. While the government consistently focusses on making India a $5 trillion economy and reach $2 trillion in global trade in the next few years, SMEs remain an integral part of this endeavour. Over the past few decades, the SME sector, comprising manufacturing, agro-industry, service industry, apparels & textile, gems & jewellery, food processing, metal & alloys, packaging, polymer & chemicals, etc. have emerged as one of the most vibrant and dynamic engines of Indian economic growth.
For India to become a $5 trillion economy, the contribution of this industry will be the focal point. The growth of the 65 million SME businesses is surely going to make a huge difference in the overall economy of our nation.
Govt focus on exports
There have been a number of reforms and schemes by the government to help the businesses in growing internationally. The flagship programmes such as Make in India, Digital India, Skills India, and Startup India are the strong foundations on which the sustainable growth for going global could be built. India’s overall exports (merchandise and services) were estimated to be $483.98 billion during April-February 2018-19, exhibiting a growth of 8.73% over the year-ago period.
The Foreign Trade Policy 2015-20 and other schemes provide promotional measures to boost India’s exports with the objective to offset infrastructural inefficiencies and associated costs involved to provide exporters a level playing field. There are schemes such as Merchandise Exports from India Scheme (MEIS), Duty Exemption and Remission Schemes, zero duty EPCG scheme, Post Export EPCG Duty Credit Scrip Scheme, EOU/EHTP/STP & BTP SCHEMES, and interest subsidy scheme, etc. launched by the government to boost exports from India.
The government has also taken initiatives to open newer markets for products, including plans to set up trade promotion bodies in 15 countries to boost exports from SMEs. There have also been other SME-specific initiatives, such as STICK (Science, Technology, Innovation and Creation of Knowledge) to keep the SMEs abreast of the changing paradigms of innovation and technological advancement.
The initiative of Indian Customs introducing full and comprehensive digitisation of export/import transactions and the 'integrated declaration' will provide the importers and exporters a single point interface for customs clearance of import and export goods. Further, India ports infrastructure market stood at more than 1,212 MMT in 2018 and is projected to reach 1, 784 MMT by 2024, owing to increasing government initiatives to enhance the capacity and utilisation of the country's major and minor ports.
Low participation of SMEs in the global trade
Even though the government has taken the right steps, there is more that needs to be done to increase global trade to reach $2 trillion per year.
Indian SMEs have been reluctant to export due to multiple reasons. For example, finding and qualifying a global trade counterpart is a big challenge on its own, and that’s only the beginning of the complex export process. With the lack of trade intelligence, it is hard for an SME to trust anyone due to lack of information about the counterparts and even the market on a whole. The local markets, although, marginally profitable, feel a lot more comfortable to SMEs due to access to first-hand market intelligence.
While the government has been constantly working to make global trade more and more accessible to SMEs, when it comes to going global, an SME doesn’t have the bandwidth to nurture a global trading team and have them execute proper, and controlled, safe-trade. The situation actually presents a big issue of the lack of having a proper knowledge channel for the SMEs with limited resources to hand-hold them in global trading.
While the government's policies and schemes have been an amazing boost for SMEs, reaping optimum returns from these still requires guidance, hand-holding, and partner-based approach.
Need for private sector involvement
While the government has come up with the right policies, the SMEs still need guidance to benefit from these policies and help fill the remaining gaps in global trading. Ground-level involvement and execution are still required to implement these policies. Global trade’s complexities and risk associated with it will always require the detailed trade intelligence and expert hand-holding for doing it right. This is where the role of private and public partnerships emerges as an important part of the bigger ecosystem that is looking to make India a major global trading player.
What private, specialised entities need to deliver is to ensure we make our SMEs globally aware, visible, and competitive, and partner with these SMEs for end-to-end global trade hand-holding.
How would it help grow SME exports?
- It is important for SMEs to be competitive in product quality and be aware of international quality standards and specifications. The large enterprises could help their ancillary SME units to be globally competitive, as that would help the entire global value chain. Global trading also demands certain standards in the products to be exported and processes executed where private participation could play a big role.
- It is important for an SME to have good global presence and visibility to be seen as a trustable supplier. Further, the SME needs to be competitive on prices and market strategies as well. Trade intelligence is one of the most important, foundational factors in global trading. It is important for an SME to choose the right market and invest its resources intelligently. On top of it, the SME needs to be intelligently cost-effective, which requires on point awareness of the prevailing prices to play at the best margins. The integrated global trade platforms could help SMEs with trade insights, intelligence, and resources.
- While global branding and market intelligence can kick-start the trade, it is the actual execution of the global trade that is the most complex. Identifying and qualifying global trade counterparts for export/import are still challenges for SMEs. Then, arranging and executing orders is a big ask from an SME with lack of time, resources, expertise, and capability in global trade. There is still a high degree of process and documentation that exists in the global trading business. SMEs need literal hand-holding and partner-based approach throughout the process of initiation, negotiation, facilitation, and order execution.
- Trade experts and service providers are the real gears of the global trading engine. Choosing the right service provider at the right prices will hugely impact the success of your order and global trade initiative. It is important for SMEs to have access to a larger network of trade experts, service providers, and expert resources with access to prevailing information on these providers.
The private-public partnership could reap rich dividends
It is difficult to ignore the role of SMEs in realising India’s $5 trillion economy and $2 trillion global trade objective and it is important for the SMEs to realise the role of global trading in realising their business growth objective. While the government has been working really hard in pushing SME growths, involvement of the private sector is necessary for the efforts of the governments to reap fruits.
The government is actively involved in increasing the size of the global trade pie for Indian SMEs, though an active role from the private sector would ensure that more and more SMEs are able to take advantage of opportunities in the global market. It needs active involvement, especially from companies who could provide a partner-based approach and end-to-end solutions and could work on the ground to enable and empower SMEs to export/import effectively.
The global trade is no longer a luxury for SMEs, it’s a necessity they shouldn’t ignore and both the government and private sectors need to play a big and active role in helping our SMEs realise their true potential and help India become an economic superpower.
Views are personal.
The author is founder and CEO of Connect2India, a SaaS-enabled managed marketplace for global trade.