A Regional Approach To Global SME Trade

The digital economy has made global reach for SMEs easier than ever — but boosted competition in the process. According to FedEx Business Insights, this dynamic has heightened the role of back-office and B2B relationships for small businesses entering the global stage.

A new report by FedEx Business Insights published this month in the form of an online video finds that SMEs are quite optimistic about their futures as they look to grow via cross-border trade. Research commissioned by the company found that 89 percent of SMEs say their export volume will remain stable, if not increase, in the future, with more than a third predicting double-digit growth.

“Exports are a major revenue driver among SMEs,” the report, entitled “Global Trade in the Digital Economy: Opportunities for Small Businesses,” concluded, noting exports make up nearly two-thirds of SMEs’ revenue globally, with U.S. SME exporters generating an average of $1.5 million in revenue from their business.

Nearly a third of small and medium-sized businesses surveyed said they have seen an average growth in export revenue of 25 percent in the last year alone.

But SMEs aren’t without their challenges when looking to expand internationally. Another recent report released by HSBC last November found that fear is a major hurdle holding SMEs back from global growth.

“Businesses often feel the resources they need can be hard to find,” said HSBC’s head of global trade and receivables finance in the U.K., Mark Emmerson, in a statement when the report was released. In HSBC’s report, “Exporting for Growth: The SME Perspective,” analysts identified a lack of “international business experience and knowledge” as a major roadblock for small businesses, despite many companies understanding that cross-border trade would lead to business growth.

Indeed, FedEx Business Insights similarly found challenges to SMEs looking to step into unfamiliar, international territory.

“SMEs need better integration into the digital economy across the globe, including understanding government policy, building digital infrastructure and enhancing ePayment tools,” the report concluded, adding that increased competition has also hampered SMEs’ global trade efforts.

But FedEx Business Insights also found that intra-regional exporting is a major force behind SME growth today, perhaps serving as a stepping stone for small businesses that may have their sights set on global growth ahead.

“Intra-regional exporting is a strong driving force, representing an average of nearly $800,000 in revenue, 10 percent above their exports to other regions,” the report stated. More than half of SMEs across Latin America, Europe, Asia-Pacific and India generate intra-regional exports — with nearly 90 percent of SMEs in Europe and APAC reporting that they participate in this kind of cross-border trade.

SMEs’ interest in international growth, at least across borders within their own region, seems to be in conflict with some analysis that finds an anti-globalization movement afoot. Analysis from eft recently identified geopolitical risks as a top challenge for international companies, with these types of threats, combined with a preference to favor domestic trade, as contributing to anti-globalism sentiment among traders.

“The anti-globalization movement is a movement against global free trade in favor of protectionism for domestic production,” explained Haley Garner, eft research director, in a recent interview with PYMNTS. “It likely exists because of the shifts in manufacturing jobs away from traditional manufacturing hubs, a backlash against what is perceived as unfair trade practices, increased discrepancy in wealth distribution and the polarization of the issue.”

But FedEx Business Insights concluded that SMEs are, in fact, quite interested in global expansion of their trading operations, and the emergence of the digital economy has only helped that effort.

“The digital economy is driving this optimism,” the report said. Unsurprisingly, eCommerce is a major way SMEs drive revenue increases on an international stage. According to researchers, 80 percent of SMEs generate revenue through eCommerce, and more than a third said that revenue will increase in the coming year. But, FedEx found, SMEs still lag behind in their social and mobile commerce strategies, and that’s where back-office and B2B business relations come into play.

The majority of SMEs (85 percent) said an efficient supply chain is “pivotal” to growth in their export operations, with FedEx Business Insights urging SMEs to be strategic in that expansion. For instance, the report noted, small businesses should identify gaps in their perspective markets as a way to quickly establish a customer base in a new location. But the company also urged local collaboration to ensure a strong supply chain, suggesting that small businesses use local vendors to build up business partnerships, leverage suppliers’ expertise and understand their partners’ policies.