E-com marketplaces can take SMEs global

We all know how globalisation has contributed towards creation of wealth, improving standards of living, allowed consumption of greater variety of goods, created employment and promoted convergence of incomes across economies. Though the initial beneficiaries definitely had been the larger corporations, the time has come to shift the focus towards SMEs, the largest segment of economy for the majority of nations.

In the Indian context, this focus on SME becomes all the more critical due to the all-round impact that the segment can have, from driving employment to innovation as well as environmental sustainability and inclusive growth.

With over 80% of global trade taking place through global supply chains, the agenda should be to facilitate SMEs to participate in these global value chains (GVCs).

The successful SMEs have been getting connected to e-commerce marketplace platforms Amazon, Flipkart, etc., which are opening up markets for them domestically and internationally.

In the case of eBay, its registered online sellers in select Asia-Pacific economies are able to export globally. In the US, while 95% of online sellers export, less than 5% of traditional offline SMEs do so.

Among APEC economies, Thailand, China, Korea, and Chile have a relatively higher percentage of exporting SMEs offline, but this is still less compared to the 100% of online sellers who export. In addition, SMEs that sell online are able to reach more markets than those in traditional business. On average, firms are able to reach an average of 30 different economies using e-commerce platforms.

There are estimated to be some 42 million SMEs in India, accounting for 95% of the total industrial units, contributing 45% of the GDP, which is almost three times what corporate India contributes. Not only that, SMEs are also driving employment. They employ some 106 million people. The large SME base in the country is not only of sellers looking for global access but also themselves consumers on the online marketplace.

SMEs continue to be plagued by various challenges, ranging from poor infrastructure to production capacity, lack of adequate funds, low on innovation and technology knowledge gaps. India needs to augment its innovation capacity when compared to global peers and stands 66th among 130 nations. India is also the third-largest and the fastest growing e-commerce market after China and the US. But, to compete with these two countries, it has to improve its performance. The SME sector is poised to become a $25.8 billion market for emerging technologies by 2020.

Since SMEs can be instrumental in pushing innovation, e-commerce and technology, it is imperative that they embrace digitisation, which would enhance their participation in an open and integrated economy.

Entrepreneurial system

A sound business environment and a well-functioning entrepreneurial ecosystem for business would foster participation of SMEs in a globalised economy. This is even more important in the current context, as increased competitive pressures and the fast pace of technological change demand agility, innovative behaviour and ease of access to strategic resources. E-commerce marketplaces can be perfect enablers in these respects.

In India, Amazon, Flipkart, etc., have developed an ecosystem with multiple stakeholders that helps the system work smoothly and efficiently. This despite the fact that many SMEs lack awareness of business possibilities through e-commerce and even lack basic business skills such as knowledge of Excel or the importance of attractive packaging and product photos and information.

With expanding opportunities from e-commerce, SMEs can benefit from the expected growth in online consumer demand in the coming years.

Retail e-commerce is expected to rise from $1.3 trillion in 2014 to $3.6 trillion in 2019, and its share of total retail sales will more than double from 6.3 to 12.8%.

Asia-Pacific, North America and Latin America are collectively expected to increase their share of retail e-commerce sales to 85% by 2019. As per a January 2018 eMarketer update, in 2017, retail e-commerce sales worldwide reached $2.304 trillion, a 24.8% increase over the previous year.

In India, there are still few SMEs who are able to take advantage of the huge potential of e-commerce marketplaces. More of them need to be able to do so. Else, the Indian SME sector as a whole will lose out in this competitive landscape.

(The writer is former director on the boards of Central Bank of India, Mumbai, and Container Corporation of India, New Delhi)