A market intelligence and network programme integrated into the FTP will widen the markets for aspiring SMEs while also strengthening existing exporters.
To tie it up, information deficit is a fork in the road for internationalisation of Indian MSMEs.
By Anjali Tandon
A key aspect of MSME (micro, small and medium enterprises) growth is improved market access. This, in turn, is dependent on market information, which is severely limited due to low levels of awareness. Criticality of the information challenge is evident from a high proportion of large-sized firms (42%) reported having faced difficulty in accessing information and benefits under Covid-19-related programmes for MSMEs announced by their corresponding governments.
In the survey by the International Trade Centre, the proportion of medium, small and micro firms reporting difficultly was even higher at 51%, 60% and 60%, respectively. In light of these responses, it may be normal to expect even more severe constraints while dealing with international partners. As a result, their participation in trade remains disproportionately low, also contributing to underutilisation of the existing free trade agreements.
Typically, MSMEs are marked with low economies of operations reducing their profit per unit, leaving little room to accommodate expenses on developing a networking expertise. In the absence of an internal expertise and lack of resources to pay for consultancy, they often face issues while venturing into new markets. Only a fraction of SMEs trade internationally, of which nearly half find it challenging to sell in foreign countries, according to the Future of Business Survey. ‘Lack of business contacts’ and ‘lack of market information’ have been cited as the two most important factors.
The knowledge deficit on the relevant standards is further widened due to unawareness of the ‘ethical trade imperatives’ that impose additional compliance burden through requirements such as those related to (not indulging in) child labour, observing work hours, health and safety of workers, wages and environment. For instance, convergence on labour standards is a pre-condition to resuming the negotiation talks on the India-EU Board-based Investment and Trade Agreement.
Even though such information is available online from government portals and accessible through web-navigation; the language barriers, and the legal and technical nature of the text lowers usefulness and effectiveness. These matters are complex and often limited/absent knowledge keeps MSMEs at arm’s length from participating in trade.
Another potential problem, particularly in pandemic-like situations, is the need for demand revival through real-time information on global demand patterns. This is particularly important for SMEs, as they are likely to be left behind with low levels of digitisation.
In other countries, foreign trade participation of SMEs has been improved and strengthened through focused interventions. Within Europe, both small and large economies recognise the need to internationalise SMEs while being internationally competitive. Public instruments have been designed for their expansive export penetrations. Illustratively, in Denmark, a small-size economy, public instruments are used for export coaching.
The VITUS programme is among the best practices. It supports select SMEs with potential and willingness to acquire export order in a target market within a stipulated time of 12 months. In a large economy like Germany, market intelligence and location marketing are important. The market network is developed with support from German foreign missions abroad. In Spain, which has traditional affinity with other regions, newer markets are approached under the IMPACT+ programme and existing markets are strengthened under the NEXT programme.
Often, customised expertise is provided for a fee to ensure that exporter stays committed to export in the future. Turning to the East, SMEs in South Korea have been strengthened through global market information supply, marketing, market research, strategy consulting and global brand development. An export strategy implemented through public instruments is common in all cases.
Likewise, in India, expanding the subject matter of the forthcoming national Foreign Trade Policy (FTP) to include an information programme will go a long way by providing exposure to non-trading SMEs through a consultative mechanism for their trade-related queries. The format can vary from organising periodic sensitisation workshops, to responding to queries in an online platform, or organising exhibitions. Interactive sessions will help in boosting confidence.
To tie it up, information deficit is a fork in the road for internationalisation of Indian MSMEs. A market intelligence and network programme integrated into the FTP will widen the markets for aspiring SMEs while also strengthening existing exporters. Such a policy is also acquiescent to our WTO obligations due to its non-commercial nature.
The author is associate professor, Institute for Studies in Industrial Development, Delhi