The role of small and medium-sized enterprises (SMEs) to Asia’s economies is continually underestimated. News reports focus on public companies and their financial results. Global giants and emerging “unicorns” grab the headlines and our imaginations. Yet SMEs account for the majority of employment across the region, and substantial proportions of economic output, ranging from 37% in India and 45% in Singapore to 60% in China, according to the Asian Development Bank.
So, when SME trade trends shift, it makes an important economic difference. Such a change is happening now, as revealed by FedEx Express’ annual APAC SME Research Report*. For the first time, the proportion of SMEs that export beyond Asia exceeds the proportion who export only to countries within the region. For Asian SMEs, the world is now truly their oyster.
Overall, the number of SMEs exporting beyond Asia is up 254% over four years. Trade within the region now accounts for more than half (53%) of export revenues, compared to 42% in 2016. Global exports have become more valuable too: the average annual revenue generated by exports beyond the region is US$641,000, 13 percent higher than the comparable average value of exports within the region.
China has the highest proportion of exporting SMEs that sell to markets beyond Asia (83%), closely followed by Malaysia (82%) and Vietnam (80%). Even in Japan, the region’s most developed domestic economy, two-thirds of SMEs that export sell their goods and services outside of Asia, up from under half (48%) in 2016.
Import patterns are shifting too, again trending toward globalization. Nearly half (46%) of Asian SMEs are sourcing materials internationally. Among these SMEs, 68% import from within APAC, while 62% import from other regions, up from just 26% three years ago.
Diversification mitigates threats to globalized SME trade
Sustained increases in overall global trade since the formation of the World Trade Organization in 1995 have recently been threatened by a resurgence of protectionist sentiment. Barely a week goes by without new fears being stoked about looming trade wars and widespread, punitive tariffs.
Yet Asian SMEs are optimistic about exports. Almost four out of five (79%) Asian SMEs surveyed believe that they will maintain or increase their imports from other regions in the next 12 months. More than 40% of SMEs believe that their exports beyond Asia will grow, up from 23% two years ago. Why so cheerful?
One compelling answer is that Asian SME export markets are highly diversified, reducing dependence on any one export region or market.
The United States’ position as the world’s most important economy is not reflected in the exports of Asian SMEs. Perhaps surprisingly, the most important destination outside the core of Asia Pacific region for SME exports is now Central and South Asia, with 37% of Asian SMEs exporting to it. Next is Europe, at 33%, while the US is only the third most important market, at 24%. Patterns vary by country, but the US isn’t the top export destination for SMEs in any country surveyed, and breaks into the top two only in Japan, the Philippines and Vietnam.
Technology levels the playing field
Without extensive international resources and large export departments, Asian SMEs have always been at a disadvantage in terms of global trade compared with their larger counterparts. It’s not surprising that, until now, those SMEs that do export have targeted primarily other Asian markets, where relatively short distances, common cultures and traditional connections have created paths of least resistance.
Yet the emergence of new technologies and their widespread adoption by Asian SMEs have undoubtedly played a leading role in making the world significantly smaller for SME exporters, and international trade easier.
Four in five (82%) APAC SMEs are using e-commerce, which is a key driver of exporting and importing behavior. Of the 58% of SMEs using e-commerce to find new export customers, e-commerce accounts for 40% of total revenue on average as compared to 23% in 2016. Almost two-thirds (64%) of SMEs using e-commerce expect to see an increase in e-commerce revenue in the next 12 months, up significantly from 40% just two years ago.
Mobile and social commerce are also widely used by Asian SMEs that export. M-commerce is now used by 72% of SMEs compared with 61% in 2016, with half (51%) of them using m-commerce to find new export revenues.
Social commerce, meanwhile, is now practiced by 74% of SMEs compared with 64% in 2016, with half (52%) of them using social commerce to find new export revenues. Asian SMEs are seeing the value of social commerce in a number of areas of their business, including helping them identify new customers (43%) and suppliers (38%), providing customer support (42%) and in tracking deliveries (39%).
Trade and Industry 4.0
The impact of technology is not restricted purely to trade operations. The FedEx Express research report “Global is the New Local: The Changing International Trade Patterns of Small Businesses in Asia Pacific” also reveals evidence that Asian SMEs are increasingly adopting a number of so-called Industry 4.0 technologies that impact overall efficiency, innovation and competitiveness.
Among current users of new technologies, a significant proportion of SMEs said they are likely to increase use of mobile payments (69%), big data/advanced analytics (64%), software automation (61%) as well as artificial intelligence (60%).
Almost two-thirds of Asian SMEs agree that using emerging technologies is helping to drive efficiencies in supply chain and distribution channels. Among those SMEs who are not using new technologies, 30% plan to begin using mobile payments, 28% plan to use software automation, and 27% say they will be using big/data analytics in the next 12 months.
Old Challenges and New
With technology, the traditional, fundamental challenges that Asian SMEs faced in doing business internationally, such as the lack of physical presence in export markets and language barriers, are today the least of their concerns. Even payment issues and finding new customers in export markets appear relatively low on the list of challenges, cited by 32% and 37% of SMEs respectively.
E-commerce, mobile and social commerce are putting powerful communication and operational tools into the hands of the SMEs that need them most. The net result is the growth in both the global export reach and the confidence of SME exporters, as revealed in the data.
Yet important challenges remain. Almost half (49%) of Asian SMEs worry over customs procedures, while 45% cite currency exchange issues and 43% are concerned about logistics and delivery issues. Completely seamless and borderless international trade for SMEs remains some way off. But Asian SMEs clearly have the appetite and, increasingly, the tools to take on the world.
* The independent study, entitled “Global is the New Local: The Changing International Trade Patterns of Small Businesses in Asia Pacific”, was conducted by Harris Interactive on behalf of FedEx Express to offer insights into import and export opportunities and challenges facing SMEs. The results are based on interviews with 4,543 senior executives of SMEs held online and by telephone in Mainland China, Hong Kong, Japan, Malaysia, Philippines, Singapore, South Korea, Taiwan and Vietnam between March and April 2018. Interviews were split equally by market with a representative mix of company sizes: micro (1-9 full-time employees), small (10-49 full-time employees) and medium (50-249 full-time employees). The sample size was approximately 500 respondents per market.
 Table 1.2: SME Share of Enterprises, Exports, and Output, Selected Asian Economies “SMEs in Developing Asia, New Approaches to Overcoming Market Failures”, Asian Development Bank Institute, 2016
 “Global is the New Local: The Changing International Trade Patterns of Small Businesses in Asia Pacific“, a commissioned research study conducted by Harris Interactive on behalf of FedEx Express, July 2018.