Why Free Trade Agreements Will Boost SME Growth In Asia

By Kawal Preet | March 29, 2021

Intra-Regional connectivity offers opportunities for Asia’s small businesses to diversify their operations and target new customers

COVID-19 has been an enormous disruptor for us all since 2020, and Asia Pacific is no exception. It’s not just the economic impact that has rippled around the world; the pandemic has completely changed the fiber of how companies work, transact, manage supply chains and move goods around the world.
Of course, Asia’s economics – and its challenges - are diverse. This region has long played a key role in global supply chains and has strong potential to close in on business recovery in the post-COVID world. For instance, ASEAN’s GDP is expected to stretch to $4.5 trillion USD by 2030, opening huge opportunity to build greater resilience for the future. Recent events prove that when global commerce grinds to a halt, local, domestic and regional trade can continue to sustain the economy. After all, 60% of international trade is intra-regional. But to enable it, connectivity within and beyond borders is essential.
2020 saw intra-Asia trade dip to 13%. But it’s expected to rebound to the tune of 6.6% growth as global demand resumes throughout 2021. That’s why trade agreements - like the Regional Comprehensive Economic Partnership (RCEP) - are significant. The RCEP, signed in November 2020 and pending ratification, will enable a bigger marketplace between ten ASEAN members plus Australia, China, Japan, New Zealand and South Korea. This type of cooperation benefits and strengthens our region. Already intra-regional commerce accounts for more than half of Asian trade, with the intra-Asia trade lane expected to ultimately outgrow the Trans-Pacific. recommendations, cross-selling and CRM (customer relationship management). This all dials back to greater sales, customer loyalty and growth possibilities for small business and e-tail entrepreneurs.

Consumers have come to rely on e-commerce during lockdowns, so retailers must keep selling quality products at appropriate prices without compromising the customer experience. And online shopping needs to expand to the smaller Indian markets, so that all sectors of society can access and use it – not just the middle class. To keep customers coming back, Indian e-commerce businesses are predicted to start shifting their focus to boost customer base through loyalty and subscription programmes this year.
Not only is this the first multi-lateral free trade agreement (FTA) that China has taken part in, but it is the first time that China, Japan and South Korea have entered into an FTA together. The big three East Asian nations -- connected by a free trade agreement for the first time -- stand to gain the most. China's exports are projected to rise by $248 billion thanks to RCEP, with Japan seeing an extra $128 billion and South Korea $63 billion. Trade among the big three in East Asia should account for a significant portion of the increase. Considering China is implementing the “Dual Circulation” strategy, more effective connections will come into action among production, distribution, circulation and consumption in and out of China.

Another beneficial FTA is the EU-Vietnam FTA – approved by the European Parliament and the Vietnam National Assembly and in effect since August 2020 - which highlights the growing importance of Vietnam and Southeast Asia on the global stage. It is a vote of confidence for global commerce – and the small-and-medium-enterprises (SMEs) behind these economies – during this time of recovery.
Because SMEs often interact directly with customers, they are the group most impacted by shifts in trade regulations. These trade deals signal widening opportunity and possibility for change for these SMEs.

Because SMEs often interact directly with customers, they are the group most impacted by shifts in trade regulations. These trade deals signal widening opportunity and possibility for change for these SMEs.
Because SMEs often interact directly with customers, they are the group most impacted by shifts in trade regulations. These trade deals signal widening opportunity and possibility for change for these SMEs.

Many SMEs experimented with operational changes during the pandemic in ways that have created lasting transformation. For instance, one medical device manufacturer we work closely with has a supply chain spanning Singapore, Malaysia, China and the Philippines. They are now flexing manufacturing so that more than one country can assemble their medical devices. By reducing dependency on a single market, they’re creating vital options for their business in the future.
Others are moving their business online given the access made possible to a new customer bases. Consumers – amid lockdowns - turned to online shopping for nearly everything, which accelerated e-commerce growth and resulted in a surge of digital shops. Adoption of online grocery is getting a boost, with an expected annual growth of 30% and online penetration is doubling from 5% in 2020 to 10.6% in 2024. Online retail sales in Asia Pacific are expected to grow from $1.5 trillion in 2019 to $2.5 trillion in 2024, according to Forrester. China remains the largest market in Asia Pacific, expected to reach $2 trillion by 2024.
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This flurry of online shopping and digital transactions has SMEs evolving into international business-natives, linking customers and suppliers all over the world. It’s one of the reasons why, as e-commerce develops, we are focused on innovation and automation technologies that can enable cross-border commerce and help small businesses scale up. Take FedEx Surround, a new ground-breaking collaboration which powers the FedEx logistics network through Microsoft’s intelligent cloud. It gives greater visibility into supply chains with near-real-time analytics of shipment tracking, driving more precise logistics and inventory management.
A reliable logistics partner can be the resilient backbone for SMEs operating at a time of crisis. For example, in addition to flexing its network when needed, FedEx offers interactive e-commerce delivery solutions such as FedEx® Delivery Manager that allows e-merchants to offer their residential customers the ability to customize delivery options, including timing and location of receiving deliveries – a contactless delivery solution at its best.
COVID-19 has been the tipping point for small and medium businesses - and SMEs are repositioning for the future. Together, we must creatively plan and adapt for what’s next. By making it easy for SMEs to do business with their customers, recovery will flourish. We must be future-ready – now.
Stay up to speed on the latest trade deals and small business trends in Asia Pacific? Check our the latest SME business tips and advice here.
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About the Author
the author bio

Kawal Preet

President,
Asia Pacific, Middle East and Africa, FedEx Express

Kawal started out as a FedEx engineer in Singapore over 20 years ago, and she’s now the President of FedEx Express AMEA. Kawal is based in Hong Kong.

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