WTO's impact on SMEs

Small and Medium Enterprises (SMEs) are considered the backbone of the developed and the developing economies. SMEs have played a significant and important role on a global basis in boosting the economies. That has helped the managers taking off the blinkers and seeking innovative ways to establish cross-cultural relationships becoming the leaders and positioning themselves for future opportunities in the growth markets of the world.
In a borderless village, SMEs role in generating new jobs, and meeting the demand of goods and services and in turn contributing to the GDP is going to increase manifold. Recognising the importance of the SMEs the governments in almost all the countries have been vigorously seeking new ways and innovative means to promote and develop them.
While the positive role of the SMEs in the exciting new economy cannot be ignored they are expected to encounter unprecedented challenges apart from opportunities. More practical strategies and solutions need to be delivered to SMEs in various countries especially those in the developing economies.
The World Trade Organisation (WTO) is in the process of setting global rules for international trade with a view to ensure smooth flow of commerce and as freely as possible. In this competitive environment, SMEs look to governments to further level the playing-field for their continued growth.
SMEs culture testifies the fact that SMEs have always looked upon the public sector officials for leadership and support in international trade, whether it be in the areas of trade facilitation, market access or entry into the new emerging realm of electronic commerce.
IMPACT OF WTO ON SMES: The World Trade Organisation (WTO) negotiations provide a unique opportunity to engage the largest business community - small and medium size enterprises (SMEs) in a process that could lead to their expanded international growth.
In this context, it becomes all the more important to examine the topical issues confronting the SME sector and issues such as impact of WTO on SME's access to markets and technologies, strategies and policies to be adopted in the linkages with focusing on developing strategies and policies to help guide SMEs in today's globalised economy.
SMEs need to adapt, revitalise and reposition themselves in order to seize the opportunities thrown open in the new globalised world. Small industry world-wide is extending the frontiers of business by using the Internet. It is the internet that is fundamentally changing the rules of business because of its cost effectiveness and vast reach.
It is, therefore, necessary that SMEs adopt e-commerce as an important tool and avail of the new opportunities.
Sensitising small and medium enterprises (SMEs) to the realities of the World Trade Organisation (WTO) regime is more important than debating on reservation or otherwise of the small-scale sector.
The WTO system has served US SMEs well over the last decade. The US Department of Commerce data show that SMEs have grown steadily in the international trade. The vast potential SMEs possess for the global marketplace, however, remains largely untapped. For the ten year period ending in 1997, the number of US firms exporting goods tripled to a total of 209,455.
The bulk of that growth is SMEs merchandise exporters accounting for 96.5 percent of the total (202,185 firms) and very small companies (those with less than 20 employees) make up nearly two-thirds of all US exporting firms. But in terms of the value of US exports, SMEs account for only 30.6 percent of merchandise exports.
Small and medium enterprises contribute significantly in production and employment in Japan. In 1992, they represented 99% of all enterprises and of manufacturing enterprises, and provided 79% of all employment and 74% of manufacturing employment.
Similarly, the growing significance of SME's in China's economy is hard to ignore. Chinese and foreign experts estimate that SMEs are responsible for about 60% of China's industrial output and employ about 75% of the workforce in China's cities and towns.
SMEs are responsible for creating most new urban jobs, and they are the main destination for workers laid-off from state owned enterprises that re-enter the workforce.
The smart SMEs are recognising the changing environment that surrounds them, they are adding more value and adapting and embracing overseas competition. Gone, or going are the traders who add little value.
Enter the smart players finding more innovative ways to maintain and build on a unique cultural and geographical advantage. Many are starting to merge with foreign companies and work in partnerships and alliances, while others are closing, unable to adapt to the combination of tough times and a different set of business models as these direct cross-strait relationships evolve, SMEs companies across the world, will need to re-tune their activities and find ways to capitalise on their strengths.
China's entry into the WTO is seen as dramatically reducing market access barriers currently imposed on exports of goods and services, including those exported by small-and medium-sized enterprises (SMEs-companies with 500 or fewer employees).
The Chinese Market is increasingly important to Small Businesses. A dominant and growing share of US exporters to China are SMEs:
-- Eighty-two percent of all US exports to China in 1997 were SMEs. SMEs generated over 35% of total US merchandise exports to China in 1997.
-- The number of small firms exporting to China has risen at a rapid rate. From 1992 to 1997 the number of SME' s exporting to China surged by 141% compared to an 81% rise in the number of large-company exporters.
-- The value of SMEs exports to China more than doubled (107 percent) between 1992 and 1997, increasing by nearly $2 billion. This made China the third largest growth market for SMEs globally over this period.
SMALL BUSINESSES ARE EXPECTED TO BENEFIT IN MANY WAYS FROM WTO COMMITMENTS:
-- The significant reduction of tariffs may help SMEs exporting to other countries to compete on a more level playing field with companies located there.
-- Paperwork costs for SMEs will be reduced significantly as customs and licensing procedures will be simplified and made uniform throughout the world.
-- Easier access to and more control over distribution systems will allow SME companies to oversee commission agents' services, franchising services, transportation, wholesaling, repairs, and retailing of their products.
-- SMEs exporters will receive uniform treatment with regard to tariffs and the same treatment as domestic firms for taxes. The streamlining of requirements for trading is particularly valuable to SMEs, which typically have fewer resources than larger businesses to deal with often complex and costly regulations.
-- Each member country will be required to conform its standards and inspection procedures to WTO norms, eliminating excessive testing requirements and other barriers that are especially disadvantageous for SMEs.
-- Stronger enforcement of intellectual property rights through the WTO will benefit SMEs. Companies making "cutting-edge" products that involve unique technologies or processes.
So how do SMEs from across the world capitalise on this state of flux? Proven products technologies, methods and systems from developed countries are always welcome by companies that are in a position to apply them or add value in some other way.
Establishing a relationship with the right company and undertaking appropriate due diligence in a framework of open co-operation (or in some cases competition) can facilitate entry into a lucrative market that would otherwise not be possible.
A matter of deep concern for the developing countries is the virtual reluctance of the EU and the US to allow meaningful access to their products and creation of non-tariff barriers in various forms.
Although Quantitative Restrictions (QRs) are not overtly applied, the developed countries are resorting to other methods of curbing imports from the developing countries such as standards, subsidies, sanitary and physto-sanitary grounds and anti-dumping proceedings.
While it may not be possible to afford effective tariff protection to domestic producers facing competition from imports on account of developing countries commitment to bring down tariff levels in due course, the import duties can, at best, somewhat alleviate price competition and provide breathing time to SMEs for adjusting to the new market realities.
In the services sector also, while the US and EU have called for greater market access for their service providers in the markets of developing countries, the EU is now launching a wide public consultation on the requests from other WTO members for improved access to the EU services market.
The WTO dispensation could have the impact of exposing SMEs products to competition from imports even in the domestic market. While there may be reason for genuine apprehension about the immediate impact of liberalised imports on some small- scale industries, SMEs should seize the opportunity to accept the challenges of discarding their dependence on a protected market and adapt themselves to face international competition Industry should stop depending on the authorities, and instead, seek to educate itself on the future trade scenario.
There is a need to rebuild confidence, as the coming years are bound to trigger a trade war and wrest the initiative by working out a thinking mechanism.
The safeguards agreement under WTO is independent of the anti-dumping mechanism and has to be understood clearly by the industry, particularly the SME's.
The government, in its role as a facilitator, could encourage quality up-gradation through various measures, enlarge credit availability, adopt anti-dumping measures, wherever required, and help disseminate information about technical standards.
The most important step to help SMEs would be to empower them to compete with imports as well as the products of large domestic enterprises. For the purpose, support in different forms like capital, high technology, marketing and advertisement resources, need to be devised as a short time protective barrier for some of the critical items. We must give more time and support to the SMEs sector to strengthen itself for facing global competition.
While all this may not tell the whole story, but one must recognise that the SMEs are the mainstay enterprises in most economies, and the WTO dispensation may help them in reaching their international market potential both for goods and services, maybe through the process of networking, international linkages and partnerships, and foster new vistas of growth and opportunities for them.
WHAT WE NEED TO DO:
-- The role of SMEDA needs to be redefined. It should be transformed into a vibrant institution to serve as a "think tank" guiding the entrepreneurs regarding the challenges the SMEs are expected to face in an era of globalisation;
-- Industrial estates be created with clear-cut objectives to house certain category of industries having potential to meet the local as well as global challenges;
-- Promotion of SMEs with particular emphasis on exports;
-- Develop strategies focusing on competitive edge;
-- Remove functional bottlenecks hampering smooth operations of the SMEs;
-- Financial assistance/loans on minimum mark-up;
-- Fiscal and Tax incentives;
-- Guidance to encourage technology development;
-- Modernisation of the existing machinery and equipment;
-- Disseminate information updating the SMEs on ensuing global challenges to keep them abreast of the latest developments which may affect their competitive edge in terms of price and quality.