Facilitating market access by MSMEs

The degree of market access for an MSME can be affected by the trade environment in which it operates. The primary factors include free trade and investment agreements, WTO rules, export products identification, quality standards and certificates, and the transportation system covering international commercial terms and customs procedures.

Free trade and investment agreements
Lower tariff and non-tariff barriers due to trade agreements can result in increased foreign competition in domestic markets. This increased competition drives MSMEs to improve productivity, as those slow to react may face more pressure and even shut down. Local firms can benefit from lower costs of cheaper imported inputs, giving them a competitive advantage in both domestic and export markets. The elimination of trade barriers allows large firms to widen their range of suppliers and indirectly stimulate exports of local MSMEs¹³³. Investment agreements add security, transparency, stability and predictability to the investment framework, attracting more significant investment inflows¹³⁴. As a result, MSMEs have more opportunities to integrate into global and regional supply chains through the forward or backward linkages with FDI (such as subcontracting). These linkages also trigger positive knowledge spillover when MSMEs try to reach the quality standards of TNCs and when trained personnel leave TNCs to start their MSMEs¹³⁵.

Free trade areas formulated by trade and investment agreements are not confined to market liberalization and market-opening measures alone. They are comprehensive and improve economic cooperation, information sharing and personnel exchange, which creates a favourable external environment for MSMEs. In addition, some trade/investment agreements may also be designed explicitly for MSMEs, with the Strategic Action Plan for ASEAN SME Development 2016-2025 serving as an apt example. The plan outlines the framework for MSME development that seeks to ensure the advancement of the MSMEs within the ASEAN region and outside the region.

In enhancing MSMEs’ competitiveness in the liberalization process, governments need to improve long-term capacity and build subcontracting linkages for MSMEs by providing technical and financial assistance, skills or vocational training, and market information¹³⁶. MSME agencies can also help MSMEs better understand and benefit from trade policy reform by offering relevant information and services. Box 13 illustrates the proactive measures implemented by the Singaporean government in promoting enterprise development.

Export product identification, pricing and competition
The identification by policymakers of a potential product for the export market generally requires three steps: (a) analyzing the competitiveness of the home economy; (b) selecting product sectors; and (c) verifying the supply-side capacity of the selected product sectors by conducting an export supply survey.¹³⁷ As shown in figure 3, these stages are followed by a further selection of companies and markets, together with an analysis of possible problems and constraints. After identifying qualified exporters and prospective markets, products need to be defined and their export potential evaluated. Finally, once the product for export promotion has been selected, a strategy for the following processes has to be developed, which involves developing pricing and competition strategies. Figure 2 below illustrates to overall stages of export product identification.

Figures 2. Stages in the process of export product identification

Source: ESCAP, 2001. Export Promotion for Economies in Transition, Central Asia and South Caucasus. Bangkok, United Nations.

Quality standards and certificates plus quality assurance management
Another critical challenge facing MSMEs in developing countries in accessing international markets are the technical barriers they must overcome to meet the requirements of international quality standards. While company-level standardization is often used in large enterprises with specific requirements that differ from company to company, standardization on an industry level is carried out by professional associations and is far more critical¹³⁸. MSMEs should first adhere to these industry standards as a requirement for offering products or services within a country; such adherence builds the basis for fulfilling international standards.

The transport system, international commercial terms and customs procedures
The transport system involves trade logistics and facilitation in international and domestic business transactions. Broadly defined, trade logistics covers transport-related physical infrastructure (e.g., roads, ports and warehousing) and associated services (customs, distribution and information management). Trade facilitation includes any related area ranging from institutional and regulatory reform to customs and port efficiency¹³⁹. Hence, MSMEs must handle these issues to gain market access successfully.