The Internet has reshaped production, distribution and consumption patterns at a global scale. The resulting markets are highly efficient, transparent and characterized by low barriers to entry. However, so far little attention has been given to the fact that small and medium enterprises (SMEs), particularly those in the global south, are among the largest beneficiaries of this development. To shed some light on this exciting new trend, CCIA co-organised a workshop with eBay and the Grameen foundation of Indonesia during the Internet Governance Forum in Bali this week.
CCIA’s Nick Ashton-Hart kicked off the session by providing some context to the profound economic effects of the Internet. As he pointed out, only half the world’s population is currently connected but every day, 678’000 go online for the very first time. In light of this, the economic development we have witnessed so far should be seen as the mere beginning of a far-reaching transformation. In this context, it is important to keep in mind that three quarters of the the economic benefits of the Internet go to traditional industries, not to core Internet services.
Farid Maruf, country director for Indonesia at the Grameen Foundation, provided an overview of their Internet-enabled initiatives to help alleviate poverty. As he pointed out, the ability of Indonesia’s 147 million poor people to improve their livelihoods is severely compromised by three factors: the lack of actionable information, the inability to absorb financial and other shocks, and the persistence of insufficient and inconsistent incomes. Grameen’s strategy to address these problems are threefold:
- provide information services to collect and disseminate trusted, actionable information;
- provide appropriate financial services to manage household cash flows; and,
- provide personalized economic advice based on specific client data.
In cooperation with a network of donors and partners such as Qualcomm, the Grameen foundation has built a range of services that empower micro entrepreneurs across Indonesia. This includes mobile payment systems, online sales channels and an online network to share and disseminate vital market information. It also includes KerjaLokal a mobile platform that matches blue-collar job seekers with employment opportunities in their area.
Usman Ahmed, Policy Counsel at eBay, followed with a presentation on the use of online marketplaces by developing country SMEs. According to a recent study that compares distribution patterns of small sellers on eBay with their offline peers in developing markets, there is a remarkable correlation between the use of online services and the probability of an SME to export. “In a traditional trade model”, he explained, “a small producer in a developing country would link into a large multinational who produces locally, in order to ship it to a developed market.” In the Internet age, this model has been complemented by one in which sellers connect directly to foreign customers through online platforms. While this model will not completely replace conventional distribution patterns, it is an exciting development that empowers small entrepreneurs in the developing world.
However, the continued success of this new trade model depends on a number of factors:
- online services like eBay depend on the underlying layers of the Internet to remain open and accessible at a global level;
- sellers depend on balanced international intellectual property rights to avoid the creation of fragmented national markets; and,
- buyers rely on internationally harmonised consumer protection rights and customs laws.
The latter can be quite a problem. Even in developed countries, as Nick Ashton-Hart, pointed out, it is not always possible to reclaim import tax when a good is returned. This creates a significant barrier for online commerce as consumers take a disproportionate risk when buying abroad.
Towards the end of the session, the discussion turned to the international trade regime. As Usman Ahmed pointed out, trade rules were created during a time when only large Western multinationals traded goods internationally. As a result of this, free trade agreements are often seen by critics as a means for these businesses to flood developing countries with their products at the expense of local producers. However, the trends described in this workshop will eventually create enough pressure for international trade rules to become more SME-friendly. Hopefully, this will help smooth some of the traditional fights in the international trade discussion.