Allowing global trade to fragment risks marginalising SMEs

By Karen Reddington, below, President, FedEx Express Europe

As energy bills rise and consumer confidence drops across Europe, it’s worth remembering the sector most likely to bear the brunt of the current economic storm: small businesses. SMEs are the powerhouse of domestic economies, employing millions and driving innovation. They represent 90% of businesses worldwide and contribute up to 40% of GDP in emerging economies. In the UK, at the start of 2022, SMEs accounted for 99.9% of the business population. It’s therefore in everybody’s interests to help SMEs not only survive, but to thrive and grow.

SMEs have undoubtedly been aided by measures to reduce friction in cross border trade. Since Brexit, the UK has signed trade deals and agreements in principle with 71 countries and one with the EU.  And although Brexit and COVID have clearly had a notable impact on SMEs, UK export levels to the EU have recently been returning to pre-Brexit levels, suggesting a potential sign of gradual adaptation to the new trade regime.

Today however, much larger geopolitical and macro-economic developments, beyond bills and business rates, threaten the vital SME ecosystem. The World Economic Forum recently amplified fears of an impending period of deglobalisation threatening the open trade network, which has been building with the rise of protectionist policies, seen in the US, as well as Europe and Asia.

The impact of the COVID-19 pandemic and the crisis in Ukraine have caused widespread re-evaluation of the security of some global trade lanes. Inflationary pressures and stress on supply chains have mounted in parallel. As a result, governments around the world are considering policies that encourage business to move away from dispersed trading networks in favour of on-shoring or nearshoring.

But while protectionist measures and deglobalisation may offer a temporary additional layer of security in times of geopolitical uncertainty, for SMEs they’re not long-term solutions.

While the costs of on- or nearshoring manufacturing weigh heavily on all merchants, they hit the competitive position and bottom-line results of SMEs even harder. And with protectionism reducing competition, we often see situations of rising costs which ultimately are passed along to consumers.

Plus, protectionism limits the flexibility, creativity and innovation through the procurement of unique global goods, which sets SMEs apart from larger competitors. The ramifications of this should not be understated, particularly for consumer choice: global supply chains enable SMEs to produce the specialized product lines that customers want to see.

It should also be stressed that although the overall structural growth in e-commerce is likely to continue in the coming years, immediate demand is expected to be softer. This is driven by a range of factors, most notably the current macro-economic and inflationary environment being felt across borders and impacting consumer spending. Thus, strengthening the position of exporting SMEs is even more critical.

So how can we prevent a backwards step towards protectionism and deglobalisation? This first needs to be addressed at a policy level, looking outward, and encouraging international, cross-border trade. Open and fair markets can ensure that a small business’ goods are made available faster and more efficiently. A heavy-handed focus on the domestic market through onshoring, nearshoring or the like will only serve to limit their potential.  Ultimately, putting in place the agreements that will protect SME access to the global trading landscape will be necessary if they’re to not only survive but thrive.

Resilient supply chains are best accomplished through government actions that encourage diversification, flexibility, and multi-region cooperation with like-minded countries. Managed trade and protectionist policies are not the long-term answer to make supply chains more resilient. Before exploring such intrusive measures, countries should first examine increased investment in R&D, effective workforce development, a competitive tax code, improved infrastructure, and a good regulatory environment — all can improve competitiveness and innovation.

Beyond this, businesses need robust infrastructure in place to facilitate trade. Logistics companies must continue providing access to foreign markets, enabling SMEs to reach new customers and resources in minimal time as well as at a competitive cost.

At FedEx, we believe everyone benefits when it’s easier to bring new ideas and products to the global market. Trade is the lifeblood of the global economy and global trade is about bilateral flows of goods and services – meaning, the benefits go both ways. Instead of moving away from globalization, economic, political and business leaders should align to build nimble supply chains, ensuring SMEs can keep delivering local products and services to customers around the world.