The MSME sector is crucial for economic growth and innovation in today’s interconnected world, but it faces significant challenges in the global trade landscape, including trade wars, tariffs, and supply chain disruptions. This article examines these obstacles and offers a roadmap for MSMEs to navigate them and achieve sustainable growth.
Global Trade Patterns: According to the World Trade Organization (WTO), global merchandise trade reached a new high of $32.1 trillion in 2021, driven by a strong recovery from the COVID-19 pandemic. Over the past years, though, the global trade growth had slowed down due to these geopolitical conflicts and economic uncertainties.
MSME Contribution: MSMEs are integral and important part in world trade. They constitute a significant share of the exports and imports. For instance, MSMEs are a significant source of employment and economic growth for most developing economies.
The following graph illustrates the trend of world trade from 2014 to 2022.
- Global trade experienced significant growth in the years leading up to the COVID-19 pandemic.
- Trade tensions between the US and China, as well as other geopolitical factors, had negative impact on trade growth.
- Global trade declined sharply due to the COVID-19 pandemic in the year 2020 and then picked up rapidly in 2021 and 2022.
- Ongoing supply chain disruptions and economic uncertainty have continued to challenge global trade in recent years.
Challenges Faced by MSMEs in Global Trade
- Trade Barriers: Widespread use of tariffs, quotas, and other non-tariff barriers pushes the cost of doing business much higher for MSMEs, making them almost less competitive in foreign markets.
The graph shows tariff rates for five countries: India has the highest rate at about 6%, followed by China at around 3%. Japan and Germany have similar rates slightly below 2%, while the United States has the lowest rate, above 1%, indicating the most liberal trade policies.
- Supply Chain Disruptions: Global pandemics, natural disasters, and geopolitical tensions might keep on disturbing the supply chain of any MSME up to a certain level, leading to delays, increased costs, and potential losses for MSMEs.
MSMEs commonly face disruptions such as raw material shortages (45%), transportation delays (30%), labor shortages (20%), and energy crises (10%). Other disturbances include increasing competition (5%) and exchange rate fluctuations (5%). These challenges can significantly impact supply chains, raising costs, limiting production, and affecting market demand.
- Currency Fluctuations: The increased volatility in the exchange rate impacts the profitability on exports and imports, making it difficult for MSMEs to predict revenues and costs.
- Limited Access to Finance: MSMEs often find it difficult to access finance to increase their operations, invest in new technologies, or absorb economic shocks.
- Lack of Market Knowledge: In venturing into new markets, a lot of research must be done regarding local customs, regulations, and consumer behavior. MSMEs may lack the resources to conduct thorough market analysis.
Strategies for MSME Competitiveness
- Diversification: To mitigate risks from relying on a single market or product, MSMEs should diversify their export markets and product lines, enabling them to better cope with economic downturns and trade disputes.
- Digital Transformation: Embracing digital technologies can boost MSME efficiency, reduce costs, and expand market access through e-commerce, digital marketing, and supply chain management software.
- Partnerships and Collaborations: Strategic partnerships with larger companies, industry associations, or government agencies can give MSMEs access to new markets, resources, and expertise.
- Compliance and Standards: Adherence to international standards and regulations is essential for gaining market access and building trust with customers. MSMEs should invest in quality management systems and seek relevant certification.
- Risk Management: Identifying and managing potential risks is vital for MSME survival, requiring the development of contingency plans for supply chain disruptions, currency fluctuations, and trade policy changes.
- Government Support: Governments can become significant players in the betterment of competitiveness of MSMEs in terms of export policies, fiscal benefits, and infrastructure development.
Case Study: Leaf Plates India
Introduction :
Leaf Plates India is an innovative MSME that manufactures eco-friendly disposable crockery from natural leaves, offering a sustainable alternative to plastic. The company has thrived in domestic and international markets by meeting the growing demand for sustainable products, including plates, bowls, and utensils. By targeting eco-conscious consumers and leveraging government initiatives like the National Clean Energy Fund, Leaf Plates India has established a strong global presence.
Challenges:
- Global Trade Competition: Competing against large plastic manufacturers required Leaf Plates India to emphasize the environmental benefits of its products.
- Supply Chain Issues: Ensuring a consistent supply of quality raw materials, such as leaves, proved difficult, particularly in rural areas.
- Cost and Pricing: Sustainable materials were more expensive than plastic, which made it difficult to reconcile the commitment to sustainability with profit.
Strategies and Lessons Learned:
- Niche Market Focus: By targeting environmentally conscious consumers and markets with strict environmental laws, the company found success in international markets.
- Government Support: Leaf Plates India employed government schemes and MSME financing to support growth and sustainable practices.
- Sustainable Branding: The company marketed the social and environmental impacts of its product, developing a brand tale that was even more convincing on sustainability.
- Sustainability and eco-friendly branding can serve as a strong competitive edge.
- Leveraging local resources and government support is crucial for growth.
OCI’s journey from a small-scale textile unit to a global leader demonstrates the immense potential of Indian MSMEs in the international market.
Growth of E-commerce Globally: E-commerce has exhibited tremendous growth globally in many regions because of increased penetration of the Internet, increase in users of mobile devices, and consumers’ increasing demand for convenience.
Asia-Pacific Asia-Pacific is the largest e-commerce market, led by China with over $2.17 trillion in sales in 2023, representing over 50% of the global total. India and Southeast Asian countries like Indonesia and Vietnam are also experiencing rapid growth, driven by increased smartphone usage and government support for digital infrastructure.
- North America ranks second in e-commerce, with U.S. sales reaching $1.1 trillion in 2023, driven by major players like Amazon and Walmart. The region enjoys high consumer trust in online payments and efficient shipping options..
- Europe e-commerce market, valued at $820 billion in 2022, has seen steady growth, with the U.K., Germany, and France as the largest markets. EU regulations on consumer protection and cross-border trade have further supported this expansion.
Government Support Programs for E-commerce:
- United States: Programs like the Small Business Administration’s (SBA) e-commerce initiative provide resources and grants to promote online expansion of small businesses.
- European Union: The EU’s Digital Europe Programme provides funding for SMEs to implement digitalization across their businesses, including e-commerce. COSME, an EU program, also helps small businesses scale globally.
- India: Government initiatives like Digital India and Startup India provide financial support and technological assistance for e-commerce growth, especially among MSMEs.
- China: The Chinese government is very supportive of e-commerce through Made in China 2025, encouraging digitalization and online retail. Local governments provide subsidies and grants to boost rural e-commerce.
Most MSMEs struggle to navigate the global trading market, but with the right tools and strategies, they can overcome these challenges and achieve long-term success. By focusing on diversification, innovation, and resilience-building, MSMEs can strengthen their position and compete effectively in the dynamic global market.