Recent research from FedEx Express reveals the rapidly accelerating global reach of small- and medium-sized enterprises (SMEs) in Asia Pacific (APAC), driven in part by the thriving digital economy.
Overall, the number of SMEs exporting to other regions is up 254 per cent over four years with 71 per cent of Asia Pacific SMEs now exporting beyond APAC.
The research also shows that the patterns of imports and exports into and out of the region have changed with a significant increase in imports (26 per cent of SMEs source materials from other markets outside the region in 2015) and exports (35 per cent of SMEs in APAC are exporting to other regions in 2015), within the Asia Pacific region over the past three years.
The research report titled, ‘Global is the New Local: The Changing International Trade Patterns of Small Businesses in Asia Pacific’, was conducted by Harris Interactive and involved 4,543 senior executives representing SMEs across nine Asian markets (China, Hong Kong, Japan, Malaysia, the Philippines, Singapore, South Korea, Taiwan, and Vietnam).
Shifting trade patterns
The research suggests a shift in international trade patterns: Trade within the region no longer dominates as it has in the past – where 35 per cent of SMEs are involved in intra-regional export in 2018 vs 28 per cent in inter-regional in 2015 – as the level of exports to other regions (71 per cent) is reaching a similar level to that of exports within the Asia Pacific region (70 per cent).
In addition, among the APAC SMEs who source materials from other markets, 62 per cent are sourcing from other regions, which is a significant increase from 26 per cent in 2015.
The contents of imports and exports by APAC SMEs are evolving as well, with professional services and designs now making up a considerable proportion, “which suggests an increasingly prevalent borderless online marketplace today,” FedEx said.
“The global footprint of APAC SMEs is bigger than ever,” said Karen Reddington, president, FedEx Express Asia Pacific. “This growth momentum is expected to stay as majority SMEs (79 per cent of the SMEs in APAC believe that inter-regional exports will increase or stay the same of APAC), believe that they will continue to or increase their exports and imports beyond the region in the next 12 months.
“We are pleased to see that more SMEs are growing their business beyond Asia Pacific with an increasing need for more sophisticated logistics solutions.”
Digital economy driving change
According to the study, the thriving digital economy is one of the key factors driving business growth among SMEs in APAC. In fact, businesses in this region are more enthusiastic and optimistic about how the digital economy will benefit their business (61 per cent), than about the overall economic outlook (41 per cent). In addition, mobile and social commerce are now more widely used in driving growth compared to a few years ago.
New technologies is another key business driver. SMEs in APAC are harnessing new Industry 4.0 technologies to expand their business with a number of them widely adopted by businesses. FedEx noted there is optimism among APAC SMEs about increased adoption of these technologies – including mobile payments, big data or advanced analytics, and software automation – in the next 12 months.
Sixty-six per cent of APAC SMEs indicated that their main motivation to adopt these new technologies is to drive efficiencies in supply chain and distribution channels, thereby driving business growth.
Customs, currency challenges remain
As more SMEs are looking to import and export further afield, common challenges in the form of customs clearance, foreign currency exchange, and logistics issues continue to be the obstacles to SMEs building their business internationally.
Across the region, the consensus among SMEs is that logistics providers can do more to support SMEs as many feel that exporting and importing is becoming increasingly difficult. Specifically, SMEs have reported that they are looking for different shipping options including slower, deferred shipments traveling over ocean (70 per cent) in addition to express shipments travelling by air (62 per cent).
“As a company committed to helping SMEs go global, there are significant opportunities for us to help meet the demands and needs, as well as address the challenges SMEs face in this region,” added Reddington.
Results of the survey indicate that exports by Japanese SMEs have increased and export destinations have become more diverse since 2016. E-commerce is seen as the driver of future revenue growth, and new technologies are expected to enhance supply chain efficiency.
The 2018 survey reveals that on average Japanese SMEs generate USD 698,000 of revenues through exports. The importance of exports has increased, as exports now represent 41 per cent of total revenues, up from 35 per cent in 2016.
Export destinations are also diversifying: While Asia Pacific markets remain the most important, their share of exports has fallen sharply from 98 per cent to 57 per cent. Similarly, 64 per cent of all imports were from outside Asia Pacific.
Currency exchange issues were the most commonly named challenge among Japanese SMEs for both imports and exports. And, as their trading partners are increasingly global, the potential impact of foreign exchange risks on their bottom line is also growing.
Among the surveyed Japanese companies, 27 per cent cited finding new customers in other markets as a concern for exports, making it the third most common response. E-commerce is seen as one way of addressing such issues: The use of digital technologies is expected to grow rapidly, as 45 per cent of Japanese SMEs that are currently using digital commerce to find new customers expect to see their e-commerce revenue increase in the next 12 months.
Despite this, use of digital technologies is low: Only 40 per cent of Japanese SMEs engage in e-commerce, 28 per cent in social commerce, and 23 per cent in mobile commerce platforms. With Asia Pacific averages being twice as high, Japanese SMEs are behind their competitors from other Asian markets.
In terms of challenges, logistics and delivery issues were among the most common both in terms of exporting (fourth at 24 per cent) and importing (second at 25 per cent). At the same time, over half (54 per cent) of Japanese SMEs believe that new technologies can make supply chains and distribution channels more efficient.
As was the case with the Asia Pacific region as a whole, the three technologies most often utilised by Japanese SMEs were automation software, mobile payments, and big data/advanced analytics. However, while the average rate of use for the new technologies included in the survey was 57 per cent for Asia Pacific markets, the rate was only 22 per cent for Japanese SMEs.
FedEx noted that the importance of importing and exporting to generate revenues is increasing, and the expansion of import and export destinations is creating new challenges for SMEs in terms of exchange risks, finding new customers, logistics solutions, and delivery options. Utilising e-commerce and new technologies are vital to addressing those new challenges and achieving further growth through importing and exporting.
Singapore’s small- and medium-sized enterprises (SMEs) are playing a leading role in driving exports in the Asia Pacific, according to the report.
The findings revealed Singapore’s SMEs as the top exporters by revenue in the region last year, generating the highest average annual exporting revenue at USD 1.75 million – accounting for nine in every 10 US dollars of overall revenue, and ahead of the regional average of USD1.21 million.
The city state’s SMEs also appeared ahead of the curve when it came to intra-regional exports, with higher 78 per cent of Singapore firms exporting to other markets in APAC compared to the regional average of 70 per cent.
Digital platforms have emerged as a key driver of export revenue for many of the Singapore respondents, with 78 per cent using e-commerce, 65 per cent using social commerce, and 57 per cent using mobile commerce.
FedEx Express anticipates this trend to continue, considering how SMEs across all three channels have indicated optimism in leveraging e-commerce for increased revenue growth within the next 12 months.
The most widely-adopted new digital solutions seen to boost SME export growth in Singapore are, in descending order, software automation (74 per cent), mobile payments (62 per cent) and big data/advanced analytics (59 per cent). The main motivation indicated for adopting these technologies is to drive efficiencies in supply chain and distribution channels for business growth.
Even non-users also appear to be increasingly recognising the value of Industry 4.0 technologies, with nearly two-thirds of surveyed SMEs in Singapore looking to adopt software automation (32 per cent) and mobile payments (30 per cent) within the next 12 months.
The top three obstacles that they face in exports come from customs procedures (52 per cent), logistics (44 per cent) and foreign currency exchange issues (42 per cent).
“Cross-border trade continues to flourish in Singapore, with mobile and social commerce platforms making access to international markets easier than ever,” comments Audrey Cheong, managing director, FedEx Express Singapore.
“For that growth to continue, SMEs must continue to remain agile in seeking out new innovations to ensure a strong supply chain from end to end,” she adds.
The research shows that 87 per cent of Vietnamese SMEs saw stable or increased exports over the past year, generating an average of VND 23,648 billion (USD 1.02 billion) in revenue, which accounts for almost half (48 per cent) of their overall revenues.
Eight out of ten (80 per cent) SMEs in Vietnam are exporting to markets outside of the Asia-Pacific region, higher than the APAC average of 71 per cent. Some 57 per cent are optimistic and believe they will see further increase in exports to markets beyond Asia-Pacific in the year ahead.
At the same time, SMEs in Vietnam are even more bullish on exports within the Asia-Pacific region, with almost two-thirds (62 per cent) anticipating increased revenue growth in the coming months.
Half (50 per cent) of Vietnamese SMEs are importing from other markets, almost to the same extent that they source within their own markets. Greater product variety and superior product quality are two of the most cited benefits of importing goods. Although raw materials and components top the list of imports, closely followed by professional services and designs, which suggests an increasingly prevalent borderless online marketplace today.
“At FedEx, we see enormous potential for SMEs to grow their business in the international marketplace,” said Hardy Diec, managing director, FedEx Express, Indochina.
“As shown in the research, the strong optimism from small and medium-sized businesses in Vietnam demonstrates that they are looking to drive further growth of exports and imports within the local and global economies.
“To support SMEs, FedEx will continue to enhance our services to deliver fast and reliable connectivity for SMEs to markets within Asia and worldwide. We are committed to help SMEs thrive internationally by facilitating exports and imports, including offering customs support and integrated solutions,” Diec said.
According to the study, the thriving digital economy is one of the key factors driving business growth among SMEs in the region. In fact, SMEs in Vietnam are more enthusiastic and optimistic about how the digital economy will benefit their business (73 per cent), than about the overall economic outlook (57 per cent).
Nine out of ten SMEs in Vietnam are using e-commerce, mobile and social commerce and 76 per cent expect these channels will continue to drive growth in the coming years.
SMEs in APAC are harnessing new Industry 4.0 technologies to expand their business with a number of them widely adopted by businesses. There is optimism among APAC SMEs about increased adoption of these technologies, including mobile payments, big data or advanced analytics, software automation, in the next 12 months.
Forty-three per cent of SMEs in Vietnam indicated that their main motivation to adopt these new technologies is to drive efficiencies in supply chain and distribution channels, thereby driving business growth.
Vietnamese SMEs face the common challenges of Asia in the form of customs clearance, foreign currency exchange, and logistics issues continue to be the obstacles to SMEs in Vietnam building their business internationally.
Specifically, SMEs in Vietnam have reported that they are looking for different shipping options including slower, deferred shipments traveling over ocean (83 per cent) or by road (17 per cent) in addition to express shipments travelling by air (71 per cent).
The results for Korea show that 67 per cent of South Korea’s SMEs were exporting to markets in Asia Pacific in the past year, which is a significant growth from 22 per cent in 2016. Among Asia Pacific markets, Vietnam has become the third largest export market for SMEs in South Korea, reaching 22 per cent, a big jump from 9.0 per cent three years ago.
The top two markets for Korean exports within Asia Pacific are China and Japan. Export revenues for Korean SMEs have become more important over the past three years, accounting for 59 per cent of total revenue compared with 44 per cent in 2016.
Prospects for the import market into South Korea were also positive as respondents believe the value of imports will increase in the next 12 months. Forty-seven per cent said low prices are the biggest benefit of imports, followed by greater product variety (36 per cent) and high-quality products (36 per cent).
As more SMEs are looking to import and export further afield, common challenges in the form of foreign currency exchange (49 per cent) and logistics issues (47 per cent) continue to be the obstacles to SMEs building their business internationally.
The general consensus among Korean SMEs is that logistics providers can do more to support SMEs as many feel that exporting and importing is becoming increasingly difficult. Specifically, SMEs have reported that they are looking for different shipping options including slower, deferred shipments traveling over ocean (69 per cent) in addition to express shipments travelling by air (53 per cent).
“FedEx recognises the challenges local SMEs face and their need for a reliable logistics partner,” said Eun-Mi Chae, managing director of FedEx Express Korea. “Whether selecting sea, air or ground transportation, FedEx offers a range of tailored services to SMEs to facilitate the shipments into and out of South Korea. We continue to support SMEs with discount programs through partnerships with local organisations as well as trade mentoring programmes.”
A thriving digital economy is one of the key factors driving business growth among Korean SMEs. In fact, businesses in this region are more enthusiastic and optimistic about how the digital economy will benefit their business (49 per cent), than about the overall economic outlook (31 per cent). In addition, mobile and social commerce are now more widely used in driving growth compared to a few years ago.
New technologies are another key business driver with optimism among Korean SMEs about increased adoption of these technologies, including mobile payments (53 per cent) big data or advanced analytics (51 per cent), Augmented Reality/Virtual Reality (49 per cent), in the next 12 months.
Fifty-nine percent of Korean SMEs indicated that their main motivation to adopt these new technologies is to drive efficiencies in supply chain and distribution channels, thereby driving business growth.
International demand for Australian products present a significant opportunity for Australian SMEs to grow their business through cross-border trade over the next 12 months, according to the research.
Many SMEs are already reaping the benefits of cross-border trade, with half of the 250 Australian SMEs surveyed citing cross-border activity as accounting for 50 per cent of their annual turnover. The outlook for cross-border trade looks equally optimistic, with nine in 10 SMBs confident that their imports or exports will either stay the same or increase over the next 12 months.
Australian products are in high demand with new cross-border trade opportunities being driven by quality. Australian products remain in high-demand abroad with 49 per cent of respondents citing the perception of quality as one of the predominant reasons, followed by good value for money (38 per cent) and the reputation of Australian-made products (36 per cent). Opportunities remain plentiful, FedEx said, however demand across markets is changing.
When it comes to export, the current top three markets for Australian businesses are New Zealand (34 per cent), China (28 per cent) and the United States (24 per cent). Moving forward, Australian SMEs are looking to increase export to other markets such as India, Germany and Laos.
“Following the success found in exporting to China, SMEs are looking to diversify their exports to Asian countries like Laos and India,” said Kim Garner, managing director, International Operations, FedEx Express.
“This demand is likely underpinned by a growing middle class in Southeast Asia. Southeast Asian consumers have a perception that Australian goods are inherently better quality, a perception that undoubtedly provides a significant market opportunity for Australian businesses,” Garner said.
At present, Australian SMEs mainly import from North Asia (67 per cent), ahead of Southeast Asia (46 per cent). However, respondents are also looking to increase import opportunities in Southeast Asia (52 per cent), including countries such as Singapore, Thailand, Indonesia and Laos.
Delivery and logistics are key to seamless cross-border shipping and trade but despite the clear opportunities, there are challenges to entry into cross-border trade, FedEx noted. The research demonstrates the most prominent challenges preventing Australian SMEs from partaking in cross-border trade are costs (58 per cent) and knowledge (50 per cent).
Trade tariffs (31 per cent), market entry costs (28 per cent) and cash flow (24 per cent) are the key cost barriers, while, complex regulations, compliance and processes (30 per cent), understanding customs requirements (25 per cent) and knowledge and expertise (19 per cent) are the key knowledge barriers preventing Australian businesses from tapping into new markets.
Challenges within the supply chain are also barriers to engaging in international trade, with business owners citing diverse factors such as understanding complex regulatory, compliance and process matters (60 per cent), internal challenges such as cash flow, time and resources (60 per cent) and reliable logistics solutions (59 per cent).
However, delivery and logistics can provide the support that SMEs need to grow their business successfully in international markets. Reliable delivery services (70 per cent), transparent tracking solutions (69 per cent) and affordable delivery solutions (68 per cent) are all critical factors in a successful cross-border trade strategy.
“For Australian businesses, access to global markets connects them to more possibilities to grow their business,” said Garner. “Collaborating with a logistics provider with the global network and know-how is key to successfully reaching global consumers.”
Most SMEs are generally receptive to introducing new technologies into their business to enable business growth. Approximately one in four respondents (76 per cent) have used new technologies over the last two years, and half of SMEs (48 per cent) expect to increase their usage in the next 12 months.
This continued investment and adoption of new technologies is led by the belief that it will reduce costs (41 per cent), speed up distribution (38 per cent) and give access to new markets (35 per cent).
Mobile payments (42 per cent) is the most widely adopted technology by SMEs, while 28 per cent use automation (software) and 22 per cent use big data and advanced analytics to support their business operations.
“While there is an understanding of the benefits these technologies will provide, there are more opportunities for SMEs to further integrate technology into their businesses,” said Garner. “Of SMEs, 41 per cent expect technology will lead to efficiency gains and reduction of costs, while speeding-up distribution and access to new markets are also key outcomes. With these benefits in mind, we are likely to see a greater uptake of new technologies to enhance the cross-border trade process.”