SME’s losing out to maze of ‘private standards’

TRANSLATION of global trade agreements into business opportunities is the mantra of the Geneva-based International Trade Centre, jointly funded by the WTO and the UN.

As the ITC’s Arancha Gonzalez sees it, that means helping SMEs to internationalise and to navigate obstacles to global trade.

The hurdles are many, she says, not the least of them ‘private standards’ set up by major suppliers such as supermarket chains . . .

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GENEVA — Arancha Gonzalez believes the real game changer in international trade in the 21st century will be small to medium enter- prises (SMEs).

Gonzalez, Executive Director of the Geneva- based International Trade Centre (ITC), says opportunities have grown exponentially for SMEs, but, at the same time, the bar to the global market has also risen sharply.

And she sees what she terms as “private standards” being set by major players, espe- cially supermarkets and hypermarkets, as possibly the single biggest barrier to SME entry into global markets.

The charter of ITC, a joint World Trade Organisation (WTO) and United Nations entity, is, in simple terms, to translate global trade agreements into business opportunities — and to show the way for business to take advantage of new market access.

“What we try to do is to build a bridge between trade as an opportunity and trade as a way to reduce poverty — merging the worlds of the WTO and the UN,” she says. “We are the connector, if you wish.”

Gonzalez told ATI that she and her staff are intimately involved with SMEs, whether they are in Laos or Cambodia or sub-Sahara Africa.

As an example, ITC in April partnered with the Union of Myanmar Travel Association and Myanmar Tourism Marketing in a three-day training event in export promotion for Myan- mar tour operators.

Representatives of 25 Burmese companies attended the training course, which marked the start of a two-year coaching programme aimed at boosting Myanmar’s tourism industry.

Gonzalez says tourism services play a posi- tive role in the Myanmar economy, and it is important that tour operators enhance their 

knowledge and skills in the tourism sector. Export promotion training will allow tour com- panies to play a bigger part in the international tourism industry,” she says.

The ITC is also working with the Chinese Government to help equip SMEs from six least- developed countries (LDCs) in Asia with the awareness and technical knowledge needed to take full advantage of preferential access to Chinese markets. 

She told ATI that the role of the ITC is to work with SMEs to help them internationalise and to navigate obstacles to global trade.

The focus on SMEs is born out of an economic imperative. Gonzalez explains that SMEs form the backbone of economies ranging from devel- oped to emerging models, and that 60 per cent of employers in the world are SMEs.

In general, she says, SMEs have lower pro- ductivity than larger firms — and offer lower wages. “The challenge for trade in the 21st century is how to leverage SMEs to be part of inclusive growth. SMEs participating in inter- national trade are more productive than those that don’t. Productivity equals better wages, and better wages equal better societies.”

The General Agreement on Tariffs and Trade (GATT), predecessor to the WTO, and the UN jointly set up ITC 50 years ago. “At that time,” Gonzalez says, “diplomats at GATT realised that what they were negotiating in GATT had a limited impact on small businesses in their countries because these businesses did not know about the new opportunities.”

(ITC receives an annual budget of US$40 million from the WTO and the UN. Indepen- dently, it raises another US$60 million from donor countries, such as the European Union, Australia and China.)

What started as a resource and information centre to help companies understand that trade was opening up and that tariffs were being reduced has morphed into an entity that now packages trade information and provides market and trade intelligence.

“Fifty years on, the world has moved forward, and it is no longer enough just to pro- vide information,” Gonzalez says. 

“Business tells us that what it needs most is trade and market intelligence — tools that can help business understand how to tap into export opportunities. Businesses want to know which markets, which products, which sectors, and where they could have a comparative advantage. Market intelligence is becoming a huge issue for many businesses.

“We have to support companies in improving their competitiveness. This means giving them advice on packaging, branding, labelling, productivity improvement and so on.”

She adds: “Opportunities have grown expo- nentially for SMEs. This has to do with technol- ogy, which has reduced the cost of distance and trading and opens up many more opportu- nities. You don’t even have to physically move goods any more. SMEs in the services sector can provide cross-border services digitally, so technology has been an amazing enabler for new opportunities.”

But there are many more hurdles along the way in seeking to capture opportunities in the global market.

Gonzalez, who was Chief-of-Staff to the for- mer WTO Director-General, Pascal Lamy, for eight years, and before that spokesperson for trade with the European Commission, says a proliferation of ‘private standards’ is probably the single biggest barrier to SMEs entering the global market. This is why ITC is heavily focus- ing on supporting SMEs in meeting those standards.

“They are not standards set by governments, but rather standards set by companies for a variety of reasons — mostly to stay ahead of the race to sustainability,” she says.

By setting their own standards, companies are seeking to differentiate themselves from competitors, and to impose their own corporate sustainability goals.

“The Rainforest Alliance is a private stand- ard. Fair Trade is another private standard and the list is long. There is no public authority behind them. It is a private company that 

wants to demonstrate to its consumers that it is respecting a certain set of sustainability stand- ards and it requires its suppliers to be certified against this high standard.

“In the beginning, companies thought that having their own private standards would be a good tool for market segmentation. And, of course, consumers, particularly those who con- sider themselves responsible consumers, are demanding more and better information about the products they buy. If they buy coffee, they want to know how it is produced — whether it is produced organically, by women, or without child labour, etc.

“If you are a small coffee farmer in Burundi or Vietnam or Papua New Guinea and you want to export to the US, you need to be certified with these private standards.”

It is with considerable satisfaction that Gon- zalez recounts the story of how the ITC worked with a small coffee farmer, Marey Yogiyo, from the Eastern Highlands province of Papua New Guinea, to break into the export market.

Yogiyo, a mother of five, had been selling cof- fee in her native PNG for 16 years, but obtained an export licence only last year.

She then signed a contract to supply 60 bags of coffee to Olam, the Singapore-based global agribusiness company. The contract, valued at US$18,000, was struck at a price which was more than 60 per cent higher than what the cof- fee farmer had been receiving for her produce in the domestic market.

This year she made her first direct export — sending a shipment of her Bauka Blue beans to the United States. Now she hopes to be the catalyst to encourage more than 600 coffee-growing households in her province to join her in the export trade.

(On its corporate website, Olam says it is committed to responsible growth, and believes that it is only by doing business in a sustainable way that long-term value for all stakeholders can be delivered. Olam is revolutionising seed- to-shelf supply chains through what it calls the Olam Sustainability Standard. It says each step of Olam’s value chain is being examined to identify and implement measures to sustaina- bly deliver products across all of its geographies by 2020.)

The ITC has created a tool — a dedicated website on private standards — to help farmers comply with private standards. Farmers can in 

put the production data to benchmark against the various private standards to see whether their product is compliant and fits into the value chain of the buyer.

The website is at www.standardsmap.org

It provides information on more than 170 private standards, codes of conduct and audit protocols, addressing sustainability hotspots in the global supply chains.

“It has become a huge tool for business. We have thousands of companies every day tap- ping into this tool to check out whether or not they can become a supplier to an importer’s value chain,” says Gonzales

The global trend to private standards is a worry for developing countries, according to the WTO, which in a survey has found that the main entities imposing private standards are large retailers, such as supermarkets and hypermarkets.

The survey identifies the products most affected by these standards as fresh fruit and vegetables and fresh, chilled or frozen meat.

In March this year, the sanitary and phsy- tosanitary committee of the WTO agreed to work on a definition for private sector standards for food safety and animal and plant health.

On top of private standards there are quality standards, says Gonzalez. “Quality standards today are much tougher to achieve than 20 years ago. Why is that? Because middle class consumers are becoming more demanding, and their ranks are growing rapidly. They used to live in developed countries, but today an increasing number come from developing countries.

“The Chinese consumer wants to know the milk powder is of a good quality, that the infant formula has certain quality standards — and that it has been checked, verified and certified against those standards.

“The Indian customer who buys a mobile phone doesn’t want that phone to burst into flames. So it is this middle class that is pushing for better quality. It is a global trend. There is no substitute for quality.”

The work of ITC is labour-intensive. “This is why we work with Chambers of Commerce and with trade and investment organisations. They are our replicators on the ground.”

In Australia, the ITC works with the Govern- ment agency Austrade. “Austrade is a partner in helping its equivalents in developing coun- tries move up the ladder in terms of their offer- ings of help to SMEs in their countries,” Gonza- lez says.

While all these initiatives are important to SMEs the world over, she adds that, equally crucial for these companies, often starved of capital, is access to financing — and to be innovative. “SMEs have to constantly strive to stay ahead of the curve.”

They also have to be able to cope with the digital economy. Gonzalez says the Internation- al Chamber of Commerce (the umbrella entity for the World Chambers Congress) has a huge role to play in assisting SMEs as they move increasingly into the digital economy.

“It is no longer about paper,” she told ATI. “It is about digital, virtual market places, digital signature, digital customs, digital contracts. It is about better exploiting the digital world. It is about better exploiting the crowd funding space. All these issues are important for many SMEs in the 21st century.

www.standardsmap.org