2020 was a highly unpredictable year, which is why international trade trends this year are likely to focus on bringing adaptability and identifying various growth opportunities across the globe. Steven Paul and Andrew Lambert provide a perspective. Read on.
For small and medium businesses, now is a good time to enter the global marketplace. Currently, the most dynamic growth markets are called “emerging markets” which offer high-risk and high-return opportunities for investors. Statistics show that emerging markets will account for over $53,496 billion in GDP by 2026.
However, the COVID-19 pandemic has posed a challenge that has stymied growth across all economies. As such, the GDP from emerging and developing economies contracted by 3.3% in 2020 but is expected to expand by 6% in 2021 and 5.1% in 2022.
Industries Most Impacted by International Trade and Globalization
Most emerging markets lag behind developed countries when it comes to financial sectors. In recent years, many of these governments have introduced reforms, including regulations around financial services. For example, in 2018, the government of Argentina removed capital controls and foreign exchange restrictions, got rid of lockup periods for investments, and eliminated cash reserves in the equity market, leading to it regaining its status as an emerging market.
In other countries of the world, restrictions on foreign ownership have been relaxed across various sectors, including banking, real estate, and education. This allows foreign participation and the establishment of joint ventures between domestic companies.
Technological development is also driving growth opportunities in markets around the world. In addition to innovation and entrepreneurship, increased use of app-based services and penetration of mobile services have been witnessed, which has provided many benefits to sectors other than the financial division.
In the first quarter of 2021, global trade saw rebounds and an increase by about 10% year-over-year and 4% quarter-over-quarter. Exports from East Asian countries are driving the rebound as well as their early success in COVID-19 pandemic mitigation. China, India, Brazil, South Africa, and particularly South America have impacted trade in various ways and increased the potential size and value of the current international trade while facilitating the arrival of innovative new companies.
In particular, China’s exports have showed a strong increase from pre-pandemic and 2021 levels. In comparison, exports from the Russian Federation remained well below pre-pandemic levels. Another example of high-growth sector in the emerging markets is ecommerce in Indonesia, which is showing a trend of improving infrastructure, and rising spending power. The automotive and aerospace industries in Mexico have also been boosted by favorable trade deals and regulatory reforms.
The United States and the European Union have the most integrated economic relationship in the world. Although surpassed by China in the first half of 2021 as the biggest importer for EU, the US remains the bloc’s biggest trade and investment partner. The combined economies of both these countries amount to 40% of the world’s GDP and over 40% of global trade of goods and services.
The United States and the European Union remain the biggest drivers of the transatlantic relationship and continue to contribute towards job and economy growth on both sides of the Atlantic despite the challenges posed by the pandemic. About one-third of this trade consists of intra-company transfers.
Trends in International Trade
2020 was a highly unpredictable year, which is why international trade trends this year will focus on bringing adaptability in response to ever-changing circumstances.
Cooperation Among Countries: Countries cooperate with each other through international organizations, treaties, and more. This type of cooperation encourages globalization since it results in the elimination of restrictions and highlights agendas that reduce uncertainty about what the companies are expected and not expected to do.
Agility: From turning the in-office workforce to remote teams and transforming physical stores into online stores, companies that are adopting agility will continue to innovate in the digital realm, including technology enabled sectors e.g., FinTech, Healthtech, Edutech, InsureTech, PropertyTech and so forth. These sectors have cross-geographical linkages, which promote international trade. Businesses will need to look outside of the box to rethink their customer bases and needs, the wider ecosystem, whether it be for online shopping, learning, network business collaboration and partnerships or beyond.
Market Diversification: Although there are a lot of benefits to localization, some markets perform even better with diversification. Exporters specialize in their production and can take advantage of economies of scale. They can communicate with and learn from foreign consumers and suppliers, as they learn to cope with competition by making better investments and improving business practices.
Steps SMEs and Large Corporations Take to Unlock International Trade Issues
Across all countries, SMEs account for about 60% to 70% of the workforce and are a very important source of economic activities as well as good support for inclusiveness.
However, in spite of all that, SMEs continue to be underrepresented in international trade in comparison to large corporations. In addition, they also have a smaller share of exports relative to their proportion of overall employment and activity. This is because SMEs have fewer resources that are insufficient to meet the high cost of engaging with international markets. They also face challenges when it comes to navigating foreign markets and may not easily be able to fulfill the complex regulatory requirements.
However, the rise of the digital revolution and global value chains offers new opportunities to small and medium businesses to participate in international markets. The key lies with governments that can create policies that can help SMEs take advantage of the global opportunities and accelerate innovation
How Can the Institute of Directors (IOD) and Chamber of Commerce Help?
Although SMEs face many of the same pressures and obstacles as large corporations, they are more ill-equipped to cope with them. This means that it is the job of the policymakers to step forward and work to lower trade costs, facilitate easier methods of connectivity and trade, ensure local partners, and reduce barriers to trade.
Through agencies like the ICC and the IoD, SMEs can make their voice heard and help the government learn what steps are needed to support trade internationally.