Asia’s small and medium-sized enterprises (SMEs) may benefit from increasing demand on China’sdomestic market and rising trade volumes in Asia as the world economy emerges from the financial
crisis towards recovery, according to a new study for FedEx Express.Entitled “Towards the Recovery: Challenges and Opportunities facing Asia’s SMEs,” the study,which was commissioned from The Economist Intelligence Unit (EIU), shows that while cost controlsremain crucial to survival, SME exporters may benefit from both new sources of consumer demandwithin Asia, and from the rising volume of trade within the region, especially if more advantage istaken of its many Free Trade Agreements (FTAs).
One of the report’s key findings examines how SMEs stand to benefit from two new interlockingdynamics within the economies of the Asia Pacific region. The first is a need to rebalanceeconomies in the region to reduce their reliance on consumer Western markets and turn theirattention towards domestic demand. The second is intra-regional trade, by which SMEs in smallermarkets in Asia may take advantage of increasing consumer demand in the region’s developing gianteconomies like China.
The report is based on interviews with corporate officers at SMEs, regional experts and areview of recent studies published by leading authorities, including the Asian Development Bank andnational governments in the region.
“Small and medium sized enterprises, which comprise 95% of businesses in the Asia Pacificregion and employ nearly 80% of the workforce, play a critical role in the region’s economy andwill be vital in its recovery and growth in 2010,” said David L. Cunningham Jr., president, AsiaPacific, FedEx Express. “With demand in the West making a slower recovery than Asia’s rapidlyimproving economic outlook, this report provides SMEs in the region with an understanding of thenew trade dynamics that are emerging here. As a facilitator of trade, we believe the report’sinsights will help SMEs to evaluate these new opportunities and tap into the regional recoveryunderway in Asia.”
Against a backdrop of slow economic recovery in the West, Asian SMEs would benefit from anemerging customer base within the region, especially China as its middle class becomes wealthierand policy makers seek to rebalance its economy away from a reliance on exports and towardsdomestic demand.
During the first three quarters of 2009, China’s retail sales grew by 15.1% year-on-year,almost as fast as before the financial crisis. According to the FedEx report, the growing Chineseeconomy has the potential to anchor a new region wide trade dynamic, with China being not just anassembly point for exports to Western markets, but as a final destination for goods from otherAsian countries.
“Throughout this decade we have witnessed the flow of goods into China as it has acted as theassembly line for the region, and then exports out of China to the West. This research shows thatAsian consumerism is a force that will lead the region back to prosperity,” Cunningham continued. “FedEx is committed to assisting SMEs seek out emerging trade opportunities within and across theAsia Pacific region through our intra-Asia network which connects 22 major cities. Coupled with ourflexible services we can help position SMEs to be even more competitive in today’s rapidly changingbusiness environment.“
This trend towards increasing intra-regional trade was boosted by the implementation of FreeTrade Agreements (FTA) that have been signed over recent years in an effort by Asian economies topromote more trade with each other. As of mid-2009, these economies concluded 54 FTA’s amongthemselves and with countries outside the region. Most recently, an FTA between China and theAssociation of South-East Asian Nations (ASEAN) went into effect on January 1, 2010. This willcreate a common market of some 1.7 billion people and under the agreement, 90% of goods tradedbetween China and ASEAN’s six richest member states now enjoy zero tariffs.
The preferences offered by FTAs represent a major opportunity for SMEs in the region to growtheir cross border business. However, the research points to the fact that many SMEs, with theirlimited resources to handle multiple tariff schedules and document requirements, do not yet knowhow to make use of FTA provisions. It is clear that better official guidance and information isnecessary if SMEs are to take advantage of Asia’s evolving trade dynamics, the study showed.
