Trading up: The benefits of exporting for small firms
Small and medium-sized enterprises (SMEs) provide the majority of jobs in developing countries, yet they have low productivity and exports. International trade can spur the growth of SMEs.
SMEs employ a large proportion of the labour force in developing countries. Compared to large firms, however, few SMEs export – direct exports represent just 3% of total SME manufacturing sales, compared to 14% for large enterprises (World Trade Organisation, 2016).
Recent research has found that exporting provides important gains for small firms. An innovative project in Egypt found that exporting raised rug firms’ profits by 26%, with similarly dramatic rises in productivity (Atkin et al., 2017). By learning new skills from intermediaries and foreign buyers, exporting firms increased the quality of their products as well as their efficiency.
Demonstrating the importance of this process of “learning by exporting” and the resulting increases in profitability makes the case for increases in trade finance and better policies to facilitate trade for SMEs.
Policies to boost SME trade need to address the often high costs and barriers to finding and matching buyers and sellers. Such policies can lower costs by facilitating connections between buyers and sellers, increasing access to information about regulations and export opportunities, and introducing measures to ensure quality of goods and services.