Policy recommendations

 

Given the importance of SMEs in developing countries and the role access to export markets can play in boosting their growth, facilitating market access for SMEs by reducing costs and removing barriers has the potential to bring important welfare benefits (Startz, 2016).3

The following actions could help governments achieve these benefits.

  • Policies that reduce the matching frictions that make it difficult and costly for developing country SMEs to find foreign buyers and initiate relationships with them could be particularly effective at increasing export market access. Reducing these frictions should be a key priority for a developing country’s export strategy.
  • Policies aimed at reducing matching frictions should focus on making it easier for SMEs to find information about opportunities to sell abroad, publicising the capabilities of domestic SMEs to potential foreign buyers, facilitating face-to-face meetings through trade fairs and trade delegations, and creating innovative products to lower the cost of contracting with a new foreign partner.
  • Export promotion agencies could play an important role in reducing matching frictions and increasing the growth of SME exports. It is important that these agencies are well structured and work strategically with targeted firms to assist
    them through the entire trade process.

 

India International Trade Fair. Credit: Getty | Hindustan Times

Footnotes

  • 3 Startz (2016) finds that removing all search and contract frictions increases welfare in the traded consumer goods sector by 29%, which is about half the gains from eliminating physical and regulatory trade costs.