Tunis Business School - Model World Trade Organization April, 10th 2017

1. The integration of SMEs in international trade :
Internal and external Barriers
Mahmoud Sami Nabi
University of Carthage (LEGI-EPT & FSEGN)
Tunis Business School
Model World Trade Organization
April, 10th 2017

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Why SMEs are important ?
• The definition of SMEs varies across countries as well as international
organizations.
• The World Bank’s Enterprise Survey definition: Small enterprises are
firms with 5 to 19 employees; Medium enterprises are firms with 20-99
employees and; Large enterprises are firms with 100 employees or
more (Duval , D. and C. Utoktham, 2014)
• In Tunisia, is considered SME a firm with a number of employees
varying between 6 and 199.

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• IFC : “SMEs account for about 90% of businesses and more than 50%
of employment worldwide. They are key engines of job creation and
economic growth in developing countries, particularly following the
global financial crisis.”
• World Bank (2015) : 600 million jobs are needed in the next 15 years
to absorb a growing global workforce. Most formal jobs in emerging
markets are with small and medium enterprises (SMEs), which also
create 4 out of 5 new positions.
• In Tunisia : SMEs contribute to approximately 2/3 of the economic
activity and 65% of the employment.

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Duval , D. and C. Utoktham (2014) Trade and Investment Working Paper Series, ENABLING PARTICIPATION OF SMEs IN INTERNATIONAL
TRADE AND PRODUCTION NETWORKS: TRADE FACILITATION, TRADE FINANCE AND COMMUNICATION TECHNOLOGY, June 2014,
United Nation Economic and Social Commission for Asia and Pacific:

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What are the type of constraints impeding the
participation of SMEs in international trade?

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Study Guide for the Model WTO 2017 : The integration of SMEs in
international trade : Internal and external Barriers
The Team of the Model WTO at TBS : Youssef Ben Hadj Ahmed;
Chayma Hachani and Yasser Omar Baalouch; Aymen Karoui and
Khaoula Guebsi
Internal and specific
impediment
Financial constraints and
other exogenous factors
Trade Barrriers
Shortage in HR
Lack of Managerial skills
Credit rationing
Higher interest rates
Stringent requirement of
callateral
Short maturities
NTBs
Specific constraints to SMEs

7. Source : “Projet de Développement de la Compétitivité et des Exportations DOCUMENT
D’INFORMATION DU PROJET (PID)PHASE D’ÉVALUATION , » Rapport N° 78503
Les exportateurs existants et potentiels en Tunisie, généralement des PME dans
les secteurs à fort potentiel, doivent relever les défis suivants:
--> (i) identifier le bon marché cible, le segment de produit, et le canal de vente
(ii) apprendre à adapter leurs produits pour ces marchés
(iii) comprendre leurs concurrents
(iv) lancer des campagnes marketing et de vente
(v) former et embaucher de nouveaux travailleurs pour être prêt à répondre à la
demande,
(vi) livrer le produit à temps et percevoir le produit des ventes.
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>> Internal impediments

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•In April 2010, I conducted a study in cooperation with CJD Sousse on
“SMEs and Export” (8 years old companies, 60% are using less than 60%
of their production capacity, 100% would like to develop their exports
activities, 40% have more than 5 year-experience in export
• 50% are not exporting due to problems and constraints related to
transport, bureaucracy , finance and insurance, competition.
•75% identified an export opportunity to Europe
• 50% % identified an export opportunity to an Arab country
• Only 30% know the technical requirements by the identified export
markets and 80% would like to know it.
• 80% are exposed to financial problems constraining their effort to
explore export opportunities.
• Only 35% benefited from trainings proposed by the CEPEX whereas
almost 60% benefited from FAMEX and/or FOPRODEX.
>> A sample of SMEs in the region of Sousse (2010)

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• 65% of the SMEs consider that the technical regulations are becoming
more complex in recent years
• 85% of the SMEs are willing to cooperate with other SMEs to improve
their export performance.
• 75% need to train their staff on the export techniques.
• 60% are interested in cooperating with HEC Sousse to develop a
business-oriented academic program in international trade.

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Benoît Coeuré, Executive Board Member of the European Central Bank
(ECB): “the ECB regards small and medium-sized enterprises (SMEs) as a
crucial component of the euro area economy ... Moreover, these SMEs are
highly dependent on bank loans which are supplied at a higher cost and
with a higher rejection rate than for larger firms, due to asymmetric
information”
Ferrando, Annalisa & Mulier, Klaas, (2013), "Firms’ financing constraints: do perceptions match the actual
situation?", Working Paper Series 1577, European Central Bank.
>> Financial constraints

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Source: Karen Gordon Mills (2015) "State of Small Business Lending : US and UK"

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Yann Duval and Chorthip Utoktham, Trade and Investment Working Paper Series, ENABLING
PARTICIPATION OF SMEs IN INTERNATIONAL TRADE AND PRODUCTION NETWORKS: TRADE
FACILITATION, TRADE FINANCE AND COMMUNICATION TECHNOLOGY, June 2014, United Nation
Economic and Social Commission for Asia and Pacific:

13. •Total unmet demand for formal SME financing is estimated by IFC-
AFME-Oliver Wyman (2014) to be 1.5 trillion USD (2/3 in emerging
markets and developing countries).
• A 2016 survey by the ADB covering 337 responding banks from 114
countries : Estimated global trade finance gap is $1.6 trillion. $692
billion of the gap is in developing Asia (including India and the
People’s Republic of China). Source : "2016 Trade Finance Gaps, Growth, and Jobs
Survey," ADB briefs No 64 - August 2016.
• Access to credit is one of the main factors in explaining SMEs’ export
performance (Source: Jinjarak, Y. et al (2014) "Does Finance Really Matter for the
Participation of SMEs in International Trade? Evidence from 8,080 East Asian Firms," ADBI
Working Paper Series).
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>> A huge trade finance gap !

14. • Ata et al (2013) : “Asia’s economic miracle is often associated with large,
multi-national companies. While these organizations are important
drivers of the region’s growth, SMEs have played a key role. However,
unlike larger companies SMEs struggle with finance as a limiting factor
rather than a lever for value generation”
• A 2016 survey by the ADB covering 337 responding banks from 114
countries : 56% of SME trade finance proposals are rejected, while
large corporates face rejection rates of 34% and multinational
corporations are rejected only 10% of the time.
• Firms report that 25% more trade finance would enable them to hire
20% more people. Source : "2016 Trade Finance Gaps, Growth, and Jobs Survey," ADB
briefs No 64 - August 2016.
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 Proposition of Credit Facilitating Platform
(Source: Ata et al (2013), "Financing SME Supply Chains,” Malaysia Institute for Supply Chain
Innovation)

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16. Source : “Projet de Développement de la Compétitivité et des Exportations DOCUMENT
D’INFORMATION DU PROJET (PID)PHASE D’ÉVALUATION , » Rapport N° 78503
Le financement des exportations demeure un problème, surtout pour
les petites PME et les nouveaux exportateurs :
Environ 40% des entreprises considèrent l’accès et le coût du
financement bancaire comme leur plus grande contrainte (Enquête de
2012)
--> Sur le plan de l’exportation, les PME ont été particulièrement
touchées par la crise financière mondiale, ce qui a compliqué la
diversification des exportations.

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>> Trade Barriers (not specific to SMEs, but more pronounced…)
> Transaction costs
• The trade transaction costs are higher in developing countries and
constitute the most important obstacle to benefit from the
opportunities available at the international level (Ex: Wilson, Mann
and Otsuki, 2003).
•The transaction costs include : the inefficiency of the administrative
processes in general and at the borders in particular ( Single
Windows), regulations, tariffs and non-tariff barriers, the quality of the
transit services.
•Exemple: In average, 3 times more days, 2 times more documents
and 6 times more signatures to trade with African countries relatively
to high income countries (World Bank’s Doing Business report).

18. • Countries where firms should support higher costs than their
competitors for energy, financial services, telecommunications,
customs, transport, logistics, administrative procedure, will not be
competitive on the international markets.
• For some key Tunisian sectors in manufacturing and services, the
logistic costs represent 20% to 73% of the gross markup (2010).
Sources: Wilson,John S. & Mann, Catherine L. & Otsuki, Tsunehiro, 2003. "Trade facilitation and economic
development : measuring the impact,“ Policy Research Working Paper Series 2988, The World Bank.
“Projet de Développement de la Compétitivité et des Exportations DOCUMENT D’INFORMATION DU PROJET
(PID)PHASE D’ÉVALUATION , » Rapport N° 78503
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19. A concerted effort to reduce trade costs could yield huge benefits. Reducing trade costs to 50% of those incurred by most
efficient countries could increase world GDP six times more than if all remaining import tariffs were removed ("Enabling Trade
Valuing Growth Opportunities" (World Economic Forum, Bain & Company andWorld Bank, 2013).
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20. Source : The Global Enabling Trade Report 2012
>> The most problematic factor for exporting
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Results of a questionnaire submitted to participants to the "OIC High
Level Forum on Trade Facilitation“ ? – Morocco, February, 2013. (Nabi,
M.S. and Chachi, A. mimeo, IRTI-IDB, 2013)
17 countries 22 respondents
>> Constraints on intra- OIC trade

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Source: Nabi, M.S. and Chachi, A. mimeo, IRTI-IDB, 2013.

25. «…transport constraints and inefficiencies in customs clearance processes, are
important in explaining the MENA region’s underperformance in trade. »
Source : « Constraints on Trade i n the MENA Region, » R.Bhattacharya et H. Wolde, IMF WP/10/31, 2010 25

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Les procédures de contrôle d’importation et d’exportation et les délais nécessaires
pour dédouaner les conteneurs dans le port de Radès nécessitent davantage
d'amélioration qui exige 6 jours en moyenne. Source : “Projet de Développement de la
Compétitivité et des Exportations DOCUMENT D’INFORMATION DU PROJET (PID)PHASE D’ÉVALUATION , »
Rapport N° 78503

27. >> High levels of NTBs
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30. Technical regulation:
“Regulation that provides technical requirements (either directly or by referring
to - or incorporating - the content of a standard), technical specification or code of
practice.” (WTO)
Standard:
“Document, established by consensus and approved by a recognised body, that
provides, for common and repeated use, rules, guidelines or characteristics for
activities or their results, aimed at achievement of the optimum degree of order in
a given context.” (WTO)
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In some tunisian sectors, recent technical requirements in the export markets (like
improving the tracability of the products (namely in the agrifood industry) create
additional constraints in the domestic supply chain.
Source : “Projet de Développement de la Compétitivité et des Exportations DOCUMENT
D’INFORMATION DU PROJET (PID)PHASE D’ÉVALUATION , » Rapport N° 78503

31. Source : Spencer Henson (2010) “THE TECHNICAL REGULATIONS AND STANDARDS LANDSCAPE” WBI Course on
Food and Agricultural Trade for MENA
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32. Standards and Sanitary and Phytosanitary Measures in Arab Regional Trade
Agreements…The interviews revealed that :
-- Abuse of standards and SPS measures continue to be a major problem for specific
goods in a number of countries.
-- In some cases, conformity assessment procedures in terms of expensive testing seem
to be the major standards and SPS related problem. …
Ghoneim, Ahmed Farouk (2010) "NTBs, Standards and SPS Facing Agricultural and Processed Food: A Regional
Perspective for Intra-Arab Exports"(WBI, JVI 6-9 April, 2010)

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Ghoneim, Ahmed Farouk (2010) "NTBs, Standards and SPS Facing Agricultural and
Processed Food: A Regional Perspective for Intra-Arab Exports"(WBI, JVI 6-9 April,
2010)

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Ghoneim, Ahmed Farouk (2010) "NTBs, Standards and SPS Facing Agricultural and
Processed Food: A Regional Perspective for Intra-Arab Exports"(WBI, JVI 6-9 April,
2010)

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New tendencies and emerging Solutions

36. • Meeting on the role of the private sector to improve the
implementation of the « Road Map for enhancing intra-OIC trade »,
(Jeddah, June 2011) recommended multiple actions. Trade finance.
• Develop and introduce new mechanisms/tools aimed at increasing
financing for SMEs (Enable SMEs to access financing better and
more easily) (Financing of imports, pre-exports, pre-shipment and
the domestic purchase of commodities and goods…)
•The 5th OIC Consultative Group Meeting on enhancing intra-OIC trade
(February 2013, Casablanca, Morocco) recommended the
establishment of Trade Finance Support Schemes, as one of the
driving factors, to accelerate the dynamic of the intra-OIC trade.
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>> International institutions are supporting trade finance programs

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Trade finance: Access to trade credit is an important determinant of the ability of
firms to engage in trade. IFC is proposing to increase its short-term finance
products, especially trade finance, with its focus on frontier countries and on
MSMEs.

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40. • Most of the countries are stabilizing the macroeconomic environment
and creating an incentivizing microeconomic framework  catalyze the
productivity gains and enhance competitiveness at the international level.
Example: supporting firms in the process of certification and
compliance with the international standards and technical
requirements.
• Reducing the coordination problems (market inefficiency,
bureaucracy,…), improving the access to goods (inputs) and services
with comparable quality, prices relatively to the competitors.
>> Facilitating the connection to the global value chain and eliminating
the barriers between the on-shore and off-shore sectors within an
economy : enabling domestic firms to supply goods and services to
foreign firms hosted by the national economy.
>> Governmental support

41. • « We find evidence that services grease the wheels of international
commerce: A greater availability of services across regions, industries
and time increases a firm’s foreign sourcing of materials relative to
sales. »
« We provide systematic evidence that intermediaries play an
important role in facilitating trade using a firm-level of China's
exports. Intermediaries account for around 20% of China's exports in
2005. This implies that many firms engage in trade without directly
exporting products.
Source: Ahn et al. (2011), "The role of intermediaries in facilitating trade," Journal of International
Economics, Elsevier, vol. 84(1), pages 73-85, May.
Peter Debaere & Holger Gorg & Horst Raff, 2010. "Greasing the Wheels of International Commerce: How
Services Facilitate Firms' International Sourcing," Kiel Working Papers 1591, Kiel Institute for the World
Economy.

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• Supply chain production offers SMEs new trade opportunities, which allows them to
specialize.
• Foreign direct investment (FDI) will become less dominated by developed countries.
Large firms from emerging economies will invest in low-income countries and provide
opportunities for local SMEs to become suppliers.
 opportunities for SMEs to feed into regional production networks that serve
international demand.
A precondition is that regional integration efforts succeed in eliminating barriers
to trade and investment flows, both intra-regionally and globally.
Source : InternationalTrade Centre (ITC) (2014) "50Years of Unlocking SME
Competitiveness: Lessons for the Future."
• The increase of the intra-regional is associated with a growing
interconnectedness of production processes across the countries :
specialization in particular stages of a good’s production 
“international production networks”/ “global value chains”
>> Connecting SMEs to global supply chains

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Ganeshan Wignaraja (2013) "Do SMEs matter in Asian production networks?" in
"The Future of the World Trading System: Asian Perspectives," Edited by Richard
Baldwin, Masahiro Kawai and Ganeshan Wignaraja, CEPR and ADB Institute.
SMEs do matter to some extent in Asian global production networks, particularly in
more industrially developed ASEAN economies (like Malaysia and Thailand), thereby
suggesting a large potential role for SMEs in global production networks.
Nonetheless, it also seems that SMEs in several ASEAN economies are at a
disadvantage for participation in production networks compared with large firms.
SMEs face, to a greater extent than large firms, resource constraints (in terms of
finance, information, management capacity, and technological capability). Moreover,
SMEs suffer disproportionately from external barriers like market imperfections and
regulations.

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• Declining costs and the increasing power of information technology
products and services will allow SMEs to connect to buyers and suppliers
more directly.This will enable them to tap into much larger international
markets and to source inputs from a broader range of suppliers.
• Information technologies, the Internet and social media platforms allow
small businesses to enter global markets, sometimes bypassing local
markets.The increasing availability of digital technologies will generate
new opportunities for SMEs to sell services.
Source : InternationalTrade Centre (ITC) (2014) "50Years of Unlocking SME
Competitiveness: Lessons for the Future."
>> Fostering the connection of SMEs to global supply chains through
technology

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Tunisia is well positioned to become a regional champion in
innovation and entrepreneurship if it recognizes the potential of
young aspiring businesswomen and businessmen.

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Source: World Bank (2015) "Crowdfunding's Potential for the Developing World"
>> « Crowdfunding»

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L’émergence du crowdfunding a eu lieu à la suite de la crise financière
de 2008 en raison des difficultés des entreprises en phase d’amorçage
à lever des fonds (BM, 2015)
Source: Karen Gordon Mills (2015) "State of Small Business Lending : US and UK"

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La contribution attendu du crowdfunding dans les pays en
développement :
- Améliorer l’accès au financement pour les PME,
- Favoriser l’émergence d’une nouvelle génération d’entrepreneurs
innovants,
- Soutenir l’accès aux marchés extérieus (exportations)
- Catalyser l’entraide entre les différentes couches sociales
-- Financer la R&D dans des secteurs telles que l’énergie renouvelable

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Source: Baromètre du Crowdfunding - 2015 - Financement Participatif France

50. Market AnalysisTools
Source : http://www.itc-learning.org/course/view.php?id=38

51. Thank you