G7 Executive Talk Series

GCEL

Achieving Real Economic Integration

Today we witness millions of Small and Medium Enterprises (SMEs) pursuing their passion, nurturing the craftsmanship of their employees, and building close relationships with customers. These SMEs support families and provide nearly 60 percent of global employment. As the backbone of our global economy, SMEs face numerous challenges, from the continuous battle to stay competitive, comply with regulatory requirements, secure finance, manage operational and trade costs as well as selling products to new markets – the obstacles are many. Yet, given the challenges for these businesses to produce even the simplest of products, it is a wonder they survive in today’s competitive environment.

Therefore, if we are to build our economic base throughout the world, we have a duty to support our SMEs with innovative policies and tools to ensure their prosperity.

This challenge was recognized by the countries of the OECD in the late 1990s and resulted in a conference of Ministers responsible for SMEs hosted by the Italian government in June 2000. Nearly 50 member and non member countries attended. They adopted the Bologna Charter for SME policies. Italy was a logical choice because northern Italy in particular has been the breeding ground for many entrepreneurial SMEs which have successfully penetrated global markets for their products.

However, much of the focus was on issues such as developing suitable cross border dispute mechanisms which were too cumbersome and costly for most SMEs.

At that time we could hardly imagine the incredible potential for SMEs of the digital economy industry which lay beyond the horizon and which would completely revolutionize the B2B businesses of SMEs on a global basis. For most it was at best a dream unlikely to become a reality in the foreseeable future.

Today that dream is shared today by the G20 leaders who see it rapidly becoming a reality through the establishment of the G20 Digital Economy Development and Cooperation Initiative that includes creating enhanced digital inclusion within the global value chains for SMEs. While the period of rapid globalization during the past 30 years has lifted one billion people out of extreme poverty, we still have a long road ahead of us in the journey to develop greater inclusiveness that is key to achieving sustainable prosperity at every level within our societies.

It is now an imperative for leaders around the world to re-envision the future of our global economy and to work together by embracing the Digital Economy to transform it into one that truly connects and serves us all. Our journey must begin with understanding the significant demographic shifts over the past few decades that has impacted every nation across the globe today.

High-income countries have declined during the last 35 years from 22 percent to around 15 percent of the world’s total population. Their increased efficiency, low birth rates and aging populations have resulted in excess capacity with lower local market demand for the products and services they produce. In comparison, low and mid-income countries have experienced high birth rates and a youthful population, however, they currently have much lower salaries and higher trade costs than their counterparts, leaving them with weak buying power.

Accordingly, a major imbalance in our global economy has resulted, one that requires that we connect the strengths of our economies to achieve sustainable growth for all. By achieving greater efficiency and transparency, low and mid-income countries will de-risk and grow trade with the high-income countries. increasing their buying power, and providing high-income countries with new market opportunities.

The question remains, where do we start in today’s 21st century digital era? While the current trend is to focus on artificial intelligence, robotics and internet of things, how do these innovations truly benefit the SMEs in the real economy of manufacturing, agriculture and the services industries that supports them?

The answer is we must digitize and de-risk trade within the global USD 140 trillion B2B marketplace to once again maximize the power of today’s technology for the public good.

The use of technology has historically proven to create significant advancements when applied to connecting societies. For example, Indonesia once lagged behind the world in terms of telecommunications capability. With the advent of digital communications, Indonesia leap frogged ahead of the United States that had invested heavily in analog switches and copper wires. Hence, the use of technology has contributed significantly to Indonesia’s economic growth becoming the 16th largest economy in the world, representing a vast new market for the high-income countries.

The technology industry can once again drive a tremendous social impact in today’s interdependent global economy by helping to de-risk trade and build the purchasing power of mid and low-income countries towards rebalancing the world economy. Otherwise, who will be left to buy the goods and services produced by high income countries in 20 to 30 years?

Since trade is a horizontal process involving 19 industry trade clusters, harnessing the potential of the digital economy by digitizing our global value chains is key to escaping the low growth and low productivity trap in which the global economy is caught. Accordingly, there is a tremendous opportunity for the world’s technology firms to partner together under one roof and develop new processes and business models towards building the applications demanded by the real economy participants at the ground level.

WE MUST DIGITIZE & DE-RISK TRADE WITHIN THE GLOBAL USD 140 TRILLION B2B MARKETPLACE

Therefore, the use of technology to create greater trade efficiency and transparency can de-risk doing business, reduce excess trade costs and ease access to finance and insurance that will grow trade and build the buying power of the mid and low-income countries, thus creating new loyal consumers for the high-income countries. By harnessing the power of new digital technologies, it is estimated that the world can add as much as 17 percent to its GDP by 2030. The enormous benefits of the Digital Economy are undeniable.

The use of new digital tools for trade can also maximize physical infrastructure capacity utilization which has been proven successfully by Germany where it regularly reaches the world’s top rankings in trade efficiency. When applied to our global value chains, today’s technology can provide a self-monitored dashboard to ensure the transparency and visibility of trade related information for the private and public sectors to prioritize investments and maximize their economic returns. In all, new Digital Economy tools increase competitiveness and grow global trade.

It is important to note that the cost of technology must not hinder its adoption since SMEs cannot afford the high cost of vertical systems in use today. Therefore, we must ensure that these new digital tools are made available at no cost to the end user through a sustainable business model, providing inclusiveness within our global value chains for our SMES to gain the prosperity which they deserve.

As the world moves to digitize its global value chains, we must recognize that one organization or one country cannot deploy the required digital solution due to geopolitical, monopolistic and data security concerns. For example, a balanced global governance and deployment structure must be in place to ensure the data owner’s data is only exchanged with the express authorization of the data owner. In this way we can ensure a secure means by which to exchange our trade data and facilitate greater trade throughout the world.

Today, it is apparent that the digitalization of the B2B marketplace is key to the future sustainable growth for all nations, as it affects every aspect of public and private life.

The birth of a new Digital Economy Industry will re-energize the financial industry to grow trade and create millions of jobs led by our SMEs globally.

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