How The Global Fund For Ecommerce Is Helping Entrepreneurs In Developing Countries Enter The Digital Era

This article first appeared at: http://www.gereports.com/kati-suominen-how-to-help-entrepreneurs-in-developing-countries-enter-the-ecommerce-era/

Ecommerce has emerged as a powerful driver of economic growth, inclusive trade and job-creation worldwide. Yet while research shows ecommerce dramatically increases the odds for small businesses to stay in business, export and grow, most businesses around the world have yet to use this tools of 21st century trade — especially in developing countries. A new initiative, the Global Fund for Ecommerce, could play a critical role in bringing developing country entrepreneurs into the digital era.

As global trade digitizes, the thorniest challenge remains the scant adoption and use of ecommerce capabilities and online payment tools, particularly in the developing world. Only 9 percent of small companies and 16 percent of midsize companies in low-income countries sell online, according to the World Bank, while adoption is only 35 percent for midsize companies in upper-middle income countries. Even fewer merchants have adopted online payments required for transacting with overseas shoppers, with a recent MasterCard study of four advanced and emerging economies showing that while 90 percent of merchants had a website, only 20 percent were set up to accept payments online.

Of course, some of the low adoption is due to macro factors, such as expensive broadband connectivity. Yet research shows that the main elements obstructing companies from leveraging ecommerce are their lack of e-skills and ecommerce capabilities, such as marketing abroad. The main reason for merchants’ sparse adoption of online payments is not — as usually believed — low consumer adoption, but the perceived cost of online payments and lack of ability to set up online payment systems.

What merchants in developing countries need is greater awareness of why — and how — to adopt ecommerce. Trade capacity-building needs an upgrade for the digital era. In addition to standard trade issues such as meeting foreign product standards, participation in cross-border ecommerce requires merchants to have a range of new capabilities, such as:

  • Identifying best-fit foreign markets and customers in the cyberspace
  • Marketing via social media and geotargeted ads
  • Leveraging plug-ins for tasks such as data analytics on customers
  • Creating a multichannel shopper strategy
  • Using online payment systems used by overseas customers
  • Partnering with foreign ecommerce platforms
  • Calculating the total cost of delivery
  • Understand ecommerce fulfillment process

Governments, merchants and ecommerce companies all share an interest in expanding merchants’ use of ecommerce. Yet trade capacity-building as we know it won’t suffice. Public sector support tends to be ad hoc, and export promotion agencies are unlikely to have the best technical knowhow. The best trainers of merchants are either other merchants who have used ecommerce successfully, or ecommerce platforms like eBay or payment platforms like PayPal that have not only the right expertise — but also a keen corporate interest cultivating new ecommerce users. However, they are as yet not organized to systematically train merchants.

The best way boost ecommerce adoption rates around the world would be a Global Fund for Ecommerce, a public-private partnership that could incentivize ecommerce platforms, payment providers and other commerce companies to train merchants in developing countries on ways to apply ecommerce and the associated technologies. The Fund fuels the new Aid for eTrade initiativeI’m launching with the United Nations.

Through the initiative, developing country governments and industry associations would systematically identify groups of merchants that want to learn to leverage ecommerce and understand their specific needs. The fund would respond by creating a custom capacity-building program with the right team of trainers.

Providing capacity-building is not new to platforms. An excellent example is the capacity-building project that B2B ecommerce platform TradeKey launched with support from the Deauville Partnership, World Bank and International Trade Center to help merchants in Tunisia, Morocco and Jordan to reach international buyers. eBay’s Seller Center helps guide aspiring eBay sellers, while eBay University offers low-cost personal instructors in U.S. and Canada for companies to learn to sell online — an approach that could work worldwide.

A particularly useful business model for the Global Fund for Ecommerce is a social impact bond, whereby private foundations and social impact investors make the initial investment and get compensated by donor governments and development agencies if certain metrics are hit. This model incentivizes private investors to invest in high-impact projects to support ecommerce development — and upon success, secure both financial and social return.

This model ensures iterative improvement. All parties have an interest in analyzing each project’s impact rigorously, and improving the next time. Everyone wins: merchants get more sales, governments get more exports, investors get a return, donors get impact, and ecommerce platforms get more clients in hard-to-reach markets.

Naysayers may say that ecommerce companies would provide training without outside subsidies to get more clients. This however has not happened even in big markets — some nudge, organization and seed funding are required for ecommerce capacity-building to take off.

Ecommerce and online payments are historic tools of trade and development: they enable entrepreneurs to get into business and access world markets at a lower cost than ever before. Yet for business owners not steeped in technology, these tools can initially be intimidating. Until now, there hasn’t been a coherent vision on ways to take merchants to the ecommerce era. A Global Fund for Ecommerce would be a key way toward that goal.

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Next Big Roadblock To Trade — Congested Cities

This article first appeared at: http://www.gereports.com/kati-suominen-next-big-roadblock-to-trade-congested-cities/

As corporations have built giant global supply chains around the world, governments have done their share, reducing tariffs and other trade barriers impeding market access of goods and services. Although the implementation of the WTO’s historic Trade Facilitation Agreement (TFA) will significantly help undo bottlenecks at national borders — promising to free up more than $1 trillion in global GDP — a growing challenge in the movement of trade remains: cities.

Trade is boon for economic growth and development, but many obstacles complicate moving trade, adding to costs and dampening its benefits. In Latin America, importers of products spend 190 hours in border procedures and handling paperwork costing $793 per shipment, according to the World Bank’s 2016 Doing Business index, as opposed to 36 hours and $257 in the logistics wunderkind Singapore.

World Economic Forum research shows that if every country improved border administration and transport and communications infrastructure even halfway to Singapore’s level, world trade would increase by 15 percent and world GDP increase by 5 percent.

The TFA does help unlock these gains. However, it won’t help where trade now flows: cities. As the world urbanizes — in 2030, the world’s top 750 cities will make up 61 percent of global economic activity, up from 57 percent today — and as door-to-delivery ecommerce expands, trade facilitation will need to move to cities.

Already, urban congestions costs billions. According to Texas A&M’s renowned urban mobility scorecard, the congestion “invoice” for the cost of time and fuel in American cities was 6.9 billion hours and 3.1 billion gallons of fuel in 2014, for a total cost of $160 billion — four times 1982 figure. Trucks accounted for $28 billion of the cost, not including any value for the goods being transported.

The problem spans the globe. In the TomTom index of urban logistics, Istanbul, Mexico City, Rio, and Moscow are most congested; 10 of 30 worst congested urban areas area in China.

Congestion is increasing last-mile delivery charges — to the point where the fixed cost of shipping a low-value shipment absorbs all foreseeable profits, risking to freeze trade in smaller shipments, whether by microentrepreneurs or ecommerce giants like Nike. As megacities become key nodes in global supply chains, importing raw materials and inputs and exporting final products, congestion also hurts cities’ economic competitiveness and appeal to foreign direct investors.

Business-to-consumer (B2C) ecommerce, which makes up only a tenth of global ecommerce, is expected to increase more than four-fold to $1 trillion in 2020. China will lead much of the trend, becoming the largest cross-border B2C market by 2020, with $245 billion in ecommerce imports. In India, ecommerce is expected to rise 15-fold by 2030.

One solution is to get next to the end consumer — Amazon, Walmart and other retailers and property developers are building large-scale, highly efficient warehouses near urban centers in China, India, the U.S. and Europe. However, last-mile delivery will still need to get done. The cheapest alternative, emerging market postal systems, are neither reliable nor fast..

The 2015 Global City Teams Challenge Expo shows that cities around the world are getting smarter — using new technologies to improve transport, healthcare, education, disaster management, and so on. But very little attention is paid to the movement of exports and imports through cities. Now is the time: cities are where the rubber is hitting the road for trade facilitation.

Ensuring that trade of the future flows not only across borders, but also through cities, requires a set of solutions:

  1. The international trade community has a great opportunity to partner with urban economists to decongest cities for world commerce. Multilateral development banks’ lending strategies to facilitate trade have long focused on modernizing customs and upgrading road, air, port and rail infrastructures. The next frontier of these investments is cities.
  1. Trade facilitation experts and city planners should encourage 3D printing as the premier decongester and decarbonizer. 3D printing will enable congested cities overcome the physical constraints to the movement of goods. Everything from industrial parts to toys, clothes and food can now arrive to the buyer, as designs in the cloud are printed right on site, with no physical movement taking place.
  1. Smart city analytics should be applied to address the urban logistics challenge. Innovative companies can use Big Data analytics to rationalize deliveries; intelligent traffic systems can direct flows; new types of vehicles (nimble and green) and shared delivery services (Uber delivery) can be used for urban freight. To connect all key players, cities can draw on the example of the Port of Hamburg, where Internet of Things applications enable the coordination of every aspect — ships, port authority, trucks, drawbridges, etc. —to efficiently move 9 billion containers annually.

As the world digitizes and urbanizes, facilitating trade requires entirely new approaches. For the international trade community to fuel corporate supply chains and unlock opportunities for small businesses to engage in ecommerce, trade facilitation in cities must get to the top of the list.

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Growth Capital Gap Vital to Debate on Trade Finance Gap

This article first appeared at: http://www.brinknews.com/growth-capital-gap-vital-to-debate-on-trade-finance-gap/

As governments around the world look to small and mid-size enterprises (SMEs) as engines of growth, trade and job creation, a thorny challenge stands in the way: hundreds of billions of dollars of pent-up demand for trade finance.

This financing can be used as export working capital that enables a company to purchase labor and inputs to fulfill a specific export order. Or it can be used as supply chain financing that helps the company get paid faster for its export shipment than its foreign buyer wants to pay, and thus get cash flow needed to process the next order.

While critical for SME trade, such transactional financing is not enough to fuel globalizing SMEs. Debates on the trade finance gap—and on export promotion and trade and development—need to focus on the growth capital gap. Growth capital is equity and longer-term debt financing that is not aimed at any one trade transaction, but rather at expanding a company’s production and sales capabilities.

International trade has been sluggish since the‎ global economic slowdown hit in 2008. World trade grew an average of 3 percent between 2010 and 2015, after 6 percent annual growth between 1983 and 2008. Demand for trade finance is growing fast. According to the International Chamber of Commerce, 63 percent of banks around the world said trade finance activity is growing, 61 percent increased their capacities to meet customer demand for trade finance and 72 percent experienced an increase in trade finance fee income. Requests most frequently came from SMEs, which are both more numerous and cash-strapped than large companies; however, banks rejected about half of all SME requests, as opposed to 21 percent for large corporations.

These findings are indicative of a global trade finance gap, nowestimated at $1.4 trillion, $693 billion of which is in developing Asia, including India and China. The gap exists also in advanced economies: In surveys in the U.S., Europe and the OECD region, SMEs unfailingly see a lack of finance as the top obstacle for them to trade across borders.

The dramatic 12 percent drop in world trade in 2009 is tied directly to an outright collapse of trade finance as banks retrenched.Empirical work reveals a virtuous cycle: Access to credit significantly increases odds for companies to be able to export, which significantly increases companies’ odds to secure credit.

Yet discussions on trade finance are incomplete. Growth capital is emerging as a key determinant of companies’ international competitiveness.

One key reason is the “shrinking” of the exporter: The cloud, e-commerce and 3D printing, among other technologies, are enabling even the smallest businesses to reach international customers and scale across markets. In fact, tech companies are often “born global,” international at startup. EBay’s data shows that many of the companies selling and exporting on eBay are microenterprises: one-person businesses that, once on eBay, become micro-multinationals by virtue of being discovered by global online shoppers.

https://charts.datawrapper.de/ohEFT/index.html

This means that today’s typical globalizing company is smaller and younger than ever before. Digital businesses are less likely to have collateral assets and thus hard-pressed to qualify for a bank loan, especially as regulatory pressures are forcing banks to focus on large- and middle-market companies. These companies may access non-bank financing, for example, working capital loans from online lenders such as PayPal’s new working capital product to purchase the labor and supplies they need to fulfill any one domestic or export order.

However, if the company observes strong demand for its products or services and wants to seize it—either speed up the generation of new international sales (such as by expanding its sales team) or add capacity to meet a surge in international demand quickly (such as by hiring more operations people or buying new equipment)—it needs more financial firepower. This typically means it needs access to growth capital.

True, governments and celebrators of Silicon Valley have long recognized the need for growth capital—whether venture capital, private equity or long-term debt—for fueling small businesses. The European Union, for example, is seeing to incentivize venture capital in “scale-ups,” companies beyond the riskier startup phase. However, few in the policy world have made the connection between the growth capital and competitiveness in international trade.

Among better examples, the Asian Development Bank has recently found that Asian SMEs sorely lack growth capital to fuel their growth and global competitiveness. Canada’s Export Development Canada has offered an Equity Program that targets born global companies and later-stage SMEs intent on growing through exports. U.S. Small Business Administration has quietly grown its international trade loan program that helps SMEs tap up to $5 million for export-related production expansions; however, the loan still needs to be made by a bank.

Targeting globalizing companies makes great sense for investors. They are time and again shown to be an asset class that outperformsthe broader market by key metrics: productivity, revenue growth, skill-levels, wages and financial stability. This is because it is the best companies that become exporters to begin with, and they become better by scaling through trade. Globalizing companies are, in short, a proxy for high performance—i.e., strong return on investment.

Investors can bolster globalizing companies’ outperformance, both through capital and advice. For example, in Peru, companies that received VC funding reported that their investors also helped professionalize the business, access key networks and gain savvy strategic and operational support. In other words, the combination of capital and seasoned advice can turbocharge an already outperforming company.

Matching investors to globalizing companies is a win-win-win for companies, investors and governments looking for export-led growth. It also obviates a paradox: Namely that companies that lack access to the types of useful skills investors offer are less likely to seek private equity or venture capital in the first place.

Yet such matches do not happen automatically: VC funding is accessible to a small fraction of companies that raise capital. Companies fare better with angels: In the first half of 2015, 20 percent of those seeking angel investments were successful, about the same level as in the previous three years.

This is where public policy could make a difference. Without subsidizing exporters outright and violating the subsidy rules of the World Trade Organization—or engaging in the typically misguided practice of “picking winners”—governments and multilateral development banks can work growth capital into trade finance debates in a number of ways: by measuring globalizing companies’ access to growth capital, analyzing the impact of growth capital on international trade, helping lower investors’ per-deal search and transactions costs for promising globalizing companies and possibly provide co-financing or risk mitigation instruments to incentivize investments in these companies. U.S. SBA’s small business investment company program, which offers low-cost debt to fund managers to invest in small businesses, could incentivize funds to target globalizing companies.

For the many companies that now go global early in their life cycles, access to larger capital injections from non-bank sources lends a competitive edge. Left unserved, these companies are forced to leave money on the table in the form of foregone export sales.

Policymakers and development practitioners concerned with export promotion need to pay as much attention to growth capital for globalizing companies—call it “equity for exporters”—as on transactional trade finance.

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Kati Suominen: 3 Ways To Navigate The Ambiguity Of Growth

This article first appeared in: http://www.gereports.com/kati-suominen-3-ways-to-navigate-the-ambiguity-of-growth/

Amid global economic uncertainty, here are three levers for topline growth.

Not a day goes by without news about a slowdown in the world economy. Yet paradoxically, a recent Pricewaterhouse survey revealed that while 70 percent of global executives said it is more difficult to find profitable growth opportunities now than 10 years ago, 74 percent also said there are more profitable growth opportunities now a decade ago.

In other words, people on the frontlines of the world economy – executives in leading companies – know opportunities exist, but can’t see them. Growth is like a needle in a haystack.

Fortunately, amid the fog are three clear opportunities, opened by what is called the 4th Industrial Revolution and what I call Globalization 4.0:

1. Embrace the digital revolution.

Digitization is revolutionizing the economics of global production and trade. Digitization unlocks for companies new efficiencies, markets and innovations — without necessarily upsetting companies’ core business. Often, it makes it better:

These efficiency gains are far from fully harnessed even in advanced economies, with McKinsey finding that the U.S. economy is only realizing 18 percent of its digital potential. Some of the largest sectors — healthcare, construction, manufacturing — face the biggest gaps.

We found that U.S. middle market companies are only marginally satisfied with their own digitization practices, in a new study sponsored by Magento and co-authored by Nextrade Group and theNational Center for the Middle Market. These companies — a key engine of economic growth and job creation, with $10 million to $1 billion in revenue — gave themselves a “Digital Grade Point Average” of 2.8 on a scale of 0-4. That’s the equivalent of a C+.

In Europe, while almost all companies have broadband Internet access, according to the World Bank, only 19 percent use the Cloud, 15 percent have online sales, and 4 percent use RFID technology.

These low numbers imply tremendous opportunity: the coming embrace of digitization is poised to generate hundreds of billions of dollars in efficiency gains.

2. Go Mobile with Emerging Market Millennials

The second growth lever is mobile — specifically, the nexus of mobiles, Millennials and emerging markets.

Today, 98 percent of people in advanced economies own a mobile phone, as do 80 percent in the developing world, according to World Bank. However, just 31 percent of people in developing countries use their mobile phones to get online, versus 80 percent in advanced economies.

This is changing, with the number of smartphone users expected to more than double by 2020 to 6.1 billion. Thanks to phone upgrades and cheapening 4G subscriptions, most smartphone users will hold the Internet in their hand — before they ever have used a PC. Mobile-wielding netizens globalize globalization. Sales channels leading straight to the shopper’s handheld mean that companies can sell to anyone, anywhere, anytime.

Meanwhile, 85 percent of world’s workforce will be Millennials by 2025. Socialized by B2C social media, ecommerce and the sharing economy into mobile purchases, Millennials will also make B2B searches online. Already, Millennials account for nearly half of all B2B purchases, and 42 percent of searches for B2B purchases come from mobile phones — a three-fold increase from 2012.

As smartphones proliferate, B2B companies have great opportunities to translate Millennials in new markets into sales.

3. Drive for Better Policy

The Internet may seem ubiquitous, but we are still in the early days of achieving its full potential — something that savvy public policy and public-private partnerships can help unlock.

One area is digital protectionism — countries censoring websites, blocking the flow of cross-border data flows or mandating that foreign companies set up servers in-country for market access. These policies cost up to 2 percent of national GDP – for the country imposing the restrictions.

Narrowing digital divides would also spur growth. Only 46 percent of people globally use the Internet, and most of them are in advanced economies. Emerging markets still significantly trail advanced economies in Internet connectivity and technologies riding on the Web — as do rural areas behind urban centers, the old behind the young and women behind men.

‎Bridging certain “digital disconnects” could yield giant gains:

  • Harmonizing mobile spectrum in Asia could save the region $1 trillion each year.
  • Making the many national online payment platforms interoperable would boost cross-border online sales by billions.
  • Establishing regional Internet exchange points in Latin America would save the region 33 percent in cross-border data transit costs.

The long-term growth of companies and countries alike is largely determined not only by the amount of labor and capital, but also total factor productivity (TFP) — magic pixie dust that includes human capital, technology, good institutions, rule of law and other such hard-to-measure variables. At some point, labor and capital hit diminishing returns. Indeed, today’s concerns about secular stagnation owe partly to the fact that capital investments have run their course in China and other emerging markets.

‎TFP, meanwhile, is limitless. With determination and imagination, executives can take advantage of new technologies and better policies to draw out more TFP — and keep expanding topline growth. Global growth will follow.

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Silver bullet for helping small businesses trade: Plurilateral agreement on de minimis

This article first appeared at: http://e15initiative.org/blogs/silver-bullet-for-helping-small-businesses-trade-plurilateral-agreement-on-de-minimis/

On February 11, 2016, the US Senate passed the Trade Facilitation and Trade Enforcement Act of 2015, which, among other things, raises the threshold for de minimis – the maximum value of an import that is exempt from customs duties and complicated rules of origin – from $200 to $800. This move should help especially for micro- and small businesses and individuals that use ecommerce to import single shipments and small parcels. It is now time to raise these levels internationally to further spur US trade, through a plurilateral agreement on de minimis.

The new US de minimis level, long championed by trade associations, express shippers, and others in the international trade community, will deliver economic gains. The Peterson Institute has estimated that the net payoff of an increase in the de minimis threshold to $800 would be $17 million annually, taking into account the cost savings at each stage of the delivery chain, minus the revenue that is not collected by customs on shipments in the $200-$800 range. Concretely, the study calculates that it affects 3.8 million shipments handled by express shipment firms. The gains are probably even greater now – the study was published in 2011.

The new law can stimulate new trade that has been altogether “frozen” because of difficulties for exporters and importers in meeting what can be very complex trade rules for shipments above $200. The legislation helps especially the “little guy” – small businesses and individuals who, by using ecommerce, are increasingly engaged in export and import activities with overseas buyers and sellers, yet who lack the capacities to comply with complex trade rules.

The legislation also formalizes the so-called “informal entry” regime, where incoming shipments below $2,500 can benefit from expedited customs clearance, do not need a surety bond, and have reduced paperwork requirements and fees (the $25 minimum merchandise processing fee is lowered to $2 for entries filed electronically).

These policies cut time and paperwork across players in the trade supply chain – importers, express shippers, postal services – and free up resources for identifying serious threats, from terrorism to counterfeit merchandise, illegal drugs, and unsafe food products. Customs security is still a priority: full manifest detail and pre-arrival information is required for all shipments, regardless of declared value.

Now more needs to be done, globally.

Most countries have very low de minimis values. China’s de minimis is $15, Mexico’s $50, India’s $170, and European Union’s about $150 (150 Euro). The level is absurd in some countries – for example, the Philippine de minimis is 48 cents. There are two reasons behind these low numbers: governments’ reluctance to forego revenue from import duties; and protectionist lobbying by domestic retailers. Yet it is the country’s consumers who typically get hurt, facing markups due to the very duties and taxes charged at the border.

Raising de minimis levels would unlock new trade that would outweigh the revenue losses. In a study of 12 Asia-Pacific Economic Cooperation (APEC) economies (Canada, Chile, the People’s Republic of China, Indonesia, Japan, Malaysia, Mexico, Papua New Guinea, Peru, the Philippines, Thailand and Vietnam), raising the de minimis to just $200 would generate gains of $5.4 billion a year, equivalent to some $12 billion for all 21 APEC members. The gains would be multiple if the de minimis was raised higher, say, to $1,000.

A way to unlock these gains is to negotiate a plurilateral agreement on de minimis with key US trading partners. As multilateral trade talks among the 164 WTO members remain clogged, plurilateralism is emerging, alongside regional trade agreements like the Trans-Pacific Partnership agreement, as a key means for countries to negotiate trade agreements. Several WTO members are engaged in plurilateral talks in key sectors – the main one being the Trade in Services Agreement (TiSA) currently negotiated among 50 WTO members that cover 70 percent of the world’s services economy.

To be impactful, the de minimis plurilateral should aim to raise the members’ thresholds to $1,000. After all, if $800 was fixed as the target, the United States would not have any bargaining chips. The deal could be started by some of the most important US trading partners – such as the European Union, Canada and Mexico.

The de minimis plurilateral would be formed among a “coalition of the willing” that assumes the rights and obligations of the agreement. Non-members would not benefit from the higher de minimis the members apply to each other. However, just like the Information Technology Agreement (ITA) that was reached in 1996 among 29 Asia-Pacific economies, including the United States, and that has since expanded to cover 81 nations, the de minimis plurilateral should be open for outsiders to join.

To accommodate the prospective member countries’ different starting points and political concerns, the plurilateral on de minimis could, as with many trade deals, have customized schedules for countries to work toward the $1,000 threshold.

In developing countries, the deal could be introduced as a pilot supported by development banks and donors who help compensate the developing country governments for any foregone customs revenue during the pilot, and assess their net gains after the pilot.

The plurilateral on de minimis would expand opportunities for small businesses and consumers to sell and buy products across borders, accelerate customs clearance, and boost US small business exports. It would also be great foreign aid policy with a special carrot: acceding developing countries would be able to enjoy greater market access for their small business exporters in the advanced economies that are members.

If governments are serious about helping small business export, and companies and consumers access a wide variety of products to lower cost, a plurilateral on de minimis is just about the silver bullet.

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How Can We Revitalize America’s Global Competitiveness?

Today I had the honor to speak on a panel “Power Play: How Can We Revitalize America’s Global Competitiveness?” at the Pacific Council’s members’ weekend. It was a terrific debate – below are my opening remarks and some conclusions:

U.S. competitiveness is a big topic, with several possible definitions – each of which may lead one to somewhat different conclusions. To kick our conversation off, I would like to offer three comments:

First, while there might be reasons to worry about our competitiveness, there are many reasons to celebrate. Consider that:

  • Our corporations are the most productive and resilient in the world
  • Our tech companies are global trendsetters that not only have revolutionized industries, but also created entirely new ones
  • We have figured out the technology to tap into new energy sources that reduce our energy costs
  • We are home to 27 of the 30 universities that produce the most-cited scientific research

We also do exceedingly well in indices that can be seen as proxies of our competitiveness:

In other words, there are many parts of America that work.

Second, if we adopt the definition of competitiveness as the extent to which our companies compete successfully in the global economy, we are well-placed for two reasons:

The first reason is that the global economy of the 21st century is a digital economy. It is an economy where goods and services are digital and bought and sold on digital platforms, with transactions concluded with digital payments. It is an economy where companies that leverage technologies riding on the Internet, such as 3D printing, ecommerce, Big Data, and virtual wallets dramatically reduce the costs for companies to make, market, and move products and services.

The United States is set up for this economy: we have the technologies and our companies and consumers are adopting them. We have the capital and market to scale technologies. Contrast this to Europe: Europe has gone from digital leader to laggard, not least because it is not yet a single digital market. While physical goods travel freely across borders in the EU, digital goods and services still do not. For example, in the U.S., Netflix can stream content just as easily in Alabama as in Alaska; in EU, Netflix is blocked from streaming online content in any of the 28 EU nations without country-specific licensing deals.

EU’s being fragmented into different digital markets I would imagine stifles investment in tech companies. It is not accident that Google, Facebook, Twitter, Uber, and many others grew up in the United States, a single digital market, or that Alibaba took off in China, similarly a single digital market. It is also no accident that 54 percent of online services in Europe are provided by American companies.

The next frontier in our digitization is ensuring that our originally “non-digital” companies – companies in manufacturing, food and beverage, financial services, retail, and so on – adopt and use digital technologies.

The second reason why I feel optimistic about our ability to compete is our trade policy is also setting us up to compete. Like many others, I was concerned about the statements of candidate Obama on the campaign trail in 2008, when he talked about the need to renegotiate NAFTA, hit the pause button on trade negotiations, and focus on trade enforcement.

Positively, our trade policy has become very forward-looking and strategic. TPP was just concluded, opening vaster access to the Japanese market, and once TTIP gets done, we have carved new market access in countries making over half of world trade. We will also have set the de facto multilateral trade rules for the 21st century. The Trade in Services Agreement (TiSA) talks that we are leading and that encompass 50 nations will bolster these gains further in services, the high-growth sector of our economy. Our trade policy has also been very strategic, forcing BRICs to choose between market access in the liberalizing coalition of willing we lead, or the status quo.

In a tennis analogy, in our trade policy, we are taking ball on the rise, and playing smarter than any other nation.

Of course, trade deals we lead like TPP and TiSA are also helping other member economies succeed and gain competitiveness. Just like we do, Japan, Vietnam, and Australia will all gain from TPP, as will 8 other members (and so in fact do other trading partners due to the growth gains in the TPP countries, which boost their overall demand). This is good news: when one stops looking at the world economy as a mercantilist zero-sum game and sees the connections between our and other nations’ prosperity, our trading partners’ growth and prosperity is hugely positive to us.

The third comment is the “however”. What, then, worries me?

First, I worry about creeping regulations and taxes – that one day, after many reactionary moves as in financial regulations after the financial crisis, we wake up and find ourselves having sapped the vigor of our innovation economy and the quintessential American opportunity to make it big here. The debate here must be about smart regulation, not black-and white no regulation vs. lots of regulation.

Second, education is and is not a source of concern. Education is investment in human capital, a driver of total factor productivity and growth, and typically also of incomes of individuals. In other words, quality K-12 education fuels our upward mobility. At the same time, we want to be mindful of keeping investing in our higher education and the best and the brightest, the captains of industry. It is also always useful to talk about STEM – but we should not lose sight of the bigger picture that tech and math are not everything. Even if we get STEM right, we still need 21st century workers – and they are not only statisticians or engineers, but also savvy negotiators, strategic thinkers, great designers, and good collaborators with sound judgement and poise and flair to persuade.

Steve Jobs stressed that Apple products had not only technology but also humanities and liberal arts in them. The best tech companies do not turn on tech alone. Computers  meanwhile, handle many things we do need to get right in the 21st century – math, logic, and shifting through massive amounts of data – I only wish I could scan thousands of journal articles within seconds! But computers are and will be pre-schoolers in the softer tasks that winning in the emerging economy requires. We need STEM, but we need a lot more: measuring the ROI of our K-12, fueling our higher ed to ensure the best ones can truly soar, and educating for the manifold types of roles workers play in the 21st century knowledge economy.

Third source of worry for me is our leadership in the world economy. In the aftermath of the financial crisis, there was a great deal of talk about “American decline” and about the idea that BRICs and other emerging economies would be the locomotives of the global economy. I was so frustrated that I wrote an entire book called Peerless and Periled: The Paradox of America’s Leadership in the World Economic Order (Stanford University Press, 2012), where I argued that emerging markets had structural and institutional defects that would make them run out of steam at some point – and that they were not able to exercise the kind of global, benevolent leadership we have exercised all these years.

Rather, I argued, it is our economy that must power the world economy, and it is out leadership in global trade, finance, and macroeconomic issues – and certainly in other areas as well – that is critical in years to come, in order for us and the world economy to prosper and grow.  I worry that at some point we stop seeing the critical role of American leadership in the world, how peerless it is, and without which how periled our futures can be.

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New thought leadership on digital trade: reforming trade policies, customs regulations, and development solutions for the global digital economy

Disruptive digital technologies — the cloud and digitization, ecommerce, 3D printing, big data, holograms, Internet of Everything, peer-to-peer lending, virtual currencies, and so on — are revolutionizing the economics of global trade and production. They are empowering corporations to dramatically cut costs and encouraging even the smallest of businesses to engage in trade. Digitization opens tremendous opportunities for countries around the world to drive exports, entrepreneurship, and inclusive economic growth. Many of my company Nextrade Group clients too are now gaining interest in ways to drive the digital revolution, and many of my other company TradeUp‘s clients ride on the digital economy.

Yet, there are several barriers to the expansion of digital trade and ecommerce, such as digital protectionism – barriers to the movement of goods, designs, services, investments, and data in the digital economy – and the fact that most people and businesses around the world do not have regular access to the Internet or use the web to engage in exports or create new value.

I have over the past several months been active in several global dialogues to tackle digital protectionism and advance the access to and use of the Internet for trade and development around the world. Recent efforts and outputs include:

  • On November 17-18, 2014, I presented a working paper “Aid for e-Trade: Accelerating the Global e-Commerce Revolution” at the Center for International and Strategic Studies (CSIS), the third largest U.S. think-tank where she is Adjunct Fellow, and at the World Bank’s Trade & Competitiveness Global Practice and the Development Research Group in Washington. Sponsored by eBay Inc., the paper shows that ecommerce holds extraordinary potential for expanding global trade, promoting small business exports and entrepreneurship in the United States and around the world, and boosting export diversification and international development. Yet much of the world and most businesses are still not connected to the web. In addition, several of the countries that have relatively good information and communications technology (ICT) capabilities and Internet usage rates struggle to translate their connectedness into exports and economic gains. The paper proposes a concerted global public-private initiative, “Aid for eTrade,” a close cousin of the global Aid for Trade initiative, which has over the past decade channeled more than $200 billion in bilateral and multilateral trade-related assistance to developing nations. See more in video here, and OpEd on the idea here.

  • On 3 December 2014, I published an Oped in BRINK, Marsh & McLennan-sponsored forum on global risks, called “How Digital Protectionism Threatens to Derail 21st Century Businesses.” The article argues that the emerging global digital economy is at risk: It lacks the liberalizing policies that powered the 1990s wave of globalization.  Rather, digital protectionism is on the rise. Just like tariffs that splintered the world in the 19th century, digital protectionism risks balkanizing the global digital economy before it even starts, squashing the potential of hundreds of millions to prosper in the global economy, and derailing relations between nations. I propose a new effort, the Seoul Consensus, a set of principles for countries around the world to nurture the global digital economy and battle digital protectionism. The Seoul Consensus, named to celebrate Korea’s rapid ascent to a leading digital economy), would be modeled after the Washington Consensus of the early 1990s, which set off a wave of deep trade and investment liberalization across the developing and post-communist world, paving the way for the Flat World wave of globalization. Read more here.

  • On 23 April 2015, I presented the “Aid for eTrade” concept to a team from the Economic Growth, Education and Environment Bureau (E3) from the U.S. Agency for International Development. The office offers technical leadership, research, and field support for worldwide activities in the areas of Economic Growth and Trade, Infrastructure and Engineering, Education, Environment and Global Climate Change, Water, and Gender Equality and Women’s Empowerment. E3 represents the Agency on relevant technical matters in the Inter-agency and with Congress, outside partners, other donors and multilateral institutions. The event was organized by Carana Corporation, a great partner and leading designer and director of economic growth strategies for countries, businesses and donors.

  • On 24 April 2015, I presented a policy paper “Fueling the Online Trade Revolution: A New Customs Security Framework for Secure and Facilitate Small Business eCommerce” at the Center for International and Strategic Studies (CSIS) in Washington. Sponsored by eBay Inc and also featured in a BRINK article, the report shows how across America, individuals and small businesses are increasingly buying and selling goods and services online. The total online transactions in the U.S. grew from $3 trillion in 2006 to $5.4 trillion in 2012, to about a third of U.S. GDP. Yet the rise of ecommerce creates new risk scenarios and considerations for customs agencies—in particular, what security frameworks ought to look like in a world where millions of businesses and individuals around the world increasingly engage in billions of micro-transactions, often resulting in shipments of small parcels from small businesses to other small businesses or individual consumers. The paper proposes an 18-month pilot program “eTrade Track,” a comprehensive initiative run by U.S. Customs and Border Protection (CBP) to secure and fuel small business and online trade. The event also featured a keynote by Devin Wenig, President of eBay Global Marketplaces, and panel discussion with Alan Bersin, Assistant Secretary and Chief Diplomatic Officer for the U.S. Department of Homeland Security (DHS) Office of Policy. See video here.

  • On 13 May, I joined in New York the E15 Expert Group on The Digital Economy, convened by the World Economic Forum and the International Center for Trade and Sustainable Development (ICTSD). The meeting was led by Theme Leader Merit E. Janow, Dean of the School of International and Public Affairs (SIPA) at Columbia University. Discussions focused on the challenges and opportunities that the growth of the digital economy creates for trade and development. Suominen discussed in particular ways in which ecommerce and digitization can advance trade and development around the world, and called for a new global effort, Aid for eTrade, to undo barriers for businesses and entrepreneurs around the world to access and use of ecommerce. I also discussed ideas on ways to advance ecommerce through the implementation of the Trade Facilitation Agreement, and my concept Seoul Consensus, a set of principles for countries around the world to nurture the global digital economy and battle digital protectionism. Here I explain the aims of the E15 event: 

  • On 19 May, I joined a World Bank conference “Harnessing Digital Trade for Competitiveness and Development” as moderator of a panel on policies and investments conducive to digital trade. Though an increasing number of producers in developing countries are selling their wares on the Internet, either through their own websites or through web portals such as eBay and Alibaba, they also face significant impediments to fully exploiting the Internet for exporting – from infrastructure weaknesses to unreliable online payments and complicated customs regulations. The conference brought together entrepreneurs, policy experts, and development practitioners to brainstorm ways that the World Bank Group and other stakeholders can work together to break down these barriers.

  • On 28 May, I presented with Alisa DiCaprio from the Asian Development Bank a draft report I have been authoring on the opportunities and challenges of digital trade in the Asia-Pacific to Asian ambassadors to the World Trade Organization in Geneva. The report shows how digitization is opening entirely new opportunities for Asia-Pacific economies to export and create jobs, and advocates pro-active policy reforms and investments to improve the region’s Internet connectivity, logistics, e-payments, and firms’ capacity to use ecommerce. Gaining positive reception among the ambassadors, the report will be highlighted at the Fifth Global Review on Aid for Trade at the end of June, featuring ADB’s president.

  • Also on 28 May, I joined the World Summit on the Information Society Forum 2015 in Geneva. My panel International e-Commerce for Developing Countries: Practical Case Studies in Overcoming Barriers to Trade through Digital Channels reviewed the challenges for enterprises from developing and least developed countries to engage in international trade through ecommerce, and discussed initiatives to reduce the barriers and cases in the field. I presented my idea on Aid for eTrade; presentation is available here. The panel was organized by the United Nations Conference for Trade and Development (UNCTAD), the International Trade Center, and the United Postal Union.

    Stay tuned for more on digital trade – a new report with the Asian Development Bank, idea generation with the World Bank, a new platform for global digital policies, and a book. Coming up!

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