BCG Details How to Keep Pace with Fast-Changing Global Trade

The rise of digital commerce has done more than make traditional business models—even national borders—redundant, Boston Consulting Group posits in its latest research report. It has also ushered in a new era of global trade.

Case in point: Goods worth $700 billion are traded through e-commerce giants Alibaba and Amazon each year, representing a compound annual growth rate of more than 33 percent since 2012, according to BCG. Moreover, cross-border business-to-consumer transactions are expected to soar to near $1 trillion in 2020 from the $530 billion anticipated for this year.

The question, however, is whether stakeholders are keeping up, the consultancy asked in the report, “Adapting to a New Trade Order.”

While digitization will not necessarily supplant old technologies, the authors wrote, “It will transform competitive rules and supply chains for companies, and it has big implications for industries, such as logistics and international banks, that have built significant businesses funding global trade.”

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BCG noted that countries and international trade groups are on the hook, too. One significant action that governments could take is to equip businesses—especially small businesses—with the tools necessary to participate and succeed through global trade. They can do that by bolstering their digital economies.

That’s because the internet helps drive trade. It does so by connecting what would otherwise be local businesses with international customers, markets and supply chain partners, BCG pointed out. And with world trade accounting for 30 percent of global gross domestic product, a 300 percent increase from 50 years ago, small businesses are some of the biggest beneficiaries of that growth.

BCG went so far as to say that the massive uptake of the internet business model among small and medium enterprises “is shaping the future of world trade and contributing to its growth.” Surveying 3,500 SMEs in multiple countries, BCG found that over the past three years:

  • Early adopters of mobile technologies have increased revenue up to two times faster and added jobs up to eight times faster than laggards.
  • SMEs that rely heavily on the internet for their business are almost 50 percent more likely to sell products and services outside their immediate region than less frequent users of the web.
  • They’re also 63 percent more likely to source products and services from farther afield.
  • And SMEs in economies with high barriers to digital adoption generally lag SMEs in economies with low barriers of internet adoption and use.

BCG is not alone in recognizing—and wanting to support—this trend. Alibaba Group Executive Chairman Jack Ma has repeatedly called for and begun to work toward creating an Electronic World Trade Platform that would leverage the internet to bring SMEs into the global economy.

The eWTP is Ma’s vision of digital free trade via e-commerce, where online marketplaces with reduced tariffs and streamlined customs-clearance procedures allow SMEs to more easily engage in cross-border trade. Last year, Alibaba helped to set up a pilot free-trade zone in Hangzhou from which to launch the program, and in May it took steps to make its first digital link outside of China: in Kuala Lumpur.

“With the creation of eWTP, we hope to enable the building of infrastructure to empower SMEs and young entrepreneurs so they would have as great a chance to succeed in this era of data technology as their multinational counterparts,” Ma said when the announcement was made.

In addition to its focus on small businesses, BCG also pushed back on the wave of protectionist sentiment seen in many countries in recent years, saying trade borders should remain open rather than closed. The consultancy also highlighted the advances in technology playing out in manufacturing and logistics, which is changing the supply chain from end to end.

This type of forward thinking will be critical in order to make sure the methods of global trade keep pace with the rate of change currently taking place in economies across the world.

“It’s hard to win at a new game when you play by old rules,” the report’s authors wrote.