ITC Press conference 28 September 2022

Good afternoon and welcome to this press conference of the International Trade Centre.

My name is Natalie Domizan and the International Trade Centre is an agency of the United Nations and the World Trade Organisation focusing on connecting small businesses to global markets.

Our approach is 1, where we look at trade that is inclusive, inclusive in the broadest sense, and you'll be hearing more about that today.

Each year, we produce an annual report about small businesses called the SME Competitiveness Outlook.

This year, the theme is on services Connected services, and we'll be telling you about that in a minute.

And we look into an approach where businesses and governments and those who support the businesses work together to help them be stronger and more prosperous.

To my left, I have the Executive Director of the International Trade Centre, Pamela Koch Hamilton, and next to her is Barbara Ramos, the chief executive of the International Trade Centre.

And we'll be starting first with remarks from Miskoch Hamilton.

Thank you very much, Natalie, and good afternoon and welcome to the official launch of the SME Competitiveness Outlook, the flagship report of the International Trade Centre.

The topic of this year's report is particularly close to my heart, the role of services in economic transformation.

And to explain why, let me harken back to where I'm from, my home country, Jamaica.

The name Jamaica of course conjures up images of sun, sea, sand, **** green landscape and of course reggae.

We rely greatly on tourism and creative industries, not just as engines of economic growth but also to project Jamaica onto the world stage.

Growing up on a small island developing state, I was also acutely aware of the role played by services that lessen the burden of being surrounded by water.

For example, transportation and communication services, which were critical for our connectivity.

But services are not just important for small or developing economies, they're critical everywhere, driving an increasing share of growth and employment.

In fact, they were the main drivers of GDP growth in 3/4 of countries in 2019, and even more so post COVID.

They employ over half of the world's labour force.

But the landscape for services is changing at record speed.

During the industrial revolution, the textiles and clothing industry LED economic transformation.

Back then, production was along assembly lines and underpinned by technologies like the cotton gin.

Today, production works around supply chains.

The future of global trade is without a doubt through digital channels and platforms.

The services driving economic transformation in our day and age are those at the forefront of these two trends.

Financial services, ICT, transport and logistics and business and professional services.

These are the bond connecting firms with supply chains and to digital innovation.

For this reason we call them connected services.

I'm not aware of another international organisation that has utilised this terminology.

So if we've coined a new phrase then we own it and we're taking it.

Thank you.

This year's SME Competitiveness Outlook finds that connected services are valuable in their own right.

Employment is growing rapidly in these sectors, particularly in low income countries.

They're also export more.

They attract more investment from abroad.

They reinvest a larger share of their of their revenue and innovation.

However, it is their contribution to overall competitiveness that makes connected services so critical.

Our research shows that firms in all sectors are more competitive when they have access to **** quality connected services.

This is because they provide the ingredients all firms need to prosper, that is, efficient payment solutions, innovative financing, reliable digital and physical connectivity, and cutting edge business expertise.

Connected services also make our societies more equal.

Through them, small businesses and those led by women and young entrepreneurs are able to integrate into international trade, value chains and other aspects of the international economic system.

They're also able to better adopt digital technologies to produce and engage with buyers, suppliers, and support institutions more efficiently.

By empowering these connected services, trade becomes more inclusive, with the resulting gains more broadly distributed.

In an era of the three CS when economies are trying to recover from COVID, tackle climate change, and overcome conflict, small business prosperity is at the heart of viable solutions for the future.

And those small businesses desperately need connected services.

Unfortunately, our research found that SMEs in developing countries do not access them easily or at **** quality.

If we make connected services firms more competitive, they can provide better services to many small firms, which become more competitive themselves.

Our report highlights for competencies that are often lacking but are critical to the competitiveness of connected services companies.

And these are the ability to grow networks, the ability to innovate, the ability to deepen skills and file, the ability to leverage finance.

The Connected Services Competitive Business Plan showcased in the report summarises key actions stakeholders can take or need to take along these fronts.

Many aspects of these competitiveness shortcomings can be addressed by Connected Services, their firms themselves, and we show them how.

Business support institutions and governments also play a critical role in strengthening connected services and ensuring that all companies have access to these important inputs.

The International Trade Centre has stepped up its efforts to help small firms both provide and access connected services.

By working with actors at all three levels, the enterprise level, business support ecosystem and government, we're weaving a tapestry of support that is taking small businesses online and into the global trading system.

We have recently launched a new digital initiative called Switch On, which holistically addresses the needs of small firms as users and providers of connected services.

It brings together diverse existing ITC initiatives like E Com Connect, which helps businesses go online and use digital trade channels, and Fast Track Tech, which supports digital service providers such as financial technology firms to expand their services to small businesses.

Our projects are helping enterprises led by women, youth and refugees build skills to expand their digital presence and connect to service providers and global markets through online platforms.

We also advocate for regulatory reforms and trade strategy solutions that Foster and enabling business environment for connected services.

Connected services may not be the hottest topic on everyday conversation.

Well, you know it's not sexy, but it it works.

But to the entrepreneur struggling to access funds, deal with an unstable Internet connection, or deliver on time in the face of unreliable logistics, they are the bread and butter of competitiveness and survival in the marketplace.

For economies to take off and place SM ES at the core of a sustainable and inclusive recovery, they are indispensable.

Improving small business access to good quality connected services must be a priority.

This report provides a clear vision of how to turn potential into reality to ensure that all countries from Jamaica to Japan, from Asia to the Americas to Africa, continue to prosper and transform economies in these challenging times.

I now give the floor to Barbara Ramos, ITC's Chief of Research and Export Strategies, who will tell you more about the research behind this report.

Thank you.

Thank you, Pamela, and welcome to all of those joining us today.

I'm going to share some of the slides as we have some interesting data to show you.

But before I dive into the report, I wanted to try and provide some motivation as to why you should read this one.

I know if you're anything like me, you get probably dozens of reports every day, and it's true that Connected Services may not be the coolest topic at the dinner party, but.

But I'll try anyways to motivate you to care about this report and to read this report.

I think first because the SME Competitiveness Outlook ITC flagship report to me isn't a class of its own.

Of course, I'm biassed, I supervise the report.

But I do feel that this is different because it breaks down timely and complex issues in ways that are accessible and easy to understand.

And this is important to us because we want these reports to inform our beneficiaries and our beneficiaries are the small businesses in developing countries and we want them to try and be able to to enter this dialogue.

The second reason why I think this year's edition is is particularly important is because it provides A pathway, not a silver bullet because that doesn't exist, but a pathway to help us navigate the perfect storm we're in.

We all know that we are dealing with COVID climate conflict.

And as we look at the horizon, what we're seeing is potentially a long period of low growth, **** inflation and a lot of pressure on all the economies with particularly developing economies.

And, and through this report, we want to provide some, some concrete answers and shed some light, some light on the way we can, we can move forward because the challenge we see for governments and societies now is how do you reignite growth in the face of very constrained financial circumstances?

And in the past, the answer tended to be manufacturing industry pump the machine and that's going to give you more output, that's going to give you more exports, that's going to give you more jobs.

The problem is we know that manufacturing exports tend to be a little bit overfished.

They they are very entrenched in a few countries and increasingly developing countries are having a hard time breaking into these industries.

And because of automation, the ability of manufacturing to absorb labour as used to be is now diminished.

So some economists are starting to look at services as the new engine for growth.

And while it's true that services have been driving growth in nearly 80% of countries, what many have pointed out is that in the aggregate, services tend to miss some of the characteristics of manufacturing that made it so important for economic transformation.

Those characteristics are the ability to innovate and make workers more productive, the ability to link and have multiplier effects across the economy.

Now what we find in this report is that while that may be true in the aggregate, it's not necessarily true of all services sub sectors.

The four sectors that we call connected services are those that are displaying those characteristics and that's why we're focusing on them because in a time when we need to establish priorities to regrow these is a good place to invest.

So what are disconnected services?

As our Ed or Executive Director mentioned, this is the term that we coined in this report to refer to four services sub sectors.

These are information communication technologies, transport and logistics, financial services and business and professional services.

And why these four and not others?

Well, bringing back the the parallel to manufacturing.

Manufacturing was transformative because it embodied economic efficiency, right?

It IT production was organised very efficiently across assembly lines and the most modern technologies were adopted.

If you look at today's production, production is organised along supply chains and the most modern technologies are digital.

These four services sectors are those that are at the cutting edge of these economic efficiencies.

So you have a little bit of a complex graph here.

And in the report we explained a little bit better how we measured those things.

But disconnected services are are providing the bulk of value in supply chains and they're also highly digitalized.

There are other sectors that may display one or the other dimension, but not the two at the same time.

And this is important because once they display these dimensions, they have two effects.

The first one is that they are important in their own right.

They have this direct effects on growth, more employment, more output, more exports.

But what we focus on the report is the indirect effects because they're so linked, they're so connected, they make other firms in other sectors more competitive as well.

So let me dig into those two effects a little bit.

First, with regards to the direct effects or the effects on the connected services sectors themselves, what we observed is that they are growing faster than other sectors, other services sectors, but also faster than agriculture, manufacturing and employment is also growing faster in this 4 sectors than elsewhere.

And this is not just in developed countries because we tend to think of these sectors are very cutting edge and to be predominant in developed countries.

But we are also seeing this happening in low income countries.

Yes, it's true they start from a lower base, but employment is growing very rapidly in in low income countries as well.

And what's interesting as opposed to manufacturing where automation is replacing workers here in the connected services technology is making workers more productive.

So that's very critical.

Now in terms of the indirect effects, what we are seeing is that through connected services, other firms are becoming more efficient.

So we provide some numbers just so you can get a magnitude of what we're talking about.

Talking about logistics services, our surveys have found that 78% of firms that use good quality logistics services or have access to good quality, quality logistics services have good inventory management practises.

And this is compared to 36% of those firms that do not have access to good logistics services.

And this is intuitive because if you know that you have good logistics, you don't have to build huge inventories just because and you don't find yourself suddenly with low inventories because your truck is stuck somewhere.

And we find similar trends with the other connected services.

For instance, banking companies with access to **** quality banking tend to innovate more.

Also intuitive.

They have the funds to invest in their ideas with ICT.

Good access to to the to ICT services allows companies to have websites and a digital presence.

And we all know that a company today without digital presence doesn't exist.

If you cannot go online and read those reviews, you don't access that company anymore.

So those connected services are making other services more competitive.

And why this is not by chance, this is what economists love to say.

It's comparative advantage, right?

When you start outsourcing these services, you receive better quality services because these are specialised firms, They're specialised in these services and they can produce it at higher scale, which means they can produce it at lower cost than you could produce yourself.

At the same time as you don't have to worry about where that truck is or how to access finance.

You're able to focus on your core offering and you get better at that.

So you have a double win in terms of efficiency.

You in source better services and you provide better services yourself.

And we know that companies that are more efficient and better export more and we have found good evidence of that.

So we looked at sub national regions.

This is not across countries.

We know there is tremendous variation in the quality of connected services across countries.

But even within the same country we looked at regions where disconnected services were of better quality.

And what we found there is that 44% of firms, not just connected services firms, all firms, 44% exported.

In regions where the connected services were not very good, only 19% of firms export.

So we start seeing the the huge impact that connected services have on the competitiveness of firms, which is then reflected in their ability to export.

Now the bad news, access is unequal.

As we know, small companies tend to have less access to connected services compared to large companies.

65% of large companies indicated and provided some some indication that they have access to competitive connected services versus 38% of small firms.

And even when those small firms have access to connected services, they tended to rate the quality of the services they received lower than large companies.

So large companies can access more and better connected services.

Now, interestingly, for those companies that do have access, cost did not seem to be a huge element because the ratings on cost were very similar for large companies and small, small companies.

Obviously, we're asking companies that have access, so there might be an issue of affordability to make sure more small companies can access those services.

But once they do, the cost is not so much an element.

So I hope that with all of this, I have made the case that investing in connected services is good for the economy in general.

But there is another aspect.

Disconnected services are particularly important to other services firms.

And services firms tend to be smaller.

They tend to employ a larger percentage of women.

They tend to be owned by women more than firms in other sectors.

They tend to also have a higher prevalence of young entrepreneurs be owned by young people.

So by allowing these companies to have access to good connected services, we are also giving better inclusiveness dividends.

Now one point that I would like to emphasise is small firms are not just users of connected services.

Small firms are also providers of connected services.

And even though when we think of banking, financial services, transportation services, we tend to think of UBSS and UP SS, there are thousands of small services companies in this industries.

We see them every day at ITC and tomorrow if you participate in our launch event at the WTO public Forum, you will hear from them are going to bring some of these small companies to talk to us.

And they're not just present in this industries, they're disrupting this industries.

We hear every day about these unicorns or those companies that were created in somebody's garage and suddenly were bought by these large companies, millions and billions of dollars.

So once we invest in connected services, we're helping those small firms that need them, but we're also helping those small firms that are in them.

So again, double dividends and how do we do that at ITC?

All of the the solutions, all of the recommendations we provide, they're provided at 3 levels because problems need to be addressed holistically.

So we talk about the firm level, what firms themselves can do to improve their competitiveness.

We talk about the business ecosystem, business support organisations, Chambers of Commerce, sector associations, what they can do to help the firms and then the policy level, governments at home and an international negotiation fora.

What can they do to help firms be more competitive?

And as already mentioned in her remarks, we found four areas that need support for connected services to be more competitive.

These are to grow their networks.

Connected services need to be more connected to buyers, suppliers, associations, business support organisations.

They need to innovate more.

Of course all firms need to innovate, but these are highly competitive industries, so the ability to innovate is critical for for connected services.

And in order to innovate, they need skills within the company and available in the market to be able to bring the right skills to innovate.

And finally, they need to be able to leverage finance, meaning they need to manage their own finances better and have access to sources of financing to be able to translate their innovative ideas into reality.

Of course, our reports this year touches on many, many other issues of relevance to connected services, including the heavy burden that regulation can have on connected services.

We have an entire chapter on regulation because a lot of small businesses tend to focus on that and be so confused about what they need to do in order to break into those markets, especially if they want to export.

So I invite you to download this year's report on connected services as we await eagerly for next year, which is going to be on fragility, another, another hot topic.

And I invite you also to attend our launch event tomorrow at the WTO Public Forum, download our report and get in touch with us if you need more information.

Thank you.

Thank you very much, Pamela and Barbara, are there any questions from journalists?

Is that a yes or no?

That's a no, just in case we give them a moment.

OK.

Then with that, we say thank you to everyone who has come today, and we hope you will read the report and get in touch with us if you'd like more information.

Thank you.