Middle East & North Africa development of smes exports through virtual market places

B.PROPOSED PDO/RESULTS

C.Proposed Development Objective

54. 
    The project’s development objective (PDO): This is a pilot project aimed at increasing SMEs exports on the through Virtual Market Places and supporting institutional reforms to create an enabling environment for e-commerce.
    

55. 
    Due mainly to their small size, limited resources, and the lack of skills, expertise and support, the vast majority of SMEs are not able to export their products or conduct market research to identify business opportunities. Also, SMEs face severe information asymmetry issues: foreign buyers lack information about SMEs’ trustworthiness while SMEs have very little information about foreign buyers’ expectations. Finally, due to virtually no export activity for SMEs, domestic export-related value-chains (marketing, packaging, advisory services, logistic, insurance, finance, translation, etc.) are under-developed. In addition, the culture of e-commerce is not widely spread out throughout the region partially due to the lack of trust and confidence in electronic platforms to conduct transactions. The project will contribute to the reduction of these constraints to e-commerce, particularly, through the introduction of quality certifications. It is expected a relatively high return in terms of economic value since one dollar spent would yield a 4 dollar return (see annex II) in additional revenues for beneficiary SMEs. The project has been designed as a pilot. It can be easily expanded to other beneficiaries.
    

D.Key Results

56. 
    Key indicators are related to Institutional Reform, Outreach, Training and VMP access:
    

1. 
   Institutional Reform
   

• 
  Advisory services to set up effective mechanisms to create an enabling environment for e-commerce
  

2. 
   Exports Markets Accessed through VMPs
   

• 
  Training and advisory of country partners and TSIs
  
• 
  Training and certification of Export Advisors
  
• 
  Actual export transactions in VMPs.
  

3. 
   Partnerships, Certification and Business Intelligence
   

• 
  SMEs capacitated to trade on VMPS and awarded with premium accounts on VMPs.
  
• 
  Effective roll out of a Business Intelligence Mechanism (Trade and Market information provided to countries)
  
• 
  National institution to serve as certification agency assessing SMEs compliance with e-commerce requirements.
  

E.PROJECT DESCRIPTION

1. Project context

57. 
    Internationalization of SMEs in the MENA region faces common challenges to those identified in other parts of the world. Some of the barriers are policy related while others are very much firm specific and refer to lack of skills, lack of business intelligence and limited ability to reach overseas customers. In addition, the firm-specific barriers are common to SMEs across sectors. When it comes to the use of e-commerce tools, some of these barriers are related to cognitive/perceptions regarding e-commerce which can be partially addressed through the coaching of SMEs. Another set of difficulties are more related to the enabling environment to conduct e-commerce and therefore, surpass firm-specific constraints. The project will address both, firm-specific and institutional bottlenecks that hamper SMEs internationalization through e-commerce and, more specifically, through trading on VMPs.
    

Table 3. Benefits of E-commerce

Direct Benefits from e-commerce	Example
Online platforms (f.e. EBAY)	Close to 100% export – While around 40% offline business from the same country of origin include in Ebay export
Competitiveness (large vs. small firms)	Small and large sellers are almost equally likely to export (offline SMEs are less likely to export)
Increase in Exports
Gains from opening up to online trade	The largest actual welfare gains from lower trade costs occur outside developed countries since online costs are close to equal.
Indirect benefits from the Internet Economy
Jobs^15 (MENA)	377,772 jobs
GDP^16 (MENA)	16.5 (US$billions)

58. 
    Hundreds of VMPs are already operating in the world. Some have been in operation for years, other have started more recently. The most successful one is www.alibaba.com, launched by a private firm in China in 1999. Today, this B2B website serves a business community of more than 35 million registered users and the company's shares are publicly traded. Other cross sector, global virtual market places such as globalsources.com, ecplaza.net, and tradekey.com, are also noticeable. The project will select between 15 to 20 VMPs according to their capability to maximize beneficiary SMEs’ export activity.
    

59. 
    Trade over Internet enabled marketplaces, such as eBay or Alibaba, to be less affected by geographical distances. Research shows that a 10 per cent increase in distance reduces trade in eBay, for example, by only around 3 per cent, whereas it reduces traditional exports by 18 per cent. The impact of technology is even more pronounced in the case of trade from developing countries. A 10 per cent increase in distance results in no more than a 1 per cent decrease in technology enabled trade from developing countries¹⁷. Put it differently, the objectives, behavior and success of firms online brings different results and patterns from those using more traditional trading channels.
    

Table 4. Volume of exports and number of markets (Offline vs. Online Sellers)

	Chile	Indonesia	India	Jordan	Peru	Thailand	Ukraine	South Africa
Share of Sellers Exporting
Technology-enabled business (%) Traditional firms (%)	100 15	100 5	97 12	100 25	100 14	100 75	100 12	100 19
Number of export Destinations^18
Technology-enabled business Traditional firms	29 4	36 n.a.	31 n.a.	27 4	25 3	42 n.a.	36 n.a.	30 4

60. 
    In general, technology-enabled businesses are mostly exporting companies while traditional firms are not. Therefore, using the Internet and new technologies for business transactions is seen as an effective tool for exporting.
    

Table 5. Good Practices

Chile - Free Trade Agreement with US – Removing barriers for SMEs and e-commerce.

Chile - Minimum threshold to have tax exemption from customs duties and paperwork requirement: set at only USD100 minimum.

Peru – Exporters reach 25 markets online vs. only 3 markets are reached by offline businesses

Peru – Minimum threshold set at USD200.

Australia – Minimum threshold for payment of customs duties set at USD 1,000.

Ukraine – Commercial sellers reach 37 different markets on average.

Ukraine – Law on Electronic Documents – Electronic Declaration Forms.

Ukraine – Modernization of Postal Service – top 25 countries en e-postal service development.

South Africa – Online sellers reach 30 markets vs. 5 offline sellers. Newcomers account for 27 per cent of sales on eBay.

Thailand – online sellers reach 43 different countries.

Overall – Small business tend to enter the global market by becoming a part of the production process of a much larger firm or sell directly to customers.

Source: Olarreaga and Schropp (2013)

61. 
    Currently, MENA firms are largely absent from these platforms and not visible for the millions of e-buyers around the world. The number one VMP, alibaba.com, records over 9 million buyers (from USA -28%, Europe -21%, Asia -31%, Middle East -8%, and Africa -8%).¹⁹ The reasons (similar/different) refer to: i) production/trade capacity/competitiveness of the countries, and ii) lack of culture of e-commerce, insufficient understanding of how markets operate through e-commerce, access to business intelligence and exports and marketing strategies, and iii) Logistics, customer relation knowledge, quality control and payments constraints.
    

International, all sectors

International, sector-focus

International, all sectors

International, sector-focus

Regional, sector-focus

Local, sector-focus

International, sector-focus

International e-shop

Local, all sectors

62. 
    In addition, the absence of MENA firms in the VMPs, prevent them from having critical market information on the nature and origin of the demand. Therefore, up to 40% of the companies surveyed confirmed their need in obtaining information about business opportunities and technical requirements and standards in the exporting markets as a priority to succeed. Using VMPs statistics would be extremely useful to inform Ministries of Trade. In the framework of this project, Alibaba kindly shared some enquiries statistics that shows that China conducts the most enquiries for Jordan, Moroccan and Tunisian products reaching between 7.5 to 11.5 per cent of enquiries. In Jordan, China is followed by India, United States, Nigeria, UK and Egypt (between 8.7 to 3.7 per cent). In Morocco, US, Spain, UK and France follow (between 7.4 to 3.8 per cent). In Tunisia, China is followed by Italy, Egypt, Turkey, France and India (between 6.2 to 4.5%). When it comes to the products, potential e-buyers show more interest in agriculture and food and beverage for the three countries with minerals and metallurgy ranking also among the top five for Morocco and Jordan. These preliminary statistics show that the potential export markets when it comes to VMPs are not mainly concentrated in Europe and therefore, it is possible to increase market presence in new markets using e-trade and, particularly, VMPs. One of the components of the project aims at having wider access to this international market data.
    

63. 
    The World Bank has designed and sent out a questionnaire to 60 institutions in the MENA region. The recipients included Ministries of Economy, Industry and Trade, Export Promotion Agencies and Chambers of Commerce. The survey was designed around twelve questions aiming at assessing the respondents’ familiarity with the VMP concept (originally to be created in the MENA region, for the countries of the MENA region) as well as the kind of services (training, financial services, translation, business development coaching, etc.) needed to facilitate the participation of the SMEs in a regional VMP²⁰.
    

64. 
    The majority of the respondents, 88 percent, were familiar with the VMP concept. All the respondents claimed that VMPs would be useful to businesses in their countries for their export activities. They were quite unanimous about the type of impact VMPs could have: regional integration, outreach of products beyond the region and competitiveness effects. In a second survey²¹ conducted in the participating countries of this project, between August and September 2013, SMEs in the three countries confirmed their interested in selling online but cited lack of sufficient knowledge to maximize the use of this platforms. The SMEs surveyed also emphasized the urgency of addressing business environment issues related to e-commerce such as: security of payments or logistics. They see considerable value in obtaining VMP trust labels as well as business intelligence support analytics to better target markets.
    

65. 
    The project aims i) to work with Trade Support Institutions (TSIs) that support enterprises in their export diversification efforts, access to business intelligence on foreign markets and that can have strong multiplier effects, and ii) to create capacity and skills within SMEs to increase their exports by using existing VMPs²².
    

66. 
    The project will support the integration of approximately 600 SMEs from Morocco, Tunisia and Jordan into several well-targeted VMPs²³.
    

67. 
    The project will target exporting companies and export-ready ones in order to ensure that it will fully benefit selected SMEs and that they will be able to successfully engage and conclude business transactions with leads through the virtual marketplaces. Exporting companies refers to those who regularly exported over the last three years (products), or at least during the last year (services). Export-ready companies are companies that have either been exporting occasionally or have been identified by partner TSIs as being able to do so in the near future. A target number of 200 SMEs per country will be selected through an exclusively online expression-of-interest (EOI) form disseminated with the support of partner trade-support institutions. This will be a first step to ensure a first-level of IT literacy.
    

Overall Selection criteria include:

• 
  Company profile (start date, size, turn over, number of jobs (segregated by gender), product/services provided, financial situation, etc…);
  
• 
  At least 20% of selected companies selected in each country will be owned by women or young entrepreneurs;
  
• 
  References of export clients available upon request;
  
• 
  List of current export markets and export value in % of total sales;
  
• 
  Brief summary of the companies’ export strategy (box);
  
• 
  English-language skills available inside the company, and
  
• 
  Availability of an export focal point inside the company
  

Further related questions will assess the “e-readiness” of candidates, including:

• 
  Existence of a website or web presence through social media;
  
• 
  Usage of the web to identify new export markets and export leads;
  
• 
  Awareness of virtual marketplaces (checklist of VMPs), and
  
• 
  Past experience with B2C or B2N e-commerce and/or virtual market places
  

The definition of criteria as well as the EOI process and the selection process will be conducted closely with the partner TSI. The selection process will be flexible, while the selection criteria will be carefully considered to ensure that the most promising SMEs are identified and are strongly motivated to join. The process will ensure that the selected group is balanced in terms of company size, gender, products/services, and distribution across different regions in the country.

The selected companies are the direct beneficiaries of the capacity-building and business-development support that will be provided through the VMP. As part of this process, some of the SMEs will get access to premium accounts on specific marketplaces. In return, beneficiary companies are expected to actively take part and perform according to specific success indicators as defined in the logical framework of the project. At the end of the first year implementation, each company performance will be assessed in close collaboration with the partner TSI.

In order to ensure a strong commitment from the participants, the companies that will achieve poor performance will be taken out of the beneficiaries list and replaced with a new selected group of applicants.

• 
  Youth/gender:
  

The project aims to support women and youth entrepreneurship in integrating into and benefitting fully from the potential of existing Virtual Market Places, which is essential in a region with a large young population and high unemployment rates of youth and women in particular.

Knowing that in 2011, 87% of young Arabs gained more access to information technology and communication compared with 79% in 2009^24, the project, by using new technologies, open sustainable doors to job opportunities for young Arabs. Indeed, entrepreneurship can offer new opportunities for women and youth to generate their own income, and help others as they do it. The project will work directly with women-owned and youth entrepreneurs and ensure that the benefits of the project accrue to them. The baseline will be confirmed at the beginning of the project.

68. 
    Alibaba is a global VMP which does not target a particular sector while other VMPs are more specialized and constitute trade platforms which in some cases focus in one product. Therefore, there are advantages in registering SMEs in both types of platforms. The project could help by-pass barriers to inter and intra-regional trade such as: i) the non-tariff and other policy barriers, including in some cases physical border closures, and ii) the personalization of trade and related lack of trust and confidence in depersonalized exchanges.
    

During the missions carried out in the beneficiary countries, stakeholders recommended to focus on certain sectors²⁵, namely:

• 
  Agriculture and processed food, in particular in the halal and organics segments;
  
• 
  Services, in particular ITO/BPO and other business services;
  
• 
  Handicrafts.
  

69. 
    In specific cases, the sectors may increase to respond to national trade strategies provided the specific sector has potential from an e-commerce perspective.
    

70. 
    From a development outcome perspective, and in view of the countries' demographics and business structure, the project will engage a large number of young entrepreneurs and special attention will be given to women-led companies, reaching out to SMEs across regions while taking into account disparity issues. The project focuses on a quality approach through individual support and coaching to SMEs to ensure success.
    

71. 
    The project will create expertise on VMPs and an enhanced access to business intelligence about foreign markets through experts who will train in country export specialists as well as local institutions, which, later on, will train SMEs. By introducing this approach it ensures that knowledge is transferred, used and evaluated throughout the life of the project and capacity remains once the project closes.
    

72. 
    In each country, a small project implementation unit –PIU-, located in the main TSI, will coordinate the project at country level and provide support to the International Trade Center (ITC) which is the main partner of the WB for this project. Depending on the countries, the project will also involve government agencies, chambers of commerce, business associations and specific civil society organizations²⁶ in order to ensure full outreach toward the beneficiary SMEs. This public-private partnership approach is fundamental in ensuring the success of the project as well as its sustainability once the project is completed. TSIs will allocate staff to be trained as well as to, later on, engage them on coaching and registering SMEs with EAs support²⁷. ITC, in cooperation with the TSI, will instruct PIU on the criteria to select potential SMEs and monitor their performance throughout the project to make sure they actually engage in concrete business transactions. ITC will also engage with the TSIs in order to build their capacities on how to better track information and alerts SMEs about markets, opportunities, competitors, trends, risks and other key intelligence topics. This service will be offered as part of TSIs portfolio. The information tracking will be made on the VMPs and complemented by other relevant sources of information.
    

73. 
    The project will hire Export Advisors (EAs) already trained through various programs in Tunisia, Jordan and Morocco²⁸. The recruited EAs will receive specialized training on VMPs. EAs will be recruited through existing networks or by contracting a firm to conduct the hiring²⁹.
    

74. 
    The project also envisages tackling the enabling environment for e-commerce by addressing institutional constraints to help beneficiary SMEs better perform on VMPs. For SMEs to profit from e-commerce, several institutional and regulatory aspects require attention. These factors are, broadly: legislation (regulatory environment), e-payment/banking facilities and support, software services (security), telecommunications, delivery services (postal services or alternatives) and traffic infrastructure. Barriers in one or more of these areas can hamper the success of e-commerce efforts in general and online trade through VMPs in particular and need to be addressed jointly. In Tunisia, Morocco and Jordan institutional-related barriers identified which affect low volume exporters or potential exporters using e-commerce platforms and channels are:
    

• 
  Branding and Trust
  
• 
  Logistical networks for the prompt and reliable delivery of products
  
• 
  Lack of a supportive legal and regulatory environment
  
• 
  Electronic payments and currency issues
  
• 
  Insurance systems
  
• 
  Connectivity (quality, speed, cost)
  

75. 
    In addition, complying with high standards in many of those areas will facilitate the granting of trust labels to companies based on international standards and the implementation of quality procedures associated to the use of the VMP label. This requires the implication of the national institutions responsible for VMPs standards and assessments and the creation of capacity within them. The capacity of national institutions responsible for standards and assessments will be strengthened to understand VMP standards and assists SME’s to understand and be aligned with VMP classical specifications.
    

76. 
    The scalability and sustainability of the project will be ensured through the good selection of TSIs, advisors and SMEs and regular monitoring of the performance of each key player. The project follows a “learning by doing” approach. The successful implementation of the project directly depend on the selection of the appropriate trade support institutions, the competent trade advisors and motivated SMEs that have the capacity to export. Therefore, the selection process will be managed in a rigorous and systematic way. The project will be implemented through the direct involvement of the TSIs; the hands on experience will reinforce the competencies and capacity of TSIs to provide more effective support services to promote e-commerce. As part of the implementation process, the methodological approach and processes will be integrated as part of the services portfolio of TSIs. The TSIs will have a multiplier effect reaching out to a wider group of SMEs and capacitating them to enter into e-commerce. As demand for such services increase, the TSIs will be able to customize its services, to upgrade them and introduce a fee-based approach.
    

77. 
    Through the “learning by doing” approach, the TSIs will have access to a core group of advisors that will be available as local experts to continue to support a larger group of SMEs. The core group of advisors will be able to train other advisors and to support the TSIs in providing high quality services to SMEs. The local experts will be engaged with ITC through a process of continuous improvement. They will be certified through their involvement in the project and by successfully completing all the steps of the training provided by ITC.
    

78. 
    The success of SMEs in generating new business transactions through VMPs will build interest within the business community. The project will invest in communication and create visibility with regard to all positive results and changes generated by the development of e-commerce. Information sessions and awareness sessions will be organized by the TSIs to mobilize more SMEs and encourage them to integrate e-commerce as new export channel.
    

79. 
    The project will build capacities of TSIs to ensure its sustainability. VMP trainings will be organized through partner TSI and the latter will be equipped with a toolkit to advise SMEs on how to use VMP for export diversification. Standardized training packages and methodologies with an emphasis on local capacity building will ensure scalability and faster deployments in other countries.
    

2.