The digital disruption of international trade has already begun
A significant proportion of the world’s population is presently unable to benefit from e-commerce. Here’s how that’s changing.
This article originally appeared in Trade Forum, the magazine produced by the International Trade Centre (ITC) to provide analysis and best practices related to trade and development. ITC is the joint agency of the United Nations and the World Trade Organisation dedicated to supporting sustainable and supportive growth in developing and transition economies.
Digital disruption is one of the hottest topics in the business community at the moment. From the boardrooms of the world’s largest companies to small co-working hubs filled with small businesses and startups, there’s a growing sense that the internet is changing the world so quickly they must quickly understand how they can take advantage or risk losing their business.
Today no business is unaffected by digital disruption. I recently called a plumber to fix a leaking tap in my kitchen and he told me the biggest challenge he now faced running his company is search-engine optimization. Though his customers may be local, they immediately go online to find a plumber and he has never been trained in how to get his service to appear near the top of search engine results. I only found him because the companies listed before his, which were considerably larger, were unavailable.
Jack Ma, founder of online retailer Alibaba, predicts that a staggering 90% of all business will be online in the next 30 years. That means there are enormous new opportunities emerging, although this digital disruption is creating losers as well as winners.
E-commerce has opened new opportunities for micro, small and medium enterprises (MSMEs) to conduct business globally by lowering traditional barriers to trade, enabling them to compete in the global market.
However, a significant proportion of the world’s population is presently unable to benefit from e-commerce — often simply because of where they live. The greatest challenges are currently faced by people in developing countries, women and other marginalized groups. Many of them are already financially excluded because services like banking are unavailable or unaffordable to them. The advance of digital technology can sometimes exacerbate this problem, as well as exclude people who don’t have the skills to succeed in the digital era.
A recent International Trade Centre (ITC) survey showed the key obstacles to cross-border trade facing MSMEs are establishing an online business; international e-payment; access to payment service providers; and a robust services sector that supports the growth of e-commerce.
These challenges of digitization in trade are most noticeable in parts of the world where the benefits are most needed. Developing and least developing countries typically have a nascent digital and legal infrastructure and lack the services to support MSMEs that wish to engage in trade. Financial and administrative barriers to establishing and managing a business may be too high, their business may not be trusted online or they may have difficulty accessing necessary tools such as international payment providers.
Estonia is far ahead of the curve. Children are taught to code from primary school and everyone receives a digital ID card so they can access almost all government services entirely online. This is also why Estonia is one of the best places in the world to start a company: because costs and hassle are low, yet the opportunities to access services and trade online globally are high.
As a result, Estonia is home to a disproportionate number of successful companies despite its small population and few natural resources. Business stalwarts such as communications provider Skype, funds processor TransferWise, software maker Pipedrive and transport firm Taxify all started here.
While Estonia was the first country to declare that internet access is a social right, it is now doing something even more remarkable as the first country to offer e-Residency. Anyone in the world can fill out a simple online form to apply for a digital ID card from the Estonian government and then plug it into their computer to access Estonia’s public services online from anywhere. They can then enjoy the same business advantages as Estonians, such as the ability to create a global company based virtually in the EU with low costs and minimal hassle and then trade online with greater ease and access to more financial services.
E-Residency makes it considerably easier to run a company, but does not override existing international rules such as taxation. So when citizens around the world benefit from e-Residency, so too do their governments.
More than 25,000 people from 139 countries have applied for e-Residency, a third of them from the developing world. One of the key reasons behind this growth is the ability for people to access PayPal and receive money from international customers as a result of being e-residents.
E-TRADE FOR ALL
The e-Residency programme has now joined forces with the United Nations Conference on Trade and Development (UNCTAD) and other international organizations for the groundbreaking e-Trade For All initiative, which can help unlock global growth by giving more people the power to start an online business.
One of the first examples of e-Trade For All in action is under way for women in Delhi, India. The Indian Institute of Technology Delhi has launched an initiative called Women Entrepreneurship and Empowerment (WEE) supported by the Indian government’s Department of Science and Technology. Participants receive business mentoring locally and also e-Residency from Estonia in order to start their companies.
As e-residents, participants are able to establish companies anywhere with added trust because they have a government-issued digital identity and operate within the European Union (EU) legal framework. They also have access to the EU business environment so they can benefit from the Single Market’s harmonized rules, access to robust financial services (including EU business banking and international payment providers) and access to a wide network of business service providers that offer globally competitive services (such as accounting and virtual offices).
While Estonia has been giving digital ID cards to its citizens and residents for around 15 years, it was only three years ago that Estonia decided to welcome its e-resident population by giving those digital ID cards to people outside the country.
People often think digital disruption is based on advanced new technology, yet it’s happening all the time with technology that has been around us for decades. Digital disruption is really about how technology enables us to think and do things in entirely new ways.
To learn more about Estonia’s e-Residency initiative, please visit e-resident.gov.ee.