Transcript
Speaker: If you think trade wars are disrupting international commerce, what will you hear about the impact of technology? Technology changes will change trade in ways unimaginable and with profound benefits for middle market companies.
Speaker: Welcome to The Market That Moves America, a podcast from the National Center for the Middle Market, which will educate you about the challenges facing mid -sized companies and help you take advantage of new opportunities.
Speaker: Today's podcast is about how changes in technology are having as big an impact on trade, maybe a bigger impact on trade, than political and other battles. I'm Tom Stewart. I'm the executive director of the National Center for the Middle Market at the Ohio State University Fisher College of Business.
Speaker: We're the nation's leading research group focusing on mid -sized companies, the mid -sized companies that account for about a third of private GDP and employment, and the lion's share of economic growth. It is indeed the market that moves America. The National Center for the Middle Market is a partnership between Ohio State and CHUB.
Speaker: I have a special guest with me today. She's Kati Swominin, who is the founder and CEO of Next Trade Group, a Los Angeles -based data and analytics company that helps governments, multinational development banks, and businesses enable world trade through technology. Kati advised us at the National Center for the Middle Market on our study winning in the Americas a couple of years ago.
Speaker: And she is the author and editor of 10 books on trade and economics, including her just released, Revolutionizing World Trade, How Disruptive Technologies Open Opportunities for All, which Stanford University Press has just published. Kati, welcome to the market that moves America.
Speaker: Thank you very much. Thank you for having me and great to reconnect after all the other studies you did together. That was a lot of work and was really interesting as we focused in that study on how mid -sized companies trade with Canada
Speaker: Mexico, but also the rest of Latin America and the obstacles and opportunities that they have. But since we did that, of course, the trade environment has changed an awful lot with trade wars and tariffs, and we see the headlines about that every day. But I think you're arguing that
Speaker: Underneath those trade, those trade disputes are some fundamentally bigger changes that are having a bigger impact on trade. Yes, absolutely. So, you know, I've started to realize that something big was happening in international trade and globalization about six years ago when my company was working with a development organization called the Inter -American Development Bank.
Speaker: that provides lending for Latin American governments to support their economic development. And we're working on a study to understand how we could enable Latin American companies and mid -sized companies in particular to export. And at the time, it was very challenging for firms in any one country to export. There's basically an iron law in international trade that only a small minority of firms export and typically those firms are
Speaker: larger firms and any one country's trade is mostly driven by the top 10 largest, top 10 % of largest firms. What we saw at the time was very interesting data coming out of eBay and their research of sellers on eBay platforms, which turned everything around that a trade economist like myself has known, which is
Speaker: that typically of US companies fewer than 5 % export and even on manufacturers fewer than 20 % export but on eBay what we saw is that online sellers 96 % of them had export activity and they also exported to say 17 -18 countries on average. Was that
Speaker: And that's a huge difference. And I think in our studies of the middle market, we've seen the same thing. I think the number that we have from a study that we did with Brookings a couple of years before the study on winning in the Americas was basically that 90 % of middle market companies had entirely domestic markets. And of course, some of them
Speaker: might be construction companies that would be might just work in one city or town but but but that 90 -10 ratio compared to 90 more than 90 percent of people who used ebay did export that's huge yes absolutely and that's what you see across the board and particularly in large countries like the united states where there's a huge domestic market that companies can sell into
Speaker: But what we saw, starting with eBay data and subsequently through surveys that my company has conducted around the world, and also surveys that are now emerging in the US on B2B companies that are manufacturers, for instance, companies are increasingly using e -commerce and they are using this, including in large markets like the United States, in order to engage in trade.
Speaker: Not just export, but also to gain access to a larger pool of imports. And this realization kind of six years ago led me to think about all kinds of other technologies like 5G and 3D printing and Internet of Things.
Speaker: big data and machine learning, different kinds of techniques also for companies to harness digital tools and data and what those would mean for globalization. And what I came to see is that by virtue of these technologies, the kind of paradigm of globalization, as we've had it in our minds for the past 20, 30 years, it can be radically transforming
Speaker: And in a way, when you look at the trade wars and the trade disputes, those kind of seem to be noise amid this great pattern of technological transformation that is enabling trade in different ways. Now, this is very much in the beginning, but I believe in the next five to 10 years, we will see some fundamental transformations
Speaker: as companies start to adopt 3D printing as they are leveraging data more in order to optimize their operations and understand their customers as the trade ecosystem. And we can talk about this more as they're kind of everybody who facilitates trade, shipping lines, boards, customs, are adopting new capabilities like blockchain to enable them to see
Speaker: and trace products that are circulating in global trade and reduced inefficiencies in their interaction. So I think like anywhere you look in the trade ecosystem and among companies, there's tremendous adoption of new technologies, a lot of experimentation and it will lead to
Speaker: something very significant that is only starting to come into sight. So let me break it down a little bit and look at a couple of these individually. One of the things you think about, you mentioned eBay, and when I think of eBay and a smaller company, anything other than a giant company, one of the advantages of something like an eBay platform is that I don't have to build it.
Speaker: Instead of having, it gives me all kinds of platform capabilities that I can use regardless of the size of my company. So that would be one way in which a technology would open up, it would reduce the barriers to exporting with a set of capabilities that platforms like eBay would do. Is that fair to say?
Speaker: Yeah, absolutely. So I'll give you a nice example of one eBay center, you know, this guy's in, here you actually in Indiana, relatively close to the center. And in 2004, he started his motorbike gear business just with $3 ,500.
Speaker: And today he is leveraging platforms like eBay, sells his products to 131 countries and derives something like 40 -45 % of his revenue from exports. And basically writing on precisely what you're saying, Tom, is on platforms like eBay that enable firms to export. We did a study recently for
Speaker: USAID looking at online sellers around the world in different developing countries as well and we discovered that 99 % of those firms that were selling on global online platforms like Alibaba or eBay or Amazon also export it and they tended to derive bulk of their revenue from export activity. So definitely the global online platforms are
Speaker: are a game changer for international trade. You mentioned 3D printing also as a game changer for exports and international trade. What would that do? That's a great question. This is definitely something that can transform how we think about globalization.
Speaker: All of us, most of us, have had this paradigm of globalization that Tom Friedman put out there with his book Well This Flash 15 years ago. And we've come to think of globalization as a kind of system where goods are made
Speaker: in the world, if you will, not necessarily only in China, but really in the world in giant global supply chains. And we've seen many American companies relocate production and of course draw inputs and parts and components from different parts of the world and assemble them in China and Mexico and export back to the American consumer. And this is kind of a pattern of
Speaker: of globalization and paradigm of globalization that's quite imprinted in our minds still today. Big factor, just pumping things out, putting them into container ships and sending them across the seas. Right, so now what we're seeing is 3D printing and robotics are becoming much more efficient than just five years ago. They're much more reliable, much more intelligent as well, cheaper.
Speaker: And on the other hand, we're seeing changes in the market. For instance, we're seeing millennials in particular wanting more personalized products, if you will. So we can see a future. And in fact, IBM research is also showing this, where it's entirely feasible to make personalized goods kind of on demand in small production units
Speaker: without necessarily importing a thing or I think importing physical products and without any consideration for low -cost manual labour really. So essentially we can envision kind of rebundling, if you will, a rebundling of production near metropolitan areas without any of these giant global supply chains and any of the hassles and costs that companies encourage to maintain them as much efficiency as they got from them.
Speaker: And even if you were to be skeptical of this mass customization, this kind of feature where products are made for markets of one. Also, I think mass production is now transforming. For instance, brands like IKEA, Chanel, Adidas, really the household brands are already mass 3D printing products, oftentimes involving plastics or some new materials.
Speaker: And last year, what we saw was breakthroughs, at least in my view, kind of breakthroughs in middle 3D printing that can then gradually, of course, transform supply chains across sectors like vehicles or aerospace, industrial machinery.
Speaker: Now 3D printing has been around for a long time and it's used particularly by large companies and increasingly by manufacturers in the US as well. I don't think that's the prototype product, but I think what we're starting to see is growing adoption by manufacturers of 3D printers for production as well as kind of mass production. You're starting to see in surveys
Speaker: These trends were already about 50 % of those that use 3D printers for prototyping are using them also for production in some way. And the efficiency gains when you look at the lowering of production costs that the slack and waste reduction in inventory cost, shipping cost are tremendous like shading say 50, 60 % of
Speaker: of course, for firms that are using these new technologies. So let me interrupt and see if I can put an example here. In a way, by using Alibaba or Amazon or eBay, I don't need a sales office. I don't need a district office because everybody's got a phone or a computer, and that's my storefront.
Speaker: So I don't need that. That cost becomes global instantly, cheaply. If I am able to manufacture things with 3D printing, and I know that there are, you mentioned Adidas, and I know that there is some now production scale 3D printing, I no longer have to have a big factory in China and container ships full of sneakers. I can walk into Dick's Sporting Goods and they'll print my shoe right there.
Speaker: in effect, so I don't need a factory because, or I have lots of little modular factories, or I might have, but my cost of manufacturing, the capital cost of manufacturing dramatically goes down. But then there's the other stuff, and I'm curious about the impact of technology on customs, tariff, trade, bureaucracy, bills of lading, all of the legal
Speaker: and payment, I guess the legal and payment aspects of trade. You're saying that technology will disruptively simplify those as well. Is that right? Yeah, absolutely. And this is something that is very interesting when you talk to people from the trading ecosystem, shipping lines like MERSC, when you talk to officials that man, customers are single windows in different
Speaker: parts of the world, there is really a big change driven by technology there. Let's look at what it takes today. If you move a container from country A to country B, what you discover are dozens of paper -based manual processes, kind of endless duplication of efforts among exporters, shipping lines, freight forwarders, terminal operators, banks that are providing trade finance,
Speaker: board authorities, customs brokers, customs, government agencies that are part of the border. But this is endless, isn't it? Yeah. Absolutely endless. And apparently, you know, there's about 200 different transactions going on in this ecosystem. Not only are the different parts oftentimes still very paper -based, you know, freight boarders or customs, they want paper and they want signature and stamp.
Speaker: But the lack of interoperability among these players, when goods move and change hands and everybody has to know what's going on, they place a surcharge of 20 % to 30 % on world trade. Just the waste and slack in the lack of interoperability in trade. It resembles a little bit the American pre -electronic records healthcare ecosystem where
Speaker: Different parts need the same information, but you need to provide it many, many times, and trade is exactly like that. Now, however, what we're seeing is really a sea change in digitization of these different players in the trading ecosystem. All of these players are acquiring technologies that enable them to move goods without having so much paper and that streamline their customer management systems and so forth.
Speaker: But they are also adopting technologies like blockchain that enable this ecosystem to work to better, the parts to interoperate better when everybody has the same data in real time available for themselves. And everybody knows where a given shipment is at the time. This reduces the redundancies and waste and slack that have developed the trade ecosystem for centuries.
Speaker: to minimize it significantly. Now, we're also very much in the beginning of this transformation. I was just last week in New York on a panel with the CEO of Trade Lens, which is a platform created by IBM and Mariska, and now a number of other prominent shipping lines have joined it, precisely to share data across the trade ecosystem. And bit by bit players are joining it. The challenge is, of course,
Speaker: for getting everybody on board, making everybody share their data. Everybody wants to see everybody else's data, but they don't want to share. So things that have to be overcome and governance structures that need to be set up. But it's definitely, definitely happening. And also what we're seeing in customs and single windows that bring together government agencies involved in trade processes.
Speaker: is that around the world, particularly in developing world and in countries like Singapore and Korea, Mexico, these players have also made big digital transformation efforts recently and are using blockchain to trace the origin of products to facilitate customs clearance and also using artificial intelligence to, for instance, to forecast kind of customs fraud and get ahead of
Speaker: these kinds of fraudulent patterns in the international trade, which are a real thing still to be reckoned with, particularly as e -commerce grows and there's more and more parcels that are coming through ports and customs, not just kind of containers from reliable sellers like Walmart, OG. Now we're seeing an explosion of small firms doing trade and customs are a little bit
Speaker: flooded by this tsunami of parcels entering their borders, but I think new technologies like AI are enabling them to have new capabilities to see what's in those packages and predict are they listed trade or is there something wrong that needs to be addressed as well. So I think the ecosystem as a whole is really transforming. This will take time obviously, but it's a wonderful development that hopefully will
Speaker: reduce some of that 20 % tax of the wealth.
Speaker: that we've had in international trading in the lack of interoperability among the players. So Kati, I'm hearing three things, and I'd like you to sort of bring them home a little bit from the point of view of what an executive ought to be thinking about to get started. One thing I'm hearing is that in terms of trade, changes in production, like 3D printing and so on and so forth, changes in the way you can produce stuff.
Speaker: dramatically reduce entry barriers to global markets. I'm hearing that changes in the way you sell stuff through platforms and so on and so forth dramatically reduce entry barriers to global markets. And I'm hearing that changes in technology in the way that you account for stuff and do the paperwork are dramatically lowering the barriers and the cost.
Speaker: So the world is much more available for a $50 million or $100 million company or a $20 million company than it was before. Given that opportunity, it also means I'm going to get more competition globally too because it means it's open for everybody. But what do I do to learn to navigate this system?
Speaker: get a grasp and say, this is what we're going to do to exploit this. Where would you start? Yeah, that's a great question. And absolutely what I see is companies are now much better able to make, move, and market goods and services around the planet than just five years ago, let alone 10 years ago. So the opportunity is there. If I'm a middle market executive or a small company executive,
Speaker: would think about definitely are some of the low -hanging fruits of leveraging the infrastructure that is there, the global online platforms like Amazon and Alibaba that enable firms to gain access to new markets and new customers around the world. Alibaba alone brings 700 million people on their platform eBay, about 200 million people. Amazon, of course, even larger than that,
Speaker: And you can leverage these businesses, get in front of customers around the world and to gain new vendors, discover new vendors that have been kind of under the radar before. So that's kind of a no brainer, if you will. The second thing that I would look at is definitely on getting on the bandwagon on the changes in production techniques. What I'm seeing is
Speaker: that American manufacturers and companies are quite widely adopting already and experimenting with 3D printing and robotics and exploring those. And I think every company has to do their piloting with these technologies and talk with their peers and so forth to understand how to best leverage them for what purpose is.
Speaker: But there is definitely a revolution coming there. And then the third is, I would say a lot of companies are already using these technologies. A lot of companies are leveraging data in a very intelligent fashion to gain new customers, understand their customer bases, retain their existing customers and so forth. And they are leveraging technologies also for various purposes. Now what I see
Speaker: Kind of as a worrisome thing is the fragmentation, if you will, of the global digital economy by different national regulations. Every country is now racing to regulate their digital economy one way or the other, you know, with different data privacy rules and limits to data transfer across borders.
Speaker: you know, digital sales and digital services, taxis are something that's very fashionable nowadays. You have different regulations regulating even online platforms. And, you know, when we think of platforms, we think automatically of eBay or Facebook, but many companies that are not those large Silicon Valley superstars are also platforms and countries are enacting different roles for these platforms to take liability, for instance, on what their users do or post on these platforms.
Speaker: And I'm seeing countries around the world and we've been doing very detailed work in my company mapping this out around the world. Countries are adopting these rules and it's not happening in a synchronized fashion and everybody's a little bit out there doing their own thing. And I think in the next five years, we have to go back and kind of seek to sort this out and harmonize regulation.
Speaker: If I'm an executive that is interacting with policymakers, I would definitely also make the point to policymakers that we need to have regulations and rules that enable us to play in the global digital economy and leverage technologies to engage in trade. Now that we have the powerful opportunities in front of us and the technologies that enable us to truly be global players,
Speaker: We cannot squander this opportunity and have very divergent and complicated national regulations. And so there's a policy work also for companies to be done there.
Speaker: Right, to sort of keep it simple and avoid balkanization. Kathy, we're running out of time, and I wish we weren't because we could go on forever with this. But what I hear from what you've said is that these disruptive technologies
Speaker: are really opening more doors to, as you said, make, move, and market on a global basis that middle market companies can take much more advantage of this than they could. It's much easier. It's reducing obstacles that kept them from international markets that they should start by just doing stuff, getting their feet wet, and then learning what they're doing, and then getting their feet wet with
Speaker: with some of these platforms that allow access to markets and then experiment with the technologies and keep the pressure on for transparent, interoperable, lightly but effectively and not cumbersomely regulated markets so that indeed the flow of commerce can continue to move and continue to grow. Does that capture it?
Speaker: That's a perfect summary, Tom. A summary is only a summary, and your book, Revolutionizing World Trade, and people can learn more about it at a website with that title, www .revolutionizingworldtrade .com.
Speaker: can tell you a lot more about what Kati Suomenon has worked on and also introduced you to her work at Next Trade Group. So, Kati, thank you so much for joining us, and thank you all for listening to The Market That Moves America.
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