‘Standards’ can help Lankan SMEs access new markets

Tuesday, 14 October 2014 11:29 - - {{hitsCtrl.values.hits}}

Government SME institutions and regional chambers must take lead role to create awareness on standards and help implementation

Standards are a critical element of today’s society; they provide a common and repeatable basis for doing things and help bring order to the world we live in. They also play a vital role in the economy, by facilitating business interaction and access to markets. The products we consume today are no longer made in one country; rather they are made in the world. Before ending up with the end consumer, they pass through many countries where people or parts add value to the final product. Adhering to globally relevant standards make it easier for many companies – particularly Small and Medium Enterprises (SMEs) – to get their products certified and on the shelves in countries around the world, allow them to take part in global value chains, benefit from technology transfer, and compete on a more equal footing. Against this backdrop, this article takes a cursory look at how standards stimulate trade by helping overcome artificial trade barriers, and assist SMEs become more competitive.

What are standards?

In simple terms, standards are commonly agreed reference documents that help to bring order to the world. Most people know what shoe size they wear, because shoe sizes are ‘standardised’. Likewise, when purchasing an electrical appliance such as a television, it could be reasonably assumed that it would be compatible with the electricity system at home, as the plugs that are fitted to electrical products and the sockets that are installed in our homes have both been designed to meet commonly agreed and widely accepted ‘standards’. Standards can be broadly categorised into product, process and management system standards. They work to support industry competitiveness by assisting with the codification and dissemination of new knowledge and innovations, helping to improve products and services, ensuring interoperability and enabling trade. They also help businesses to demonstrate to regulators and customers that their products and services meet defined safety, quality and environmental standards.

How SMEs benefit from standards

It is often the case that SMEs view standards as a burden, made by large enterprises, for large enterprises and believe that they have no bearing upon them. In reality however, adhering to standards, provides a number of clear, tangible benefits for SMEs which far exceeds the costs of implementing them. By meeting standards, SMEs can clearly demonstrate their commitment towards quality, leading to enhanced customer satisfaction and repeat business. Standards provide reassurance and inspire trust; consumers view businesses that apply standards more favourably than those that don’t, and thereby help to build the company’s image. In the arena of international trade, the use of international standards aids access and entry to international markets, and assists with the marketing and acceptance of a company’s products and services in these markets. This is especially vital when seeking access to developed country markets. Using standards as part of an export strategy can create new business opportunities and increasing sales, while reducing trading costs. More importantly, standards help to open-up markets by allowing customers to compare offers from different suppliers, thereby making it easier for smaller and younger enterprises to compete with larger and much more established enterprises, creating a level playing field with bigger enterprises internationally and to enter new or established markets.

Barriers to realising benefits of standards

Whilst the benefits of adhering to standards are clear-cut and outweigh costs, especially in the long run, it is most often the case that SMEs are unaware of such benefits. The lack of awareness of standards (either generally, or of specific relevance to their business) prevents SMEs from realising the full benefits that standards can bring to them. Once SMEs are made aware of existing standards and their usefulness for business expansion and growth they may still face difficulty in identifying the ones most relevant to them. Tracing relevant standards require knowledge of where to look, how to look, and what to look for. In addition, SMEs require the skills to interpret the information found and to determine whether the standards identified are relevant to them, complete, and the latest versions available. Once a relevant standard is traced, SMEs face the issue of understanding standards. Standards are written by experts – using a lot of technical jargon – and SMEs find these difficult to comprehend. To make matters worse, most international standards are either in English, French or German, thus making it difficult for a non-native English speaker to comprehend. Owing to their complex nature, SMEs also find it difficult to implement standards due to their lack of knowledge, skills and resources to do so.

Helping SMEs realise the benefits of standards

Governments must play a critical supporting role to help SMEs realise the benefits from standards. At the outset, creating awareness amongst SMEs on the costs and benefits of adhering to standards is fundamental. The provision of ongoing training and support is critical to introduce SMEs to standards and to engage these businesses in enhancing their uptake. Another pertinent area of intervention is the provision of information on standards, in an accessible and understandable form, about the content or relevance of standards. Assistance should be provided on how to interpret standards to ensure effective implementation. Acquiring standards entails significant upfront capital outlay, and financial support in the form of subsidised credit to access standards should be considered.

Way forward for Sri Lanka

Sri Lanka has a gamut of national and regional-level Government agencies, development banks and business chambers, with wide geographical coverage geared to service SMEs. However, very little effort on their part has been made in assisting SMEs embrace standards. It is therefore vital that national-level SME institutions such as the Industrial Development Board and the National Enterprise Development Authority, in collaboration with business chambers, take the lead in creating awareness on the benefits of standards and creating an institutional mechanism through which SMEs could be provided continuous information, training and advice on the importance of standards and how to implement them.

(Raveen Ekanayake is a Research Officer at the IPS. To view references on this article and to comment, visit ‘Talking Economics’ – www.ips.lk/talkingeconomics)