8. Pillar D – Access to Markets
Pillar D examines the progress made by Eastern Partner countries regarding SMEs’ access to both domestic and foreign markets. The chapter starts by looking at policies and tools in place to allow SMEs better access to public procurement markets, focusing on the legal frameworks and the strategies developed to support SME participation. It then reviews recent improvements in standards and technical regulation, looking at overall co-ordination and general measures, level of harmonisation with EU acquis, SME access to standardisation, and digitalisation of standards and technical regulations. Finally, this chapter investigates efforts to boost SME internationalisation through support for export promotion, SME integration into GVCs, and the use of e-commerce, as well as through the adoption of trade facilitation measures. For each one of these three areas, a set of dedicated policy recommendations is provided to guide EaP countries in their strategic actions for the forthcoming years.
Both domestic and international markets represent major opportunities for SMEs in the Eastern Partner (EaP) region. However, due to limited capacity and resources, they often struggle to tap into these markets.
Easier access to public procurement can provide SMEs with significant business opportunities in domestic markets and offers notable growth potential (European Commission, 2021[1]). SMEs’ involvement in public procurement can also bring advantages to the public sector, as it can result in greater competition – leading to better value for money, efficiencies for contracting authorities (ADB, 2012[2]) and the development of innovative solutions.
Similarly, increasing globalisation and growing international trade offer SMEs the opportunity to join global value chains (GVCs) and to specialise within production networks, contributing to innovation and productivity growth (OECD, 2023[3]). Finally, the use of e-commerce allows firms to dramatically increase customer and supplier bases and reach markets beyond traditional physical boundaries (OECD, 2021[4]).
Nevertheless, small businesses face significant challenges in tapping into these markets. These include a lack of information about export opportunities, internationally incompatible quality standards, discriminatory rules and complex application procedures for public tenders. Finally, financial and human capital constraints hinder SMEs’ access to international markets and public procurement.
Against this background, a proactive attitude to global competition and markets is increasingly a matter of necessity. Policy responses are needed to ensure that SMEs turn the pressure of international competition into an opportunity to increase quality and competitiveness, and thus to participate in the growth of international and domestic markets.
Targeted polices and support programmes can help to mitigate these impediments and further open market opportunities for SMEs. This pillar investigates recent reforms in the EaP countries in these areas by assessing three policy dimensions: 1) public procurement; 2) standards and technical regulations; and 3) SME internationalisation. Table 8.1 presents the 2024 scores for the EaP countries.
Before delving further into the analysis of this pillar, however, it is worth mentioning that there are important interlinkages between the various pillars and dimensions of the SME Policy Index: the public procurement sector can prosper only in an environment of reduced informality and corruption. Therefore, a strong institutional framework and level playing-field conditions are key elements for a healthy public procurement system and access to markets as a whole. Moreover, internationalisation of SMEs contributes to an increase in productivity, quality and innovation by exposing SMEs to international competition and helping them achieve economies of scale. Finally, access to, and uptake of, business development services (BDS) are also fundamental to promoting internationalisation. Advanced BDS and enterprise skills can provide firms with the knowledge and resources they need to internationalise by offering them targeted information, training, mentoring and consulting.
Worldwide, the share of public procurement in overall public expenditure is often large, creating an important market opportunity for SMEs. By number, SMEs make up the bulk of the enterprises as well as of the suppliers of the public sector. However, they typically have a lower share of the total value of public procurement, partly because their participation rate is lower than that of larger enterprises.
At the same time, SMEs are often particularly innovative and may offer solutions that larger companies cannot provide. Increasing the generally low participation rate of SMEs in public procurement could therefore spark greater competition, generating better value for money for public purchasers and counterbalancing dominant market players (SIGMA/OECD, 2016[5]). However, this requires continued reform efforts to improve policy making, the regulatory and institutional environment, and the public procurement practices, complemented by raising the level of professionalisation and improving electronic procurement. In this context, ensuring access for potential competitors of all sizes and business characteristics constitutes a key requirement for a well-functioning public procurement system. This point is highlighted by the OECD Recommendation of the Council on Public Procurement under the principle of access (Box 8.1).
The OECD Recommendation of the Council on Public Procurement (2015) contains the OECD’s overarching guiding principles for promoting the strategic and holistic use of public procurement. It is a reference for modernising procurement systems and can be applied across all levels of government and state-owned enterprises. It addresses the entire procurement cycle while integrating public procurement with other elements of strategic governance such as budgeting, financial management and additional forms of service delivery.
Among other principles, the Recommendation states that OECD Members and non-Members adhering to the Recommendation (“Adherents”) should facilitate access to procurement opportunities for potential competitors of all sizes. To this end, Adherents should implement coherent and stable institutional, legal and regulatory frameworks. Key features of the Recommendation include:
Characteristics of public procurement frameworks. The framework should be clear and simple. Requirements should not duplicate or conflict with other legislation or regulation. The frameworks should treat bidders, including foreign suppliers, in a fair, transparent and equitable manner, giving consideration to Adherents’ international commitments.
Tender documentation. The extent and complexity of information required in tender documentation and the time allotted for suppliers to respond should be proportionate to the size and complexity of the procurement. Tender documentation should be standardised where possible, to ensure that tender opportunities are designed to encourage broad participation, including from new entrants and SMEs.
Use of competitive tendering. Competitive procedures should be the standard method for conducting procurement as a means of driving efficiencies, fighting corruption, obtaining fair and reasonable pricing and ensuring competitive outcomes.
Source: (OECD, 2015[6])
Some SMEs shy away from tendering because they perceive the rules and procedures as complex and lengthy, and they often lack the human and financial resources and know-how to deal with the administrative requirements. These requirements are usually the same for all companies; when they are burdensome, they expose SMEs to relatively greater financial risks through potentially fruitless participation. Clear, simple procedures supported by a well-functioning e-procurement system would go a long way towards addressing this issue.
Among other issues limiting SMEs’ participation in public procurement is the size of public contracts. In many cases, very large contracts are not justified, and such purchases could take place through several smaller contracts or, if legally facilitated, subcontracting.
Another issue is the frequent use of high, disproportionate requirements for technical and financial qualifications of tenderers. Limiting such requirements to reflect only strictly necessary preconditions, and allowing tenderers to submit joint bids, are reasonable and proportionate measures that should normally be explicitly set out in the public procurement regulations; however, they must then be more systematically applied.
Unfortunately, there is also the widespread phenomenon of late payments in the public sector. This obviously discriminates against SMEs with limited financial resources. Regulations setting strict deadlines and penalties for late payment by the public sector are a first step towards avoiding late payments to contractors, albeit not sufficient on its own.
Addressing these issues and improving public procurement practices should also be accompanied by greater attention to raising the knowledge, skill and experience levels of public procurement officials, as well as training.
Finally, electronic procurement can help SMEs identify business opportunities; can facilitate the preparation, submission and evaluation of tenders and the management of the contracts concluded; and allows public procurement actions and outcomes to be accessed and analysed.
Assessment framework
This dimension looks at policies and tools in place in EaP countries to allow SMEs better access to public procurement markets. It does so through three thematic blocks: 1) policy and regulatory framework; 2) implementation; and 3) monitoring and evaluation (Figure 8.1).
Two important methodological changes have been introduced in this dimension since the previous SBA assessment: i) the information requested has been expanded to include a set of questions on the use of a central electronic registry for public procurement and the establishment and operation of a National System of Electronic Public Procurement (NSEPP), and ii) the analysis now considers countries’ ability to collect quantitative information to monitor the impact of policies on actual SME performance (“outcome-oriented indicators”). The indicators selected for this dimension are: i) SMEs' share in the total value (or number) of public contracts awarded, ii) share of SMEs having taken part in a public tender/public procurement procedure, iii) success rate for participation in public procurement (by enterprise class size), iv)the share of e-procurement platform use (value of contracts submitted via the e-procurement platform over the total value of procurement contracts), v) share of SMEs submitting proposals in a public electronic tender system (e-procurement), vi) average delay in payments by public authorities, and vii) share (value and/or number) of contracts awarded to foreign economic operators.
Analysis
Regional trend and comparison with 2020 assessment scores
The results of the SBA assessment in this dimension reveal a discernible shift in the trajectory of EaP countries’ performance. While there are glimpses of progress in the areas of implementation and monitoring of public procurement policy in some countries (Azerbaijan, Moldova and Ukraine), the opposite can be observed across all countries regarding the public procurement regulatory framework. This can be attributed to a range of factors, including the absence or delay in strategic initiatives, a dearth of institutional capacity, conflicts of roles that hinder effective decision making, and the underutilisation of e-procurement systems. The combination of these issues has driven a decrease in the scores of this dimension compared to the previous assessment, with the EaP average dropping from 3.59 to 3.13 when looking at comparable methodology scores. Several recent initiatives have been taken to redraft public procurement laws, to prepare medium-term development programmes, and to improve e-procurement systems. Although it is not possible to fully reflect these initiatives in the 2024 report, they give hope for rapid improvement of future scores in public procurement.
Public procurement
Since the assessment made for the 2020 report, public procurement in the five countries covered was heavily affected first by the COVID-19 pandemic and then by Russia’s war of aggression against Ukraine. In both cases, supply chains have been upset, prices have changed rapidly, administrative procedures have had to be reorganised and urgent needs have appeared for items that were not included in earlier procurement planning.
As a result, much of the available staff resources and funds have had to be reallocated to meet these new, short-term needs. The use of less competitive procedures, as mostly provided in public procurement legislation for addressing unforeseeable, urgent needs, has increased. The generation of comprehensive, reliable public procurement data has suffered. Longer-term reform work, such as strategy development, e-procurement enhancement and developing sustainable procurement, has often been put on the back burner. At the same time, the increased pressure to become more effective and efficient and obtain better value for money appears to have had some beneficial effects on attitudes and approaches, although evidence for this is still scarce.
The outcome of these developments is that the situation for SMEs with respect to participation in public procurement did not improve as much as expected at the beginning of the period.
Policy making has mostly focused on developing and introducing new ways of working as needed for handling the new and different needs generated by the COVID-19 pandemic and the war in Ukraine. This has mostly been done without any major changes to the public procurement laws, which were only slightly amended during the period covered. Likewise, there has been little progress in updating the medium-term strategic framework for public procurement, which is still little developed or even missing in some of the countries. In addition, there is mostly a lack of effective harmonisation between public procurement strategies (to the extent that they are in place) and strategies (if any) in other, more or less closely related fields, such as those for SME development and support, public financial management, sustainable development, civil service, administrative procedures and higher education.
Consequently, SMEs have continued to face a number of shortcomings in the regulatory framework, similar to those identified in the 2020 report. Legal provisions intended to support and facilitate SME participation would typically cover:
free and easy access to notices, tender documents and other information
rules on division into lots, joint tendering and subcontracting
obligation for contracting authorities to set proportionate qualification requirements (administrative, technical, financial, professional, etc.) to be met by tenderers
clear and simple rules and requirements for demonstrating conformity with the qualification requirements
obligation for contracting authorities to pay invoices on time
fair, transparent, timely and competent handling of complaints by an independent review body.
However, the public procurement laws are deficient in this respect, in that one or several of these provisions are incomplete or lacking in each country.
There is still room for improvement in institutional capacity, both in the central institutions at the national level and in individual contracting authorities. Skill gaps remain and the level of professionalisation is still low. Gaps, overlaps and conflicts of roles are sometimes found both within and between the institutions in charge of central functions in the public procurement system. The provision of training and guidance has improved, mainly by the increased availability of materials and tutorials accessible via the Internet. However, the focus remains chiefly on the procedural aspects of tendering and evaluation. There is room for improvement in the coverage of the preceding and subsequent steps in the public procurement cycle: planning and preparation, including needs identification, market consultations, drafting of requirements, and selection and award criteria; contract management; and monitoring and ex post evaluation of procurement activities.
The use of e-procurement systems has become nearly ubiquitous. However, all the methods, tools and criteria provided for in the public procurement laws are not yet fully reflected in the functionalities available in the systems in place at present. Few e-procurement systems cover more than the notification, tendering and award phases, complemented by facilities for online submission of complaints. The use of machine-readable documents is not fully implemented, leading to difficulties in accessing and analysing information (some of which has been entered using, for example, PDF files created by scanning hardcopy originals) and to the need, in many cases, to re-enter the same data at different stages of the procedures. Progress has been made in the provision of public access to data on procurement activities, with a range of analytical functions made available to any interested parties. However, these do not always allow a full and clear picture of the actual situation, as the range of data is limited; some information is not directly readable (as just mentioned) and some transactions may be missing, particularly for small value procurement.
In practice, the purchase price remains the most-used award criterion by far, partly because of limitations in the e-procurement systems currently used, and partly because of a lack of knowledge and skills in defining and applying other criteria. As a result, quality is rarely used as an award criterion and the concept of sustainable procurement (used for lifecycle costing, for example), is difficult to apply. Many e-procurement systems also lack functions for effective and efficient application of selection criteria (reflecting grounds for exclusion and requirements for certain qualifications) at the appropriate, early stage of the evaluation process. Consequently, SMEs with innovative, efficient solutions with the potential to give good value for money in the long run, often find it difficult or impossible to compete with companies offering low purchase prices for traditional items that may have higher costs for energy, consumables, wear and spare parts.
At the level of the contracting authorities, there is slow but steady progress in filling remaining gaps in the knowledge, skills and experience of staff in charge of public procurement. These gaps are particularly prominent in two particular contexts: i) when there is a large number of small contracting authorities, each with limited resources, and ii) when public procurement is not systematically handled by specialists employed for the purpose and working in a dedicated administrative unit. Centralised purchasing and wider use of framework agreements have the potential to mitigate these issues, if well managed. They could then also help support wider SME participation. However, these approaches are still not often used, even if legal provisions for the purpose are present in the public procurement laws.
Management action in public procurement often puts the focus on securing compliance with procedural requirements and on staying within the current year’s purchase budget. There is much less emphasis on properly determining the actual needs and the best way of meeting them (given what the supply market may be able to deliver) on minimising the long-term costs to the authority and to the country, and on carefully managing the contracts that have been concluded and evaluating to what extent they have provided value for money while allowing the needs to be met. Combined with the relative weakness of staff skills in procurement planning and preparation and in contract management, this again creates difficulties for agile, competent SMEs trying to compete against larger, established suppliers.
The supply markets in most of the EaP countries are fairly thin. There are sometimes only one or a few companies active in a particular industrial sector or a specific region, perhaps with close relations to the relevant authorities, and therefore with some risk of collusion or corruption in public procurement – and thus disincentives for other companies, especially SMEs, to enter the market. Even when the supply market is more diversified, SMEs may lack interest in participating in public procurement because of perceptions of costly, cumbersome procedures; disproportionate qualification requirements; or biased or unclear requirements, making it difficult to tender and to succeed. A related issue is that contracts may be for quantities or delivery conditions that can hardly be met by any individual SME. In this case, the problem may be addressed through increased use of subcontracting and joint tendering, to the extent that the legal possibilities for this exist and that contracting authorities as well as prime contractors are willing and able to take this route.
The way forward
To improve and encourage SME participation in public procurement, EaP countries should:
add and improve regulations facilitating SME participation, without privileges or preferences that would distort the markets;
strengthen central institutions’ capacity for evidence-based policy making by delivering guidance and training, reviewing complaints, and monitoring system performance, all with a clear SME focus;
improve the sequencing of e-procurement steps, add criteria other than price and make better use of e-procurement for generating and using data;
make better use of the potential of centralised purchasing and the use of framework agreements to support wider SME participation;
reorganise the public procurement function in contracting authorities, raise the status of procurement officers and improve their knowledge and skills; and
inform and train SMEs as necessary for raising their trust in the system, their level of participation and their ability to get contracts to deliver and get paid.
Technical regulations set out essential requirements for products before they are placed on the market. They are at the heart of national quality infrastructure1 systems and are designed to serve legitimate public policy objectives, such as protecting health and safety or the environment. In addition, standards facilitate interoperability between different products and technologies, and promote fair competition by establishing a level playing field for businesses. Ultimately, research shows that standards can promote innovation (Blind, 2022[7]) and are trade-enhancing since they facilitate the exchange of information (Blind, 2004[8]). Bringing the legislation of EaP countries in line with the international and European framework for technical regulations and standards therefore offers substantial trade benefits, such as simpler conformity assessment procedures, shorter time to market and lower total costs of trading.
However, when the costs of adopting a standard are too high, they can act as barriers to trade (Mangelsdorf, 2011[9]; Moenius, 2004[10]; Swann, 2010[11]). Costly product standards and certification procedures, and, in particular, a lack of information about requirements in the foreign country, are the main obstacles SMEs face when attempting to enter international markets (WTO, 2016[12]). The diffusion and implementation of technical regulations and standards require relevant institutions to evaluate and confirm compliance levels, through services such as certification, testing, conformity assessment, metrology and market surveillance. Given SMEs’ limited capabilities and opportunities to export, special measures may be needed to facilitate their compliance with product requirements, such as ensuring easy access to information on technical regulations, as well as opportunities to make use of reliable and efficient quality infrastructure.
Assessment framework
This dimension investigates whether the EaP countries have a well-functioning quality-infrastructure system and the extent to which it aligns with European Union (EU) rules and standards.
Two important methodological changes have been introduced in this dimension since the previous SBA assessment: 1) a new sub-dimension looks at efforts directed towards the digitalisation of processes within relevant authorities, as well as the introduction of remote audit and inspection activities and digital activities of surveillance authorities; 2) the analysis also considers countries’ ability to regularly collect quantitative information to monitor the impact of policies on actual SME performance (“outcome-oriented indicators”).
The updated assessment framework considers the following (Figure 8.3):
Overall co-ordination and general measures: This sub-dimension looks at general policies and tools for overall policy co-ordination and strategic approaches to adopting and implementing EU legislation. The assessment also evaluates the extent to which SMEs have access to all relevant information on requirements for exporting to the EU.
Harmonisation with the EU acquis: Here, the national quality infrastructure systems is analysed with respect to six thematic blocks – technical regulations, standardisation, accreditation, conformity assessment, metrology, and market surveillance. More specifically, it analyses their institutional capacity, adoption and implementation of strategic documents, and integration into international structures. It also examines whether legislation and instruments are subject to regular monitoring and evaluation.
SME access to standardisation: The third sub-dimension evaluates government efforts to increase SMEs’ awareness of standards and facilitate their participation in developing them. It also considers the availability and scope of current financial support programmes aimed at enhancing the implementation of standards among the SME population.
Digitalisation of standards and technical regulations: This evaluates support and training offered to SMEs on standards and technical regulations for their integration into the EU Digital Single Market; the digitalisation of processes within authorities responsible for technical regulation, national standards and accreditation bodies, metrology institutes, and market surveillance authorities; and the introduction by accreditation bodies, conformity assessment bodies (CABs), and surveillance authorities of remote audit and inspection activities.
The section on outcome-oriented indicators for this dimension considers countries’ ability to regularly collect statistical information about the following indicators: i) share of the total exports directed to the EU Single Market, ii) percentage annual growth of exports to the EU Single Market, and iii) share of manufactured products in total exports to the EU Single Market.
Analysis
Regional trend and comparison with 2020 assessment scores
The EaP region has progressed in the field of standards and technical regulations, reaching an average score of 3.83 (Figure 8.4). All countries have worked intensively on this dimension, and this is reflected by higher scores for most countries (Armenia, Azerbaijan, Moldova and Ukraine); Georgia remaines the clear leader in this dimension.
Overall co-ordination and general measures
All countries have a designated government body responsible for the overall co-ordination of technical regulations and quality infrastructure (QI). By contrast, the current development stages of this sub-dimension’s other areas vary. Armenia, Georgia and Ukraine recorded the highest scores, but progress was also visible in Moldova, which reached a score above 4, and in Azerbaijan.
Armenia could answer positively on all questions of this dimension. Georgia conducted significant reforms in the market surveillance system for non-food products. Establishing the independent Market Surveillance Agency (MSA) was a major step in this context. Likewise, Ukraine worked continuously on reforms to promote a favourable business environment and regulatory framework; the Entrepreneurship and Export Promotion Office (EEPO) was created as a single contact point for SMEs. As a specific highlight, Ukraine has progressed in its negotiations with the EU on Agreements on Conformity Assessment and Acceptance of Industrial Products (ACAA).
A key accomplishment of Moldova was the amendment of Law 420/2006 on technical regulation in 2020, which brought the country’s technical regulation in line with the provisions of the World Trade Organisation (WTO) Technical Barriers to Trade (TBT) Agreement. Likewise, Azerbaijan progressed in aligning its national legislation with WTO requirements. Progress was also visible in its institutional framework for market control and standardisation. In addition, an action plan for the adoption and implementation of (EU) legislation on industrial products is under preparation.
Current Azeri legislation associates “market surveillance” mainly with inspections, but various market monitoring activities have also taken place. Businesses involved in export can obtain all the required certificates from the “One-Stop Shop” Export Support Centre. In addition, azexport.az provides information on Azeri products to support their foreign sales. However, as in Moldova, further efforts are needed to develop an online portal or a specific portal for SMEs containing all the relevant information concerning the export of products to the EU Single Market.
Harmonisation with the EU acquis
The second sub-dimension, harmonisation with the EU acquis, is multi-dimensional and led by Georgia, closely followed by Ukraine. Its first thematic block refers to technical regulations. Four countries (Armenia, Georgia, Moldova, and Ukraine) reached scores above 4. All these countries have an action plan or similar on transposing EU sectoral legislation in priority sectors. Ukraine has created an action plan for developing the technical regulation system. Likewise, it has adopted legislation to align itself with the EU acquis on various products and is awaiting the EU’s verification. Another example of progress in this block is Armenia’s implementation of a roadmap on transposing EU sectoral legislation in priority sectors. Georgia adopts annual action plans for Deep and Comprehensive Free Trade Agreement (DCFTA) implementation, where approximation (i.e., alignment) with the EU sectoral legislation in priority sectors is prescribed. Although Azerbaijan attained a lower score than the other countries, progress was also visible. In particular, it amended legislation based on WTO principles and requirements. An action item for the whole region is the regular evaluation of technical regulations.
In the second thematic block (standardisation), Armenia, Georgia and Moldova reached scores higher than 4, and the other countries scored at least 3. Georgia’s, Moldova’s, and Ukraine’s standards bodies were granted CEN and CENELEC Affiliate status; this was approved in 2022 and entered into force in January 2023. Except for Azerbaijan, the adoption rate of EU standards is at least 50% in priority sectors. Azerbaijan approved the new State Programme “On the harmonisation of the national standardisation system in accordance with international requirements for 2023-2025” at the end of the current SME Policy Index period.
Other examples of progress in this thematic block are Armenia’s annual state standardisation programmes (introduced in 2020) and Ukraine’s strategy for integration into the EU Single Digital Market (with a focus on telecommunication regarding standardisation). Likewise, Azerbaijan used support from Germany to implement the National Plan for harmonising the national standardisation system with international requirements.
Results on standardisation education varied. Three of the five countries (Armenia, Georgia and Moldova) have a targeted strategy. Georgia also started creating an e-learning platform. Moldova has an “Activity Strategy” for 2021-23 that is focused on education projects and works on the establishment of a standardisation academy. Training events regularly organised by the Institute for Standardisation of Moldova (ISM) help to stimulate the implementation of new standards. Nevertheless, Armenia and Georgia are the only countries whose standardisation education strategy also considers SME-specific aspects. Education on standardisation thus remains an action item for the region.
Regarding the third thematic block (accreditation), all countries reached scores of close to 4 or higher. All countries have accreditation bodies, although only those of Georgia and Moldova have been completely positively assessed by the European Co-operation for Accreditation (EA) or by peer organisations. Another accomplishment was that in 2022 Georgia’s accreditation body, the Georgia Accrediting Commission (GAC), became a full member and signatory of the Mutual Recognition Arrangement (MRA) of the International Laboratory Accreditation Cooperation (ILAC) and the Multilateral Recognition Arrangement (MLA) of the International Accreditation Forum (IAF).
In thematic block 4 (on conformity assessment), Georgia, Moldova and Ukraine reached scores above 4, and Armenia and Azerbaijan of around 3. Azerbaijan does not have legislation on conformity assessment in line with the acquis. Likewise, Armenia’s legislation is not totally in line with the acquis, which also influences its specific conformity assessment activities. Conformity assessment bodies in line with EU requirements exist in Ukraine’s priority sectors. Georgia and Moldova have such bodies in most priority sectors. They are the only countries in the group with SME-designated web pages with information on conformity assessment bodies. Also in this dimension, regular evaluation is an action item for the whole region.
The fifth thematic block of this sub-dimension is metrology. Armenia, Georgia and Ukraine reached scores above 4, with Armenia and Ukraine close to 5. All countries have an operational metrology body, although only Armenia, Georgia and Ukraine also have a strategy for metrology. In this context, the Georgian National Agency for Standards and Metrology (GEOSTM) became an associate member of EURAMET in 2022, and preparations to become a full member are under way.
Most of the five countries have legislation on metrology in line with the acquis, while Azerbaijan is preparing a proposal for such legislation. Further alignment of Ukraine’s metrology centres with the acquis is also necessary, although relevant legislation is in place. Besides creating the National Body for Standards and Metrology (ARMSTANDARD), Armenia has developed a Programme on the Development of Metrology and a List of Measures for 2020-2023; however, Armenia’s national metrology institute does not envisage recognition by relevant international/European organisations. Progress was also visible in Azerbaijan and Moldova. In this context, Moldova initiated the re-organisation of its National Institute of Metrology and visible results can be expected soon.
Results of the sixth thematic block (market surveillance) are mixed. Georgia scored the best, at 4.60, followed by Ukraine with a score of slightly more than 4. Georgia progressed in various fields, mainly as part of overall co-ordination measures (see above). It has also introduced a new online market surveillance database. In Ukraine, certain market surveillance measures are in place and others are being developed. A strategy for market surveillance is also under development.
Azerbaijan and Moldova reached scores of around 3, while Armenia’s score was lower. In this context, Moldova established the State Inspectorate for the Supervision of Non-Food Products and Consumer Protection based on the reorganisation of the Agency for Consumer Protection and Market Surveillance. Azerbaijan's State Agency for Antimonopoly and Consumer Market Control was placed under the Ministry of Economy.
SME access to standardisation
The third sub-dimension, SMEs' access to standardisation, starts with the thematic block on awareness raising and information. With Moldova and Armenia at the top, all countries achieved good or very good results in this block with scores between almost 4 and 5. All countries have measures in place to increase SMEs’ awareness of standards and have conducted promotional campaigns on standards.
Regarding mentoring programmes to guide SMEs through standardisation activities, Moldova’s Institute for Standardisation and the Organisation for Entrepreneurship Development signed a collaboration agreement to provide support and professional assistance to familiarise SMEs with standardisation and promote the participation of SME representatives in the work of technical committees of the Institute for Standardisation. Azerbaijan initiated more than 70 training events and meetings in 2022.
In the sub-dimension’s second thematic block, SME participation in developing standards, the results (led by Moldova, Armenia and Georgia) vary between 3.50 and 5. As a good practice example, Armenia has a working group that assesses SME needs and provides appropriate services and information. A recent example of the involvement of SMEs in standardisation was the formulation of requirements for berries in a fruit product.
With Moldova and Georgia on top, the figures of the third thematic block (financial support to SMEs) show the biggest spread in this sub-dimension with scores between 1.5 and 4. They are also the lowest of this sub-dimension, indicating a need for action.
Moldova supports SMEs' purchase of standards and participation in the development of standards by various financial and non-financial measures; there are also two new State Programs that promote the implementation of international standards and and certification (e.g. through business vouchers). Likewise, Georgia's National Standardisation Strategy for 2022-2024 improved the availability of standards for SMEs and stimulated their participation in standardisation activities. A 10% discount rate for SMEs for purchasing standards was adopted by the Ordinance of Government of Georgia No. 503 in 2022.
In Armenia, ARMSTANDARD provides specific financial conditions for acquiring standards for SMEs. Between 2018 and 2021, almost 30 SMEs annually benefitted from various financial support schemes to improve their access to standardisation. Likewise, financial support to acquire standards is available in Azerbaijan. Ukraine provides a loyalty program for industry associations with a 5-10% discount depending on the volume of ordered standards, but SMEs are not considered specifically in this context.
Digitalisation of standards and technical regulations
The fourth sub-dimension, digitalisation of standards and technical regulations, is characterised by relatively low scores on average. Georgia leads the ranking with a score of 3.63, followed by Moldova and Ukraine, and finally, with scores around 2, Azerbaijan and Armenia.
In Georgia, GEOSTM has synchronised and harmonised the national standards database with those of CEN and CENELEC. It also started updating its internal procedures in parallel with the development of the last SME Policy Index report. Georgia began to digitalise its accreditation services in 2021 and expected its digital system to become fully operational in mid-2023.
Moldova's ISM implemented the standard SM EN ISO 22301 in response to the COVID-19 pandemic, which also led to the digitalisation of several SME-related processes and is a good starting point for further digitalisation. Ukraine has an action plan for 2023 to digitalise public services.
Armenia has a digitalisation strategy to ensure the digital transformation of the government, economy and society. Its Ministry of High-Tech Industry has developed a digitalisation toolkit that is to be adopted by the country’s technical regulatory authorities.
Azerbaijan’s State Committee on Standardisation, Metrology and Patents (AZSTAND) introduced a standards document management system and an electronic sales platform at the end of the current assessment period. Likewise, the country has a plan for digitising its metrology institute. The further digitalisation of the country’s quality infrastructure should also include a strategy or action plan for digitising the national accreditation body.
Most countries offer support and training to SMEs on standards and technical regulations for their integration into the EU Digital Single Market. Likewise, most countries have strategies for the digitalisation of processes within the authorities responsible for technical regulation.
However, work remains to be done. Designated staff or special working groups for the digitalisation of processes and activities within the area of technical regulation are missing in almost all the countries. Only Georgia is more advanced in this context. In addition, digitalisation is partly considered in Moldova’s standardisation strategy. Except for Armenia and Azerbaijan, remote participation in standardisation is possible in the region. Georgia is also one of the two countries (together with Ukraine) with a digitalisation strategy for its accreditation body.
Remote audit and inspection are particularly practiced by Georgia’s and Moldova’s accreditation bodies, although no country provides this service for first-time accreditation. Specific action items in the region refer to remote audit, inspection and calibration activities by conformity assessment bodies.
Except in Georgia, the digitalisation of market surveillance is still underdeveloped in the region.
The way forward
Based on these analyses, EaP countries should:
Improve the quality infrastructure’s market surveillance dimension and intensify understanding of market surveillance (and how it differs from inspection). As the Policy Index shows, the market surveillance score is the lowest of the “Harmonisation with the EU acquis” sub-dimension and lower than in 2020. Various reorganisations regarding market surveillance took place in the region and implementing appropriate surveillance measures paired with digitalisation will be important next steps. In addition, differentiating between inspection and market surveillance is important to maximise the impact of both instruments. Figure 8.5 shows their differences, with inspection being part of conformity assessment and market surveillance a separate quality-infrastructure element.
Take further steps for quality infrastructure to be internationally recognised. This recommendation mirrors the recommendation made to Armenia and Azerbaijan in 2020 but is also relevant for the other countries. A specific accomplishment in this context was that Georgia’s accreditation body, the GAC, became a full ILAC member in 2022. Other relevant collaborations worth seeking include, for example, the International Accreditation Forum (IAF) and bilateral agreement (BLA) with the European co-operation for Accreditation (EA).
Develop standards education strategies (further) by considering SME-specific aspects. Overall education in the area of standardisation has become a high priority on the European Commission’s agenda – for example, in the EU’s 2022 standardisation strategy. However, the results on standards education vary. Besides the existing approaches in the region to learn from in Armenia, Georgia and Moldova, the EU addresses standards education also by the HORIZON-EUROPE measure “Provide for a strong and sustainable pool of experts for European standardisation.” Connecting with the measure’s project(s) might be beneficial to profit from the relevant results.
Develop financial measures to further support SME participation in standardisation. A comparable recommendation was also given in the 2020 report. Currently, the thematic block on financial measures has the lowest score besides the new dimension on digitalisation. Although progress since the 2020 assessment is apparent, it is important to continue implementing appropriate SME support measures in this area.
Improve the digital maturity of the technical regulation system and quality infrastructure, especially in the field of conformity assessment. The new sub-dimension on digitalisation has the lowest average score (2.45). Action is needed in this area, in particular in the field of conformity assessment. Germany’s Federal Institute for Materials Research and Testing (BAM) and its international partners in 15 countries worldwide2 conducted a multinational analysis on the digitalisation of this quality infrastructure element. Various recommendations were made with broader relevance. While the EaP countries were not part of the study, the analysis of nearby Latvia3 provides useful insights.
Provide export platforms specifically considering SMEs’ trade with the EU where none exist. There are various web-based export tools in the region, but their support for SMEs and their trade with the EU varies. This has to be improved. Based on the already established ties between the relevant organisations and their dedicated work to support SMEs, this recommendation seems to be easy to accomplish. The region’s work on digitalisation can provide additional support for these efforts.
Improve the regular evaluation of the technical regulation system and quality infrastructure by specifically considering areas without and without regular evaluation. The evaluation of the technical regulation system and QI, which was already addressed in the recommendations of the last assessment, still varies significantly regarding frequency, clear responsibilities and the way the evaluation has been conducted. Since the collection of SME data and surveys may be resource-consuming, it should also be investigated to what extent collaborations with universities/PhD schools might help to collect data and analyse the effects of QI-specific measures.
Continue with good practice of Twinning projects after their completion. The EaP countries have used various Twinning projects that have supported the countries in many areas, for example regarding evaluations. It is important to consolidate the good practice of the projects and to specify responsibilities for continuing the helpful measures even after the projects end.
Source: (Blind and Koch, 2017[13]).
Given the relatively small size of EaP countries’ domestic markets, combined with pressure from international competition, access to foreign markets is crucial to SMEs’ long-term viability. Besides opening new markets, the internationalisation of SMEs and their participation in GVCs exposes them to international competition and helps them achieve economies of scale. This can, in turn, enable SMEs to enhance productivity by capturing technology and knowledge spillovers, upgrading workforce and managerial skills, and raising innovation capacity (OECD, 2023[3]).
As digital transformation progresses, e-commerce opens new opportunities for SMEs to enter foreign markets at a relatively low cost. In fact, through online platforms, SMEs can overcome geographical barriers and increase their market reach while lowering marketing and distribution costs, including delivery, payments and marketing costs (Jahanshahi, Zhang and Brem, 2013[14]). Furthermore, the COVID-19 pandemic accelerated the expansion of e-commerce and has demonstrated the importance of digitalisation and its contribution to growth and development (OECD, 2020[15]).
However, SMEs face several challenges in accessing foreign markets, integrating into GVCs and adopting e-commerce practices. Expanding into foreign markets demands substantial investments in research, marketing and logistics, and SMEs often lack the necessary financial and human resources. Cultural and language barriers add to the difficulty, impeding effective communication with potential customers and partners. In addition, in the realm of e-commerce, digital infrastructure and skills are vital (see the Digital Economy for SMEs chapter). SMEs must also address cybersecurity concerns and data protection to mitigate risks associated with online transactions (European Union, 2021[16]).
Against this background, helping SMEs to enter international markets – and to be competitive in them – requires a whole-of-government approach that addresses the constraints that SMEs face in internationalising, including access to information, skills, technology and finance, as well as trade facilitation and connectivity (OECD, 2019[17]). Governments should make an effort to remove barriers to trade and reduce the cost and complexity of trade procedures.
Furthermore, targeted government support for SMEs in export promotion, integration into GVCs and e-commerce can facilitate the internationalisation of SMEs and propel their integration into the global economy. This includes financial services for exporting SMEs, and training and consultancy services to increase SME readiness for internationalisation.
Assessment framework
This dimension assesses governments’ support for export-oriented SMEs.
Two important methodological changes have been introduced in this dimension since the previous assessment: 1) the sub-dimension on the use of e-commerce has been substantially expanded to better capture policies in support of businesses’ access to hybrid retail opportunities; and 2) the analysis now considers countries’ ability to regularly collect quantitative information to monitor the impact of policies on actual SME performance (“outcome-oriented indicators”).
The assessment framework considers the following (Figure 8.6):
Export promotion: The first sub-dimension looks at approaches to export support, promotion activities and government support services for SMEs with export potential. It focuses on the existence of export promotion strategies and the role and activities of export promotion agencies, and examines the level of monitoring and evaluation of existing export promotion programmes.
SME integration into GVCs: The second sub-dimension analyses the extent to which governments support the integration of local SMEs into GVCs by examining the availability of government programmes supporting cluster development, the creation of supply chain linkages between SMEs and multinational enterprises (MNEs), and the transfer of human capital and technology from MNEs.
OECD Trade Facilitation Indicators (TFIs): Here, the set of measures that streamline and simplify the technical and legal procedures for products entering or leaving a country to be traded internationally is assessed.
Use of e-commerce: This sub-dimension investigates efforts towards encouraging more widespread use of e-commerce as a sales channel by SMEs, considering both regulatory aspects and government policies to promote SMEs’ access to digital platforms and the provision of support services to remove barriers that prevent SMEs from benefiting from growing trade digitalisation.
The section on outcome-oriented indicators for this dimension considers countries’ ability to regularly collect statistical information about the following indicators: i) share of exporters (by size class), ii) export value to turnover ratio (by size class), iii) share of businesses making e-commerce sales that sell across borders, and iv) ICT goods and services as a share of exports.
Analysis
Regional trend and comparison with 2020 assessment scores
The results of the SBA assessment show that all EaP countries recognise the importance of SME internationalisation and have adopted a strategic approach to export promotion and the use of e-commerce. However, the extent to which measures are well-designed and systematically implemented and measured varies significantly across countries, as shown by the high variation of the scores for this dimension (Figure 8.7).
With the exception of Armenia, all countries improved their performance with respect to the 2020 assessment. All countries’ performance in the 2022 OECD Trade Facilitation Indicators has also improved with respect to the previous update in 2019.
Export promotion
Overall, export promotion is a dimension where EaP countries perform well, obtaining an average score of 4.13 (Table 8.7). This reflects the efforts countries have made in adopting and implementing policy initiatives to promote export among SMEs.
Export promotion programmes remain the main form of support for SME internationalisation in EaP countries. Bodies in charge of such programmes are usually SME agencies (Enterprise Armenia, KOBIA, Enterprise Georgia, ODA), investment promotion agencies (AZPROMO and Invest Moldova), and dedicated departments within the Ministry of Economy (Armenia and Ukraine). In Ukraine, the EEPO serves both as a business support agency and an investment promotion agency. Further support is available through export insurance agencies, such as the Export Insurance Agency of Armenia (EIAA) and the Ukrainian Export Credit Agency (ECA).
While there are currently not any active export strategies in any of the EaP countries, most of them have adopted other relevant strategic policy documents. In Armenia and Georgia, objectives related to export promotion are included in the respective SME strategies. “Diversifying and supporting growth of non-hydrocarbon exports” is one of the main directions outlined in the Implementation Plan of the 2022-2026 Socio-economic Development Strategy of Azerbaijan. In Moldova, although the two cornerstone policy documents supporting SME internationalisation expired in 2020, “Strengthening SMEs’ competitiveness and improving market access” is one of the main objectives of the draft National Program for Promoting Entrepreneurship and Increasing Competitiveness for 2023-2027 (PACC), which is to be approved in 2023. In Ukraine, before the beginning of Russia’s full-scale invasion, the government conducted a business survey to inform the update of the Export Strategy of Ukraine, which expired in 2021.
As in 2020, support is still centred around facilitation of trade missions and SME participation in trade fairs. Other promotion activities commonly offered are information support and consultancy and advisory services, trainings, and the organisation of matchmaking events and buyer missions. There are some forms of financial support to exporting companies in each of the countries. Such measures differ in their complexity and range from financing SME participation in exhibitions and fairs (offered by all countries) to more advanced mechanisms such as grant schemes and business vouchers (Moldova). In addition to support services directly provided by EaP countries, businesses in Armenia and Azerbaijan can also access advice and support offered within the framework of the Enterprise Europe Network (EEN).4
To enhance the effectiveness and accountability of existing export promotion programmes, EaP governments should establish or improve a comprehensive system for monitoring and evaluation. While Georgia, Moldova and Ukraine are leading the way in this area, with established monitoring mechanisms in place for export promotion programmes as well as for the export promotion agency itself, Armenia and Azerbaijan are still lagging behind and have yet to introduce basic monitoring practices.
Integration of SMEs in global value chains
SMEs typically access GVCs through supply chain linkages, involving the purchase and sale of intermediate goods or services, often by supplying MNEs operating locally. Governments can play a key role in providing information and matchmaking services to fill the informational gap between SMEs and MNEs and encourage MNEs to engage with SMEs, e.g. through tax credits for investments providing tangible benefits to local suppliers, or through concessionary financing of strategic activities.
Policy frameworks and initiatives to support SME integration into GVCs are still at a very early stage in all EaP countries, with the exception of Georgia (Table 8.9). In Armenia, Moldova and Ukraine, although no systematic support is provided, proposals in this direction have been presented. In Moldova, the above-mentioned “Strengthening SMEs’ competitiveness and improving markets’ access” objective of the Draft National Programme for Promoting Entrepreneurship and Increasing Competitiveness 2022-2026 (PACC), relies on several actions, including supporting SME clustering through the Support Program for Clustering Initiatives. Moreover, the Ministry of Economy and ODA are in the process of developing a local supplier programme focused on building links between domestic manufacturing SMEs and international buyers, including MNEs. In Ukraine, in 2020, the Cabinet of Ministers adopted a resolution on the approval of a state programme to stimulate the economy in the aftermath of COVID-19, which includes finding opportunities for exporters to integrate into GVCs as one of its objectives. The programme also targets the development of innovative systems, including the transfer of technologies, and the simplification of hiring procedures for foreign highly qualified workers. Unfortunately, the programme is currently not operational. However, many of the activities carried out under the Diia.Business project and by EEPO are helping SMEs become part of the global networks of production and trade and have led several partnerships between Ukrainian and foreign businesses. In addition, regular assessments of GVCs in different sectors are carried out to help businesses identify export opportunities.
Azerbaijan and Georgia already provide some form of support for SMEs’ integration into GVCs, albeit to different degrees, mostly focused on cluster development. In Azerbaijan, although there are no comprehensive and structured programmes, eligible SMEs can apply for substantial exemptions from different types of taxes for seven years. Georgia is at the forefront with regards to cluster development support. The government carries out regular GVC assessments to understand the main opportunities for SMEs in the country. The Ministry of Economy and Sustainable Development (MoESD) and Enterprise Georgia, in co-operation with GIZ and under the EU-funded Clusters4Development Project, have developed a Cluster Policy Framework to create a beneficial cluster landscape. In addition, the Georgian Economic Security Program 2019-2024 (GESP) supports economic sectors with the highest long-term potential, helps develop value chains, enhances the viability of SMEs, supports a more skilled workforce, and facilitates public-private partnerships.
To advance in the area of support for SME integration into GVCs, EaP countries could consider carrying out regular assessments of GVCs to identify sectors with high potential and uncover new market opportunities, allowing for informed decisions on direct support to SMEs. Policymakers could support businesses to import and facilitate the establishment of links with MNEs to foster technology transfers and promote the exchange or movement of highly skilled workers. Finally, EaP countries could expand support for integrating into GVCs beyond cluster development – by, for example, expanding incentives for foreign direct investment (FDI) to further enhance MNE-SME linkages and capitalise on the resulting spill-over of technology and financial resources.
OECD Trade Facilitation Indicators
The OECD TFIs were added to the assessment framework in 2020 as a sub-dimension to capture the extent to which countries have introduced and implemented trade facilitation measures.
The 2022 OECD TFIs (Table 8.10) show that the implementation of measures to ease business access to foreign markets is under way and has improved over time, although the performance gap with OECD countries persists. All EaP countries have improved their performance across all 11 areas assessed since the previous assessment in 2019, and the regional average increased from 1.24 to 1.31 (on a scale from 0 to 2). At the same time, the OECD average increased from 1.71 to 1.76 in 2022, resulting in a stable gap between EaP and OECD countries of 0.46 points (Figure 8.8).
Note: TFIs take values from 0 to 2, where 2 designates the best performance that can be achieved.
Source: OECD Trade facilitation indicators, https://oe.cd/tfi.
The widest performance gaps between EaP and OECD countries are in the areas of Documents and Internal and External border agency co-operation. In general, EaP countries should prioritise interventions in the areas of Automating and streamlining procedures. They should improve harmonisation and simplification of trade-related documents, in accordance with international standards, advance in the automation of procedures (e.g. by adopting electronic exchange of data and using automated risk management); and streamline procedures related to border control (inspections, clearance), for example, by implementing single trade windows or certified trader programmes. Finally, they could focus on Internal and external border agency co-operation by putting in place or improving institutional frameworks, mechanisms and IT systems for domestic co-operation between various border agencies and for co-operation of domestic border agencies with those of neighbouring economies and other trading partners.
Use of e-commerce for hybrid retail
All EaP countries improved their performance on the sub-dimension dedicated to policies and provisions in place to regulate and encourage more widespread use of e-commerce by SMEs, obtaining an average score of 3.18 (Table 8.11).
A basic regulatory framework for e-commerce is in place in all EaP countries. While some countries have dedicated laws regulating practices connected to hybrid retail (Azerbaijan, Moldova, and Ukraine), relevant provisions in all of them are also covered by different legal documents. In Georgia, a new Law on E-commerce has been drafted and submitted to parliament for adoption. All frameworks include provisions for e-signatures and electronic payments, and in all countries there is an authority that monitors e-commerce platforms that process personal data, although in Azerbaijan there is no legal framework for online consumer protection. In addition, a regulatory framework on the commercial practices of paid advertisement has only been adopted in Azerbaijan, Moldova and Ukraine (Table 8.12).
Although these are positive steps forward, significant room for alignment with EU frameworks remains. In 2020, EU4Digital conducted a study to assess cross-border e-commerce in the EaP countries against an EU baseline, identifying key issues across the e-commerce ecosystem, the related legal frameworks and standardisation aspects (EU4Digital, 2021[18]). The assessment finds that legislative frameworks related to e-commerce platforms, parcel delivery and consumer protection need to be further strengthened (Box 8.2 provides a detailed description of the identified gaps).
Gaps in e-commerce eco-system
Marketing, sales and payment: The use of global e-commerce platforms that operate in the EU is limited because of slow/expensive delivery, preference for cash-on-delivery and poor awareness. Local EaP e-commerce platforms engaging in cross-border e-commerce are not common for the same reasons.
Parcel delivery: Because of the limited market size, global private operators struggle to maintain high e-commerce volumes, which results in higher rates for the consumer. Delivery times are several days slower than in the EU, where delivery within 48 hours is common.
The EU 2021 e-commerce package: In July 2021, the EU introduced extensive reforms to the value-added tax (VAT) and customs obligations for e-commerce to harmonise procedures related to cross-border trade. The package will include a one-stop shop for VAT, the elimination of a number of exemptions and new requirements for e-commerce platforms. Stakeholders in the EaP region remain largely unaware of the upcoming changes and there are only fragmented actions to prepare for them.
Gaps in the relevant legal frameworks
Platforms: There are only limited regulations of the terms and conditions that transparently explain the parameters determining the ranking of goods in platforms’ search results.
Parcel delivery: Limited regulation of postal security requirements regarding the provision of electronic advance data of distance sales and insufficient preparation for the EU VAT e-commerce package limit potential cross-border trade.
Consumer protection: Limited regulation of misleading practices in paid advertisements, information requirements for distance contracts of digital content, and misleading omissions about consumer reviews of products reduce the transparency and reliability of local e-commerce platforms.
Gaps in e-commerce standardisation aspects
Digital postal services: Limited standardisation of electronic advanced data semantic mapping of attributes of commercial single items that are compliant with the Universal Postal Union (UPU) – World Customs Organisation rules.
UN, EU, UPU technical standards: Insufficient standardisation of rules regarding post, courier, express, parcel operations and customs agents that transport e-commerce items from a third country into the EU.
The UPU technical standards: Limited standardisation of electronic data interchange between customs authorities and postal operators on risk assessments.
E-commerce websites’ trust mark: Lack of national e-commerce trust mark certification schemes to authenticate that a platform has made commitments to comply with the code of conduct, guaranteeing ethical standards in the digital marketplace.
Sources: EU4Digital (2021[18]), OECD (OECD, 2021[19])
In all EaP countries, governments have designed measures to promote SMEs’ use of e-commerce domestically or abroad. In some cases, however, the measures have not been implemented (Armenia and Ukraine). In Armenia and Moldova, specific measures for creating a favourable environment for the development of e-commerce among SMEs are embedded in strategic policy documents (Armenia’s Action Plan for the SME Development Strategy 2020-2024 and Moldova’s SMEs Digital Transformation Programme). In Ukraine, although there are no structured programmes in place, the Diia.Business portal offers resources (mostly guides) for businesses wishing to sell their products online.5
Finally, all countries except Georgia lack a monitoring mechanism to ensure that the measures implemented in support of SMEs’ use of e-commerce are relevant and effective. EaP countries should also consider the introduction of e-commerce trust mark certification schemes to authenticate that a platform has made commitments to comply with the code of conduct, guaranteeing ethical standards in the digital marketplace.6 Although none of the countries have introduced certifications, Georgia is planning to introduce similar tools. Once the new Law on E-commerce is adopted, there is a plan for sectorial association(s), under the co-ordination of MoESD and with the technical assistance of USAID, to develop a code of conduct identifying and outlining ethical standards of intermediary service providers.
The way forward
To improve export promotion among SMEs, EaP countries should strengthen the implementation of their measures by ensuring that export promotion agencies have operational autonomy and implement their targets according to the relevant action plans.
All EaP countries could consider expanding support to SMEs’ integration into GVCs by: regularly carrying out assessments of changing GVCs (Armenia, Azerbaijan, and Moldova); helping SMEs to import and establish links with MNCs; and providing incentives for FDI to further enhance MNE-SME linkages and capitalise on the resulting spill-over of technology and financial resources (see Box 8.3).
To continue improving the support provided to facilitate SMEs’ use of e-commerce, EaP countries could introduce provisions on consumer protection and commercial practices of paid advertisement into their regulatory frameworks and establish e-commerce trust mark certification.
To continue to ease SMEs’ access to trade, EaP countries could further focus on automating and streamlining procedures and improving internal and external border agency co-operation. In particular, they could improve the harmonisation and simplification of trade-related documents in accordance with international standards; advance in the automation of procedures; streamline procedures related to border control; and put in place or improve institutional frameworks, mechanisms and IT systems designed to improve domestic co-operation between various border agencies as well as co-operation between domestic border agencies and those of neighbouring economies and other trading partners.
Finally, all EaP countries could consider establishing or continue improving effective and transparent monitoring and evaluation mechanisms to ensure that export promotion agencies and the programmes they implement across all areas covered in this dimension (export promotion, integration of SMEs into GVCs and use of e-commerce) remain efficient and effective.
Foreign investments in SMEs can provide access to capital, technology, and global markets, enabling them to expand their production capacity, improve product quality, and reach new customers worldwide. By fortifying the FDI-SME ecosystem, governments and policymakers can create an environment conducive to attracting and supporting foreign investments in SMEs, ultimately facilitating their integration into GVCs, which, in turn, fosters economic growth and stability. The use of tax incentives has proven effective in fostering SME linkages in various countries around the world.
In Singapore, the government has introduced Pioneer Certificate Incentive (PC) and Development and Expansion Incentive (DEI) programmes to drive innovation, attract investments, and facilitate the expansion of Singapore companies. The aim of the programmes is to encourage foreign MNEs to grow capabilities and conduct new or expanded activities in Singapore, by granting them corporate tax incentives. In particular, foreign companies are encouraged to set up in Singapore local upstream and downstream activities that are more typically conducted at companies’ headquarters. Over the past decade, Singapore has awarded economic expansion-related tax incentives to approximately 600 multinational corporation (MNC) groups.
Source: (OECD, 2023[20]), (OECD, 2018[21]), (EDB Singapore, 2023[22]), (Ministry of Trade and Industry Singapore, 2021[23]).
References
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[20] OECD (2023), Policy Toolkit for Strengthening FDI and SME Linkages, OECD Publishing, https://doi.org/10.1787/688bde9a-en.
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[4] OECD (2021), Beyond COVID-19 Advancing Digital Transformation in the Eastern Partner Countries, OECD Publishing, https://www.oecd.org/eurasia/Beyond%20COVID-19%20Advancing%20Digital%20Transformation%20in%20the%20Eastern%20Partner%20Countries%20.pdf.
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Notes
← 1. The International Network of Quality Infrastructure defines quality infrastructure system as “the system comprising the organizations (public and private) together with the policies, relevant legal and regulatory framework, and practices needed to support and enhance the quality, safety and environmental soundness of goods, services and processes”.
← 2. See: https://netzwerke.bam.de/Netzwerke/Content/DE/Standardartikel/Netzwerke/QI-FoKuS/qi-fokus-studien.html for further information.
← 3. See: https://opus4.kobv.de/opus4-bam/frontdoor/index/index/docId/55498.
← 4. For more information on the Enterprise Europe Network, see: https://een.ec.europa.eu/.
← 5. For more information see: https://export.gov.ua/415-e-commerce.
← 6. These schemes authenticate that an e-commerce company established on the national territory has made a commitment to work in compliance with the national (or regional or international) code of conduct, guaranteeing ethical standards in the digital marketplace. For more information see: https://eufordigital.eu/wp-content/uploads/2020/08/EU-eCommerce-baseline-report.pdf.