Small Business Labs

Barlow Research on Small Business Exporters

Barlow Research is one of our go-to sources on all things related to small business use of financial services.

Their article Five Truths about International Business in the Middle Market covers survey research on the exporting and importing by U.S. firms with between $10 million and $500 million in sales (midmarket companies).

As shown in the Barlow chart below (click to enlarge), the key finding is that about one-third of firms in this size category conduct business internationally.

As we pointed out in a previous article, about 28% of microbusinesses - firms with fewer than 4 employees including the owner  - conduct business internationally.  

Barlow doesn't include historical data in their article.  But microbusiness exports have risen rapidly over the past decade, with the share of microbusiness exporters doubling.  

This is primarily due to online marketplaces like Amazon and Etsy, and improvements in outsourced logistics services.  

One of the most interesting parts of the Barlow article are the export challenges faced by midmarket companies.

What's so interesting to us is microbusinesses report fewer challenges than midmarket firms do.  

Shipping is still an issue, as is regulation.  But none of the other challenges reported by midmarket companies even blip with microbusinesses.

This is likely because they outsource most tasks to online marketplaces and logistics firms, while most midmarket exporters sell directly into foreign markets.

Historically, one of the huge advantages larger firms have had over smaller firms is the operational scale to export.  

Thanks to online marketplaces and other services, that advantage has clearly narrowed.

More research needs to be done on this topic and we're adding this to our "to-do" list.

Key Findings from 10 Years of Studying the Gig Economy: The Rise of Microbusiness Exporters

Despite trade wars, tariffs, and the erection of other barriers to cross-border commerce, the past decade has seen a substantial increase in the number of U.S. microbusinesses and freelancers who export goods and services.

As the chart below (click to enlarge) from the MBO Partners State of Independence study series shows, the share of independent workers (freelancers, independent contractors and other microbusinesses) providing goods and services to customers outside the U.S. more than doubled since 2011.

The increase in exports is being driven by several factors:

• Online marketplaces have made it much easier to find and service customers outside of the U.S. They also simplify and facilitate transactions and payments.
• Collaboration software has reached the level where communicating with remote customers is easy and efficient. This has greatly increased the ability of service providers to serve customers outside of the U.S. 
• Improvements in outsourced logistics services have reduced the costs and greatly simplified the process of delivering physical products to pretty much any global destination.
• Global markets are enormous, with 95% of the world's population and 84% of the world's economic activity taking place outside of the U.S.

Most U.S. independent workers and microbusinesses who sell to customers outside of the U.S. start out as "accidental exporters".  This happens when a customer outside of the U.S. finds and buys from a U.S. based independent worker or microbusiness.

Often these first exports are done via online marketplaces like Amazon, Etsy, eBay or Upwork. 

Once exporting has occurred, it tends to lead to more exports. For example, according to eBay's 2020 United States Small Online Business Report:

"... 96 percent of small businesses on eBay in the United States export internationally, sending goods to an average of 17 foreign countries. Additionally, nearly 60 percent of eBay entrepreneurs ship goods to customers across four or more continents."

Not surprisingly, independent workers and microbusinesses who sell goods are much more likely to be exporters and those who sold services.  Almost half (48%) of those producing goods reported being exporters in 2020 compared to 16% of services firms.

Despite attempts to rein in or reduce global trade, the rise of microbusiness exports will continue.  The drivers and market opportunities behind this trend are simply too powerful for it not to continue to grow.

Freelancers and Solopreneurs are Increasingly Exporters

Despite trade wars, tariffs, and the erection of other barriers to cross-border commerce, independent workers, freelancers and solopreneurs are increasingly finding customers outside U.S. borders.

As the MBO Partners State of Independence study chart below shows (click to enlarge), in 2019 22% of Independent workers who work full-time as independent workers said they provided goods or services to customers outside the U.S.

This us up from 19% in 2018 and just 12% in 2012.

The increase in exports is being driven by several factors:

• Online marketplaces have made it much easier to find and service customers outside of the U.S. They also simplify and facilitate transactions and payments.
• Collaboration software has reached the level where communicating with remote customers is easy and efficient. This has greatly increased the ability of service providers to serve customers outside of the U.S. 
• Improvements in outsourced logistics services have reduced the costs and greatly simplified the process of delivering physical products to pretty much any global destination.

We expect the trends driving the growth of exports by full-tine independent workers to continue to strengthen. Because of this, we expect the export activity by independent workers to continue to grow.

Results from the European Freelancers Study

The European online talent marketplace Malt and the European Forum for Independent Professionals recently released Freelancing in Europe, a study based on a survey of close to 1,000 European freelancers. 

The results are generally consistent with studies of U.S. freelancers.

As the study chart below (click to enlarge) shows, the main reasons for Europeans becoming freelancers are quite similar to the reasons Americans do.

The same is true for the challenges of being a freelancer. 

It's not surprising the data is consistent. The same trends and shifts driving the growth of the gig economy in the U.S. are also impacting Europe. 

So the consistency shows that the growth of freelancing and independent work is global.

For more on this study, see future of work expert Marco Torregrossa's excellent What we learnt from the first ever European Freelancers Survey. 

BTW, Malt recently raised $28.6 million. They're based in France, which means this is the second day in a row we've featured a French startup that recently raised lots of money. 

Online Platforms Enabling the Rise of Global Micro Outsourcing Firms

Oxford's Internet Institute's research paper The Global Platform Economy: A New Offshoring Institution Enabling Emerging- Economy Micro-Providers covers how online platforms are creating an alternative to traditional outsourcing. Key quote from the paper:

In recent years, a new offshoring mode appears to have emerged alongside these two established modes: one-person micro-providers that serve clients around the world in transactions conducted via online platforms.

The paper describes 3 key drivers of this trend:

Platformization is the growing use of online labor platforms such as Upwork, Fiverr, etc. that connect labor supply and demand across the Internet connected world.

The demand, generally speaking, comes from the developed world while the supply is generally located in established offshoring destinations as well as in emerging economy countries not previously associated with offshoring.

Glocalization refers to the integration of local differences in the cost and availability of skills to a standardized global structure that enables their use. This is also referred to as geoarbitrage, which is tapping into lower cost labor from lower cost countries.

The Oxford paper, for example, reports that a graphic designer in the Philippines earns an average of $8.47 per hour, while a graphic designer from the United States earns an average of $19.53 per hour.

The Oxford paper argues this wage differential helps those in developing countries. Others say the wage differential hurts workers in developed countries. From our point of view, both points of view are correct. But we don't yet know the full net impact of this form of outsourcing and more research needs to be done on this topic.

Individualization, which the paper describes as "the puzzling elimination of returns to scale, resulting in a supplier base that consists of one-person micro-providers."

While we agree that returns to scale have been reduced and in many cases eliminated, we don't find this puzzling.

As we pointed out in the 2008 Intuit report The New Artisan Economy, a combination of new technologies and business models mean returns to scale are no longer the key to success in many industries. Key quote:

… by the beginning of the 21^st century, ownership of large-scale infrastructures no longer determined business success in a growing number of industries. Brick and mortar and heavy iron gave way to speed, flexibility and innovation. New technologies, collaborative supply chains and outsourced manufacturing created lightweight infrastructures – smaller, cheaper and more agile.

The paper focuses on the use of freelancers and micro firms in the developing world by businesses from developed countries. 

But U.S. based freelancers and independent workers are also working for firms outside the U.S. in greater numbers. As the chart below from the 2018 MBO Partners State of Independence study shows, about 1 in 5 U.S. independent workers report having clients outside of the U.S.

The paper closes with the important point that platforms are not just enabling freelancers who provide labor, but also apply to product businesses:

Although in this study we focused on labor platforms, our theory of global platforms as institutions is likely to be equally applicable to other factor and product markets, where platforms will have similar implications. For instance, Alibaba has emerged as a significant platform for international trade in intermediate and final products, especially among SMEs and microenterprises.

The growth of platforms is a key reason we believe small, micro-businesses and independent workers are driving the next wave of globalization.

1 in 5 Independent Workers Have Customers Outside of the U.S.

One of the interesting findings from the MBO Partners State of Independence study series is a growing number of independent workers (freelancers, solopreneurs, gig workers, etc.) have customers outside of the U.S.

There are several reasons for this:

1. Online platforms and marketplaces have made it much easier to find and conduct business overseas. This is true for both product and service companies.

2. Outsourcing has made international shipping and logistics much easier. 

3. Rapidly growing developing countries have increased demand.

4. More service firms are productizing their offerings, which make it easier for them to export.

About 22% of independent workers report that their primary business is product based. Many of these use sites like Amazon, Etsy and eBay to sell their products outside of the U.S.

Also, a growing number of services businesses are creating products.

This is especially true for training firms of all kinds, including fitness trainers, business coaches, music instructors, etc. who are creating materials and classes that they can sell like products. These independents also are finding it easier to export.

And, of course, even traditional services businesses can more easily find and serve international customers thanks to the Internet and platforms like Upwork, Fiverr, etc.

We've written in the past about the boom in U.S. small business exports. And this boom should continue with independent workers being a major beneficiary of growing export markets. 

The major risk is, of course, trade wars leading to reductions in global trade. But for now the products and services provided by independent workers have not been targeted for tariffs by the U.S. or its trading partners. 

This could change. And you could easily see platforms like Amazon and Etsy targeted by our trading partners.

But hopefully the clear logic that no one wins a trade war will win out. 

MBO Partners is an Emergent Research (that's us) client.

The New Multinationals: Small, Micro and Solo Businesses Driving the Next Wave of Globalization

Globalization and international trade was once driven almost exclusively by large multinational corporations.

No longer.

Propelled by global online markets and platforms and a growing global middle class, small businesses and even freelancers and individuals are exporting goods and services in growing numbers.

In fact, according to the U.S. SBA small business goods exports have grown from 29% of total U.S. goods exports in in 2004 to 34% percent in 2014.

As the chart below shows, we're forecasting small business exports will continue to grow and gain share, reaching 48% of U.S. goods exports in 2026.

The rise of the Internet and global online marketplaces has been the major driver of this trend and will continue to do so.

These have reduced many of the non-tariff barriers to trade, especially reducing and even eliminating the need for a local presence as well as the detailed knowledge of a country’s business landscape, culture, customers and language that foreign trade once required. 

They’ve also made it much easier for global customers and suppliers to find, connect and do business with one another. 

This digitalization of exporting has led to a rapid increase in the number of small business exporters and the growing sharing of exports by U.S. small businesses.

Even freelancers and independent workers (independent contractors, self-employed, independent consultants, etc.) increasingly serve the global marketplace.

Data from the 2016 MBO Partners State of Independence study, for example, showed that about 2 million independent workers sold services or goods to customers outside of the U.S. over the prior year.

This is just the beginning of the small business export boom.  The global middle class reached 3 billion in 2015 and could surpass 4 billion by 2021, 

And as we recently pointed out, this surging middle class is happening mostly in Asia and other developing regions of the world. It's also driving global economic growth.

As digital platforms grow in scale and sophistication and the global use of the Internet increases, even more U.S small, micro and solopreneur businesses will access these growing, global markets and customers. 

To help these micro multinationals, the Global Innovation Forum has released Simple Steps for Global Success, a report with advice on how startups, small businesses and freelancers can successfully engage in global markets.

The report focuses on 4 steps small businesses can take to become successful exporters. These are:

1. Recognize the opportunity to be global from Day One;
2. Use technology to simplify and extend operations;
3. Understand the value of early attention to regulatory compliance;
4. Engage professional advisors early in your small business journey.

See the report for more details. 

1.1 Million Work in Great Britain's Online Gig Economy

According to a study released by the UK think tank The Royal Society for the Encouragement of Arts, Manufactures and Commerce (RSA), there are about 1.1 million gig workers in Great Britain.

Here's how the study defines the gig economy:

"When we refer to the ‘gig economy’, we are discussing the trend of using online platforms to find small jobs, sometimes completed immediately after request (essentially, on-demand). Much like an actor or musician goes from ‘gig to gig’, workers in the gig economy are sourcing one job at a time, but by logging into an app or clicking through to a website. Each ride an Uber driver accepts is a ‘gig’ or a single job, as is each booking a Hassle cleaner makes to tidy a flat or every errand run through TaskRabbit."

This is quite similar to the definition used in the Intuit On-Demand Workforce study series, which covers the U.S. 

The findings are also similar.

The RSA study shows that about 2% (1.1 million) of Brits are working with online platforms. The Intuit study shows about 3.9 million Americans (about 2.6% of the workforce) do this type of work.  

The attitudes, motivations and demographic findings are also pretty similar. As the study charts below show, Britain's gig workers mostly work part-time to supplement their income. 

And both studies report the majority of gig workers are satisfied with gig work and plan to continue. Not surprisingly, most are satisfied because they like the flexibility and control gig work provides.

This, of course, echos the findings of almost all gig worker studies.

And, of course, despite these findings the press coverage of the study is mostly quite negative about the gig economy.  

The Stunning Growth of Small Business Globalization

Every so often a report comes across our desk that makes us go "wow!". McKinsey's Digital Globalization: The new era of global flows is such a report.

It claims that "soaring flows of data and information now generate more economic value than the global goods trade."

That's a pretty stunning statement, but not the one that got us to go "wow". 

What got us to go "wow" is their view of the growing role small businesses are playing global trade. Key "wow" producing quote:

... the share of exports by large multinational corporations dropped from 84 percent in 1977 to 50 percent in 2013. Companies with fewer than 500 employees accounted for 97.8 percent of all identified US exporters and 97.2 percent of all identified US importers in 2011. The number of US exporting entities with fewer than 50 employees, in particular, has grown more rapidly than firms with 50 to 500 employees.

The reason for this explosive growth in small business globalization is, of course, the Internet. Key quote:

Small businesses worldwide are becoming “micro-multinationals” by using digital platforms such as eBay, Amazon, Facebook, and Alibaba to connect with customers and suppliers in other countries.

The other side of this is global customers are increasingly buying things from companies not located in their home countries.

The study chart below (click to enlarge) illustrates McKinsey's aggressive forecast for cross border B2C commerce.

It's not just small employer businesses that are expanding internationally. The report stresses that individuals and the self-employed are becoming increasingly globalized.

This is echoed in data from the MBO partners State of Independence studies. These show over 2 million U.S. independent workers are exporters of services or goods. 

While we were wowed by the extent of the growth of small business globalization presented in this report, we weren't really surprised.

Back in 2008 we forecast that by 2018 almost half of U.S. small businesses would be involved in global trade. The reason we believed this at that time is similar to McKinsey's explanation - the Internet was making trade so much easier.

Shortly after we released that forecast the world fell into the Great Recession, so it didn't look too promising. Now, if anything, it looks like that forecast was low.

For those who don't want to wade through McKinsey's 128 page report or even their 28 page summary, these two articles provide a good overview:

What Happens When Global Trade Goes Virtual - from Bloomberg View

These Charts Show How Globalization Has Gone Digital - Huffington Post

The Canadian Coworking Conference & the Globalization of Coworking

Last week about 150 people gathered in Toronto for the 1st Annual GCUC Canadian Coworking Conference. 

There are about (or, as they say up north "aboot") 100 coworking spaces in Canada and this conference was about the same size as the first global coworking conference, which was held back in 2009. 

There are now coworking conferences all over the world and the industry has grown to thousands of spaces. At the event it was announced that there will be a coworking conference this December in Shanghai. 

We've been following coworking since 2007 and one of the most interesting aspects of this industry is how consistently people all over the world describe coworking and its benefits. It's no wonder coworking is booming around the world.

The Financial Post article A Business Case for the Coworking Movement, Which, Like Hippies, Got its Start in San Francisco nicely covers the rise of coworking and summarizes information presented at the conference.

Check the GCUC Canada site later this week for copies of the conference presentations.