More SMEs eye foreign markets
The majority of small and medium-sized enterprises see growth opportunities internationally and expect to derive up to 50 per cent of their revenues overseas in five years' time, according to astudy conducted by the Economist Intelligence Unit on behalf o
However, the survey of 480 SME executives and experts from business lobbying groups across the world also reveals that big obstacles remain for small businesses with global aspirations.
International trade is seen as vital to long-term success by SMEs, but challenges such as political instability, cultural factors and inadequate infrastructure still cause concern and often outweigh the raw growth potential of overseas markets, decision-makers say.
The survey also shows a gap in international activity between SMEs in developed and developing markets. Nearly 69 per cent of the respondents from Group of Seven countries currently trade internationally, whereas only 46 per cent of the BRICM (Brazil, Russia, India, China and Mexico) respondents do.
Many SMEs see barriers to trading internationally. The quality of a market’s infrastructure, political stability, administrative costs for establishing a local presence, and cultural differences were all cited by the executives as factors that deterred them from entering new markets.
The unfamiliarity of foreign markets received particular attention, with 84 per cent of respondents describing understanding a target market’s culture or language as important in determining its attractiveness. This also explains why most SMEs expand into markets that resemble their own.
The report shows that SMEs from BRICM markets are more likely to seek opportunities in other developing countries, while SMEs from G-7 economies are more active in developed markets.
For example, 15 per cent of the surveyed BRICM SMEs operate in Russia, China, India and South America, whereas only 3.6 per cent of G-7 SMEs do.
“BRICM SMEs are better positioned in other developing markets thanks to their superior ability to navigate the challenges that these markets present. They are also taking advantage of lower costs and smaller pools of competitors,” said Ken Allen, chief executive of DHL Express.
“If you consider these countries as the growth markets of the future, then SMEs in industrialised economies need to review their approaches to emerging markets and identify new strategies that will help them compete internationally.”
In terms of expansion tactics, the survey shows that partnerships are an important consideration for SMEs. The majority of ambitious G-7 SMEs prefer to work with distributors, resellers and other companies with established networks to keep their costs down as they fight to gain traction in a new market.
