A new report published by The Economist Intelligence Unit highlights the key issues that small and medium enterprises (SMEs) grapple with as they expand internationally – which for many firms can outweigh the promise of growth.
The report, sponsored by DHL Express, is based on a survey of 480 SMEs spread across 12 countries and 20 industries, as well as in-depth interviews with a number of SMEs and policy experts.
According to the survey, 40% of respondents currently earned zero revenue from international operations, but a clear majority (72%) expect to derive between 11% and 50% of their revenues internationally in five years’ time. Across developed and developing markets, SMEs are focused on potential problem areas that trump growth in terms of importance. These include the quality of a target market’s infrastructure, the stability of its politics, the administrative costs of establishing a local presence, and the accessibility of local business acumen and networks.
Compared to their G7 counterparts, SMEs from BRICM (Brazil, Russia, India, China, and Mexico) have a much higher presence in other developing countries. For example, 15 percent of BRICM SMEs have international operations in Russia and CIS, whereas only 3.6 percent of G7 SMEs do; 18.5 percent of BRICM SMEs have international operations in South America compared to only 4.6 percent of G7 SMEs.
No two markets are treated as differently as Africa and China. Despite Africa’s strong growth rates the vast majority of survey respondents see very few opportunities in the region. China, however, remains a magnet for SMEs.
- SMEs see trade as the future--a majority of those surveyed expect to earn 11-50% of their revenues internationally in five years
- Obstacles to international growth include unreliable infrastructure, prohibitive set-up costs, unstable politics and the inaccessibility of local business networks
- China is ranked as the most desirable developing market, while a clear majority of SMEs see little to no growth potential in Africa
This report illustrates the challenges that SMEs face in growing their business on a global level. They find it particularly difficult understanding local business environments which are different to their home market, as well as navigating through unreliable infrastructure and unstable political environments. Still, they clearly see the potential with a majority of companies viewing international trade as vital to their survival. Some but not all of the challenges include costs of operating licences, infrastructure hurdles, and political instability.
Published:October 10th 2014
- Charles Ross