Venturing Abroad - The challenges facing SMEs
The Economist Intelligence Unit wrote a series of articles sponsored by Mazars focusing on five challenges facing SMEs venturing abroad for the first time. While the challenges of operating in an unfamiliar environment are daunting, they offer SMEs tremendous potential.
The numerous hurdles for SMEs to surmount brings an element of reluctance for them to explore international markets. However, with a world that continues to become more digitized and globalized, the benefits to reap are quickly beginning to outweigh the obstacles. But what types of challenges are SMEs facing and how can they be dealt with? Mazars' partnership with the EIU explores this and more in our Venturing Abroad program.
The 5 Challenges of Venturing Abroad
Taking Advantage of High Tech
● Mid-sized companies can quickly become global exporters online, and many European SMEs are doing exactly that.
● They may use the Internet to sell their products or services globally right from the start, becoming “born global” firms. SMEs can grow quickly by capitalising on new market niches in industries disrupted by technology.
● They may use information technology to outsource and offshore a core activity such as manufacturing, but then remain in the offshore location because of the potential of the local market.
Facing Legal & Tax Issues
● Opaque rules, inconsistent application of regulations, plus customs classification issues and variable VAT rules, pose big hurdles to SME exporters. Varying customs classifications for the same product can appear even within a single market.
● A further complication for SMEs is finding a way through the thicket of regulations governing customs clearance and customs classification.
● Even within free trade zones, legal and tax issues complicate trade are a particular problem for small firms with limited resources. Those venturing beyond the EU tend to choose markets with which the EU has a free trade agreement.
● The key to long-term export growth is establishing a deep presence and showing a long-term commitment to each foreign market. Accordingly, some SMEs reduce the number of export markets to keep growth manageable and sustainable.
● Marketing abroad via a website can be a double-edged sword. Too many export markets can prove unmanageable for a newly internationalising SME.
● Kick-starting sales and building a local market only establishes a foothold. To continue growth and development in a new market, SMEs require a broader strategy aimed at developing and maintaining a strong local presence.
Meeting Logistics Challenges
● Attention to logistics is an important aspect of successful market entry; advanced information systems provide an edge in securing cost-effective logistics support.
● To avoid costly logistical problems, many newly internationalising SMEs outsource the logistics function, both for inbound components and returns, and for outbound finished products. The SMEs must decide on the best balance between controlling their own logistics and outsourcing some of those functions.
● The logistics function itself is undergoing a profound change, as sellers of a wide range of good shift from distribution through physical stores and warehouses to global sourcing and fulfilment of orders via e-commerce web sites.
Finding Local Firms
● To ensure sustained growth in new markets, SMEs adapt products—and sometimes business models—to local conditions, and partner with local market experts.
● A newly internationalising SME’s foreign presence can take various forms: a formal joint venture, a licensing & technical cooperation agreement, a sales-representative contract, or a go-it-alone subsidiary.
● Complementary skills, similar aims, and long-term commitments are as close as an SME can come to finding a recipe for success in forming international partnerships.