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Most SMEs expect to go global in big way

/ 12:15 AM January 25, 2015

The majority of small and medium-sized enterprises (SMEs) see growth opportunities abroad and expect to derive as much as half of their revenues internationally in five years.

This is one of the main findings of an in-depth study conducted by the Economist Intelligence Unit (EIU) on behalf of DHL Express.

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However, the survey of 480 SME executives and experts from business lobbying groups around the world also reveals that severe obstacles still remain for smaller businesses with global aspirations.

International trade is seen to be 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.

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The survey also shows a gap in international activity between SMEs in developed and developing markets: nearly 69 percent of the G7 (Germany, France, Italy, Japan, Canada, United States, United Kingdom) respondents currently trade internationally whereas only 46 percent of the BRICM (Brazil, Russia, India, China and Mexico) respondents do.

“Here in the Philippines, we bridge these barriers by enabling SMEs to overcome the challenges of global trade. By partnering with relevant SME organizations, we provide thought leadership training and roundtable discussions wherein the SMEs have the opportunity to learn from subject matter experts,” said Yati Abdullah, country manager, DHL Express Philippines.

Many SMEs see barriers to trading internationally. The quality of a target market’s infrastructure, the stability of its politics, administrative costs for establishing a local presence and cultural differences in doing business were all cited by the executives surveyed as factors that deterred them from entering new markets.

The unfamiliarity of foreign markets received particular attention: 84 percent of respondents described understanding a target market’s culture or language as important or very 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 growth opportunities in other developing countries, while SMEs from the G7 economies are more active in other developed markets.

Despite the high-growth story being touted by international media, Africa is still viewed with some reservation by SMEs.
Roughly 40 percent of G7 and BRICM survey respondents see no growth opportunities in the region at all.

An unstable political environment and underdeveloped infrastructure mean that many SMEs back down, leaving the field open to multi-national and state-owned companies with more financial and political resources at their disposal.

China, on the other hand, remains the most attractive growth market for SMEs with a global mindset. The pure size of the market and the Chinese government’s focused economic policy have created favorable conditions for growth. However, these same factors, as well as the cultural differences many SMEs will face when trading with China, also mean that careful planning and the right entry strategy are critical considerations.

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“Tapping into new markets is clearly still not easy for many small enterprises with growth ambitions, particularly for regions such as Africa that offer great promise for the future. Our aspiration, as the world’s most international company and a global leader in logistics, is to help them connect with potential customers anywhere in the world and to demonstrate to them that they don’t need to be big to compete in the global village,” said DHL Express CEO Ken Allen.

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TAGS: Business, economy, Enterprise, smes
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