Overcautious SME’s not taking full advantage of export boom

Tuesday, February 05, 2013

Current doubt in the global market has resulted in many small and medium sized enterprises (SMEs) to act with caution when questioning expansion and not progress to supply export markets. Compared to large and multinational corporations (MNCs), most SMEs lack the overarching product diversity and capital reserves to mitigate the risk. But according to firm Regus, profits have increased for firms that, despite this, chose to export overseas. Regus found that 63% of firms that exported overseas had increased profits compared to just 36% of companies that solely traded domestically, higher levels accounting from SMEs with sound entry strategies.

Within the last couple of years the number of SMEs that are exporting internationally has doubled as the benefits of expanding overseas have become clear and documented. This development has been aided by technology that supports companies to establish ties and overseas partners that improve this process – a strategy that makes it easier than ever before to establish a business in an overseas market.

Unexpectedly, China is not in the lead as far as having the best opportunities for exporters. Key regions that have been tagged to be the most profitable for export expansion in the next two years are South-East Asia, followed by China, then India. This region has a huge growing middle class – a group whose numbers will surpass the total number of populations of some developed nations. But despite the huge market, companies should not be blasé about the ease of exporting in the region, as others across the globe are also noticing this trend, a first mover advantage will be unlikely and so, as in home markets; obtaining a competitive advantage will be key.

Accenture recently estimated that the purchasing power of South-East Asia will hit US$1.5 trillion by 2020. Changing trends in diet and lifestyle will fuel the increase in export potential for many companies as huge portions of population extend the trend with a focus on a Western diet and lifestyle.

Regulatory processes and red tape are still a deterrent when exporting to some nations as well as other pitfalls that exist when exporting abroad. These will require adequate funds that are able to be utilised quickly and diverted for quick re-allocation if problems occur as firms pave the way in new environments. Regus found that the most common challenges that were noted as the biggest hurdles to setting up an operation abroad cited by exporters included property and administration (53%), building an image abroad (49%), operational staff recruitment (45%), risk management (42%), managing local taxation and regulations (40%) and senior manager recruitment (30%).

Care needs to be taken to understand target country’s business practices, as well as partnerships which need to be constructed correctly and in conjunction with the right partner. Different partnerships have different associated risks. A joint venture is one style that can be extremely costly if not successful.  

Knowing the regulatory environment is also essential; if not followed, product shipments can very quickly be held at a standstill. Advice can be taken from national investment promotion agencies, other exporters and governments. The right preparation will allow companied to reap rewards even amongst a challenging global market.