5 reasons for success and failure of SMEs in export markets
Going international frequently starts with exporting for small and mid-sized companies. Yet, even this first step requires marketing and technical know-how and includes barriers that may seriously jeopardize SMEs success in international markets.
SMEs play a crucial role for national economies. They are the backbone of European and Asia Pacific economies. Internationalization can have implications for them as for any companies in terms of cost reduction (relocation), market differentiation (export), and development of key strengths such as competitive advantages. It is therefore a key factor for growth. Despite trade barriers and technical difficulties, it therefore represents a necessary step to grow businesses and secure market demand. So what makes SMEs successful in this process and what are the main reasons for failure? Here are some insights…
Key success factors
1 – Technological Orientation
Intellectual property and the hold of patents on export markets increase likelihood of successful market entry. Therefore, technology-oriented firms or firms emphasizing on clear competitive advantages have more chances of success.
2 – Good Marketing Knowledge
Entering a new market means bringing a product on a new market. This often implies the adaptation of the product and full compliance of this latter to local requirements. Those requirements might be legal, but also cultural and highly related to pure marketing activities. Having a good knowledge of marketing helps SMEs in exporting as it facilitates the entry of a product on a new market.
3 – Identification with the Local Market
Distance with the local market is an important barrier. We do not necessarily talk about geographic distance, but of market characteristics distance. Bringing the product closer to local market and being able to adapt the full business processes to the local market is a key success factor.
4- Price Advantage
If there is no technology involved, then having a price advantage might be crucial. It makes no doubt that bringing on market a product that is more affordable will seriously facilitate market penetration and internationalization’s success.
5 – Long-term commitment
Having a long-term vision facilitates relationship with the key business partners and with the customers. Firms with a long term trade vision increase their chances of export success.
1 – Lack of international experience
The main reason for failure is the lack of experience of most SMEs and of course, the fact that they neglect acquiring such knowledge by recruiting experienced international trade employees or consultants.
2 – Poor analysis of the export market
Market analysis is far from being easy. This is even more the case when facing a completely unknown market with cultural and economic differences. A lot of market analysis of the export destination are biased and poorly made, which results in failure and misalignment of the strategy.
3 – Ignorance about the support of government
80% of European SMEs ignore the fact that there are programs supporting their international business development. Most SMEs do not trust export promotion agencies and do not understand their role in international trade. It is only once they fail that they solicit EPAs’ support.
4 – Cost is too high
Cost calculation is a key aspects. A lot of entrepreneurs dream of entering big market in high growth, such as China, Brazil or Russia. They undertake a lot of activities before even taking the time to calculate how much it will cost to enter such markets and before realizing that it is not worth a trial.
5 – Lack of stability in terms of employees
Export market volatility in terms of employment generates difficulty for SMEs to keep their human resources abroad. In addition, dependency on some key employees at home may jeopardize the international situation when they leave the company. Staff stability is a necessity to avoid export failure.
Need more information? Check out those tips on how to select adapted foreign market-entry modes!