Trading Up: Enhancing SMEs Access to International Markets

by Kezy Mukiri

Small and medium-sized Businesses (SMBs) are the economic drivers in many countries, yet they continue to have low productivity and low export volumes.

International trade can spur the growth of SMEs. According to Crispin Simon, “Firms who choose to export become 34% productive in their first year while those already exporting achieve 59% faster productivity growth than non-exporters.”

Many SMEs view international trade as an economic activity that mainly benefits large companies. Exporting allows small firms to reach bigger markets and learn new skills that enhance innovation and increase profitability.

In today’s hyper-connected global economy, the prospect of extending one’s product or service to millions of potential customers stands as a tremendous opportunity for SMEs.

Some of the benefits that come with accessing international markets include:

1. Increased market share: Going global raises your profile above that of your competition through exposure to new markets.

2. More efficiencies, less waste: for SMEs in manufacturing, increasing your market overseas allows for economies of scale, and lower production costs

3. Increased sales/profits

4. Innovation: exposure to new methodologies, strategies and technologies.

There are different channels that SMEs can use to internationalise their SMEs:

1. Direct Exports: SMEs can choose to export directly to distributors or to the end consumers in foreign markets.

2. Indirect Internationalisation- to avoid the costs that come with direct exports, SMEs could choose to provide services or sell goods to domestic firms participating in regional or global value chains (GVCs)

3. Non-Equity Contractual Models such as franchising, licensing or more structural alliances such as export consortia

4. Mergers and acquisitions or co-investment ventures with other firms such as joint-ventures with different control level. This gives a softer landing for SMEs in foreign markets and is a good expansion model for SMEs in the service sector.

Below are 3 steps that could help SMEs navigate the many barriers that exist in global markets:

1. Seek understanding:

SMEs must refine their knowledge about operating in foreign markets. Because there are many bilateral, country to country arrangements as well as multilateral agreements, SMEs may need to seek clarity or advise on rules that apply to trade between any given 2 countries. Consult legal advice from trade lawyers such as www.mga-legal.com or visit a trade facilitation firm such as Ignite Trade Africa.

2. Get a foothold in the desired markets

Armed with information, SMEs should then establish a foothold in targeted markets. Because the cost of travel, setup and start-up costs in foreign markets may be prohibitive, SMEs could take a more non-traditional approach to gaining ground in targeted markets. Companies such Ignite Trade Africa organise Trade Missions on group travel packages to various market destinations so as to grant SMEs market access as well opportunities to develop networks. SMEs could also gain a foothold by targeting larger companies which they can supply so as to penetrate the local market.

3. Have a plan:

SMEs aiming to expand into international markets should a market entry plan that is most appropriate for them. The plan should bear in mind the financing structure and the framework within which the expansion is to be achieved

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

<p ">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. There is so much help available for SMEs so don’t be afraid to ask for it. Talk to people who are already exporting to understand the challenges that they are facing as well as the opportunities available.

As Einstein once said, ‘You have to learn the rules of the game. And then you have to play better than anyone else’.

The author is the Executive DirectorIgnite Trade Africa - www.ignitetradeafrica.com  and a partner in Mukiri Global Advocateswww.mga-legal.com 

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