October 14 ,2014 | by Thiago Kiwi

Exports to comprise half of all SME revenue by 2019

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A new report from DHL has highlighted the huge potential of exports in helping SMEs grow.

Small and medium-sized enterprises (SMEs) are the driving force behind most world economies, but international trade could well be the most important element in giving them the boost they need. According to a new reportconducted by the Economist Intelligence Unit by logistics and delivery firm DHL Express, overcoming global barriers could lead to a significant change in the way small firms draw their revenue.

 

Growth through trade

The study shows that half of the SMEs surveyed have spotted international growth opportunities and are working to grow their presence overseas. In fact, over the five years to 2019, a majority expect to reach a point where 50 per cent of their total revenues come from international sources.

It was obvious that businesses saw trade as an important part of their future, with the majority agreeing that exports would be vital for their survival. The biggest benefits that they saw included the opportunity to widen their client bases and strengthen their revenue streams. However, there is a clear gap in export appetites between developed and emerging markets. Nearly seven out of ten respondents in G7 countries currently trade overseas, but that figure sank to 46 per cent among high-growth markets in Brazil, Russia, India, China and Mexico (BRICM).

 

Export barriers

SMEs in many countries are simply overawed by the task ahead of them when they seek to break into a new market, focusing more on the pitfalls of expansion than the benefits, The biggest concerns included fears about the quality of the infrastructure in some locations, political instability, the cost of doing business, local networking opportunities and simple cultural factors all playing a role.

As many as 84 per cent of respondents said that their understanding of either the culture or the language of a target market was at least important in deciding how attractive it was as a business destination. That probably explains why SMEs are most likely to expand into markets with similarities to their own – firms based in BRICM were far more likely to trade in other BRICM nations than those from G7 countries. At the same time, SMEs based in rich nations were more likely to trade in other developed countries than in poorer countries.

 

Cultural awareness

Ken Allen, chief executive of DHL Express, says that BRICM SMEs are in a better position to exploit opportunities in other developing markets than their richer counterparts because they are better able to negotiate the business culture. Ultimately, they are better equipped to handle the unique challenges of doing business in emerging markets. They are also making the most of the opportunities created by lower costs of doing business and less competition.

“If you consider these countries as the growth markets of the future, then SMEs in industrialised economies need to review their approaches to emerging markets and identify new strategies that will help them to compete internationally in the future,” he explained.

 

China appeal

China is the nation where SMEs apparently see the most business opportunities. The sheer size of the market is its biggest selling point, and as consumption rises on the back of an emerging middle class with greater disposable income, it seems that the world’s second largest economy offers too much potential to be ignored.

On the other hand, Africa was seen as a less promising option for expansion, even though it has substantial growth potential. Sub-Saharan Africa is expected to hit five per cent growth next year, though this will inevitably vary between different countries, but small firms have not yet been won over – if anything, this means there will be even more encouraging returns for those who do decide to take the plunge.

Thiago Kiwi

Thiago is the LSBF Blog Editor who manages news and features content on the site, and writes about business, finance, technology, education and careers.

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