Intensified competition and saturated markets pressure SMEs to internationalize
The volatile post-crisis environment has put excessive pressure on SMEs to increase their operational and transactional efficiency simultaneously reducing costs. Moreover, the saturated markets have compelled SMEs to turn towards emerging markets which offer better growth opportunities.
Although majority of SMEs depend on the domestic demand, the last report on SME demography from the European Commission (EC 2014) highlighted an increasing trend of internationally-oriented SMEs, especially in the high-tech industry. European SMEs have been recognized as more internationally active than US-based with 42% of EU SMEs engaged in some form of internationalization. Internationalization has been identified as an alluring opportunity for reaching new customers, accessing new knowledge and revenue growth.
The possible pitfalls of internationalization
Despite the many opportunities of internationalization the actual process is challenging and risky especially when it comes to small businesses. First, entering foreign markets requires knowledge of local language, legal requirements and local culture. Attaining the needed information can take up a lot of time and resources which quite often SMEs do not have in abundance. Moreover the majority lack experience in internationalization which can hinder the process and the final results. Finally, internationalization also means increase in complexity which can result in reducing or even diminishing the main advantages of SMEs in comparison to big companies: flexibility and agility.
To avoid failure SMEs often minimize the commitment of resources in the foreign market following the Uppsala model of gradual expansion. Companies adopting this model enter the new market step by step starting from basic exporting towards more active involvement on the market. They increase their commitment of resources and activities on the market in accordance to the accumulated knowledge.
But in a world of rapid changes can they afford slow steady steps? In this integrated world more and more born-global firms have emerged taking advantage of advances in communication and transportation technologies. In such world of “rabbits and kangaroos”, we can no longer count on the proverb: “slow but steady wins the race”. SMEs need to react fast if they want to stay in the game!
Mitigate the risk through BPO partnerships
Internationalization is alluring, but challenging! How do prepare for the unexpected?
REMEMBER: You DO NOT have to do everything yourself!!!
Mitigate the risk through partnerships.The first strategy suggested for managing the risk of internationalization is partnering with a local company which has knowledge and networks on the market, well established distribution and logistics, as well as strong customer base. It may sound easy, but in reality finding such partner may be even more challenging than the internationalization itself. Moreover, these types of partnerships are of sensitive nature since they may require sharing information of strategic importance for both companies.
SMEs can look for an alternative solution in the outsourcing industry which recently has experienced substantial growth in scope and size. In the last decade, many Business Support Centers have emerged which offer wide range of services on a smaller scale. SMEs can start by outsourcing only part of their transactional processes and gradually move up towards more value added activities. Outsourcing transactional processes or back-office services can free up the critical resources for SMEs which they can re-direct towards the expansion process and focus on the core of their business. SMEs can facilitate even greater benefits than big companies from standardizing and consolidating their back-office business processes which lack uniformity across regions and domains
Partnering with an experienced business support center will enable them not only to overcome the complexity obstacle of internationalization but also get access to industry and region specific knowledge. The business support services use their accumulated knowledge to expend their scope of services. Given the fact that the outsourcing sector is highly competitive, providers must always stay up to date with newest technologies and trends constantly improving in quality, while keeping costs low!