Executive Briefings

Small, Mid-sized Businesses Depend More on International Trade, Survey Finds

International trade and cooperation has become a key driver of small business success, according to an in-depth and wide-ranging study by IHS and DHL Express.

The macro-economic analysis and survey of 410 SME directors in G7 and BRICM (Brazil, Russia, India, China and Mexico) economies reveals that SMEs engaged in international markets are twice as likely to be successful as those that only operate domestically. Of the SMEs surveyed, 26 percent of the companies that were trading internationally significantly outperformed their market, in contrast to only 13 percent of those with operations only in their home country. SMEs cited the key benefits of this international approach as the access to new markets that it provides them with, as well as access to know-how and technology, and diversification of their products or services.

The research also reveals an increasing pace of globalization and a sharper international focus among smaller businesses, with SMEs that were founded in the last five years more likely to have international business operations than older SMEs, despite having had less time to grow their businesses. Significantly, the majority of SMEs who had out-performed their markets over the last three years indicated that they also planned to increase the percentage of exports in their turnover over the next three years, despite the uncertain economic environment.

The report does, however, highlight that inadequate business infrastructure is constraining competitiveness by reducing business efficiency, and that SMEs are having to work harder to overcome infrastructure inefficiencies, particularly compared to larger companies with greater resources. SMEs' biggest concerns relating to international trade are a lack of available information on foreign markets, high customs duties and the difficulty of establishing contacts with foreign partners and an overseas customer base. Most of the better-performing SMEs identified in the study employ over 50 people, underscoring the importance of resource in overcoming barriers to international growth.

IHS's analysis of the relative strengths of G7 and BRICM business landscapes shows that U.S. SMEs benefit from a relatively efficient business environment, where labor productivity for example, is higher than the G7 average. U.S. SMEs also prosper from higher levels of R&D and innovation than the G7 average, but do suffer from the bleak macro-economic backdrop in which they operate.

The research reveals the interesting finding that developed world SMEs are lagging behind emerging market SMEs in terms of the internationalization of their businesses. While this is a function of the developed world still boasting significantly higher consumption per capita than emerging markets, which incentivizes BRICM SMEs to do business internationally, it does suggest that G7 SMEs face a major challenge to develop their international operations as the balance of power inevitably shifts eastwards. Significantly, BRICM SMEs placed more emphasis on logistics as a positive influence on their international operations than their G7 counterparts, suggesting that they rely more on efficient transportation and customs processes to overcome infrastructure obstacles, but also that they see logistics services as a competitive differentiator for their business.

"The strong correlation between improved business performance and cross-border trade suggests that there is a clear benefit for SMEs in going global," said Ken Allen, CEO, DHL Express. "As the world leader in international express delivery, we also firmly support the view that international trade creates tremendous value for SMEs. It not only opens up new markets for their products and services but also gives them access to international best practices and innovations. Perhaps most significantly, competing internationally forces them to sharpen their own internal operations and processes, which benefits their business in their home market as well as abroad."

Source: DHL

The macro-economic analysis and survey of 410 SME directors in G7 and BRICM (Brazil, Russia, India, China and Mexico) economies reveals that SMEs engaged in international markets are twice as likely to be successful as those that only operate domestically. Of the SMEs surveyed, 26 percent of the companies that were trading internationally significantly outperformed their market, in contrast to only 13 percent of those with operations only in their home country. SMEs cited the key benefits of this international approach as the access to new markets that it provides them with, as well as access to know-how and technology, and diversification of their products or services.

The research also reveals an increasing pace of globalization and a sharper international focus among smaller businesses, with SMEs that were founded in the last five years more likely to have international business operations than older SMEs, despite having had less time to grow their businesses. Significantly, the majority of SMEs who had out-performed their markets over the last three years indicated that they also planned to increase the percentage of exports in their turnover over the next three years, despite the uncertain economic environment.

The report does, however, highlight that inadequate business infrastructure is constraining competitiveness by reducing business efficiency, and that SMEs are having to work harder to overcome infrastructure inefficiencies, particularly compared to larger companies with greater resources. SMEs' biggest concerns relating to international trade are a lack of available information on foreign markets, high customs duties and the difficulty of establishing contacts with foreign partners and an overseas customer base. Most of the better-performing SMEs identified in the study employ over 50 people, underscoring the importance of resource in overcoming barriers to international growth.

IHS's analysis of the relative strengths of G7 and BRICM business landscapes shows that U.S. SMEs benefit from a relatively efficient business environment, where labor productivity for example, is higher than the G7 average. U.S. SMEs also prosper from higher levels of R&D and innovation than the G7 average, but do suffer from the bleak macro-economic backdrop in which they operate.

The research reveals the interesting finding that developed world SMEs are lagging behind emerging market SMEs in terms of the internationalization of their businesses. While this is a function of the developed world still boasting significantly higher consumption per capita than emerging markets, which incentivizes BRICM SMEs to do business internationally, it does suggest that G7 SMEs face a major challenge to develop their international operations as the balance of power inevitably shifts eastwards. Significantly, BRICM SMEs placed more emphasis on logistics as a positive influence on their international operations than their G7 counterparts, suggesting that they rely more on efficient transportation and customs processes to overcome infrastructure obstacles, but also that they see logistics services as a competitive differentiator for their business.

"The strong correlation between improved business performance and cross-border trade suggests that there is a clear benefit for SMEs in going global," said Ken Allen, CEO, DHL Express. "As the world leader in international express delivery, we also firmly support the view that international trade creates tremendous value for SMEs. It not only opens up new markets for their products and services but also gives them access to international best practices and innovations. Perhaps most significantly, competing internationally forces them to sharpen their own internal operations and processes, which benefits their business in their home market as well as abroad."

Source: DHL