Obviously, as an export consultant for small companies, it’s my belief that all companies who are reasonably successful with their products or services in their home markets should consider expanding internationally. When I talk to small companies however, they are often surprised at my question whether or not they export. My belief though is that any small business serious about growth should export.
So what’s stopping them?
Usually a mix out of the following:
- a lack of knowledge about how to go about expansion internationally
- the fear that it’s too risky
- questions about how to finance this kind of project
- the feeling that “we’re too small – exporting is something that only big corporations do”
- a belief that international business isn’t profitable
Of course, each entrepreneur has also heard some horror stories about companies not getting paid by overseas clients or being scammed, but let’s face it, that can happen in your home market too. I’d be lying if I pretended that there are no risks with expanding into international markets, but those can be mitigated to a large extent by careful preparation.
Are small companies so important?
Anyone who has ever paid attention in the first 10 minutes at any Chamber of Commerce event during the last 25 years will have heard statistics about how small and medium companies (SMEs) are the backbone of the economy. In many countries SMEs form more than 90% of all companies.
Looking at the EU statistics (those are the figures I have easiest access to) as of May 2020, 28% of the EU trade in goods to third countries and 40% of trade in services was done by small companies. (The UK is excluded from those figures). For sectors such as textiles, furniture, wooden products the rate rose even to over 50%.
Those exports create jobs too: 37% of the jobs within the EU which are supported by export are at SMEs. Furthermore, small companies who export tend to have medium-high digital density and low/low-medium emission density products.
Going back to those barriers for a minute
It’s true that international trade used to be perceived as something reserved for larger companies. These were often driven by either innovative products (think for example about an iPhone) or prestige (eg. Mercedes) as certain consumers in overseas markets wanted to have those products.
There’s no excuse for thinking in that way though in today’s increasingly digital world. In 2020 we saw how even hairdressers (if they are creative) can go both international and virtual.
It’s true there are some risks, including financially, but these can be reduced as far as possible. For sure, you should have at least a bit of cash put aside though to finance any new project either domestically or internationally.
Lack of knowledge or information in today’s internet age? No way – there is so much information out there both in form of online or via various organisations or consultants. This is something you can buy and learn rather cheaply. (I’m not sure what answer your “Alexa” might give you if you ask how to export whatever your product is to a market of your choice – but if you try, please let me know in the comments)
That leaves the question of profit. According to the US Department of Commerce, companies which export are statistically 17% more profitable than those which don’t.
What are the reasons then that small companies SHOULD export?
There are the general ones, that apply to (almost) all companies. They can be even more critical for small companies though as these don’t have the same amount of “fat” to support them through any difficulties.
- to increase sales and more importantly profits
- increased business exposure across a variety of markets forces companies to become more competitive.
- reducing reliance on a single market spreads the risk.
It’s rare that the whole world is in the same level of recession at the same time – even in 2020 that wasn’t the case, as countries like China, Vietnam, Nigeria and New Zealand have still been delivering some good results.
- extend and broaden the consumer base (this can be especially important for very niche products)
- reduce seasonal fluctuation effects, helping to even out production and sales
- leverage any competitive advantage you might have based on your home market
- drives growth & employment
- accelerates innovation. When companies learn from best practices and new ideas in other markets.
Small companies additionally bring some very specific advantages to the table that in my opinion explain why any small company serious about growth should export.
1. Leverage niche opportunities and innovation
Small companies are often focused on extremely niche products or using disruptive digital technology. These kinds of products by their nature may only have a relatively small group of early adopters in each country, but by expanding into more countries you can increase the customer base. Niche products may be perfect to cut through the red ocean of an export market to achieve success where a larger rival may fail.
Don’t try to compete on price, as this can only end in a race to the bottom. As a small company you can’t compete by using economy of scale, and if you’re producing products in a relatively high cost location, chances are any local competitors in your target market will be able to undercut you. That makes the niche position even more vital.
Corporations often have such a long chain of decision making that making changes is like turning an oil tanker or container ship. A small company can react way more swiftly to changes in the market and benefit from taking rapid decisions.
Do you remember that meme? Old but true. Nobody knows whether you are a large or small company online as long as your product appeals to consumers. A small company benefits hugely from the world of e-commerce where opportunities are available that you couldn’t even dream of 40 years ago.
What do you need to consider?
Clearly, most considerations are the same or similar for those in larger companies. SMEs need to be even more careful before entering new markets as they probably don’t have the reserves of a larger rival.
A few criteria would be:
- are you selling already in your home market?
- what do your main competitors do? Are they already international?
- is there existing demand for your products? (do you get enquiries, do your main competitors sell overseas?)
- do you have capacity, both financially and in terms of your teams (don’t underestimate the energy required to expand internationally)
- do you have the knowledge about logistics and what is needed in order to make agreements?
- do you know what are the standard practices in your target markets? Even digital marketing isn’t the same the world over – you still have to adapt to the consumers. Local knowledge can be invaluable here to help you become an insider, so it may be worth thinking of employing someone on the ground.
- are you 100% focused on giving value to both your consumers and your potential distributors?
There are 4 main parts to a successful internationalisation and you should ideally have all of them in place to increase your chances of success:
- A strategy (apparently around 90% of US companies work domestically without, but I’d certainly recommend it for export)
- A plan . For sure things will change enroute but it’s better to have planned in advance whatever area of your business we’re thinking about.
- Resources. As I mentioned above – you won’t get far on an empty tank
- Executive commitment. This is essential
Use the resources available to you.
There are vast amounts of information available for little or not cost to help small companies begin their international journeys. These range from advisory & consulting services (both Chamber of commerce and private) to export credit insurance and financing, with many areas in between. You can get help with documentation or you can find someone to coach you on the cross-cultural aspects of your target market.
Business Beyond Borders: why any small business serious about growth should export
Historically borders were a true barrier to doing business but realistically speaking the internet & digital age have helped the world to shrink in this respect. Even if you’re involved in traditional style trading, it’s way easier to prepare flawless L/C documentation using a template on a PC than it was with a typewriter. Believe me, I’ve tried both!
Global media means that you can contact people in countries even on the opposite side of the world, organise online meetings, build relationships and keep abreast of international events. The internet is a great leveller meaning you can compete on more equal terms. It also brings opportunities such as cross-border ecommerce, which I’ll go into more detail about in a later post.
Big data means that even small players can have deep market insights.
Technology makes communication and shipment tracking far easier than even a decade ago, meaning that especially e-commerce provides an increasingly simple option for SMEs who are looking to expand abroad.
Simple doesn’t mean easy, but as mentioned above, if you’re serious about growth for your company, you certainly should consider entering new markets. Ecommerce may not be the only option but it is certainly one of the most attractive as an initial step.
Let me know in the comments if you’ve already started selling internationally. How did you identify the opportunities and choose your markets? Have I managed to convince you why any small company serious about growth should export?
If you feel you need support to get started with your exports, or you’ve started but now you’re stuck, let’s talk to see how I might be able to help.