Small and Medium Enterprises in a Global World: How to Go Global and Become an Exporter
Date: November 26, 2019
They say “success depends on your backbone, not your wishbone.”
In our common era, the wishbones of all cities have well-known names; giants like Microsoft, Apple, and Google that make the news every time they set their eyes on a new location. But ultimately, every strong economy of this world knows that its success relies on a network of small and medium businesses. The backbone.
These small and medium businesses outnumber larger firms and employ many more people, drive competition, and reinforces the whole entrepreneurial ecosystem. But few of them try their hands at exporting. Why?
Let’s start by drawing a general picture…
In the United States only, the 30 something million small and medium businesses account for 99.9% of all businesses, and 8 million of them are owned by a member of a minority group. In 2015, they employed 58.9 million people and created 1.9 million net jobs (source: Investopedia).
In Canada, there are more than 1.1 million small and medium businesses, of which less than 2% are medium-sized. They employ more than 10.7 million people across the country, which represents 89.6% of the workforce (Source: Statistics Canada).
In Europe, 99% of all enterprises are small or medium and together, they employed 91 million people.
In typical Latin American or Caribbean countries, the employment contribution of small and medium businesses is closed to 70%, and they create a substantial portion of new jobs (source: IDB Invest).
You want more? Small and medium businesses generate close to 60% of value added (Source, OECD). That’s a solid backbone to lean on.
Small and medium businesses, often referred to as “SMEs” (for “small and medium enterprises”) are a driving force of innovation and knowledge diffusion, and they help aggregate production. Furthermore, they respond to new or very specific social needs, contributing for example to the inclusion of certain marginalised groups.
But this isn’t to say that all SMEs are alike. There’s a great heterogeneity in the structure and participation of small and medium businesses within and across countries, regions, and continents. More so, countries can’t agree on what an “SME” is. Generally speaking, small and medium enterprises are defined according to a range of criteria including ownership structure, number of employees, revenues, assets, etc. Even though we decided to stick to “small and medium (-sized) enterprises (or businesses)” (or SME) in this article, their appellation varies from one place to another: small-to-mid-size businesses (SMBs), micro, small, and medium-sized enterprises (MSME), etc.
SMALL AND MEDIUM BUSINESSES WANT TO EXPORT
Small and medium businesses, despite their strong presence, account for only 20 to 40% of total exports in OECD countries. That’s a surprise considering that ecommerce sales have been almost doubling in volume and tripling in value since 2014. And the global competition for customers is also growing. In the United States only, almost half of shoppers (47%) purchase from sellers across international borders. And the numbers are even higher in other countries: 83% in Canada and 78% in Mexico -the only two direct neighbours of the United States (source: Entrepreneur).
And going global is a driver of productivity for small and medium enterprises. That makes sense, right? Firms who engage in export activities are more likely to afford the costs associated with it. But that’s not all. Another mechanism comes into play, called “learning by exporting.” Indeed, firms who engage in trade benefit from knowledge and technical exchange, with the result of improving their efficiency levels. The evidence does seem to suggest that firms increase their productivity and drive employment growth after going global, most of the time as a result of the changes made when adjusting to exporting operations.
Then, what’s stopping small businesses from going global?
Apparently, a lot of things. According to a Business Survey (source: OECD) led by Facebook, the OECD, and the World Banks, the main obstacles reported were:
- Finding a business partner
- Overcoming market access limitations
- Complying with different regulations, including custom regulations
- Dealing with the language and cultural gap
- Securing funding
- Finding the right online payment system
- Transporting their goods over large distances
- Having access to faster Internet connections to sell online
There’s no avoiding it: firms aspiring to go global must do their research and find the right partners and experts to help them comply with the many requirements and standards. They have to define, in their own terms, what it means to do global business. They need a plan.
GOING GLOBAL, ONE STEP AT A TIME
Firms that want to go global will find a plethora of information on the Web. But as is often the case in the current Google-answers-all era, the difficulty is finding the right information. And that’s why we’ve gathered everything you need to know to embark on your global journey and help you tackle these obstacles.
It’s a long read, and there is no surprising plot or fun ending. Our goal is only to give you, all in one place, the basic knowledge needed to start exporting: and that’s when the real fun begins.
DEFINING A [STRATEGY]
[STRATEGY] DEVELOP AN EXPORT PLAN
There’s a war going on right now in marketing as to what businesses should prioritize to succeed: a great team, a great market, or a great product or service. In a perfect world, all businesses would have them all. They would be selling an amazing product, created by an incredible team in the perfect market. The reality of the past years though has shown that success is possible even if you don’t have the royal flush.
One of the mainstream schools of thoughts of the last decade has been the “product/market fit” which mostly associate success with the market. But recent developments have undermined its religiousness, as big tech firms face backlash for their poor management of employees and clients alike, and the unsustainability of their products or services. So what should you do to ace it?
Step 1 For an Export Plan
Target the Right Market With a Good Product Your Team is Proud Of
Unless you’re one of these crazy good inventors who create revolutionary products out of thin air, you probably already have a product or service to sell. You’re just not sure you have the right market. Or you’d like to expand your views and start selling to a whole new audience.
Where should you start looking to find the perfect new market?
Maybe you shouldn’t. Maybe you’re happy with your actual market, and you don’t see the need to expand. That’s ok, you won’t find yourself alone in the single-market category. Most small and medium businesses who export only do so in one market. And even though the trend of the last decade has been to find the perfect “product/market fit,” or “service/market fit,” there is no real consensus about the best way to do it.
Marc Andreessen created the term “product/market fit” in 2007 and defines it as, “being in a good market with a product that can satisfy the market” (source: Forbes). In other words, it’s the moment when a product (or service) is released in a market and shows itself to be better than the competition and to create significant customer value by meeting real needs.
After 2015, it was mostly understood that markets, and not engineering or personnel, made or broke start-ups. With the growing popularity (and profit) of companies like Uber and the like, it was easy to believe Andreessen when he said that a product “doesn’t need to be great; it just has to basically work” (Heffernan, ‘When Marketing Loses its Cool’, Wire: Have a Nice Future, 27: 11, October 2019, p.12).
However, Uber, WeWork, and a lot of other big tech companies are now facing an important backlash. In the marketing world, more and more people are questioning the relevance of giving priority to the market, and only the market. What about the product or service itself? Or what about having the best team in the world? With time, it became evident that finding the right staff did matter. Mismanaged teams tend to underperform, and teams working in volatile and arrogant management are not that easy to replace (Heffernan, ‘When Marketing Loses its Cool’, Wire: Have a Nice Future, 27: 11, October 2019, p.14). Some other firms have started to gain a lot of traction in different markets mostly based on the quality of the product they sell.
In poker, one card can make all the difference, but only has it relates to others. The same goes for your success. Finding the product/market fit means you’ll find potential consumers who need your product or service. By meeting a real need, like driving Anabelle from her house to her mother’s place, you increase your chance of success and satisfaction with customers in general. But in order to better answer their needs, it’s necessary to have a product or service that’s going to satisfy them in the best ways possible, for example with a simple fee schedule that Anabelle understands and can predict. And in order to do so, you need a team that will help you build the best product or deliver the best service, which does not happen if your driver harassed Anabelle on her way to her mom’s birthday party. And to keep a great team, you need a good reputation, one that will also spillover your relationship with the public, helping you develop a loyal customer base, one in which Anabelle becomes a promoter.
There’s no secret sauce, just necessary ingredients: you need to build your reputation in the right market, with the right product, and the right team.
What product or service you want to sell, and what kind of team you want to work with is more your responsibility. But when it comes to finding the right market, we can help you decide where, in the world, your product is probably the most needed. In order to do so, you need to follow a few steps:
STEP 1. Find a project that interests you. (Yes, it does matter.)
STEP 2. Identify with precision what needs your product or service fulfills.
STEP 3. Identify who are the target consumers. There are several different ways to do this. Don’t hesitate to use tools like FACEBOOK IQ, designed for companies who want to expand.
STEP 4. Now define your value proposition, or the measurable and demonstrable benefits your product or service offers to the consumers.
STEP 5. Then look around at your competition: Who are they selling to? How? Is the market already saturated?
STEP 6. Now that you know what the competition is doing and who you want to sell to, you can use market finder tools that will help you pinpoint where in the world you should start exporting. Many of them are accessible for free on the world wide web, like the Export Accelerator by Getting to Global or Market Finder by Google.
STEP 7. You found new markets you’d like to try? You’re ready for a soft launch! Make a special offer, spread the word, and most importantly, gather feedback.
[You’re still not sure about how to find the right market? We have a great blog article on this exact topic. See here!]
And with that, you can now develop the best export plan or strategy. This is a crucial step if you’re a small or medium business trying to succeed in your global journey. Your plan or strategy will guide your team and your operations so that everything is aligned to help you reach your goals.
Step 2 For an Export Plan.
Define the Best Export Plan or Strategy
Companies that want to export need to make it a priority, and not just wish for it to happen. Each market has its own cultural, economic, social, and political background and your strategy needs to be localized to every one of them.
In other terms, the best strategy to go global is to start by … going local. Your strategy and your business plan need to illustrate the chances of success, and failures, of entering a local market and how it integrates with your overall corporate objectives.
Once you’ve done all the research, you can sit down with your team and define the best strategy or business plan for the markets you want to explore. But don’t try to export to a new market at the drop of a hat. Without a proper plan, you run the risk of overlooking the best export opportunities.
There are many ways to create a business plan or a strategy. Ask around, see what your competitor did, and make sure it contains all the necessary benchmarks and elements:
- A short-, medium, and long-term strategy, with specific goals and deadlines
- A list of your overall goals and the metrics to evaluate them
- A hierarchical annual budget
- The business model that will be put in place to penetrate the new market (you might want to create a branch, a new separate company, a joint venture, etc.)
- A clear schedule
- An economic and a political assessment
This last one is particularly important, and often overlooked. Politics is a crucial factor of the global economic landscape. Your capacity to enter a foreign market and to make a profit will largely depends on factors such as political stability, the attitude towards foreigners and foreign trade, the state intervention level, etc. (source: Trade Ready and FITT). Goods have been crossing borders for centuries, but they’re doing so today with an unprecedented velocity and in unprecedented volume. But ideas, knowledge, people, services, and information are also moving from place to place at higher speed. And that’s why small and medium businesses that want to expand in countries that are socially, culturally, and politically alien will have to use both economic and political risk assessments to make the right decisions (source: Harvard Business Review).
[You want to know more about the role of politics in your decision to go global? Consult our blog article on the subject here.]
With a solid plan or strategy in hand, you’ve accomplished the first and most important step to starting your global journey! Let’s see now how to achieve another crucial part: finding potential buyers.
[STRATEGY] FIND POTENTIAL BUYERS
As a small- or medium-sized enterprise, you probably don’t have the internal resources to find reputable partners overseas or to undergo a massive marketing campaign to find new clients. But exporters all need one thing if they want to succeed abroad: a stream of buyers. And there are many ways to attract a new customer base. They do require some time, efforts, and money, but the benefits of building a solid reputation abroad are well worth it.
So, here are a few steps to follow to help you find potential buyers:
Step 1 to Find Potential Buyers.
Cultivate Existing Relations and Create New Ones.
If you have any relevant experience in a field, use it. You’ve probably built connections throughout the years and these contacts could help you navigate the landscape, or even become new clients themselves. And by choosing a field you’re already comfortable in, you don’t need to learn all the do’s and don’ts and you probably already know the jargon and procedures (source: Entrepreneur https://www.entrepreneur.com/article/41846).
Don’t be afraid to use your contact list! It’s not uncommon for entrepreneurs to get their first sales from personal connections. So, you should not hesitate to leverage any networks you are part of, either using social media or directly by email. Ask them to share the news, and even to buy your products or services. Selling to people you know might not be as meaningful as earning the trust of a complete stranger, but it will help you get early and reliable feedback.
Step 2 to Find Potential Buyers.
Leverage any Governmental Tool.
Once you know what your target markets are, contact the relevant embassies and foreign agencies. They can help you navigate the landscape, send you to the right people, and even help you find partners on the ground. They could also direct you to local agencies that help foreign companies who are trying to penetrate their market.
Most of all, make sure you use all the tools designed by your local government to help you export. In the United States, entrepreneurs will find a goldmine of information on Export.gov, a website managed by the U.S. Department of Commerce’s International Trade Administration and 19 other agencies. It’s been designed to help companies succeed in today’s global marketplace, connect with foreign buyers and expand in new markets. In Canada, Export Development Canada (EDC) helps companies go global with market intelligence, news and insight, funding, etc. The European Union also has a lot of resources and tools to encourage global trade.
Most of these resources are free and they are designed to help you, so use them!
The other way you can use the government is by hiring an export commissioner (also known as trade commissioners). As their title suggests, they receive a commission calculated as a percentage of the sales they helped you achieved. Their role is to represent you, the exporter, on specific international markets. They can be a great asset, as they often know very well the market and how to navigate it. They can also help you build a strong reputation. They take care of commercial procedures, finding customers, and follow-ups. You, on the other hand, are still in charge of invoicing and shipping the products to foreign customers.
Step 3 to Find Potential Buyers.
Find an Expert.
Experts are not free. But they can make all the difference for a small or medium business trying to penetrate a new market. There are many different kinds of experts, and you should choose the one that best answers your needs.
Export Management Company:
These private organizations act a bit like a governmental export department by matching potential buyers to sellers. They can also act as an import-export agent, with representation and sales offices in foreign countries (Prime and Usunier, Marketing international, Pearson: Montreuil, 2nd edition, 2018, p. 261). Although they might not be your best choice for long-term relationships, they can help you on ad hoc cases, giving you the opportunity to build a customer base and a reputation in a new market.
Buying Agencies or Purchasing Agencies:
Most department stores or mail-order retailers systematically look for suppliers abroad, either because they cannot find such suppliers in their country of origin or much more frequently because they look for very competitive prices. The advantage for you is that you can export from your factory without any apparent costs, the product being purchased directly from there and sent through the purchasing office. Firms that decide to go this way, however, have no control over the final price, the branding, and international marketing (Prime and Usunier, Marketing international, Pearson: Montreuil, 2nd edition, 2018, p. 262).
That being said, having your brand sold by a reputable chain or wholesale can help you build a solid reputation, and it also reduces the risks. Additionally, private firms or wholesale distributors tend to be faster than government agencies at finding buyers and exporting your goods. So, if you think this option meets your needs, don’t hesitate to ask around and consult trade groups to help you find the right buyer.
Step 4 to Find Potential Buyers.
Marketing has to be at the center of your efforts to find new buyers. We have a part of this article dedicated to it, so let’s just review briefly how marketing can, more specifically, help you gain new buyers. No matter if your business is a new one or a veteran, when exporting, you need to spend a lot of time and efforts driving your new target audiences to your store.
We told you already: don’t hesitate to use your existing networks. And one of the best ways to reach them is through social media. They allow you to share testimonials, news, promotions, etc. But most of all, you can use them to tell a story and create content that will drag new customers to your brand. Do your research: each platform has its specifics and its target audience.
Most social media platforms and Google have paid advertising opportunities. They’re often the best way to get traffic quickly, and most of them allow you to pay-per-click. And you don’t always need to put thousands of dollars to get things rolling. Choose the channel wisely, depending on your target market, and find the right keywords. And make sure to check by country too, since some channels are a lot more popular than others in certain parts of the world -when they are not forbidden as is the case for Facebook in China.
Trade shows are often left aside as a marketing tactic to sell products. And we recommend that you don’t make that mistake. In fact, with online inquiries and customer referrals, trade shows are one of the top three resources you can use, as a small or medium business, to find new buyers. They provide a perfect venue to test a market entry strategy by bringing potential international buyers directly to you.
[Trade show are new to you? We have a whole blog article on the subject. Click here!]
Now, you have a strategy in place and new buyers to impress. It’s time to evaluate your capacity and make sure that you have what it takes to move forward on your global journey.
[STRATEGY] MAKE SURE YOU HAVE ALL THE REQUIRED RESOURCES
To start selling abroad, companies first need to make sure they have the proper base at home. As a small- or medium sized enterprise, you’ve probably convinced yourself that going global is something only multinationals and big companies do. The fact is, expanding to international markets can be expensive. Without the economy of scale, you will probably be disproportionately affected by tariff barriers and other restrictions. Almost one third of small firms spend more than 5% of their annual revenue on exporting. They also seem to prepare themselves over a period of a few months to a full year (source: NSBA)
Financing should then be one of your main concerns. There are different sources you can tap into to get loans, lines of credit, grants, tax credits, investors, etc.
Step 1 To Get All The Resources.
Consult With Banks.
Most big banks have a department dedicated to helping businesses expand globally. It’s a popular source of financing for small and medium businesses, especially for those with a good credit record and an already well-established banking relationship. Don’t limit yourself with banks in your country of origin. Ask your network and your local resources what bank, in their native country, could help you with financing.
Step 2 To Get All The Resources.
Go See Your Government.
Consult your local government. Most of them have programs to help small firms like yours find the required financing and resources to go global. Some programs can provide grants, advances, tax credits or loans with low interest rates. They can also partner with financial institutions to give you better products and services, for a lower fee. Government agencies or government-supported agencies can also provide guarantees on loans to your bank, either to help you buy equipment, or finance work in progress and work capital needs.
Once you’ve secured the necessary financing, you will need to make sure you allocate the right resources to your global expansion efforts. Would your company be able to meet the increase demand? Will you need more space and equipment?
Wanting to go global and having the right resources are two different things.
With advances in technologies, communications, trade agreements, and others, we have opened up the world for businesses of all sizes. This is positive. And going global is interesting.
That being said, smaller businesses still have hurdles and risks to overcome, and securing the necessary funding is one of them. As a small or medium enterprise, you must then take this part of your global journey seriously, as it will determine your capacity to deal with demand internationally.