How to Make Sure You Have the Right Capacities to Go Global
Date: November 27, 2019
As a complement to our article “Going global: everything SMEs need to know”, we wrote this article to help you find financing to go global. As an SME, you can tap into a lot of different sources to help you develop the capacity and find the resources you need to start exporting to new markets. Here’s what you need to know…
To start selling abroad, companies first need to make sure they have the proper base at home. Often, SMEs feel like 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 of larger companies, SMEs are often disproportionately affected by tariff barriers and other restrictions (source: OECD, p.7 ). Almost one third of small firms spend more than 5% of their annual revenue only to start exporting. They also seem to prepare themselves over a period of a few months to a full year (source: NSBA, p.7 ).
Financing then becomes one main concern for SMEs that want to expand. There are different sources you can tap into to get loans, lines of credit, grants, tax credits, investors, etc.
Most big banks have a department dedicated to helping businesses expand globally. It’s a popular source of financing for SMEs, especially if you have a good credit record and an already well-established banking relationship. Having a good financial reporting system and complying with accounting and reporting standards will also help you secure financing. And banks also offer flexible and long-term payment options (source: Worldfirst).
And 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. Having a bank on site could also help you deal with risks linked to exchange rate volatility and economic and political risks (see our article on the need to have a political assessment).
Most governments have programs to help SMEs find the required financing and resources to go global. Some programs can provide grants, advances, tax credits or loans with low interest rates. They’re also more likely to finance specific parts of your projects with grants designed to help you make deals internationally, for examples by reimbursing travel expenses, or financing to help you adopt and implement new technologies. 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 (source: Government of Canada, p.11).
Once you’ve secured the necessary financing, you will need to make sure you allocate the right resources to your global expansion efforts. You need to assess whether you have the sufficient production capacity if ever your product or service becomes really popular in a new market. Would your company be able to meet the increase demand? Will you need more space and equipment? The allocated resource scope necessary to meet global expansion must align with the company’s priority goals. All the stakeholders need to understand that international markets are different in terms of size and opportunities, and that they may require additional sales, marketing, management, and support resources (source: Salesforce).
Wanting to go global and having the right resources are two different things. That’s why, besides financing, your firm needs to make sure you have the right skills and knowledge. The operation of going global should be part of every internal meeting and discussion. The plan should be reviewed on a regular basis to ensure that the allocated resources are enough to guarantee its success. And potential failures also need to be addressed. That way, you can evaluate positive results and invest in them, and reinvest profit in more complex initiatives as you go. Focus on your strengths and places for improvements, for example in your distribution methods (source: BDC). By taking it step by step, you can avoid running out of resources and cash flow.
With advances in technologies, communications, trade agreements and others, we have opened up to the world for business of all sizes. This is positive. And going global is interesting. That being said, SMEs still have hurdles and risks to overcome, and securing the necessary funding is one of them. You must take this part of your global journey seriously, as it will determine your capacity to deal with demand internationally.