INTERNATIONALISATION is vital for SMEs to prosper in an increasingly competitive world and could contribute to sustaining employment, according to a recent study.
The survey maps the level of internationalisation of European SMEs, identifies the main barriers and advantages of internationalisation and proposes policy recommendations.
The European Commission-funded study, Internationalisation of European SMEs, was carried out in 2009 and analyses all modes of internationalisation, namely direct exports, direct imports, foreign direct investment, subcontracting and international technical co-operation.
The study finds that there is a direct link between internationalisation and increased SME performance: international activities reinforce growth, enhance competitiveness and support the long-term sustainability of companies. Consequently, two main points highlighted by the study are: there are economic welfare gains from increasing the number of internationally active SMEs, and public support should play an important role in promoting greater internationalisation.
One important finding of the study is that a quarter of SMEs in the EU export or have exported at some point during the last three years. However, international activities are mostly geared towards other countries inside the Union’s single market and only about 13% of EU SMEs are active in markets outside the EU. Nonetheless, European SMEs are more internationally active than their US and Japanese counterparts.
It pays to internationalise
The study found a strong correlation between SMEs being internationally active and having better than average business performance scores. Although part of this may be due to ‘self-selection’, in the sense that SMEs with better performance are more likely to be active internationally, it is also probable that there is a direct, positive effect on the performance of enterprises that become internationally active.
The survey also underlines that public support mechanisms can play a pivotal role in the promotion of greater internationalisation and help address perceived barriers to internationalisation, such as providing better access to information and access to financial support. Despite these benefits, public support goes largely unnoticed: only 16% of SMEs are aware of public support programmes for internationalisation and only a small number of SMEs actually utilise it.
The report also notes that not all public support is equally effective: public support must target areas where there is a market failure, and must set clear quantitative objectives and targets, establish monitoring tools and assess the results.
Best supporting role
The study makes a number of recommendations on how public support programmes can better aid SMEs. First and foremost, there is a need to increase awareness of the benefits of internationalisation among SMEs and provide easier access to public support. Information and counseling campaigns aimed at SMEs that are potentially international traders should be strengthened, and the type of support offered needs to be adapted according to the stage of international development of the firm.
Governments also need to improve the access of micro and small SMEs to existing public financial support mechanisms and to relevant information sources. Lack of capital figured prominently in the survey. The study found that larger SMEs are generally more aware of public support programmes, and that financial support is generally more used the larger the enterprise.
Public bodies should also consider a unified approach to support measures aimed at stimulating innovation and internationalisation as there is a strong link between both. Internationally active firms more often introduce product, service and process innovations and 60% of internationally active SMEs developed these new products or services by themselves.
A world of innovation
The survey results confirm that firms see innovation both as being necessary to enter foreign markets and as a consequence of foreign market activities. This is reinforced by the fact that competition from foreign enterprises on home markets is a main driver for innovation.
Policy instruments for international business should not only be aimed at potential exporters but also at importers. While the focus of policy instruments is generally on exports, SMEs most often start their internationalisation process with imports and later go into export markets. Furthermore, policies should be developed to support greater use of the internet by SMEs and especially of e-commerce as this lowers barriers for internationalisation for smaller companies.
Practical solutions for SMEs
The Enterprise Europe Network is a key agent in fostering the link between internationalisation and innovation. It aims to provide entrepreneurs with access to market information, overcome legal obstacles and identify potential business partners across Europe.
The network, which comprises about 600 partners in 44 countries, also focuses on innovation support and transnational technology transfer services. It provides a forum for SMEs to share research results, participate in research programmes and apply for funding. For more information go to www.een-northeast.co.uk
Source: Enterprise & Industry magazine (http://ec.europa.eu/ enterprise/e_i/ index_en.htm), © European Union, 2008-2010