This report summarizes the results of research into the performance and competitiveness of SMEs in this business environment, with a specific focus on attempts by SMEs to ‘internationalise’ their businesses and how this impacts on their growth. The research involves analysis of SMEs across 12 countries – the G7 and the BRIC economies with the addition of another emerging market, Mexico (‘BRICM’). The report studies SMEs that have international operations, as well as ‘high-performing SMEs’ (see below for definition). Of particular interest is the overlap between these two groups – SMEs that have international operations and are high-performing – prompting the thought that trading internationally is itself a driver of performance.
The main purpose of the study is to:
1. Identify and describe international SMEs, their drivers and challenges.
2. Draw insights of what makes an international SME competitive.
Background: SMEs – a definition
The definition of small and medium-sized enterprises (SMEs) varies by country, but is usually based on staff numbers and revenue, sometimes on the value of assets.
They are a heterogeneous group with a diverse range of company sizes, capabilities and business activities: from the artisan producing agricultural implements for the local market, to a sophisticated engineering or software firm selling in overseas markets. The study uses the most widely accepted definition, shared by the European Union and by a large number of OECD countries, which is a company with:
• Between 10 and 249 employees
• Annual turnover of less than €50 million
An important point to note is that ‘micro enterprises’ (MSMEs), which have fewer than 10 employees, are excluded from our analysis to avoid a skew towards businesses that operate on a local-only basis.
SMEs’ contribution to the economy
Small and medium-sized enterprises (excluding MSMEs) occupy an important position in any country’s economy and typically employ around 35-45% of the work force and contribute 30-40% of national added value. As the backbone of economic activity (bridging the gap between many micro enterprises and the few large ones), they stimulate growth and help diversify economic activity; they are flexible and can adapt quickly to changing market demand and supply situations; they drive innovation; and they make a significant contribution to exports and trade.
SMEs’ international competitiveness
As trade barriers are removed and logistics and communication costs fall, small and medium-sized enterprises have adapted to new challenges to stay competitive in an international marketplace. These developments have also opened up opportunities for SMEs. Their integration into the global economy has prompted them to develop new international activities such as attempting to open new markets; adding more value to their products and services; and reducing their cost base.
Assessing an SME’s international competitiveness requires consideration of the economic, political and social aspects within the SME’s country of origin, as much as looking at the SME itself. Both levels of analysis have to be taken into account in this research:
• The macro level, ‘national’ competitive advantages, such as access to new technologies, skilled labour, market
structure, logistics and infrastructure.
• The micro level, company-specific competitive advantages, such as price, quality, service, responsiveness and
innovation.
Performance indicators
We identified a group of high-performing SMEs based on their average annual growth rate over last three years. These were defined as SMEs who have achieved:
• More than 10% average annual growth rate over last three years for G7 countries (on average, the G7 countries had a 1,58% growth in GDP)
• More than 20% average annual growth rate over the last three years for BRICM countries (on average, the BRICM countries had a 5,84% growth in GDP)
• The study also classified SMEs by key competitive advantage; were they “efficiency” or “innovation” driven.
• Of course, all SMEs have a mix of both criteria but, through our research, we were able to classify two groups according to their predominant business characteristic.
• Efficiency-driven companies compete on the basis of efficient production processes, quality product improvements and well-organised logistics services
• Innovation-driven companies compete by providing new or unique products / services creating their
own market
International business activities
International SMEs have developed multi-faceted international activities
Small and medium-sized enterprises are affected by globalisation and are increasingly forced to think and act internationally.
The first finding of this study is that SMEs’ internationalisation no longer has a limited focus on exporting / importing, but has become a much more differentiated business activity encompassing subcontracting as well as technical or commercial cooperation. SMEs may be engaged in cross-border partnerships and foreign investments to capitalize on new opportunities.
Smaller SMEs are less internationalised than bigger SMEs, but even for them, internationalisation is today a reality. While 80% of SMEs with 50 to 249 employees are operating at an international level, 66% of SMEs with 10 to 49 employees are international. One point to notice nevertheless, is that the size difference is still marked when analyzing the share of small-sized enterprises.
