TRADING PLACES: SMEs IN THE GLOBAL ECONOMY

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TRADING PLACES SMEs IN THE GLOBAL ECONOMY

• Lester Lloyd-Reason
• Professor of International Enterprise Strategy
• Director, Centre for International Business
• Anglia Ruskin University, Cambridge, UK.
• Bornglobal Konference
• Copenhagen
• May 2008

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PRESENTATION OUTLINE

• SMEs and the Global Economy
• Competing Effectively in International Markets
  UK Regional Study
• Removing Barriers to SME Access to International
  Markets OECD-APEC Global Study
• Conclusions and Implications for SMEs, Business
  Support Programmes and Government Policy

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SMEs AND THE GLOBAL ECONOMY

• Definition of global trading
• The process of exporting, importing and the
  production and distribution of goods and
  services, including the growth of a firms
  engagement and investment in non-domestic
  markets.

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THE TYPICAL GLOBAL SME? 1. Advanced Engineering

• Specialist engineering firm
• East of England, UK
• 29 employees
• Annual turnover of DK 29.5m
• Manufacturing base in UK (bespoke)
• Manufacturing facility in Sweden (high-margin)
• Manufacturing facility in China (volume)
• Recently acquired their supplier in Romania
• Exports to 43 countries

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THE TYPICAL GLOBAL SME? 2. CLR Global

• Culture and Leisure Recruitment
• Australian to New York
• Peterborough, Montpellier, Dubai
• No real assets, all electronic databases
• Qatar, Beijing, Mauritius, Rio de Janeiro
• 8 years old
• 12 employees
• DK38m
• Margins 80

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TRADING REALITIES FOR THE GLOBAL SME

• Complex, unpredictable, messy, non-linear.
• Global trading without borders.
• Requires different solutions in different places.
• Mix of exporting, importing, joint-ventures,
  outsourcing, strategic alliances, etc.
• Managers must learn to operate outside their
  comfort zone.
• All driven by the speed of change and the need to
  remain competitive.

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COMPETING EFFECTIVELY IN INTERNATIONAL MARKETS

• An 18-month project completed in 2005 in the
  East of England
• Quantitative
• Telephone survey of 1,200 internationalised and
  non-internationalised businesses
• Qualitative
• In-depth, face-to-face interviews with 80
  businesses
• Workshop with businesses to identify key skills
  and experiences

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KEY INSIGHTS SKILLS AND KNOWLEDGE

• Five key groupings
• The Curious
• The Frustrated
• The Tentative
• The Enthusiastic
• The Successful

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KEY INSIGHTS THE CURIOUS AND THE ENTHUSIASTIC

• We think there might be an international market
  for us, but we are not sure how to find out.
  (Manufacturer, Norfolk)
• Inactivity in international markets is largely
  due to the lack of perceived international market
  opportunities (i.e. no pull factor) and
  generally benign domestic conditions (i.e. no
  push factor)
• Largely reactive/responsive, untrusting
  approach, thinking of the pitfalls and the risks
• How to assess value added to growing the business
  through developing international activities?

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KEY INSIGHTS THE TENTATIVE

• The most useful thing the government could do
  for us would be to give us a list of potential
  overseas customers. (IT/Media firm,
  Cambridgeshire)
• Reactive, responding to opportunities from
  potential clients and customers (sometimes
  reluctantly)
• Initial enthusiasm has disappeared, focus on
  fulfilling the order as they would an order in
  the home market, focus on managing the
  transaction rather than the process
• How to deal with the complexity and compete
  effectively in unfamiliar circumstances

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KEY INSIGHTS THE ENTHUSIASTIC

• The three of us (Directors) are always chasing
  leads overseas, but we dont really think it
  through. We should really sit down together and
  decide what it is we are trying to achieve.
  Design firm, Suffolk)
• Increasingly proactive and strategic and often
  born global
• Increasing focus on the process of managing
  international activities, formal and informal
  researching of the market and tendency to
  establish market presence through agents and
  distributors
• How to develop skills within the business to
  manage the complexity with increasing activity in
  international markets (e.g. embedding systems)

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KEY INSIGHTS THE SUCCESSFUL

• We have picked up some huge contracts in the
  USA, but I worry about our ability to manage
  these relationships at distance. (Software
  design firm, Cambridgeshire)
• Opportunistic/Responsive and strategic, as part
  of wider plan to develop the business
• Combination of formal and informal activities
  that are appropriate to the market conditions
  (e.g. different modes of local presence and sales
  channel)
• How to control a complex process and develop
  higher-level skills in the business (e.g.
  influencing support and specific language skills)

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MUSICAL INSTRUMENT RETAILER

• For many years we imported most of our
  pianos from Russia, but now we get almost all of
  them from China. Well, the total UK market is
  7,000 pianos a year, and this factory near
  Beijing makes around 100,000 a year of extremely
  good quality at about half the price of the
  Japanese models.
• We are part of a buying group here is the UK
  and so we buy a full container of pianos in China
  and get them shipped over. in fact doing it
  this way means it costs less per piano to import
  them from China than it does to bring them over
  from the docks in Bristol.

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HEADLINE MESSAGE

• Planning - Be clear about what you are doing and
  why
• Manning - Be aware of your internal skills and
  knowledge deficits international skills
• Scanning - Be strategic in the way you assess
  markets

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REMOVING BARRIERS TO SME ACCESS TO INTERNATIONAL
MARKETS

• OECD / APEC
• Removing Barriers to SME Access to
  International Markets 45-country study to gain
  a better understanding of the barriers to
  internationalising (defined as all those
  constraints that hinder the firms ability to
  initiate, develop or sustain business operations
  in overseas markets) faced by SMEs, and to share
  knowledge of government interventions to reduce
  those barriers

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SME MODE OF INTERNATIONAL ACTIVITY
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THE TOP 10 BARRIERS IDENTIFIED BY SMEs

• Shortage of working capital to finance exports
• Identifying foreign business opportunities
• Limited information to locate/analyse markets
• Inability to contact potential overseas customers
• Obtaining reliable foreign representation
• Lack of managerial time to deal with
  internationalisation
• Inadequate quantity of and/or untrained personnel
  for internationalisation
• Difficulty in matching competitors prices
• Lack of home government assistance/incentives
• Excessive transportation/insurance costs

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AVERAGE WEIGHTED SCORE BY NUMBER OF TIMES
MENTIONED BY SMEs
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CLUSTER ANALYSIS

• Shortage of working capital to finance exports
• Granting credit facilities to foreign customers
• Slow collection of payments from abroad
• Difficulties in enforcing contracts and resolving
  disputes

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MODE OF ACTIVITY SUPPORTED
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SME PERCEPTION OF USEFULNESS OF SUPPORT PROGRAMMES
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TRADE COUNCIL OF DENMARK OFFERS
Eksportforberedelse for Born Global / Born
Creative companies Access to individual sparring
with industry experts, typically 3-4 meetings
focusing on export advisory
Global Mindlab Exclusive one-day sparring with
key industry experts aiming at assessing
readiness for internationalisation
Additional internationalisation programs
Innovation / EksportStart packages Support to
conduct market analysis for up to three different
markets provided by the Innovation Centres or
other Danish missions
Part of the support, offered by GazelleGrowth is
provided through the EksportStart program managed
by Danmarks Eksportråd
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DANISH EXPORTING SMEs

• 1986-1990 Exporting SMEs (lt200) sales grew by
  29.5 compared to 17.8 for larger firms (gt500)
• In Greece, the figure was 7 for SMEs and 4 for
  larger firms

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CONCLUSIONS AND IMPLICATIONS

• What does this tell us about the skills and
  knowledge needs of the international SME?
• What are the implications for support programmes?
  
• What are the implications for government policy?

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WHAT INSIGHTS HAS THIS WORK GIVEN US?
Strategic competence Organisational
learning Planning Change management
STRATEGIC
MARKET DECISIONS
RELATIONSHIP MANAGEMENT
Cultural issues
Environment assessment
Knowledge exchange
Market entry
Long distance management
Human Resources
language
skills
Competitor analysis
Partnership management
Conflict resolution
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SKILLS AND KNOWLEDGE NEEDS THE CURIOUS AND
FRUSTRATED

• Planning Do we really want to grow the business
  through international activity?
• Manning If so, do we have the skills and
  resources to achieve this objective? If not how
  do we fill the skills and resource gaps?
• Scanning How do we find out if there is a
  potential international market for our products?

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THE RESPONSE

• The Curious and Frustrated need assistance
  with clarifying and understanding their problems.
  This could be achieved through, for example, the
  provision of how-to guides, written/on-line
  case studies and support from the Successful to
  provide assistance and how to knowledge in
  addressing initial problems and challenges.

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SKILLS AND KNOWLEDGE NEEDS THE TENTATIVE AND THE
ENTHUSIASTIC

• Planning Are we committed to international
  activity? Do we need to revisit our business
  objectives? Are we being strategic enough in the
  way we deal with our international markets and
  customers? How can we develop more established
  guidelines and procedures?
• Manning How do we identify our skills gaps? How
  do we acquire/develop dedicated resources? How do
  we find and assess appropriate support?
• Scanning How can we learn to understand the
  differences between markets and how to manage
  those differences? How do we evaluate market
  opportunities?

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THE RESPONSE

• Planning should be the starting point through a
  critical assessment of why are we doing this and
  why are we doing it in this way? External
  facilitators may be best placed to do this.
• Internal audits to identify skills and knowledge
  needs and gaps (manning).
• Training in the strategic scanning of markets can
  be used to support the key issues emerging from
  the strategic review.

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SKILLS AND KNOWLEDGE NEEDS THE SUCCESSFUL

• Planning How do we control the new market
  development process? How do we influence key
  stakeholders? How do we manage/influence support?
  
• Manning How do we acquire dedicated resources
  for key markets? How do we develop specific
  higher level skills?
• Scanning How do we service customer needs at
  distance? How do we ensure appropriate local
  presence?

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THE RESPONSE

• The Successful need more direct intervention as
  their problems tend to be more specific to the
  business. Network development and support is
  key, reinforced by bespoke training and the
  delivery of specific services or brokerage to
  specialised sources of support.

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IMPLICATIONS FOR SUPPORT PROGRAMMES

• SMEs appear to go through a learning process
  when they engage in international activities.
• Inactive underestimate barriers present in the
  external business environment and their own
  shortcomings in terms of their internal
  capabilities.
• New to international activity value information
  about markets and opportunities which provide a
  foothold for them in their international venture.
  They also need assistance with clarifying and
  understanding the challenges facing them.
• Experienced need a different kind of
  intervention as their problems tend to be more
  specific to the business and the competitive
  environment. These companies are less
  well-provided for by the majority of support
  programmes.

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IMPLICATIONS FOR POLICY

• Governments can play an important role
  in helping internationalise the SME sector, but
  they need to be aware of the following
• The need for a multifaceted approach to policy
  making based on trading realities rather than
  political expediency.
• Governments need to support the International SME
  in different ways at different times if they are
  to prepare them for the international trading
  environment.
• Internationalisation does not mean exporting.

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CONTACT DETAILS Prof. Lester
Lloyd-Reason Director, Centre for
International Business Ashcroft International
Business School Anglia Ruskin University East
Road, Cambridge, UK
CB1 1PT Tel [phone] Fax
0044 01223-417700 Email lester.lloyd-reason_at_a
nglia.ac.uk Website www.anglia.ac.uk/cib