There has been considerable discussion time devoted throughout the economic downturn to the importance of small and medium enterprises to the global economy. They account for more than 30 percent of U.S. merchandise exports, and generate over 50 percent of the added value created by EU businesses.
In parallel, a World Economic Forum report released at Davos revealed that if countries went halfway toward the best global practices in reducing their supply chain barriers, global GDP could increase by almost 5 percent and world trade by as much as 14.5 percent. The same report revealed that SMEs suffer disproportionately from the supply chain barriers that exist today. It’s clear that the global economy would benefit significantly from increased international trade from smaller businesses.
Based on the findings of a study that DHL Express commissioned at the end of last year and released on Jan. 30, I would like to turn this equation around and to put forward another hypothesis: that SMEs can themselves already gain significantly from increasing their international trade activity.
The study by research firm IHS Global Insight ― “Internationalization: A driver for business performance” ― surveyed 410 owners or senior managers of SMEs in seven developed economies (the G7 countries) and five emerging markets (the BRIC countries and Mexico). It looked at their international activity, in particular the drivers and challenges behind their trading activity and how they translated into business results.
It is self-evident that we at DHL would have an interest in seeing the study reveal that international trade is important. Our business is built around the express delivery of shipments across borders. However, even we were surprised to see the strength of the correlation between international trade and business performance.
Within the research, the proportion of SMEs that were defined as high performers (with average annual growth rates significantly higher than GDP growth) was twice as high among those that operated internationally as those who only worked in their domestic market. Among the SMEs that claimed to have international operations, just 14 percent responded that they had increased the share of exports within their turnover to more than 20 percent within the last three years.
In contrast, a significant 39 percent of the international high-performers had made such an increase. The study makes a compelling case for SMEs to expand overseas even today. Access to best-developed practices appears to be one reason for this success. I’d also like to put forward another subjective assumption: a broader competitive environment forces them to sharpen their own internal processes to overcome macroeconomic factors and compete. This, in turn, benefits their domestic results, too.
So what of the barriers inhibiting SMEs today? They undoubtedly exist, but it is my view that they are not holding back the more ambitious SMEs today, and many can be overcome with private-sector support. SMEs surveyed by IHS Global Insight flagged three key challenges to international trade: lack of knowledge of foreign markets, high customs duties in the destination country and establishing contacts with a foreign partner or customer base. Two of these three can be addressed by forward-thinking companies or industry sector bodies willing to get more deeply involved in the business of their customers.
Resource is definitely an issue. A particularly important finding of the study was that size is still important for SMEs who want to be successful internationally. In every individual market covered, SMEs that were identified as “international top-performers” typically employed over 50 or 100 employees. What does this tell us? That trading your goods and services in foreign markets is time-consuming and requires a certain scale.
Researching new markets and identifying partners, as well as navigating your way through the nuances of different legal, tax and customs regimes, is not easy without sufficient people and resources to sustain you. At the same time, this finding issues a direct challenge to both policymakers and SMEs themselves. In the case of the former, there is an opportunity to put in place measures to stimulate international trade among smaller companies that lack resources, to reduce the administrative burden, facilitate international trade contacts, and level the competitive playing field. Perhaps even to look at more creative solutions, such as reviewing tariff and duty policies for smaller business. For the latter, if you are a small business employing between 10-50 people, then you need to look at new ways of competing, using your agility, nimble decision-making and innovation to your advantage, and applying the old judo adage of making your competitors’ weight work against them.
DHL is supporting SMEs’ international businesses in various ways. We have witnessed Korea’s high growth of exports and imports for past 35 years, and as an industry leader, we also remain committed to helping small and medium companies to expand into the global market. In particular, a partnership to support small businesses has been made between DHL Express Korea and the Korea International Trade Association as well as the Korea Chamber of Commerce. By offering a range of support for international express delivery services and one-on-one consulting, we hope SMEs explore more business opportunities in overseas markets.
The implications of the study’s findings for my industry are clear: We have an opportunity, but also a huge responsibility to support the expansion of SMEs around the world, to educate them on the opportunities of trading internationally, and to directly connect them. We cannot write policy, but logistics are a true facilitator of trade and a supplier of key infrastructure. Our expertise and continuous search for efficiency on behalf of customer groups can help to overcome barriers, and in some cases even to remove them altogether. By devoting even more attention to SMEs and making 2013 the Year of the Global SME, I believe we can help them to become more successful.
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Han Byung-koo |
By Han Byung-koo
The writer is the country manager of DHL Express Korea. The opinions reflected in the article are his own. ― Ed.
