Top barriers and drivers to sme internationalization

Top Barriers and Drivers to SME Internationalisation

Internationalisation and international entrepreneurship among small and medium-sized enterprises (SMEs) is a topic of considerable relevance, principally owing to the observed growth effects of cross- border venturing, and the demonstrated capacity of SMEs to drive economic development at national, regional, and global levels.

To ensure agreater depth of understanding on SME internationalisation barriers, this study focused on the top four barriers identified by the OECD-APEC study as being by far and away the most serious impediments to SME internationalisation (see Table 1). These include 1) Shortage of working capital to finance exports; 2) Identifying foreign business opportunities; 3) Limited information to locate/analysemarkets. 4) Inability to contact potential overseas customers. 5) Lack of managerial time, skills and knowledge. The reasoning is threefold: one, this reflects the importance of this barrier in the Member Economy survey (see Table 2); two, the consistently highlighted primacy of managerial factors in previous relevant global surveys; and three, the widely acknowledged importance of skilled humanresources in all areas of economic activity, including market innovation.

SME INTERNATIONALISATION BARRIERS

* Shortage of working capital to finance exports: Limitations in finance and related physical resources have continued to be highlighted as a leading barrier to the internationalisation of SMEs. The pertinent evidence include the observed disadvantages faced by new ventures orearly-stage SME exporters, relative to their more established counterparts, in regard to accessing operating and term loans and the terms thereof. A similar primacy of financing barrier was reported by businesses planning their first international operations. Lack of capital requirements and other firm resources and limited access to key infrastructure were also reported by SMEs.

* Limitedinformation to locate/analyse markets: Inadequate knowledge of overseas market also emerged as a top barrier. This factor was highlighted as the most cited internationalisation barrier among the responding firms, suggesting that information gaps remain a critical challenge to SMEs even in the current era of extensive information availability.

* Inability to contact potential overseas customers: Theimportance of this barrier highlighted the difficulty of locating/obtaining adequate representation in target export markets while the other two studies identified finding an appropriate foreign market partner as a key impediment to the internationalisation of the SMEs studied. A survey of Swedish exporters by Rundh (2007) also reported the difficulty of gaining access to a suitable distributionchannel in international markets.

* Lack of managerial time, skills and knowledge: Difficulties arising from limited managerial knowledge base emerged as a top barrier to SME internationalisation. managerial risk perceptions and lack of knowledge about international markets were major reasons for not engaging in international trade. Limitations in managers’ internationalisation knowledgesimilarly emerged as a leading obstacle to export initiation among the Russian and South African SMEs

The foregoing analysis points to the continuing criticality of barriers such as limited firm resources, managers’ misperceptions and lack of International market-related knowledge in impacting SME internationalisation. These barriers are largely internal as they mainly reflect the limitations ofthe investigated firms in regard to the key resources and capabilities they need to internationalise or further their activities thereof. This conclusion on the primacy of firm-specific resource barriers appears to have validity across sectors - from traditional industries like knitwear apparel to high-technology sectors such as software design. This highlights the continuing importance of...