A recent study by DHL Express and IHS Global has revealed that international trade and cooperation has become a key driver of small and medium enterprises (SMEs) success globally, which is particularly relevant to South Africa as it aims to compete with other emerging economies such as Brazil, Russia, India, China and Mexico on the international SME stage.
This is according to Hennie Heymans, managing director of DHL Express’ South African business division, speaking on the findings of the International Competitiveness of SMEs study, which surveyed 410 SME directors in G7 (developed) countries (Canada, France, Germany, Italy, Japan, UK, US), as well as (emerging) BRICM (Brazil, Russia, India, China, Mexico) economies.
“The study revealed that SMEs engaged in international markets are twice as likely to be successful as those that only operate domestically,” says Heymans. He adds that of the SMEs surveyed, 26% of the companies that were trading internationally significantly outperformed their market, in contrast to only 13% of those with operations only in their home country.
“Another key finding is that 37% of BRICM SMEs are involved in exporting, verses 28% of developed countries.”
Heymans says that South Africa already has strong international trade ties with fellow African countries such as Nigeria and that the next logical step for SME growth is to target markets beyond the African continent and compete with other emerging economies. “The advent of e-commerce has significantly boosted opportunities in the SME sector and is set to play an increasingly important role in determining South Africa’s place in international markets.”
He adds that the key benefits of this international approach for local SMEs, include, among others, access to new markets, exposure to know-how and technology and diversification of their products or services.
However, Heymans says that South Africa shares similar challenges to export growth as the BRICM countries. “These challenges include lack of knowledge of foreign markets, high customs duties and establishing contacts with foreign partners and an overseas customer base.” He adds that most of the better-performing SMEs identified in the study employ over 50 people, underscoring the importance of resource in overcoming barriers to international growth.
According to the study 24% of SMEs in emerging countries are ‘born global’ (trading internationally within the first five years), compared to 13% in developed countries. “This indicates that developed world SMEs are lagging behind emerging economy SMEs in terms of internationalisation of their businesses.
“Significantly, emerging economy SMEs placed more emphasis on logistics as a positive influence on their international operations than their developed world counterparts, suggesting that they rely more on efficient transportation and customs processes to overcome infrastructure obstacles, but also that they see logistics services as a competitive differentiator for their business.”
He adds that the majority of SMEs who had out-performed their markets over the last three years indicated that they also planned to increase the percentage of exports in their turnover over the next three years, despite the uncertain economic environment.
“The strong correlation between improved business performance and cross-border trade suggests that there is a clear benefit for SMEs in going global. Perhaps most significantly, competing internationally will also force South African SMEs to sharpen their own internal operations and processes, which benefits their business in their home market, as well as abroad,” concludes Heymans.