Internationalization and SMEs: A Practitioner’s Perspective

1. Internationalization and SMEs:A Practitioner’s Perspective Dr. Michael McDermott

2. Structure of Talk Part 1: • Introduction and Background Part 2: • The Consultant’s Perspective on SME Internationalization Part 3: • Conclusions and Recommendations

3. Part 1: Introduction and Background

4. Export Marketing Gradual process Overcoming barriers Confidence rises International Entrepreneurship Rapid progress Fearless Ambitious Internationalization: The Twin Academic Perspectives

5. Exporting Encouraged companies to seek export markets Success was often judged by more is best International Entrepreneurship Aimed to accelerate the creation of ‘global companies’ Success was often judged by less is best Internationalization: The Policy Makers’ Perspective

6. The ‘Challenges’ Facing SMEs • Seeking to commence exporting; • Seeking to identify priority markets; • Seeking to identify new markets to compensate for declining sales in traditional markets • Seeking to address specific problems in markets of high strategic importance; • ‘Born-Globals’

7. 1. Seeking to commence exporting

8. Why Begin Exporting? • Consider domestic vs international market conditions • Consider ‘push’ vs ‘pull’ factors

9. The ‘Push’ Factors • These relate to factors arising in the domestic market • internal vs external • positive vs negative

10. Internal Factors The company is the clear market leader, or at least has been very successful in the domestic market, and questions its ability to enjoy historical growth levels domestically The company believes that there is no scope for sales domestically The company regards exporting as a ‘must-do’ activity External Factors The domestic market is small and/or shows no signs of growth The market is buoyant but the company is being squeezed out by rivals The company has been ‘found out’ by domestic customers, and its poor reputation precludes market success The ‘Push’ Factors: Internal and External

11. Positive Factors The company is the clear market leader, or at least has been very successful in the domestic market, and questions its ability to enjoy historical growth levels domestically Negative Factors The company believes that there is no scope for sales domestically The company regards exporting as a ‘trendy’ activity The domestic market is small and/or shows no signs of growth The market is buoyant but the company is being squeezed out by rivals The company has been ‘found out’ by domestic customers, and its poor reputation precludes market success The ‘Push’ Factors: Positive and Negative

12. The ‘Push’ Factors: An Evaluation

13. The Pull Factors • Export markets are larger and/or are growing rapidly • And the larger the market the more it is deemed a market of huge importance • So we see that the company wants to enter the USA market because it is the largest in the world for that particular industry • Or it is determined to export to China as it is the fastest growing export market

14. The Pull Factors: An Evaluation • The company is seduced by opportunity • There is blinkered optimism • An attractive market is a necessary but not sufficient condition for market entry • Realism is required to evaluate company-specific opportunities • Evaluate markets using a much broader range of criteria • Smaller, or slower growing markets may actually offer much better prospects

15. 2. Seeking to identify priority markets

16. Classic Symptom of “Exportitis” • How often do you read on the company website or in the corporate brochure that the company – an SME - has exported or continues to export to a large number of markets? • Let’s say more than 20 export markets • This is a proud boast, and one that is well-received by TPOs and the business media But is the number of export markets served an indication of export success?

17. Classic Symptom of “Exportitis” • Turnover is small • Imagine the turnover is $10m • And 90 per cent of that comes from domestic sales • So exports account for a total of $1.0m, and that comes from at least 20 markets Does that suggest robust and solid performance in export markets?

18. Classic Symptom of “Exportitis” • Of course not! • This does not suggest a company successful penetrating many of its export markets • Or clearly it’s picked export markets that have very limited potential

19. “Exportitis”: The Harsh Realities Often the reality is that our exporter to many markets faces two harsh realities: • It is dependent upon a couple of export markets; and • It exports to a very large number of countries every year

20. “Exportitis”: The Medicine • The company must be encouraged to reconsider its measures of success in export markets • In most cases, ‘less is more’ • Focus upon priority markets and allocate resources and effort with discipline • For most SMEs, a narrow focus on a limited number of export markets will lead to improved performance Remember the aim is to penetrate markets not collect frequent flyer points

21. 3. Seeking to identify new marketsto compensate for declining sales in traditional markets

22. Key Questions facing the Company • Where are these sales declining? • All key markets or just some? • Why are these sales declining? • Due to external or internal issues, or both? • When did they start declining? • Is this a temporary blip or an enduring trend? • How can the company arrest this trend? • Is it time to revise its approach? • How can the company avoid this happening in new markets? • Is change essential?

23. Learn and Move On • Sometimes the decline is a general trend, and recovery is not an immediate prospect • However, this decline whilst a threat can also prove an opportunity • Learn from previous experience • Sometimes the decline was exacerbated by decisions that the company took in the past

24. The Ill-Advised Approach Look to the past and seek to repeat the exact same approach that once served the company well; Denies itself the benefits of assessing areas for improvement The result is that it’s almost guaranteeing poor performance in these markets in the future The Sensible Approach Consider the present and emerging trends, and make the necessary adjustments Indeed, this is an opportunity to apply previous learning experiences and make better-informed, wiser decisions Potential Company Responses as it enters a new tranche of markets

25. 4. Seeking to address specific problems in markets of high strategic importance

26. Unraveling Past Mistakes • Often weak performance in markets is due to the company’s past decisions • For example, the company may focus its efforts on products that are very successful in other markets, rather than those best-suited to the market • Perhaps the most common error arises in terms of distribution policy: • Distributors are appointed when they are not required – direct relationships would be better • The company appoints distributors without proper consideration of their suitability • It is much too generous providing exclusivity for too long and in too large a market, and fails to insist upon performance targets • Refusing to recognize that the market is evolving and new distribution channels supersede traditional channels

27. 5. Seeking to globalize rapidly:the ‘born-global’

28. ‘Born Global’

29. 6. General Issues

30. Lack of Focus: The Critical Issue • Companies do themselves a huge disservice • They often do not understand the nature of their own business • They fail to recognize their: • core competences • strongest product(s)/service(s) • Market segment with greatest potential due to buyer preferences and nature of competition • International markets where the chances of success are greatest

31. Becoming Focused Knowledge = Strategic Analysis Courage = Strategic Choice Discipline = Strategic Implementation

32. Lack of Focus: The Causes and Results • Most companies turn the recipe for focus on its head; • They begin with Strategic Implementation, and then are bewildered when success is elusive;

33. Lack of Focus: The Causes and Results Strategic Implementation = Confusion Strategic Choice = Panic Strategic Analysis = Fire-fighting

34. Thank You