Every market is different, and SMEs need to be sensitive to local ways of doing business.
Lack of awareness and knowledge of local cultural norms can impede the development of a business relationship.
A recent study found that ‘language and cultural’ issues is the barrier most likely to stop a firm from entering its first market. The study found that cultural factors become much less of a barrier though, once firms become experienced exporters.
One of the cultural aspects of most concern to SMEs is around ‘doing the deal’. This includes attempts in some markets to renegotiate the price at the end of the project, high levels of bureaucracy and paperwork or the presence of bribery and corruption.
From New York to New Zealand, distance and time zones also mean some markets create problematic physical distances and irregular hours of business for UK companies. Companies reported that they found issues not just with the distance between the UK and the market but also the distances involved within certain markets, such as Brazil, where firms had underestimated what was needed. Distance can increase costs considerably for some companies, for example those selling goods that are perishable and require fast delivery. Entering a challenging market like Russia or Indonesia takes a level of manpower and/or money that many SMEs do not have readily available to them. Fixed costs can include researching the market, adapting products and services, overcoming legal and regulatory barriers, establishing contacts and networks and building recognition and market share.
A study of UKTI clients found that timescales were also an issue for many SMEs. In particular, many firms appeared to find difficulties justifying a market entry strategy that was not expected to produce any short-term ‘pay-back’. The study also found that the point at which the necessary investment became so high as to be difficult varied hugely across firms.
More than a quarter of firms felt that exchange rates and currency would be a difficulty, whereas almost a third felt that would be ‘no problem at all’. There is some evidence to suggest that, in comparison with those selling direct, firms selling through agents or distributors are more likely to see exchange rates as a potential barrier.
The cost of managing potential risks from issues such as bribery, corruption and business security – including terrorism and organised crime – can also discourage SME entry into high growth markets.
It is important to take the long-term view and build appropriate timescales into your projections. Customers and partners in high-growth markets tend to put an essential value on relationships and it is unusual for a return on investment to emerge within the first year.
Levels of investment and return vary greatly between companies and sectors. Advice from the SME community is to prioritise the most commercially important market and to set realistic expectations in terms of the likely investment and timescales required to be successful in that market.
Those concerned about payment issues should contact the Export Credits Guarantee Department, a government department that provides specialist assistance to exporters in the form of insurance and guarantees to banks. For example, insuring UK exporters against non-payment by their overseas buyers.
The ECO’s Helpline is on hand for general queries about strategic export licensing.
- Tel:020 7215 4594
- Fax:020 7215 2635
- Email: firstname.lastname@example.org
For those SMEs that want to manage business security risks the government’s Overseas Security Information for Business (OSIB) provides a free online service that offers authoritative information on political, economic and security related issues in over 90 countries, including most high-growth markets.
To read the full document where this information came from, please click here;
Discovering high growth (.pdf 2.87 MB)