Overcoming hurdles – Resource costs

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.

Breaking through:

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.

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

Topics: Finance
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