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International Growth - SME Planning & Implementation "There will be hunters and hunted, winners and losers. What counts in global competition is the right strategy and success." (Dr. Heinrich von Pierer, President and Chief Executive Officer of Siemens AG: Quotation cp. 'TheGlobalist' (2000)) While international expansion offers a small and medium sized enterprise (SME) the opportunity to grow and increase value, the implementation of an international growth strategy presents significant challenges. Success is often limited by resource constraints, including personnel and production capability, insufficient knowledge about markets and customers, weak financial resources to support growth, and underdeveloped international skills. These limitations need to be overcome by using different types of strategies, such as networking or other innovative, entrepreneurial strategies. How SMEs are structured greatly influences their approach to international expansion. Typically SMEs institute a relatively simple structure to induce a high-level of cross-functional communication and flexibility. A close customer contact and relationship enforced by adaptability ensures a basis for specialization and successful niche strategies. However, reliance on traditional structures may cause SME to reluctantly embrace a complex structure needed to successfully enter foreign markets. In defining a foreign market entry strategy, SMEs must consider major internal aspects that shape a specific international growth path. To formulate a market entry strategy, the SME must first establish primary objectives and baseline assumptions. Why does the company seek international growth? Does the SME’s three to five year vision reflect international expansion? SMEs must also consider the availability of necessary resources for a particular strategy. An objective resource assessment may help better define timing, strategic scope, and which entry options are more viable than others. SMEs need to decide what the ideal scenario is regarding communication and control of their international activities. What kind of ownership structure makes the most sense for the SME’s current situation? After solidifying a strategic baseline for entering foreign markets, SMEs need to determine its geographic focus and timing balanced with its own resources and capabilities. In particular, SMEs face the danger of allocating their limited resources on a large number of different markets and jeopardizing their traditional advantage of close customer relationship. In considering timing the SME has to choose an early-entrant or a follower approach to penetrate foreign markets. The strategic choice between pioneering and following is a problem of balancing the risks of premature entry with the missed opportunities of late entry. Is the SME targeting the appropriate market? Is the market opportunity worthwhile and sustainable? Estimating market potential represents the driving force for market entry associated with the necessary commitment required by choosing an appropriate entry strategy. As opportunities come with risk, the actual success of entering new markets is significantly affected by the balanced consideration of market potential and market barriers. Entering new markets is most likely linked with cost disadvantages caused by major initial investments of establishing a sales network. Administrative burdens of import restrictions, local tax and norm regulations may prevent a successful market entry as well as restrict access to local partners. SMEs therefore must identify specific market barriers, overall market size and growth, and existing and future competitors to accurately assess potential target markets. Taking all of the above into consideration, the SME must revisit and solidify the appropriate method of entry. There are various alternatives that have to be related to the capabilities and individual targets of SME in order to be successful: exporting, foreign distributor/agent, licensing, joint venture, minority investment, or acquisition (see Achieving Global Growth through the Formation of International Strategic Alliances, Beyond Virginia article). In shaping a basic framework for developing a market entry strategy it becomes obvious that there is no best practice or superior alternative. SMEs must analyze their situation and consider how the various alternatives apply. In fact, optimal results result from careful analysis rather than a ‘trial and error’ approach. SMEs should focus on their own capabilities while at the same time increase their knowledge and information regarding targeted countries and markets. In order to establish long-lasting worldwide relationships and gain international growth potential, a half-hearted strategy will not be successful. Consequently, SMEs will have to act confidentially and require a sophisticated knowledge of suitable market entry alternatives. Sustained market entry involves a process of profound change. This change requires taking risks, improving internal organization and culture, as well as major learning capacities. SMEs primarily focusing on a conservative export strategy will have to develop a stronger commitment to cooperation in order to adapt to the complexity of foreign market entry. Accordingly, the SME’s traditional central theme of individual decision making should be augmented by international partnerships providing the necessary resources for sustained, profitable growth.