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Friday, June 15, 2012

Exportation Challenges by SMEs & Possible Exportation Strategies


For the current decade exportation has been increasing yearly, globally. This has been due to various static and dynamic factors. Most importantly is the issue of barriers to trade, because of the World Trade Organization (WTO) there has been a decline in trade barriers. This holds true for other regional trade agreements such as the European Union (EU) and North American Free Trade Agreement (NAFTA). Some findings are of the opinion that SME exporters in the transitional economy encounter export problems related to product quality acceptance and logistics management. And in comparison, SME exporters in the developed economy face issues such as country differences, general business risk, and logistics.

The rule of thumb is that when a firm decides to export to another country, it needs to address the following; (1) Market opportunities (which can it identify), (2) Foreign exchange risk (how can it protect itself), (3) Import and export financing (does it understand the banking systems), and (4) Challenges of doing business in a foreign market (does it know what it will face)

It is when it has answered these questions through its decision making, for it to start the exportation business. International trade is what keeps economies and nations alive. There are a lot of the benefits from international trade, including BOP balance correction, international relations strengthening, inputs supply, drought and crisis management among others. Countries that have limited domestic resources must be able to keep up with domestic production of various goods and services so as to maintain a trade surplus, as they cannot produce everything they need in within their own borders.

In many cases, exporting is a means to increase a company's overall market size. This usually occurs when a company has reached a certain saturation or limit in its domestic market and it needs to expand. This is why large firms tend to aggressively explore new export possibilities. While it is true that many small firms export, they tend to be more reactive and let opportunities come to them. Many companies, especially small, tend to underestimate the potential of the export market, and are overwhelmed by the intricacies, laws, and regulations surrounding exportation. On the other hand, for many SMEs, they export just for them to reap the benefits of price difference. However, on the way to export they are unaware of export rules and regulations and hence the profitability motive will be turned into business survival problems, as things turn to be wrongly predicted.

Besides all good performance shown by SME.s, still considerable improvement in performance is required. From research there are many factors that influence export performances, which can be categorized as internal and external export barriers. Internal export barriers related to company and product characteristics. External export barriers can be classified as distinctive foreign consumer preferences, unfamiliar business protocols and practices, the imposition of tariff barriers and regulatory import controls by overseas governments, fierce competition, exchange rate fluctuations and limited hard currency for international trade. The aforementioned problems are classified as industry, export market and the macro environment barriers.

The common pitfalls for exporting under discussion have been found to include; Insufficient or inadequate market research and analysis, lack of understanding of competitive conditions, an absence of product customization for foreign markets, inferior distribution or marketing program, ineffective or poor marketing campaigns, difficulty finding financing, miscalculation of the amount of expertise needed to enter a foreign market, an underestimation of the differences in a foreign market, a perception that the way of doing things back home is superior and will work abroad, and an underestimation of the bureaucracy and red tape involved.

Lack of Adequate Finance

This is a major challenge for the SMEs. The SMEs operate with smaller amounts of currency and they always realise smaller profits. This makes it hard for them to cover their export needs and to finance unexpected costs of exportation i.e fines for breaking exportation rules (this very common due to information scarce or lack of consultancy), exchange rate disparities among others.

Insufficient or inadequate market research and analysis

SMEs rarely undertake market research and analysis, rather they rely on just noticing that some of their colleagues are into it. Most commonly they use information from the newspapers and other media. Such information are not detailed enough to guide a proper success of business rather they act as signals for relevant potential. Then, the failure to undertake market research will mean that the business will meet unexpected costs or constraints.

Lack of understanding of competitive conditions

Competitive conditions are a necessary factor to consider when a business aims survival at its best levels. SMEs do not have the necessary understanding of the competitive conditions and therefore operate blindly and hence this lowers the probability of their success in the export industry. Competitive conditions include the uniqueness of their products, reliability in supply i.e timely supply and responsiveness to changes in tastes and preferences.

Miscalculation of the amount of expertise needed to enter a foreign market

SMEs fail to separate the domestic and foreign markets. They enter the foreign market in a usual way, and hence fail to separate the characteristics of the two markets. Effective business requires an analysis of the differences between the domestic and foreign markets so that appropriate strategies are applied accordingly. The foreign market and domestic market are not the same and hence require different levels of expertise.

Possible Exportation Strategies

Since trade is of benefit to both individual exporters and the economy, it is worth for it to be emphasized. The challenges hindering effective exportation at both individual and national level should be addressed. There are various strategies that SMEs can apply so that they reap maximum benefits of exportation. It should be well noted that exportation is very risk and hence maximum expertise is needed.

Exportation strategies may include; (1) the government (in form of a committee) working as a consultant to identify markets and sort through the regulations on behalf of the firms, (2) firms should focus on only one or just a few markets initially, (3) enter markets on a small scale so as to limit the damages caused by any potential failure, (4) companies need to be realistic about the time, commitment, and resources needed, (5) firms should do their best to establish good relationships with distributors and clients, (6) whenever possible, locals should be employed in the foreign markets, (7) companies should exercise a proactive attitude, and (8) firms should adopt local production in the countries they export to.

Government Assistance

The government can help exporting SMEs in a number of ways. The government can support through export policies that are biased towards SME success. The government can perform market research on behalf, can negotiate for new markets. Hence the SMEs themselves should form committees that put pressure on the government so that they can efficiently trade in foreign markets and they can obtain finance.

Firms should focus on only one or just a few markets initially

At the initial stage, firms should not hold too much in their business as this will become too heavy for longevity in business. SMEs should focus on only one or just a few markets initially until such a time when expansion is necessary. Rapid or immature expansion may lead to business failure.

SMEs should enter markets on a small scale

It is not proper for SMEs to start exportation business on a larger scale, as this has greater consequences in case of business failures. Entering on a small scale allows time for an assessment of possible expansion and limits losses to manageable levels. This ensures survival since SMEs have low levels of capital.

Being realistic about the time, commitment, and resources needed

SMEs need to have a proper and dynamic planning on the time, level of commitment and resources needed for the whole process of exportation. Effective planning will ensure success and business survival. Harp hazard planning will lead to poor policy implementation and inability to cater for foreign demands and hence exportation failure. Good relations with the customers in the foreign market needed and hence reliability generated.

Employment Policy

Whenever possible, locals should be employed in the foreign markets. This ensures accurate treatment of customers and clients especially in the early stages of exportation. Locals are well versed in the social ethics and those values that are preferred by the nationals and hence will boost business operations. Business environment is a crucial factor to business survival. Also culture and values plays a major role in company profitability.


Exportation should be encouraged in an economy so as for the country to boost its forex reserves and hence help to maintain its balance of payment balance. Trade is very crucial to the economy as it makes goods available to economies with different endowments. However the economy should avoid being a net importer. SMEs, though they also export, do face many challenges. Therefore some strategies have been suggested especially for those initially entering the export industry. Government support is very necessary to SME performance in the export industry.

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