Advances in telecommunication and transportation and lower trade barriers have decreased cross-border trade cost and risk for small and medium-sized enterprises
Advances in telecommunication and transportation and lower trade barriers have decreased cross-border trade cost and risk for small and medium-sized enterprises (SMEs) and enabled them to pursue international strategies. Generally internationalization refers to the process of increasing involvement in international markets1.
Internationalization benefits SMEs in many ways. First, it helps SMEs to disperse business risk across different markets. Second, it generates more revenue to invest in technology and production, which are key to SMEs’ growth. Third, by cooperating with foreign enterprises, SMEs can gain access to more advanced technology and improve innovative capacity. And fourth, internationalization allows SMEs access to foreign markets, which assists to improve operational efficiency and tap production potential2. Internationally active SMEs are also found to grow faster than SMEs that focus only on their domestic market, especially right after entering the foreign market3.
There are concerns however, that international markets are more complex and competitive and SMEs may not have sufficient resources and expertise to deal with international business risks. As noted by the OECD, policymakers can play an essential role in creating a conducive environment for SMEs to minimize such risks. The most significant challenges faced by SMEs in external markets are the compatibility of standards, protection of intellectual property rights, political risk of foreign economies, corruption and graft, as well as transparency of the rule of law4, all of which can be addressed by governments through properly designed policy packages.