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How SMEs shall manage their efficiency to success in their export projects?

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Export: a challenge for SMEs

SMEs are key and essential players of our economic network with 28,7%[1] of the added value in the country, however they struggle to export and represent only 11,8% of national exportations. Additionally, the daily newspaper Figaro[2] reminds us that only 32% of French SMEs manage to sell their services outside the national borders while 68% of medium sized companies and 85% of large ones do it. The issue of the entrance barriers is an explanation to this finding; indeed, the set-up of an internationalization project has a high cost and a possible very long delay before the first rewards show themselves, SMEs often struggle to gather the financial means to support and sustain such an effort.

However, export difficulties do not only affect SMEs, a second finding detailed by the think tank “La Fabrique de l’Exportation” reveals that only 30% of companies (all categories combined) maintain their international activity in the second year, and only 8% of them after the tenth one[3]. Beyond entrance barriers, most of companies don’t last the distance, possibly because they are not efficient enough on the international market.

 

 

Efficiency:  a key competitive advantage for export

Efficiency is a key success factor on most markets, especially since lean management has taken a central place in our organizations. Based on the principle of value-seeking for the customer, especially by eliminating wastes thanks to continuous improvement, lean management makes it possible to achieve significant performance gains. The method has been invented in the automobile sector and first proved its relevancy in production industries of large scales. After what, the panel of tools and solutions has been enlarged to all type of companies and activities, including some very far from the initial scope of usage, such as administrations and research & development. Numerous studies praise lean and detail its benefits, the 2006 report of McKinsey “Give a new momentum to the French industries[4]” is one of them. The report proposes, among its six sources of performance, a “lean initiative” in France with an estimated average reduction of 9% on production costs.

However, SMEs have the capability to avoid hard competitive markets by choosing niche markets and by offering very specific products or services to their customers. Unfortunately, those mechanisms are more difficult to reproduce on a foreign market, indeed niches might be harder to reach because of national competitors who already occupy them. Additionally, average efficiency of international companies is also higher. A report from BPI France demonstrates this idea, it tells us that companies that export have a higher productivity rate of +11% compared to their national competitors that remain exclusively on the national market[5].

Lessons of those observations are that SMEs have to consider performance as a key asset before any export project, even if such a work seems unnecessary on the national market. A solid lean approach is recommended before any international actions toward a new country.

 

 

International: an instable territory

On another hand, internationalization is intrinsically a source of variation. Crossing borders means new markets with different customers, regulations, languages and cultures. Each part of the organization of companies is concerned: products/services design, production, commercialization, distribution and supply-chain. They all are potential limits to the company performance. A steady, constant and predictable environment remains the best asset for an easy implementation of a lean policy and an automatic improvement in the performance. A new market brings disturbances such as demand variations, diversification of product references, modification of the batches size which all are potential new wastes in the overall operation processes of the company.

Even a well-prepared company shall anticipate a drop of productivity during and after a new international project because of new constraints which might probably create new wastes and additional production costs. A first impact concerns the performance on the new market that will be necessarily lower than the one on the national market. A second impact is the margin of the national market which might suffer from transformations related to the internationalization.

 

 

Two ideas to succeed in exporting: choose impact-less solutions and anticipate

This shows us the dilemma of the international performance, with, on one side of the balance, the need of a very high level of performance to be at the required level on the targeted market, and, on the other side, added constraints that did not exist on the national market and that will automatically reduce the competitivity of the company. This might be one of the reasons of the very high failure rate of exportation projects. It shows us that the main challenge of an export project is not to be the best-in-class at the launch on the new market, but to remain at a good level and sustain the position on both the new and the old markets.

A first lever to answer this challenge consists in choosing strategic orientations with limited impacts on the performance of the company, as an example:

  • The choice to use a partner originated from the targeted country who handles a part the exportation activities will automatically limit the required transformations in the exporting company itself
  • A screening of countries whose market is close to the national one will limit adaptations to lead on products and services.

The second lever we can mention is to systematically operate a detailed analysis of the impacts of the internationalization strategy on the performance. In order to anticipate competitiveness issues in organisational and process developments while identifying quantified measures on the expected deterioration in performance.  These measures can then be taken into account from the outset when drawing up the international and domestic business plan in order to ensure that the project is viable in the long term.

 

 

As a conclusion, performance is a key asset of SMEs willing to export. However, it is also difficult to sustain it on an international environment that creates instability. Strategic choices that limit undergone and uncontrolled transformations and a good anticipation of performance impacts are two ways to secure the success.

 

 

[1] https://www.bpifrance.fr/A-la-une/Actualites/Les-PME-a-la-conquete-du-monde-35622

[2] http://www.lefigaro.fr/conjoncture/2018/03/22/20002-20180322ARTFIG00274-ces-pme-francaises- qui-exportent-toujours-aussi-peu.php

[3] https://www.fabrique-exportation.fr/wp-content/uploads/2017/01/Echec-et-constance-à-lexportation_proposition-paper.pdf

[4] https://www.gospi.fr/IMG/pdf/mckinsey_mgi_donner_un_nouvel_4_oct_2006.pdf

[5] https://www.bpifrance.fr/A-la-une/Actualites/Les-PME-a-la-conquete-du-monde-35622

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