New Research Tool Supports SMEs Pursuing an Internationalization Strategy

October 07, 2022

A How-To for Business Practitioners

There is huge potential in entering international markets. At the same time, such a step requires enormous and specialized resources and the ability to expertly deal with new cultures, different regulatory framework conditions, and novel competitors. Are we ready for the international market? And if so, where should we go first? Many small and medium-sized enterprises find themselves pondering these two central questions.

Thomas Lindner of the University of Innsbruck and Jonas Puck, a professor at WU Vienna, have dedicated numerous scientific studies to this topic. They have formulated practical tips based on their findings, which will provide guidance and support particularly to small enterprises, and have developed tools that make recent research findings accessible and applicable for smaller firms.

A tablet pointed to with a finger, next to it a pad with a pen. Across the entire image it says "Small & Medium Enterprises SME". — What do SMEs need to consider when going international? Photo © shutterstock - Wright Studios

Are we ready for the international market?

Current research highlights three fields that determine whether a company will be well advised to pursue internationalization:

Financial resources & products, organizational aspects, and external partners. The first field is about the products that would be sold on the international market and the financial means enabling internationalization in the first place. With regard to products, their demand structure, the question of the international scalability of their sales performance, and potentially necessary adaptations to products (for instance due to different technical or legal framework conditions) are some highly relevant criteria. In terms of financial resources, capital demand and availability are key factors to look into as these can make or break long-term success on the international market.
The second field comprises organization, staff, and technology. Aspects to check include whether the company’s structural organization would be capable of accommodating an internationalization, whether additional and/or specialized staff would have to be hired, and whether the technical infrastructure of production and administration has the capacity to deal with and adapt to international growth. With regard to such criteria, it’s not only about the hard facts; personal factors also play a huge role. This includes, for instance, whether new staff members would be able to effectively support international growth. Another point to consider is whether existing administrative systems are suitable for the international market.
The third field is about an internal check of the potential that external partner companies could provide if an enterprise goes global. Obvious contributions include gaining access to resources a company struggles to procure internally and seizing opportunities for global business activities arising from cooperations with existing business partners abroad. But it’s not only about established collaborations, also new partners who would strengthen the company could offer benefits.

A holographic projection of Earth, in front of a business meeting table — There are many things to consider when moving into new markets - internal as well as external factors.

Research and Practice Deliver Input for Readiness Tool

Based on their research and experience gained from jointly accompanying the internationalization projects of numerous SMEs, Jonas Puck and Thomas Lindner have developed a simple tool to measure what they term “Internationalization Readiness.” As a first step, the tool quickly generates a profound and holistic overview of the challenges and opportunities a given SME would encounter on the international stage. These results can then easily be translated into concrete measures to make the enterprise fit for international markets.

Thomas Lindner

Professor International Management University of Innsbruck

SMEs are the backbone of the Austrian economy. Without international business, there is often a limit to growth in Austria. This is why we enjoy working with SMEs and supporting them in their internationalization endeavors so much. In this process, we also gain very relevant input for our research.

We Are Ready – But Where to Go?

Readiness is one thing, but it’s just as essential to identify the suitable markets to successfully go global as a next step.

A thorough target country analysis must be based on an assessment of the future market potential. Such an analysis is carried out in three steps in the course of which a filter is generated that quantifies the achievable target market. The first step is an assessment of the overall turnover that is theoretically possible. In this stage, it is sufficient to work with rough estimates of, e.g., the total number of potential customers and respective sales figures.
The next step is an analysis of which part of the theoretically possible turnover would, in the medium term, be realistic. This is not so much about a concrete range of products but the potentially available production and sales capacities. In the last stage, the local competition is scrutinized, determining how fiercely local competitors would try to defend market shares. This three-tier analysis will produce the share of the theoretically possible turnover the enterprise can expect to secure in the potential target country.

Working with the Locals

Once entrepreneurs have gauged the market potential, they can next look at the question whether expanding to a given target country aligns with their company’s current business activities and structures. In this respect, three things are particularly relevant.

First, a company must determine whether the planned business activity in the target country would require new suppliers and partners, whether such players are available, and whether associated costs would be reasonable. These questions are anything but trivial as local suppliers often have limited capacities. What’s more, in many cases there are fees, duties, and regulations that make it difficult to continue working with existing suppliers.
Next up, the availability of staff and related aspects must be checked: Is there a sufficient number of qualified employees? Which framework conditions regarding employment must be considered, which non-wage labor costs would be incurred, is there additional training a company might have to offer in-house?
And finally, internationalization cannot be pursued without taking a good hard look at one’s current business strategy. Would an (additional) international presence beneficially complement the existing business model? Which risks would arise? By combining an analysis of the market potential with structural issues, a differentiated assessment of the business environment in the potential target country can be gained. Based on such an assessment, SMEs can take well-thought-out investment decisions.

Man in mask loads parcels into delivery truck — In addition to strategic direction in terms of the business model, it's also important to know if employees, partners, and even suppliers are available in the new market.

Research Projects Yield Surprising Findings

In the course of several research projects jointly realized at WU Vienna and the University of Innsbruck, Thomas Lindner and Jonas Puck have investigated a wide selection of aspects that shape market selection mechanisms.

Jonas Puck

Academic Director MBA Energy Management and Professor for International Business at WU Vienna

Among other things, we found out that many SMEs do not select markets strategically but based on (random) requests and network contacts. They then end up investing a lot of money in the wrong markets: money that likely could have been used much more profitably in other countries.

Modern data analysis methods relying on artificial intelligence and machine learning combined with big data can go a long way in providing a good assessment of potential markets quickly and at relatively low costs. “In our research but also in our work with companies, we have incorporated new data analysis methods at a very early stage. Especially small companies can gain a competitive edge regarding both costs and information that should not be underestimated,” Lindner explains.

Conclusion

“It’s true that the challenges of international markets are significant, particularly for smaller companies. At the same time, research offers numerous solutions to tackle these challenges,” Thomas Lindner points out. “And these are not only helpful but also affordable for small companies: for me, there’s no doubt about the huge opportunities they can bring to SMEs,” Jonas Puck adds.

Read also how legal knowledge for managers of SMEs can contribute to more security and cost savings.