The Big Role of Small Enterprises

The Big Role of Small Enterprises

Before talking about small and medium enterprises (SME) we have to face a problem: global SME are not always comparable, we do not have certain data to look at. European commission defines SME as less than 250 employees, but USA set the amount at 500, on the contrary in Australia the number is less than 200. This gives us a hint that SME are very difficult to compare.

Despite the small dimension of each SME, their total number influence deeply the total market of the countries, in particular SME represent the major part of the domestic market in countries such as Italy and Australia:
97% of the Australian businesses are SME (they reach the 99% in New Zealand) and produce one third of the total GDP and employ 4,7 million people. SMEs represent 90% of all goods exporters and over 60% of services exporters.
There is an increasing recognition of SME around the globe, in fact in 2016 at the WTO the world trade report focused on them.
They are very diffused also at an international level: the majority of them are more involved directly in exports than indirectly (Note that a direct export is a overseas sale in which a producer or supplier controls all activities and collects all drawbacks).

What are the main reasons that cause the SME international process?

They evolved throughout the years: in the pre 70s the cause was the seeking for new markets and resources; in the 70-80s the push was the competitive positioning (which is the position a firm occupies in a market, or is trying to occupy, relative to its competition); in the 90-00s developed the knowledge economy and the need of a global scanning and learning  (as example, using technology we use knowledge).

The UPPSALA model of internationalization

Small and medium enterprises follow the UPPSALA model of internationalization, which is the most cited study about internationalism.
Swedish researchers at the University of Uppsala in the 70’s developed a model based on a study of four Swedish manufacturing firms: it describes the choice of market and form of entry in stages. The 1977 model states that:

  • Firms internationalize by exporting to markets that are geographically close and have low psychic distance: they have had a shared history, the are similarity in language, or in cultural beliefs and values
  • Over the time they expand into markets that are less familiar and use more equity based entry models.

The model has been further expanded in 2009: networks also play an important role in the internationalization process.
Usually firms follow a step by step process, but with the internet era many firms skip directly to the global phase.

Sources: 
- our personal notes notes on SMEs seminar, held by prof Hussain Rammal, Professor at the University of Technology, Sydney
- businessdictionary.com
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