FDI and SMEs
While FDI could be beneficial not only for MNEs but for SMEs as well, there are mountains of challenges that SMEs faces while trying to make presence in the global platform. For fear tucked into legal, cultural, procedural and other complexities, the SMEs prefer to remain within the domestic markets until the market gets saturated.
Most small firms prefer that opportunities come for them rather than going out to the bigger platform to reap opportunities. The SMEs lack knowledge of opportunities.
To overcome these barriers, many countries establish agencies to gather information, do research and pass on to the SMEs to help them expand business.
Additionally, the SMEs can use the expertise of the Export Management Companies (EMCs) who provide support in specialise area. They help the small exporters to identify opportunities and avoid common pitfalls. A good EMC will have a network of contacts in potential markets, have multilingual employees, have good knowledge of different business mores and be fully conversant with the ins and outs of the exporting process and with local business regulations.
The objectives, types of products or services, size and resources available and experiences are basic factors help a firm to choose the best suitable market. The analysis may require considerable details to determine if the firm’s products or services can be marketed profitably in the country in question.
CAGE framework proposed by Prof Pankaj Ghemawat of the Harvard Business School is good tool for determining market for exporting. Regionalism is one step forward in growth expansion because cultural immediacy and linguistic similarity help to boost trade in many folds.
Cost-risk trade-off, timing, scale and strategic commitments would impact the future growth of the company. Investment is likely to prosper in politically stable and free market economy. The firm to enter first in a newly identified market is likely to make stronger presence compared to those coming later. And larger the investment, a firm has higher chances to grab the opportunities.
Firms must do business with people they trust. It is difficult in first instance to find such people while entering into new market. Such risk is addressed through advance payment, letter or credit and similar other instruments. Export credit insurance is the other instrument to build confidence in export business.