MNCs vs. SMEs

Welcome to our first blog, we are 3 exchange students from 3 different countries. Our group name is Observateurs!

Alice is studying in Canada but originally comes from Vietnam.

Guillaume is half French, half Polish but lives in Germany and studies in the Netherlands.

Paul is French and studies there but got some professional experience in Germany.

We hope that our international profile will help us to share our perspective throughout the 4 blogs. 

In this blog, we would like to speak about an international phenomenon that a lot of people would think is true and show you how limited it might be:

‘’ONLY multinationals companies can succeed in today’s globalized world!!!’’

 BUT SMALL AND MEDIUM COMPANY SIZED ENTERPRISES (SMEs) CAN BE AS SUCCESFULL THANKS TO ADVANCED TECHNOLOGY, LESS CULTURAL BARRIERS AND SUPPORTIVE GOVERNEMENTAL ENGAGEMENT.   

In today’s world, globalization is THE current trend, every firm wants to participate and have their own share out of it. Of course that Coca-Cola, KFC, Adidas have already internationalized and still conquer the world. It is very common to think that multinationals are the only players in globalization. In our first blog, Observateurs will try to demystify this perception and then prove that SMEs also have a great chance to go global.

Advanced Technology

Internet

Since the beginning of public internet usage in the late 1980s,  the global coverage has dramatically increased and its access has become easy and cheap. No company can afford not to have internet presence, as it is the most cost-effective link to the largest possible customer base. Although the dependence on this medium of communication has increased significantly over time, it brought with it the advantage of fast information transfer and the possibility of simplified connection between company internal elements like server systems and employees and company external elements like virtual conferencing with business partners. All these aspects have empowered entrepreneurs to have an easy access to the market they are targeting and have a large customer reach at relatively low cost. This situation diminished the risk of starting a business, as the cost of entry is becoming ever lower. 

Logistics

The constant increase in efficiency and effectiveness of logistics operations has changed the global perception of the timeliness of transaction and production. With every transport route becoming shorter and all production processes becoming more efficient and thus cheaper, consumers expect decreasing delivery time, putting competitive pressure on that part of business. Large scale transportation companies like DHL and UPS take an oligopolistic stance in many markets, as the entry costs for truck and ship fleets are very high. But although globalization has lead to limits in this industry, small and medium size enterprises (SMEs) can make use of those large networks, as they can provide the service of fast delivery at small transaction volumes. The approach of faster global transportation is certainly not ecological, but in terms of bringing supply closer to demand, it has opened a new way of doing business, where even the most remote consumer can purchase from anywhere at any time. 

 

Cultural differences

The decision to go global and enter new markets can be very profitable but can also cause losses. The risks and chances balance is determined by the strategic decision and how the firm will implement its business overseas. One important factor that all enterprises going global need to account for is: cultural differences. For the multinationals, it seems to be easier for them to prevent this type of problem thanks to their resources (business intelligence, market analysis, investment fund, networks). Cultural identity is unique and crafted by the social beliefs and habits norms of the population in a particular region.

First, the problem of cultural differences is somehow minimized nowadays thanks to the importance attributed to education and knowledge in the third world countries. In fact, most of the actual generation of entrepreneurs can speak at least two different languages.

Second, the human capital transfer and easy interconnectivity between countries can also diminish cultural differences and widen people perspectives and better understanding of different cultural beliefs. Immigration, travel, social platform, media diffusion, etc. have played a great role in decreasing barriers in communication and cultural differences.

Third, the native people point of view has also changed during the past decade vis-à-vis investment from abroad. In developing countries, the entry of a new firm usually means more jobs opportunities for the local habitants and a chance of improving their quality of life in the first place. Finally, to avoid failure from cultural differences, SMEs should be aware of this issue and adopt cautious developmental strategies.                         

Supportive government engagement

ð  Worldwide organizations

o   Foundation of the WTO in 1994: aims to supervise and liberalize the international trade. It keeps the countries from closing their borders and consequently help the companies to think global.

ð  Regional organizations that also help to some regional engagement. As well as the WTO, these organizations lead the countries to less protectionism and less trade barriers.

o   Free Trade Agreement between 2 or several countries: North America Free Trade Agreement, ASEAN Free Trade Organization

ð  Government policies that generally support international trade

Subventions are often dealt to SME in order to help their international development

An example of SME that chose to go global: Lingo24

Lingo24 is a translation company based in UK. It was founded in 2001 in Scotland (by Christian Arno, 22) and got global pretty quickly as it was employing people in France, in China, in New Zealand and in the USA only two years after its creation. The company is now implanted in 10 countries, it has clients in more than 60 countries and its turnover reaches 4.67 million Euros in 2009.

Considering its success, Lingo24 placed number 81 on The Times’ Fast Track 100 List (fastest growing translation agency in the UK) in May 2011. The company could even belong now to the flourishing category of micro-multinationals. Indeed, Lingo24 stays a SME as there are less than 250 employees and the turnover does not extend 43 million Euros (European Union definition) but it presents some of the aspects of multinationals mostly because of its internationalization.

Blog Extension

The confusion that many readers had about whether or not the applicability of our analysis towards the ability of SMEs to go global is limited for specific industries or can be applied industry-wide is founded, but we did specify that in most cases SMEs that are effectively able to reach a global market most often are found in dynamic tech environments. It is true that some markets are excluded from this trend, like some local food production sector. 

When it comes to funding for SMEs, some readers were saying we did not give enough detail about the current situation and were wondering about the ease these firms have to request proper funding. So as a matter of fact, in Europe, there is a venture capital fund which actively supports the business processes of SMEs by giving targeted funding for promising projects. It is very simple to request such a funding, as it can be done through online applications. The only possible drawback is that when a project seems risky, the management of the venture capital fund will require a controlling share in the business, to be able to channel funds more effectively and avoid wasteful use of resources, especially in uncertain market conditions.  

Many of you stated that our example was good and illustrated well the phenomenon we wanted to speak about: SME’s can make it global. However, you also pointed the fact the translation industry, especially on the internet, represents a niche and consequently an exception. We actually understand what you are saying: doing business with/on the internet makes it easier and SME’s certainly would have difficulties to go global in other industries. We also precized that this business shift is actually possible thanks to the development of new technologies and the internet is the main element of the technological revolution that we lately experienced.