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  1. On the EU Internal Market Trends: The Process of SMEs´ Internationalisation viewed from Central Europe Petr ZahradníkEU Office, Erste Bank/ Česká spořitelna, PragueParis, 22 - 23 November, 2007Prepared for the Conference „Europe in the Global Economy“

  2. Tradition • In the past: SMEs sector has been traditionally considered dominantly as a factor of prosperity and stability in the regions and locations of their placement; • SMEs were especially focused on typical, regional economic activities, with the use of local human resources as well as the factors of production; • products and consequently also services were almost exclusively offered to accommodate mainly domestic demand – purely local, or a regional one

  3. Tradition • During decades, or even centuries, SMEs sector had became – especially in some countries with its quantitative and qualitative extent and development – a symbol of local and regional stability and prosperity; in a complex also a basic factor behind the whole natinal economic development

  4. Changes in structure • Changes in economic structures from the manufacturing industry and the agriculture into services in-parallel led to a gradual opening of the SMEs sector behind the framework of its traditional locations and regions • SMEs in the last about two decades have started to re-orient themselves and focused on new areas of activities in the segment of very specialized manufacturing activities and services

  5. Opening the space • An opened space for SMEs activities is visible not only within one national economy, but also in a cross-border context • In addition, new forms of opening are increasingly visible in the region of Central and Eastern Europe

  6. Spheres of opening and SMEs internationalisation • 1 areas connected with FDI inflows (in a given extent, probably a specific feature for CEE) – FDIs entering CEE use frequently SMEs as important and very specialized local partners; FDI inflow incentives are therefore concerning indirectly also SMEs; • 2 imports areas – some of SMEs ceased to use local resources and re-orient themselves on the imports of some production factor necessary for their economic activities (computers, information and electronic equipment, software, special investment goods, …); • 3 exports areas – a lot of SMEs have broken a line of locally or regionally traded output and became competitive on national market and even a dominant exporter; export orientation is also influenced by the role of strategic supplier for big companies or FDIs operating on the national market; specific example: SMEs operating in internationally oriented tourist services;

  7. Spheres of opening and SMEs internationalisation • 4 marketing areas – to be – at least partially – competitive on foreign markets, it is necessary to organize different types of marketing campaigns (efficient awareness – fairs, exhibitions, targeted media advertisement) • 5 areas of product cooperation networks – internationally organized platforms and clusters (also on a cross-border regional level - common marketing of one cross-border located region, common advertisement of one type of product or service) • 6 area of subsidies from international financial resources – the most classic example: SMEs possibility to participate on EU Funds –not only structural operations, but also international co-operation projects (7-th FP, CIP, or JEREMIE /EIB/ • 7 PPP area – so far, rather an experiment; for example, a common development of tourist infrastructure on a cross-border level • 8 area of financial partnership instruments – for example special cross-border regional development funds for SMEs

  8. Basic trends and partial conclusions - Traditional SMEs branches: the level of internationalization is very low; - In tradable SMEs activities – growing level of internationalisation; capacities have been relocated there; - Internationalisation and SMES: first – foreign trade with goods and services, than – international aspect in investment, financial flows, networking and production co-operation areas; most recently: platforms of international private-public partnership with SMEs participation

  9. Opportunities and impediments • Opportunities: business development in products in tradable sectors, with some quality requirements and level of specialization, reflecting the capacity standards of SMEs; CEE- key strategic suppliers to FDIs; strategy of individual and to-client oriented attitude; • Impediments: key barriers consist not in the production process itself, but in supplementary activities (trade and sales lines, marketing, sufficient information attitude, financial sources attitude, ability to analyze foreign markets and trends, capacity sharing within a cluster or network)

  10. 10 most important barriers and impediments • Shortage of working capital to finance exports • Identifying foreign business opportunities (as an information barrier) • Limited information to locate and/or analyze markets • Inability to contact potential overseas customers • Obtaining reliable foreign representation

  11. 10 most important barriers and impediments • Lack of managerial time to deal with internationalisation • Inadequate quantity of and/or untrained personnel for internationalisation • Difficulty in matching competitors´ prices • Lack of home government assistance/incentives • Excessive transportation/insurance costs

  12. Differences among the countries • There are huge differences between the role of SMEs internationalisation among EU countries; the coverage differs between less than 20% and almost 80% • The highest – LUX, then IRL (60%), followed by AUS, BEL, GRE (40 – 50%) • CEE countries (20 – 30%) • The lowest – UK, FRA, FIN (around, or less than 20%)

  13. Differences within the structure of SMEs • Micro-firms: internationalisation only 17% of them • Small firms: on average 38% • Medium firms: as much as 51% • But limited intensity of internationalisation: in case of micro-firms, frequently only less than 10% of their sales (turnover); on the other hand, in case of some medium firm, majority sales generated by exports

  14. Conclusive Policy Implications, Observations and Recommendations • It seems that the process of SMEs internationalisation represents a strong and increasing trend that positively contributes to the competitive environment and qualitative improvement of the EU market; • An active participation within it should be considered as a comparative advantage for a SME

  15. Conclusive Policy Implications, Observations and Recommendations • The actors are aware of the barriers there are facing within the trend • There is a consensus about the most serious barriers: shortage of working capital to finance exports or other foreign business activities; identifying foreign business opportunities; limited information to locate/analyse markets; inability to contact potential foreign customers

  16. Conclusive Policy Implications, Observations and Recommendations • SMEs internationalisation process could be supported by government and economic policy instruments, especially to overcome the bottlenecks consider by SMEs themselves as most serious: • 1 public support to create and develop business lines and relations, and programmes focused on them (networking, trade partners´ database, enterprise alliances); • 2 disposable financial sources (credit lines, private equity to develop innovation and technology capacities) • 3 partnership in effective technological transfers, including universities, research institutions, … • 4 to safe all forms of intellectual property, patents, trade marks, … • 5 support in educational and training activities

  17. Thank you very much for your attention !Petr Zahradní