Improving the competitiveness of the SME as a strategy toward
its internationalisation
Panama CityMarch 8, 2007
Internationalisation of SME’s
Competitive Strategies for Internationalisation
Competitiveness of the SME
Competitiveness of MSME’s
A few common components of competitiveness strategies
• Macroeconomic policies
• Physical and digital infrastructure
• Efficacy, efficiency in public management
• Production capacity: Business management, establishment, quality, productivity, innovation, partnerships, chaining, groupings.
• Access to domestic and exports markets
• Business climate: Trade, financing, investments, support for the venture.
• Social wellbeing: Education, health, housing, social and civic security.
• International co-operation
• Generation of employment and reduction of poverty
• Strengthening of democratic governance.
Competitiveness of MSME’s
MICROECONOMIC COMPETITIVENESS
INFLATION
PUBLIC DEFICIT
CURRENT ACCOUNT DEFICIT
INTEREST RATES
MACROECONOMIC STABILITY
INNOVATION
PRODUCTIVITY
TRAINING
Tenets of Competitiveness
( + )( - )
HIGH COUNTRY COSTS LOW COUNTRY RISK
Competitiveness of MSME’sMacro-Micro Solution and Balance
Country Costs
Productivity and Competitiveness
Investment Employment and
Income
Generation of Added Value
Country Risk
Macroeconomic Stability
Innovationand
Technological
Development
+
Competitiveness of MSME’s
Strategic Factors of Production
Training
Quality
•
• Natural Resources
• Labour
• Machinery and Equipment
• Inputs and Components
• Capital
Industrial Economy 20th Century
•
• Enterprising Talent
• Human Capital
• Technology
• Intellectual Property
• Risk Capital
Knowledge Economy 21st Century
INNOVACIÓNINNOVATION
Competitiveness of MSME’s
SME Entrepreneur: horizontal characterisation
BUSINESS CULTURE– They rely heavily on their experience and are resistant
to change– They are suspicious in general and toward their peers– They are unable to delegate and manage time:
“I do it all” HUMAN RESOURCE MANAGEMENT
– Lack of expertise in human resource management– Tendency toward paternalism with workers
BUSINESS MANAGEMENT– Lack of strategic business vision– Outdated knowledge / As a result of “Modernisation”– Lack of information in general
Source: FUNDES Market Study, 2003
Competitiveness of MSME’s
Challenges of Competitiveness
Vs.
Exchange rateExchange rate Cheap labourCheap labour Proximity with Proximity with
the USAthe USA Network of Network of
FTA’sFTA’s Natural Natural
resourcesresources
Innovation and Innovation and Technological Technological DevelopmentDevelopment
LogisticsLogistics ProductivityProductivity Tariff StructureTariff Structure Qualified labourQualified labour
Situational Situational Competitiveness Competitiveness
Sustainable Sustainable CompetitivenessCompetitiveness
Competitiveness of MSME’s
Major Problems of SME’s
1. Acquiring clients
2. Hiring qualified staff
3. Financing
4. Acquiring providers
5. Obtaining equipment
6. Adjusting their products to suit the client
7. Market information
8. Product quality
9. Productivity
10. Managing the business
SOURCE: Entrepreneurship in emerging economies, IDB, 2002
Competitiveness of MSME’s
• Innovation• Design
• Creation
• Establishment of chains• Logistics
• Delivery time• Quality
• Product diversification
• Assembly• Manufacturing
Tech
nolo
gic
al in
ten
sit
y
What areas need to be developed?
Internationalisation of SME’s
The Importance of being InternationalisedThe Importance of being Internationalised
• The trend of global trade and financial The trend of global trade and financial liberalisation.liberalisation.
• The trade agreements in progress have made an The trade agreements in progress have made an impression impression on the trade map of the coming years.on the trade map of the coming years.
• The world system, driven by technologies, is The world system, driven by technologies, is becoming more becoming more and more dynamic.and more dynamic.
• Today, any type of information and knowledge is Today, any type of information and knowledge is virtually virtually within the reach of any organisation.within the reach of any organisation.
• The number of competitors has increased and they The number of competitors has increased and they have have become more competitive. become more competitive.
Internationalisation of SME’s
What are the benefits of Market What are the benefits of Market Information?Information?
• Make use of information and technology in order to Make use of information and technology in order to identify opportunities and source partners and identify opportunities and source partners and purchasers.purchasers.
• Transfer knowledge and intelligence regarding Transfer knowledge and intelligence regarding international markets, in order to help exporters develop international markets, in order to help exporters develop contacts and strategies to expand their international contacts and strategies to expand their international business.business.
• Provide a link to exporters in international markets.Provide a link to exporters in international markets.
Internationalisation of SME’s
Commercial Activities included in Sectoral Strategies
• Market Study• Trade Mission for Market Prospects / Penetration• Advertising and Promotion• Invitation to Potential Clients• Showrooms or Product Sampling• Participation in International Fairs (Fairs that are outside the Official Pavilion)• Participation in / Holding of Seminars, Congresses, Conferences and Others• Visit to an International Fair
Activities for International Promotion
Internationalisation of SME’s
Become fearless Become fearless
BeginBegin
LearnLearn
HighlightHighlight
GrowGrow
Little support from the ICEX in the domain of the SME’s
Learning to Export Events
Learning to Export Events
Not familiar with aspects that are essential for the initial steps
Learning to Export
Programme
Learning to Export
Programme
Inability to create and develop an internationalisation strategy
PIPE Programme
PIPE Programme
Competitive shortcomings in key areas for export PIPEnet PIPEnet
Difficulties in implementing trade and logistics abroad
Spanish Points
Spanish Points
Development of Capabilities Experience of the ICEX of Spain
Internationalisation of SME’s
Learning to Export Event
• Areas of competitiveness
• Supportive Public Adm.
• Business meeting
Companies move to
the ApEx programme
Internationalisation of SME’s
First meeting at the company with the consultant
Synchronisation and downloading of the sectoral report
Review of sectoral information and preparation of the second meeting
Second meeting at the company with the consultant
Synchronisation and downloading of the draft final report
Formulation of the final report on the potential for internationalisation
Uploading of the final report to the server
Review of the final report by the ICEX and submission to the company
To be highlighted:Any information compiled in a computerised database Special reports are produced based on information on each company The system allows consultants to follow a standard methodology
Export Potential Assessment
Internationalisation of SME’s
After the Export Potential Assessment, companies are offered any of the following supports:
ICEX-ICO line of credit, up to 100,000 Euros at 0% interest for three years
ICEX-CESCE line of insurance, with coverage up to 100,000 Euros for one year at zero cost to the company
Advice from Garrigues on contracts and fiscal policyAdvice from Barrabés Internet on the Web and TechnologyAdvice from Positioning System on Communication and Trademarks Joint participation in the international fairs of the sectorEntry into the Part-time Agents Programme of the various autonomous
trade promotion organisationsParticipation in Export ConsortiumsParticipation in direct and inverse trade missions
Entry into the Foreign Promotion Commencement Programme (Programa de Iniciación a la Promoción Exterior - PIPE) of the Spanish Foreign Trade Institute
Export Potential Assessment
Ap
Ex P
rog
ram
me
Internationalisation of SME’s
Internationalisation Planand
Market Prospect
Consultant80 hours of attendance
6/8 months
Implementation Internationalisation Plan
Double Option
Without Collaborator
4/6 months40 hours Consultant
With Collaborator40 hours Consultant
+ Collaborator6/14 months
Export Potential AssessmentConsultant3 sessions
PHASE III
PHASE II
PHASE I
PIPE Programme > Phases
Internationalisation of SME’s
Concentration / Diversification Strategy Selection of Target Markets
STRATEGIC ACTIVITY REVIEW
Market Objectives Product / Market Positioning Market Access Strategy Segmentation
MARKET STRATEGY
Rules to be Followed Level of Required Information
INFORMATION SOURCING PLAN
Study on Different Access Strategies
MARKET ACCESS STRATEGY
Product Policy Price Policy Distribution Policy Communication Policy Service Quality Policy
MARKET PLAN
PIPE Programme > Phase II
Internationalisation of SME’s
ADAP
TATI
ON
ACTI
VATI
ON
EXPA
NSI
ON A
ND
IMPR
OVE
MEN
T
Without the possibility of export
Deficit in competitiveness
Growing or changing
New global market
Passive export
Active export
Complementary Services
PIPE Phase III
PIPE Phase II
ApEx Programme
Adaptation of solutions Trade
Implementation
Internationalisation of SME’s
SPANISH POINTS:Physical and virtual presence with which companies can conduct commercial and logistical operations while sharing costs
SPANISH POINTS:Physical and virtual presence with which companies can conduct commercial and logistical operations while sharing costs
SHOWROOMS LOGISTICAL CENTRE
BUSINESS CENTRE VIRTUAL MARKETPLACE
Spanish Points
Internationalisation of SME’s
Frequently mentioned crucial topics
Limitations of business competitiveness:Limitations of business competitiveness:
Low productivity and little diversificationLow productivity and little diversification Limited access to financing Limited access to financing Difficulties in accessing international marketsDifficulties in accessing international markets Insufficient trained staff and limited managerial capacityInsufficient trained staff and limited managerial capacity No controls on product quality and standardisationNo controls on product quality and standardisation Restricted capacity for innovation and technology Restricted capacity for innovation and technology
adaptation: Low investment in I+Dadaptation: Low investment in I+D High transportation and logistical costsHigh transportation and logistical costs Low social capital: fewer partnershipsLow social capital: fewer partnerships
SME’s in Latin America
Low productivity and little diversificationLow productivity and little diversification
Limitations of business competitiveness Limitations of business competitiveness
Source: Office of Public Policies and Competitiveness; Andean Development Corporation CAF Iberoamerican Seminar “Export to Win in relation to MERCOSUR”. July 2006
Limited access to financing Limited access to financing
Difficulties in accessing international marketsDifficulties in accessing international markets
Low social capital: fewer partnershipsLow social capital: fewer partnerships
Restricted capacity for innovation and technology adaptationRestricted capacity for innovation and technology adaptation
High transportation and logistical costsHigh transportation and logistical costs
No controls on product quality and standardisationNo controls on product quality and standardisation
Insufficient trained staff and limited managerial capacityInsufficient trained staff and limited managerial capacity
Competitive Strategies
Competitive Strategies in a Globalised World Competitive Strategies in a Globalised World
Development of Information and Development of Information and Communication Communication Technologies (ICT)Technologies (ICT)
Business PartnershipsBusiness Partnerships
Competitive Strategies
“ICT’s – technology and connectivity infrastructure – constitute the material foundation of a new economy, which affects the entire production and organisational system
ICT’s are the material foundation of the new techno-economic paradigm of Flexible Networks that make reticular knowledge possible, as well as various forms of management, relationships and coordination, which are in turn expressed in different types of ventures: Networks and Clusters, MSME’s and Co-operatives”
Source: Dr. Saadia Sánchez; Director of the Information and Knowledge NetworkLatin American and Caribbean Economic System (SELA)
Information and Information and Communication TechnologiesCommunication Technologies
Competitive Strategies
• ICT’s facilitate the exchange of information and ICT’s facilitate the exchange of information and knowledge knowledge in a globalised world.in a globalised world.
• Help improve communication among SME’s, Help improve communication among SME’s, business business networks and any partnership system.networks and any partnership system.
• And allow improved access to the innovations and And allow improved access to the innovations and intangible capabilities of companies.intangible capabilities of companies.
Information and Information and Communication TechnologiesCommunication Technologies
Raw MaterialRaw Material Transportation andTransportation andLogisticsLogistics
ManufacturingManufacturing DistributionDistributionTransportation andTransportation andLogisticsLogistics
Transportation andTransportation andLogisticsLogistics
RetailersRetailers
ConsumerConsumer
B2BB2B
B2CB2C
SME’sSME’s
The Internet can be incorporated into and involved The Internet can be incorporated into and involved in all activities of the trade processin all activities of the trade process
Internet-based Marketing Strategies
1. Establish strategic alliances
2. Advertising and promotion (Radio, press, TV, Internet)
3. Participate in professional and executive events
4. Electronic and physical newsletter
5. Registration in Internet search engines and directories
6. Analysis and recommendations on statistics pertaining to hits on the company’s Web Site
7. Obtain advice on the creation, development and updating of the content of the company’s Web Site
8. Consultation specialising in technology, business and services via the Internet
9. Analysis of Internet advancements made by companies in that field
Competitive Strategies
PartnershipsPartnerships
ClustersClusters
Industrial DistrictsIndustrial Districts
Business NetworksBusiness Networks
Sub-contractors and ProvidersSub-contractors and Providers
Export Consortiums Export Consortiums
Competitive Strategies
The New Economic Environment
INTERNATIONALISATIONINTERNATIONALISATIONOF THE ECONOMYOF THE ECONOMY
GLOBAL CONSUMER GLOBAL CONSUMER TRENDSTRENDS
PRESENCE OFPRESENCE OFECONOMIC CRISIS AND ECONOMIC CRISIS AND
RECESSIONRECESSION
THEY CREATE AN IMBALANCE THEY CREATE AN IMBALANCE IN THE ECONOMY THAT AFFECTS IN THE ECONOMY THAT AFFECTS
THE BUSINESS CLIMATETHE BUSINESS CLIMATEBRINGS MANY OPPORTUNITIES BRINGS MANY OPPORTUNITIES
THAT WE MUST LEARN TO THAT WE MUST LEARN TO TAKE ADVANTAGE OFTAKE ADVANTAGE OF
THE CONSUMER THE CONSUMER WANTS A VARIETY WANTS A VARIETY
OF PRODUCTSOF PRODUCTS
Competitive Strategies
INDUSTRIAL INDUSTRIAL DISTRICTSDISTRICTS
OTHER OTHER STRUCTURES STRUCTURES FOR INTER-FOR INTER-BUSINESS CO-BUSINESS CO-OPERATIONOPERATION
CLUSTERCLUSTERSS
COMPANY COMPANY NETWORKSNETWORKS
Competitive Strategies
Business NetworksBusiness Networks
A co-operation mechanism among companies
Where each participant maintains legal independence and managerial autonomy
With voluntary affiliation
To reap individual benefits through joint action
Source: Carlos López Cerdan and Antonio Maeso, 1999
HORIZONTAL NETWORKS(Among companies of the same link)
VERTICAL NETWORKSVERTICAL NETWORKS(Among companies of consecutive links) (Among companies of consecutive links)
Competitive Strategies
Vertical-Horizontal Vertical-Horizontal RelationshipsRelationships
Shoe manufacturer
Shoe manufacturer
Shoe manufacturer
Shoe manufacturer
Client
Skin sellers
Tannery
Livestock farmer
Carriers
Distributors
Source: Carlos López Cerdan; COCAI - Mexico
SME’s do not have the resources or the capacity to adopt Individual
strategies
The integration and combination of Networks and Production Chains is not only a means of adding value, but it is
also a competitiveness and equity strategy.
Networks of independent companies are more flexible to market variations
Competitive Strategies
Individual Producer
Networking Producer
Produces according to his/her conditions.
Produces generics (commodities).
Sells to whomever he/she can.
Has fewer possibilities for growth and sustainability. Can organise his/her production
according to plans of rotation and biodiversity.
Sells as one business to another (B to B)
Produces specialised raw materials.
Produces according to his/her client-consumer needs.
Source: Carlos López Cerdan; COCAI - Mexico
Latin American and Caribbean Economic System Latin American and Caribbean Economic System (SELA)(SELA)
IBERPYMEIBERPYME ProgrammeProgramme
Gonzalo CaprilesGonzalo [email protected]@sela.org
www.iberpymeonline.org
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