Benefits of internationalisation

internationalization

The background of the policy

Getting SMEs to internationalise is an important EU policy objective because it is recognised that such a move can significantly benefit the European economy. Some of the objectives stated by the European Commission in the Communications 'Small Business Act' for Europe (EC, 2008) and 'Small Business, Big World' (EC, 2011), are to facilitate the internationalisation of EU SMEs.

Supporting SMEs' economic activities outside the EU is integrated into in the EU’s overall competitiveness strategy, as outlined in the Europe 2020 Communication on Industrial Policy and the EU 2010 Trade, Growth and World Affairs strategy (EC, 2010). This is especially true when considering the implementation and enforcement side of EU trade policy and the revised market access strategy ‘Global Europe – A stronger partnership to deliver market access for European exporters’ (EC, 2007).

Motivators for SME internationalisation

The benefits of transnational trade can be substantial. In its 2015 report on opportunities for SMEs, the Transatlantic Trade and Investment Partnership (TTIP) points out that companies with high-quality products can achieve substantial sales in Europe and the US, and that any action that reduces barriers will stimulate a rapid growth in these companies (TTIP, 2015).

One aspect of trade and collaboration at which SMEs excel is research—which typically occurs in the medical-technology sector at the bedside and is usually a result of small or micro collaborations between SMEs, health professionals and academia. It is known that this research model brings rapid innovation, which quickly tackles current and emerging medical needs (Med Tech Europe, 2011). It is also known that international SMEs create more jobs and report higher turnover growth, for example, internationally active SMEs report growth of 7% in employment versus only 1% for SMEs without any international activities (European Commission, 2012).

The motivations for SMEs to implement an internationalisation strategy are varied. They include: growth motives—this means if a company has a clear strategy to achieve growth it is more likely to move into international markets than a company that is not investing in growth; knowledge-related motives—where a company may be pushed or pulled into the international market because of the previous internationalisation experience of an owner or manager of the company (push), or because a company has a desire to obtain new knowledge or know-how and finds itself drawn to a foreign market (pull); and, network/social ties and supply-chain link motives—in which the process of collaboration and the exploitation of a company's 'soft' linkages, such as its social or familial background, may illustrate potential motives for entry into foreign markets (OECD, 2009).

Theories of internationalisation

These motivators are at least partly recognised by theories of internationalisation. One theory sees them as 'stages of development', where companies become incrementally involved in foreign markets, from a point of no regular exporting, through to exporting via agents and sales subsidiaries, and then on to foreign production and manufacturing (Clark and Pugh, 2001).

Network theory states that exporting occurs as a result of the development of networks and interactions within those networks through which trust and information are generated (Chetty and Blankenburg Holm, 2000).

Resource-based theory states that internationalisation decisions happen within the context of the strategic development of resources, both internal and external, and the physical, political and economic environments in which a company operates (Crick and Spence, 2005).

Characteristics of internationalising SMEs

Research carried out by Pickernell et al (2016), using data from a Federation of Small Business survey containing responses from 4,838 SMEs, found that SMEs that export differ in characteristics both relative to non-exporters and across business age boundaries. In terms of resources, they found that there was a consistently positive and significant linkage identified across variables, for example, between degree-level education or higher, or they included an export orientation within the business suggesting graduates play an important role in enhancing the SMEs export performance.

The authors also found that effective use of website technology was linked to export behaviour and enhances e-commerce trading (Pickernell et al, 2016). While this study did not focus exclusively on SMEs in the healthcare sector, it would appear that these findings are applicable to SMEs working in the high-technology sectors that characterise healthcare in Europe.

Comparative findings of the three regions involved in the SHINE project

Belgium

There is a clear link between the desire for growth in Belgian healthcare SMEs and the likelihood of their intention to internationalise—either through export trade or through collaboration with organisations and businesses abroad. Many Belgian healthcare SMEs are in specialised sectors, for example, in digital health, web-based solutions and highly specialised medical technologies, and these have the potential to access markets worldwide.

The products and services they provide change and improve rapidly, so they try to add value to their products on a continual basis to keep them attractive to their customer base. Of course, the SMEs wish to grow to increase profits, but are also very passionate about contributing to the overall healthcare of patients and to helping prevent disease and illness in the healthy population. In West Flanders, the whole economy is made up of SMEs—they are the driving force for the regional economy.

Many of these businesses are small and often family owned—but are innovative nevertheless—and it is recognised as a very entrepreneurial region. In general, the SMEs in Belgium, or at least in the West Flanders region, are well organised to move into international markets. This is partly because of the crowded, small nature of the Belgian national market—SMEs quite quickly understand that they may need to move into international markets. It is slightly different for start-ups because they are not generally well set up for international markets to begin with; it takes time and experience for them to grow into a more prepared position.

The Netherlands

The key motivation of an SME is the opportunity to get products into a range of markets and to increase sales. Some SMEs have worked closely with healthcare providers in the Netherlands to develop their products and services.

This is especially common for businesses that include a clinician or other healthcare professional as one of the start-up founders. It provides a route to access clinicians in other countries, making it easier to start discussions about selling products in those countries. Gaining a clinician as a partner in the early stages of a business creates a bridge that allows it to move into foreign markets at a relatively early stage.

When it comes to internationalisation for SMEs in the healthcare sector, companies are most likely to start with countries that are nearby. Of the top ten export destinations for Dutch companies, number one is Germany, two is Belgium and three is the UK, followed by the US, France and Switzerland.

Scotland

One of the drivers for advancement into international markets is when businesses are aware that there are mechanisms for connecting people and ensuring that the right people are connected. This allows a business to have confidence in moving forward into new markets, especially in cases where companies from different countries collaborate to produce a product that might be a niche product in one country but becomes more widely used as the number of countries involved increases.