Small and medium-sized enterprises (SMEs) can be characterized as essential contributors to the economic development of countries in the contemporary world. They tend to focus on markets that are psychologically and geographically close rather than distant. According to OECD (2021), “just over a quarter (26%) of all European SMEs have exported their goods or services in 2019” (p. 5). At the same time, internationalization and access to distant markets frequently provide an opportunity to grow and increase competitiveness for many companies. In this regard, SMEs must consider potential challenges that are associated with moving to new distant markets.
When trying to target distant markets, small and medium-sized companies may face internal barriers, such as informational, financial, human resource, or marketing problems, and external challenges that include competitor, procedural, governmental, and cultural factors. Informational barriers result from the lack of relevant and reliable data required to understand foreign markets and customers (Gillani et al., 2021). The financial aspect of the problem is another significant obstacle for SMEs that might prevent them from starting international operations (Polyviou et al., 2019). Similarly, limited human resources constitute a common issue in developing an effective strategy for entering foreign markets (Jespersen et al., 2018). Marketing barriers include numerous challenges associated with logistics, product pricing, distribution, and promotion campaigns (Kapetaniou & Lee, 2019). As can be seen, geographical proximity plays an essential role in easy access to resources, optimized organizational processes, and operational structures that benefit small and medium business companies operating in close markets.
Competition can be considered one of the major external problems that SMEs can face in a foreign environment. According to Braito et al. (2021), “to successfully compete in international markets, SMEs are required to focus on specific, well-defined market niches, in which they can still hold a competitive advantage” (p. 8). Such a requirement can discourage companies with limited financial and human resources. Procedural barriers include the difficulty in managing documentation as a result of bureaucracy in foreign markets (Régnier & Wild, 2021). The governmental factor is associated with a complex structure of the global value and supply chains that create additional challenges for SMEs (Puncheva-Michelotti et al., 2018). Finally, cultural barriers are related to a decreased survival rate among companies that enter new, psychologically, and geographically distant markets (Wang & Giouvris, 2020). Overall, a combination of the factors mentioned above can present a significant challenge for SMEs that consider moving to distant markets.
It is worth noting that such issues are not specific to certain business sectors and can be encountered by both manufacturers and service providers. This tendency can be explained by the complexity of business operations involved in their activity. As reported by Avelar-Sosa et al. (2018), the location factor and geographical proximity are crucial to many aspects of a business. The timely delivery of goods and services, supply chain disruptions, and complicated logistics processes can affect the overall performance of SMEs (Braito et al., 2021). Furthermore, potential competition and cultural differences of the target audience can impact the firm’s decision-making.
Overall, various industries can face difficulties when entering new distant markets, including manufacturing companies and service providers. Therefore, it is essential to take into consideration the internal and external barriers discussed above and evaluate their effect on business. Gaining access to distant markets can provide an opportunity to grow and increase sales. At the same time, it is essential to consider the associated difficulties and assess the company’s resources before moving to psychologically or geographically distant markets.
References
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