Barriers to Internationalization: What Keeps Middle Market Companies Home?
This post is part of a series based on the research report Winning in the Americas by the National Center for the Middle Market in partnership with FedEx and Nextrade Group. Download the full report here.
In our recent study of international activity among middle market companies, the National Center for the Middle Market uncovered numerous strong arguments for doing business abroad. Most notably, the most prolific middle market exporters and importers tend to be the largest and fastest growing middle market firms. What’s more, for the vast majority of companies, the exporting experience is a clear success, either meeting or exceeding expectations.
Yet only about half of middle market companies export and half import—many of the companies trade both ways. That leaves about half of middle market businesses that conduct no international business at all. With new customers and new markets to be had through exporting, and cost savings to be realized through importing, we wondered what stands in the way of more companies taking advantage of opportunities abroad.
Here’s what we found:
Domestic expansion is more comfortable than going global.
Nearly six in 10 middle market leaders say it’s easier to manage the supply chain when it’s all domestic. Close to the same percentage believe that international operations are riskier than doing business in the U.S., and over a quarter of companies say expansion into foreign markets is just too risky for their firms.
The best opportunities are believed to be right here at home.
About half of middle market leaders feel their best short and long term growth opportunities are in the states. Since these opportunities are viewed as easier and safer to realize, it’s no surprise that many firms focus exclusively on domestic expansion – especially since about three in 10 firms believe that expansion into foreign markets distracts from opportunities to take advantage of the lower hanging fruit here at home. In addition, some companies see little overseas demand for their products or services. For other companies, being fully “Made in America” is an important point of pride.
Companies lack the size and the resources to go abroad.
For a good number of purely domestic middle market companies, size is a barrier. Close to a quarter, or 22%, believe their company is too small for expansion into a new country. These companies may lack the resources for finding and managing overseas customers, partners, and suppliers. Some 15% feel international expansion is just too expensive to pursue.
Getting there is only half the challenge.
Even middle market organizations that are already established abroad face challenges when it comes to expanding their international business. Costs, and transportation costs in particular, can be an issue. For about a quarter of internationalized businesses, political, environmental, and legal risks in their target markets stand in the way of continued expansion. About the same percentage of businesses have trouble finding the partners they need to expand. Many companies also contend with economic uncertainty, poor customs procedures, and corruption.
Despite these significant hurdles, many middle market leaders continue to realize the importance of globalization and see international activity as playing a key role in their future growth. To learn more about how middle market organizations balance the challenges and opportunities afforded by globalization, see the Center’s full research report, Winning in the Americas.
Next in this series
Post 4: Harnessing Opportunities for International Growth: Why Look to Latin America?
Others in this series
Post 1: Comings and Goings: A Snapshot of Middle Market Trade
Post 2: How to Succeed as a Middle Market Exporter