According to a just-released study from Oxford Economics, successful high-growth small and midsize enterprises (SMEs) are thinking and acting on an international scale, competing even more with larger rivals, and investing aggressively in technology to improve operations and become more nimble. The “SMEs Equipped to Compete,” a SAP-sponsored study, is based on responses from over 2,100 small and midsize companies with $20 million to $750 million in annual revenue. The respondents from 21 countries represented businesses in the retail, consumer products, discrete manufacturing, professional services, and wholesale sectors. Feedback was collected via quantitative surveys along with executive interviews.
The overarching finding was that successful SMEs and large multinational corporations alike are just as impacted by increasing globalization, fierce competition, more empowered customers in new markets, and fast-changing technologies.
This article is the first in a two-part series summarizing the study findings. Part two will focus on the top five technology investments identified in the study.
Major efforts: New markets along with global and domestic expansion
SMEs cited global expansion (34 percent) and penetrating new markets (33 percent) as major efforts ahead of domestic expansion (29 percent). New markets were particularly important for 45 percent of manufacturers and 40 percent of highly profitable companies.
In fact, one-third of surveyed SMEs now generate over 20 percent of their revenue internationally, with that figure expected to increase by almost 50 percent in just three years. Similarly, the number of SMEs that do business in six or more countries will more than double from 16 percent today to 35 percent by 2016.
For Octo Technologies, a $28.5 million French consulting firm, the global mindset required a corresponding cultural shift. When the company expanded into other French-speaking countries like Morocco, Switzerland, and Belgium, problem-solving was relatively straightforward. But a move into Brazil in 2010 brought fresh challenges. “As soon as you have one Brazilian on your team, you’re no longer all French speakers, so you have to communicate in English — otherwise your Brazilian guy is lost,” says CEO Francois Hisquin. “That’s a big change for a French company.” But Octo’s bet is paying off with contract wins in Brazil despite a slowed European economy. Octo now generates about 16 percent of its revenues abroad, and Hisquin believes that the company has a model it can export to other countries.
Change is crucial for success
Nearly two-thirds of SMEs say that they must change to stay ahead of the competition, and over 50 percent say that technology developments are making traditional ways of doing business obsolete. In 41 percent of companies, the CEO/owner has primary responsibility for driving transformation, proof that this is an enterprise-wide concern. Transformation priorities include capitalizing on growth opportunities in expanding markets (41 percent), entering new geographic markets (36 percent), creating a culture of innovation (34 percent), and investing in new technologies (26 percent). As for results, the most profitable companies tend to be further along in the transformation process than their less-profitable peers.
Well over half of SMEs say that technology is at the heart of their business transformation efforts, and plan to increase their use of technology across the board over the next three years. Almost two-thirds strongly believe that technology helps them achieve longevity and sustainable growth. What’s more, over one-third of SMEs self-identify as early adopters of new technology. For example, Octo’s Hisquin says, “We were one of the French pioneers for digital technology. Agility is key to our business.”
Business management software is top focus
SMEs prioritize technologies that provide better understanding and insight across the enterprise. Business management software is the top focus (50 percent), followed by business analytics (43 percent), mobile (37 percent), social media (36 percent), and cloud computing (34 percent). Smaller companies are emphasizing investment in business analytics (52 percent) and business management software (58 percent), while their larger peers are more focused on mobile (41 percent), social media (44 percent), and the cloud (40 percent). Hot new technologies are on the table, too; only about one-third of SMEs don’t believe that big data is relevant to their business performance.
Study challenges SME stereotypes
Lessons learned from the SMEs Equip to Compete study challenge some stereotypes about SMEs. One of the biggest could be instructive for large enterprises as well. In a recent Harvard Business Review blog, Bright Simon contends that SMEs are primed to become “nano-multinationals,” going global through networks fueled by technologies and fostered by in-country relationships — in a markedly different way from the command-and-control approach of giant corporations. One thing that is certain, transformation is here to stay for companies of all sizes.