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Published on July 14th, 2014 | by Pieter CRANENBROEK | Credit: Wikipedia

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How SMEs going International can help Europe out of its Rut

“It’s the economy, stupid” was a campaign slogan which helped Bill Clinton win the US presidential elections in 1992, but it could also have been the theme of this year’s European elections.

Fixing the economy is priority number one, and small and medium enterprises may be the key to helping Europe out of its rut.

SMEs represent 99 per cent of all European businesses, provide two out of three jobs in the private sector, and are responsible for more than 50 per cent of the total added value created by companies in the EU.

European SMEs are therefore instrumental in promoting economic growth and, according to the European Commission, their positive contribution increases exponentially when they go international.

International SMEs have, for example, proved to be more innovative than non-international ones: 26 per cent of SMEs trading across borders introduced new goods or services in their country, whereas only 8 per cent of other SMEs managed to do the same.

Furthermore, internationally active SMEs show an employment growth that is seven times higher than the job creation of SMEs without any international activities. The former are also, on average, more competitive and sustainable in the long term.

It is certainly encouraging that about 25 per cent of SMEs in the EU have exported goods in the past three years. Nevertheless, only 13 per cent of this cross-border trade took place in markets outside the EU’s single market.

Of course, it is tempting to limit international trade to the European single market. Not only is the internal market governed by a common set of rules, 18 Member States now share the same currency which makes trading in the EU the logical choice.

Additionally, SMEs seem to have little cause to look beyond European borders; intra-EU trade accounted for over 20 per cent of the global GDP while 15 per cent of global trade in goods and 22.5 per cent of global trade in services occurred in the EU’s single market in 2012.

The EU is the world’s largest economy and the world’s largest trading block, but in order to ensure future growth European businesses will need to expand to other markets as well.

Emerging markets in China, India, and Brazil, to name just a few, have started to claim a bigger piece of the pie. For Europe to stay competitive, it needs its economy in general, and its SMEs in particular, to be less inward-looking.

Entrepreneurs with a migrant background are invaluable in this respect as their activities often involve both their new home countries and their countries of origin. New European business people can therefore prove to be vital in bringing EU member states and third countries closer together.

The EU can help along this process by negotiating trade agreements with both powerful trading blocks, such as NAFTA, and emerging ones like the ACFTA. It will also need to better promote public support programmes for internationalisation and facilitate relations between SMEs and business networks which are active in third markets.

“The world is moving twice as fast as Europe is at the moment”, Italian prime minister Renzi warned his European colleagues two weeks ago.

Promoting the internationalisation of SMEs may be exactly what is needed to bring Europe up to speed.

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