Internationalisation and SME development in transition economies: an international comparison

This paper is concerned with the effects of internationalisation on SMEs in countries that are becoming increasingly affected by market integration at a time when their economic structures are going through a process of radical transformation. Empirical data are drawn from recent surveys of SME managers in the food and clothing industries in Poland, Bulgaria and the Baltic States, which is compared with the results of similar surveys in the UK and Greece. The results show that the ability of SMEs in transition countries to compete in foreign and domestic markets, varies between sectors. In food processing, although some SMEs have been able to penetrate foreign markets, the main effect so far has been to increase the level of competition in domestic markets. The evidence shows that foreign market penetration by food processing SMEs in transition countries is often focused on markets in other transition countries rather than in Western markets. In the clothing industry, the effects of internationalisation are different because of the highly internationalised nature of the clothing market and the production system that supplies it. In this context, SMEs in countries such as Poland and Estonia particularly, have been able to attract subcontract type work from Western countries, based on their relatively low labour costs. However, as the Greek experience demonstrates, this type of production can be very volatile, disappearing almost as quickly as it is secured. Despite detailed differences between countries and between sectors, the evidence shows that in all the Central and East European countires (CEECs) featuring in the study, some SMEs in the emerging private sector are responding to new foreign market opportunities and, in the short term at least, managing to achieve competitiveness. However, there is also evidence that their current basis of competitiveness in foreign markets contains weaknesses which may affect their ability to sustain their export effort in the longer term. As far as SME managers in transition countries are concerned, the main priorities for government action to improve their ability to increase foreign market sales are assistance with export promotion and a reduction in the level of domestic taxation. The survey results show that although a significant minority of exporters in transition countries had been using external assistance to support their export effort, this was typically either on a fully paid for basis from consultants or informally from other firms or business associates rather than from trade organisations or formal business support organisations.