How can SMEs enter the Middle East market?
Generally Small and Medium Sized Enterprises (SMEs) confine their activities to their domestic market. Firms that venture out into the international market had already grown beyond SME stage, i.e. they are fully developed corporations. Starting with the simple model, an entrepreneur is going into business for itself. If the business grows and the entrepreneur becomes successful, entrepreneurial enterprise is grown into SME by involving friends and families’ capital. As the SME becomes more successful, it is likely that it will change its operating structure to become a corporation (even though in some cases the family ownership and original entrepreneur founder may still be in control). It is generally at this third stage that firms go into foreign market. Entering a foreign market involves risks. Small firms, such as SME would not be readily willing to take such a risk (most of the time it isn’t worth it).
In the case of Middle Eastern countries, although you face a vast market you also face low amount of information and knowledge resources available, high cost of required capital, problem of networking with other exporters are some of the important threats to SMEs in order to enter to the market of these countries. Long waiting time to get payment out of export and financial institutions are not ready to help you. Lack of security in some of these countries has exacerbated this issue. Managers of many of these companies are afraid of traveling to these countries as well, due to media propaganda, which is not true for the most part.
We would like to give you our opinion on the first step of entering the market of such countries like Pakistan, Afghanistan, Iran and Iraq which is exportation. Exportation is perceived to be the easiest way to enter these markets which can move towards FDi in the advanced model.
The first problem of some SMEs is to select correct markets. That should be done based on market research. Unfortunately companies do not pay sufficient attention to this step; even lack of resources in these countries is another problem especially in Afghanistan and Iraq. They are just willing to sell their products in these markets. Sometimes companies try to enter all of these markets simultaneously that is very difficult, especially for those that do not have any experience in this field.
It should be mentioned that SMEs usually do not have sufficient human and capital resources (especially small companies). When they try to enter the market of Middle Eastern countries there might be a problem with covering costs of business trips, attendance at fair trades etc. It can be solved if you have a reliable partner or consultant company in these countries.
The second problem would be that some SMEs do not always have a product/service that really can be exported to these countries. You should consider the readiness of the society that you want to export your technology or products. Cultural readiness, costs that people may pay for this new product or technology and level of people’s education to follow the product’s instruction are some of the most important issues you should consider in this region. The product might not also be innovative for these markets or so expensive that people could not afford it. That is why some companies fail when entering the market of the Middle East. The managers who want to increase their sales might redesign their products based on the target market requirements.
Companies try to find business partners abroad but they fail because of the lack of expertise and knowledge of the market. Even chamber of commerce and Trade Promotion Organization in these countries are not so effective to help SMEs find a good partner for their business development. It must be considered that the best way of entering these markets is finding a trusted partner.
All in all, there are many reasons why SMEs fail entering the Middle East markets but the success might be closer to you if you find a good business consultant familiar with the people’s culture and business relationship in this region. Solutia can help you conduct your business development successfully!