Small and medium enterprises (SMEs) in India generate 11% of country’s gross domestic product (GDP) and 45% of the entire manufacturing output, creating more than 100 million employment opportunities in the process. These SMEs not only act as key support units for large firms, but also help in expanding industry coverage in rural areas, strengthening the backbone of the economy. However, the growth of SMEs in India has been plagued with several challenges. These stem from factors such as weak marketing facilities, inadequate access to credit, lack of access to technology, and complex regulations and procedures. Moreover, over the last few years, as a part of further liberalization, the Indian market has been increasingly being opened to foreign companies, including SMEs. Their influx will soon make the domestic market saturated, rendering inadequate growth opportunities for both Indian and foreign SMEs. Hence, it is imperative for Indian SMEs to go global, akin to their foreign counterparts exploring and expanding in the Indian market. Going global will not only help the Indian SMEs expand their market reach, but also prepare them for global competition. This will help them improve their performance in the local market as well.

While global expansion is need of the hour for Indian SMEs, there are several challenges that need to be addressed first. Despite the Indian government’s strong impetus and push to Indian SMEs and exports, less than 1% of the 65 million Indian SMEs are engaged in global trade at present. Lack of knowledge on overseas market scenarios and lack of experience in conducting global trade are acting as major barriers to the internationalization of Indian SMEs. Exploring an alien territory can be both risky and expensive. Gaining knowledge on overseas markets beforehand is an equally time-consuming and expensive process. Insufficient information on potential business opportunities can lead to a high opportunity cost of choosing the wrong target, thereby affecting the margins and confidence of a firm. Similarly, lack of access to global trade resources to facilitate end-to-end deals can dent an SME’s budget substantially. Hence, although global expansion is an attractive proposition, it is a risky endeavor if executed without adequate preparation.

This study seeks to chart out a road map for the internationalization of Indian SMEs, considering the pros and cons at both ends of the spectrum. It specifically sheds light on the associated hurdles and opportunities, thereby helping SMEs in India adopt an approach that is best-suited to both market needs—both domestic and international—and their individual growth aspirations.

Author: Akshay Sharma