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Exploring new markets essential for growth of SMEs

By on July 25, 2017 in SMEs Insights with 0 Comments

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SMEs are the primary growth drivers of any country’s economy. Many aspects including GDP growth, employment rate etc. majorly depend on SMEs. This is true for all major countries, irrespective of whether they are developing or developed. To put it into perspective keeping India as an example, the SME sector employs about 40 percent of the total workforce in India, around 6 crore people. Moreover, the SME sector contributes 45 percent to India’s total manufacturing output and also accounts for 30 percent of India’s total exports. India currently has around 1.3 million SMEs which contribute 9 percent to India’s GDP ( according to 2014 figures).

 

Although the SME sector in India has maintained a consistent growth rate of over 10 percent over the past few years, still it has to be said that for India to transform from being a developing nation to a developed one, the SME sector has to grow further. An unfortunate trait of SMEs is to follow the path of least resistance, they prefer comfortable progression with a risk averse approach instead of high risk and high reward options. One of these high risk high reward options for the SMEs is exploring new markets, setting up base in markets with a higher number of potential customers irrespective of which region they are in. It would suffice to say that exploring new markets is absolutely essential for SMEs if they want to grow consistently.

 

Exploring new markets helps SMEs expand their customer base

It’s essential for any organization to keep expanding into new markets and thus keep increasing it’s client base. New clients are essential for any organization since it gives the organization an opportunity to ensure continuous profits, increase it’s brand recall value in the market and helps in understanding about what prospective customers of a targeted area prefer etc. This increases the organization’s knowledge on behavioral patterns and preferences of people based upon a certain demography and geography. Moreover, exploring new markets helps the SMEs to get ideas about sourcing from places that would save on their overall raw material costs.

 

SMEs can be more innovative

Every firm must constantly think out of the box and innovate if it has to be continuously successful in a competitive business environment. Expanding into new markets gives SMEs access to new technological ecosystems, enuring the possibility of new ideas being nurtured more. This will help SMEs to improve upon their product range and also develop newer path breaking products.

 

SMEs get the opportunity to diversify

The more diverse an organization is, the greater it has a chance of becoming and remaining successful. Diversifying makes any organization more robust and increases it’s ability to cope up with challenges. Whether it be ensuring constant flow of innovative ideas as a result of a diverse workforce or whether it be gauging the appeal of a single product across various demographics and income groups, diversification provides unmatchable benefits to SMEs, in the process helping them to become leaders in their segment. This is backed by anecdotal as well as empirical evidence in many economies.

 

SMEs can collaborate with other feasible partners

Collaboration between two suitable organizations increases the productivity and efficiency of both organizations and helps them to get a foothold in various markets. Suppose a SME has the technological know how and knowledge about a particular market but lacks capital. In such a case, it can partner with another organization that has the requisite capital,thus enabling it to cover all aspects of it’s business and be a force to reckon with in various markets.

 

Opportunities of relocation

Leaving aside emotional reasons like attachment of the founder(s) to place where the SME is based, many a times it becomes imperative for SMEs to think about relocating to new markets, markets which are the center of national and international trade. Even in this globalized world, the importance of being based at a place which is very supportive for business growth cannot be discounted. Exploring new markets gives SMEs ample opportunity in this aspect, enabling them to scour new locations and analyze which place would be better for various reasons , be it SME friendly laws, a high number of potential customers, a talented pool of people to choose from as employees and many more.

 

Economies of scale

SMEs based in and doing business in a single market put themselves at a big risk of a single bad decision or one bad business cycle being disastrous for them. Operating in multiple markets allows the SMEs to spread their business and reduce the overall costs associated with it. Apart from the aforementioned reasons, expanding into multiple markets also reduces the cost of doing business on a per customer basis, thus enabling SMEs to increase their efficiency, productivity and become more competitive.

Although it has to be accepted that in this E-commerce age, SMEs have gotten an unprecedented opportunity to expand into newer markets and a majority of them have expanded, with E-commerce sites giving them an opportunity to transcend their geographical limitations and expand into newer markets. Albeit laudable, yet SMEs also need to set up their bases in these newer markets. This will give them opportunities for holistic growth, right from increased technological know how to a more talented workforce and more financing options.

 

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