The-Accountant-Jul-Aug-2017

Finance and investment
a) Information access barrier
Owing to the fact that decisions are
made based on information, it becomes
increasingly difficult for SMEs to make
decisions including those related to
internationalization since they do not
have information to analyze and take
a decision. In some cases there are too
many sources of information especially
on the internet that have cast aspersions
on the authenticity and reliability of
information provided thus reducing the
decision makers’ trust in such sources.
A manager sitting somewhere in
Kenya may read about an opportunity
in another country on the internet or
papers but would take time to believe
the source and by the time they do the
opportunity is no longer available. This
makes it difficult for them to identify
business opportunities as and when they
arise.
b) Human Resources Barrier
A business entity without people is just
a name. Therefore it is important for an
organization to get the best people to
work in these organizations. However,
SMEs owing to their small size lack the
capacity to employ some of these best
people and therefore settle only for what
they can afford which in some cases may
not be the best at that time. Training and
capacity development is one of the ways
to develop capacity in the organization
but unfortunately SMEs usually lack the
budget to achieve this. This inability to
hire the best and the inability to train
the existing to become the best have led
to overworking the existing employees
thereby leaving them with little time to
think about internationalization.
c) Financing barriers
Finance is the life blood of any entity and
lack of it can simply bring the organization
to a grinding halt. Internationalization is
thus considered an investment and as the
norm with any investment a feasibility
study always ought to be conducted.
This includes market research, market
visits and possibility of adopting
foreign market strategies. Being a new
territorial boundary, firms are usually
unable to tell how much of investment
expenditure would be required to
commence and conclude the process, this
uncertainty would make SMEs unable
to source for funds to finance these
internationalization activities. Insurance
companies are sometimes reluctant to
insure products or assets in a foreign
market because of uncertainty.
d) Distribution, promotion and
Logistical barriers
Product placement and promotion is
often a challenge in internationalization
especially due to lack of effective
distribution channels and because
they are influenced or occupied by
foreign competition. Effective product
promotion is that which takes into
account the culture of the consumers in a
foreign market as well. An advertisement
in one country may be considered an
insult in another country thereby affecting
the chances of penetration of that
product or that company in that foreign
market. Firms that seek to effectively
internationalize should thus be aware of
this fact. Transportation costs, insurance,
sourcing of raw materials and technical
difficulties on offering sufficient after
sale service have also posed a challenge
to effective internationalization.
2. Environmental factors
Environmental factors include factors
that are not within the control of the firm
starting from factors in the local market
to factors in the destination countries as
below;
a) Procedural barriers
Bureaucracy of paperwork and
transactions such as understanding
exporting procedure, customs,
shipping arrangements may cause low
internationalization. Due to distance
challenges, less communication with
the customers in foreign markets may
come to play therefore affecting the
level of relationship with customers
in the foreign markets. This could also
lead to low collection of payments and
sometimes enforcement of contracts.
b) Governmental barriers
Governments both in the foreign
and home market have a role in
promotion of SMEs. Lack of support
from both governments can cause low
internationalization activities. Lack
of incentives, restrictions to foreign
ownership, unfavorable import or
exportation regulations, protection
policy of domestic firms by the foreign
governments etc will make SMEs
unsuccessful in foreign markets. SMEs
decision makers must thus ensure they
have a good understanding on these
issues before deciding to go to a foreign
market.
c) Business Environment barriers
These factors include political, sociocultural,
economic and legal factors
of the target overseas market. These
factors if not carefully assessed could
lead to instant failure in the foreign
market. They include poor or declining
economic conditions that may increase
rates of inflation, high foreign debts
and unemployment that may reduce
the purchasing power in that market.
Other risks include foreign exchange
risk, language barrier, different culture,
political unrest and poor infrastructural
networks in some countries.
d) Tariff and non-tariff barriers
These barriers are imposed by the
governments in the foreign market
and some by the governments in
the country of origin. They include;
high cost of customs administration,
impositions of unfavorable quotas and
embargos, unattainably high quality
standards, arbitrary classification and
reclassification of imports and exports
and high tariff barriers.
Recommended solutions to
these barriers
In order to overcome the barriers above
SMEs could adopt some of the strategies
such as use of networks, develop a
product with niche characteristics and/
or brand identity.
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