Small and Medium Sized Enterprises and the Risks they Face in an Essay

Small and Medium Sized Enterprises and the Risks they Face in an International Environment - Essay Example In proportion to other trends of globalization, small and medium sized Enterprises are increasingly occupied in international businesses. â€Å"Foreign investments by small and medium scale enterprises have also increased† (Feyter 2011). SMEs account for a major share of exports and imports and go up to international network of production. â€Å"Small organizations have very little, if any, influence over the forces of external environment, and this can be attributed to the limited resource of the small firm† (Sha n.d). As SMEs try to internationalize, they frequently come across extensive hurdles. These hurdles are complex, and they can be from the larger, external, business environment of SMEs including barriers of trade policy; or from the internal environment of firms. â€Å"Currency fluctuations are the top concern for 49% of UK SMEs† (International Trade: Confidence Concerns and Risk for UK Smes). The various risks that small businesses face when they engag e in the international trade include credit risk, interest rate risk, country risk, and currency issue. Credit Risk- SMEs regularly complain that their competitiveness and growth are restricted by lack of access to the financing and high cost of credit. The high cost of credit remains a major constraint in the development of SMEs, although there is proof that SMEs are more concerned about the access to credit than the cost of credit. Interest rate risk arises when the business depends more on borrowed funds, or revenue generated from savings. Fluctuations in interests rates affect the total profit of the business through reduction in income from the interest or by increases in the interest expenses. Country Risk The country risks in foreign exchange trading are connected with the intervention of government in foreign exchange market. Currency Issue- Most of the international trade is carried out in dollars. This has paved way to considerable exchange risks of currency. While taking SMEs in UK as an example, thirty six percent of SMEs   business leaders of UK   who carry out international business quote ‘currency fluctuations’ (Latest Market Research Surveys 2009) as their overruling concern. In spite of fluctuations in currency being their key concern, an astonishing fifty six per cent of SME leaders admit that they do not control their financial risk. UK SMEs on trading internationally, consider problems of currency fluctuations, legislation, problems in payment, pricing, language barrier, time limitations, and cultural differences. Aims and Objectives 1. To identify the risks faced by SMEs by way of international trading 2. To provide solutions to lessen the risks aroused from international trade Methodology The data for this business report is gathered from secondary sources like journals and articles published, and from different texts. â€Å"Research methodology is a way to systematically solve the research problem† (Research Metho dology: An Introduction 1978). Primary sources are not used, as data collection from the SMEs of different countries as a whole is not possible. Secondary sources include data that are collected and gathered for a further purpose. The secondary sources include not only reports and records that are published, but also unpublished records, including different registers and records kept by organizations and firms like