Competition and Low Demand Pose Twin Challenges for SMEs

Strong competition and low consumer demand are the two most significant risks currently facing small and medium-size enterprises (SMEs), a worldwide survey by Zurich Insurance Group Ltd concludes.

According to Zurich, despite the problems, SMEs are striving for growth by targeting new customer segments via traditional and new sales channels, and even expanding to foreign markets.

The insurer commissioned GfK to conduct the research that examines the challenges, risks and opportunities for 3,293 SMEs in Australia, Brazil, Germany, Indonesia, Ireland, Italy, Mexico, Portugal, Spain, Switzerland and the United Arab Emirates (UAE), while YouGov surveyed SMEs in the United Kingdom.

“We are reassured that 84% of SMEs globally are optimistic with respect to their business development, showing strong resilience despite economic challenges,” said Mike Kerner, Zurich’s chief executive (CEO) of general insurance, in a statement.

Attracting new customers is considered vital, with most of the SMEs targeting them in domestic (23%) and international (13%) markets in the past 12 months. They also see attracting new customers as the biggest growth opportunity in the coming year (33% and 14% respectively). SMEs also plan to win new customers through diversification of products or services (18% in the past period and 19% in the future).

About 26% of SMEs in the UAE and 15% in Switzerland, Spain, Ireland, Australia and Mexico have expanded abroad through setting up export operations, and the enterprises in these countries are optimistic about continuing this trend, Zurich found.

Prices versus wages

In the current economic environment, Spanish, Portuguese, Italian and Irish SMEs were the leaders in reducing prices (25%, 20%, 24% and 15%, respectively), while they were also laggards in increasing wages for their employees (4%, 6%, 4% and 3%, respectively). Zurich said those trends reflect the economic challenges those members of the eurozone are currently facing.

In other European countries SMEs have better supported salary growth: 24% in Switzerland, 14% in Germany, 20% in the UK, while curtailing price reductions. That trend, growing salaries while restraining prices, was also noted in emerging markets: 41% versus 15% in Brazil, 16% versus 5% in Indonesia and 17% versus 12% in Mexico.

Thirty-six per cent of the SME leaders surveyed identified competition and dumping as a major risk their businesses are facing, and a lack of customer demand was the most significant issue for 24% of them. This is particularly the case in Spain (43%), Italy (35%), the UK (34%) and Portugal (32%) but less of a concern Germany and the United Arab Emirates (both 14%) and in Indonesia (11%).

Zurich sees the risk of theft as one of the largest consistently across all geographies (19%), but the insurer found the risk of property damage and business interruption from fire is only a serious concern for SMEs in Brazil (20%).

Online fraud, computer hacking and other cyber-crimes were not categorized as top risks, as Zurich said only the UK showed concern with 9% of SMEs highlighting these. The insurer did, however, find that 16% of SMEs saw web trading and other innovative sales channels as opportunities, while 13% plan to use new business technologies such as mobile and tablet computing in the next 12 months.

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