The emergence of digital markets can help Canada’s small and medium-sized enterprises (SMEs) sell internationally by increasing access to foreign customers and improving the quality, speed, and cost-effectiveness of transactions.
Despite the potential benefits, Canadian small and medium-sized enterprises (SMEs) are hesitant to sell online because they lack the knowledge of how to do so effectively, according to a Conference Board of Canada report, Building International Sales in a Digitized Economy: Best Practices for SMEs. The report identifies three main factors that contribute to success in international digital markets: a favourable online reputation, strong online technological capabilities, and an engaged online brand community.
“Most Canadian small and medium-sized businesses use the internet, but online selling is not yet widespread,” said Rebecca Reuber, co-author and Professor of Strategic Management at the Rotman School of Management, University of Toronto. “Many small and medium-sized businesses do not know how to reach foreign customers online or how to adapt their business model to take advantage of digital markets.”
“Although greater internationalization provides growth opportunities, doing business in foreign markets can be difficult and costly for resource-constrained SMEs, and most of them operate solely in the domestic market,” said Eileen Fischer, co-author and Max and Anne Tanenbaum Chair of Entrepreneurship and Family Enterprise. “One particular hurdle for some firms is the investment that’s required in technology to sell effectively online. ”
A Statistics Canada survey reported in 2008 that only 36 per cent of Canadian private sector organizations believed doing business over the Internet would allow them to reach new customers. And a 2010 Statistics Canada study found that only seven per cent of small enterprises and 13 per cent of medium size enterprises were selling online in 2007, about the same percentage reported in 2001.
The Conference Board report shows that the competitive context for SMEs in international digital markets differs from that in traditional markets. Online buyers are more apt to imitate the purchasing behavior of other customers, technological capabilities increase in importance, and online buyers are interested in participating in online communities. As a result, three main factors that affect company success are:
- A favourable online reputation – elements include visibility, trustworthiness, and signals of high product or service quality.
- Strong online technological capabilities – the CEO and other top managers must champion technological development, rather than delegating responsibility.
- Engaged online brand communities – buyers increasingly want to become involved with firms, so companies should invest resources in monitoring a range of social media and interacting with customers.
The research also identifies three major challenges. First, SME owners need to be cautious about relying exclusively on online contact with customers. Second, entering foreign markets haphazardly – or as market pioneers – can lead to costly mistakes that could be avoided with a deliberate and coherent strategy. Third, SME owners need to think about how “Canadian” they want their image or brand to be, as there can be advantages in making borders as invisible as possible.
The report concludes on a series of eight policy-related implications, including:
- foster offline interactions between buyers and sellers;
- focus on foreign markets with high growth potential instead of simply responding to unsolicited online requests;
- ensure access to high capacity Internet and wireless networks;
- ensure banks and government agencies are able to assess intangible resources, such as a firm’s reputation and online community;
- provide more recent data about the international activities of Canadian SME in digital markets;
This report is publicly available at www.e-library.ca and was produced by the International Trade and Investment Centre for the Conference Board’s CanCompete program. CanCompete is a three-year program of research and dialogue is designed to help leading decision makers advance Canada on a path of national competitiveness. The International Trade and Investment Centre also published Canada’s Trade in a Digital World in April 2011.