Why is international business important

International business challenge. What do medium-sized companies expect from their house bank?

Table of Contents

List of abbreviations

List of figures

1 Introduction

2 Theoretical foundations for German medium-sized companies
2.1 Definition of medium-sized companies
2.1.1 Historical background
2.1.2 Quantitative criteria
2.1.3 Qualitative criteria
2.1.4 Interaction between the two differentiation criteria
2.2 Economic Significance of German SMEs

3 Internationalization of medium-sized companies
3.1 Definition of internationalization
3.2 The internationalization process
3.3 Motives for internationalization in medium-sized companies
3.4 Position of medium-sized companies in international business
3.5 Interim conclusion

4 Banking with international companies
4.1 Framework conditions for international business at the bank
4.2 Requirements of SMEs for banks in international transactions
4.2.1 Examination of the range of services for international business using the specific example of the savings banks
4.2.1.1 Decision-making and planning phase
4.2.1.2 Foreign trade transactions
4.2.1.3 Cooperative contractual relationships
4.2.1.4 Foreign commitments with equity participation
4.2.2 Other offers from the savings banks
4.2.3 Further development potential of the range of services?

5 conclusion

Appendix list

bibliography

List of abbreviations

Figure not included in this excerpt

List of figures

Figure 1: IfM Bonn's definition of SMEs

Figure 2: European Commission's definition of SMEs

Figure 3: Quantitative definition of medium-sized companies according to DMI

Figure 4: Development stages in the internationalization process

Figure 5: Motives for foreign activities of medium-sized companies

Figure 6: Foreign activities of medium-sized companies

Figure 7: Development of equity ratios according to sales size classes

Figure 8: Market positioning in international corporate banking

Figure 9: Components of the S-Finanzkonzept corporate customers

1 Introduction

The recent economic and financial crisis has put the cooperation between banks and corporate customers to the test. Many credit institutions have to reorient themselves and redefine the success factors for their establishment. However, the corporate clientele still receives special attention from the banks, as they have a very attractive earnings potential. But after the financial crisis, the main thing is to regain the customers' lost trust in their bank and to rebuild the partnership. The relationship level is particularly important for small and medium-sized corporate customers.[1] The middle class is the economic engine of Germany. Its success is based on values ​​such as stability, consistency, motivation and quality. But in times of increasing globalization, medium-sized companies are also called upon to deal with foreign markets. The demand for services for international business is increasing continuously. When it comes to the challenge of “internationalization”, it is the bank's job to support its customers as a partner and advisor and to offer the required services. This is the prerequisite for maintaining a long-term business relationship.[2]

The following remarks address the concept of medium-sized companies and discuss the position of medium-sized companies as the mainstay of the German economy. Then the internationalization development of the middle class is considered. It is important to define this phenomenon precisely and to show the company's motives for internationalization. The entrepreneurial peculiarities, which are considered below and which justify the position of medium-sized companies in the internationalization process, suggest the importance of credit institutions for medium-sized companies in the processing of foreign business. The general framework conditions at the banks for international business are then examined. The needs of medium-sized companies in international activities are then projected onto the bank's range of products and services. Since the Sparkasse often acts as the house bank of medium-sized companies, the consideration of the services is focused on this group of institutes. The aim of this thesis is to work out the importance of credit institutions in foreign business activities of medium-sized companies and to examine to what extent the banks, primarily the savings banks, fulfill this role.

2 Theoretical foundations for German medium-sized companies

2.1 Definition of medium-sized companies

2.1.1 Historical background

From a linguistic point of view, the middle class is a “middle class” of a society. The term “stand” comes from the Latin word “status” and defines a self-contained group in a hierarchical society. The historical origin of the term “Mittelstand” cannot be clearly established. In antiquity and in the Roman Empire, the classes were first differentiated according to their power, income and political position. In the Middle Ages, the free urban bourgeoisie developed as a special class between the upper and lower classes. The cities that were created by the bourgeoisie were of great importance for the economic development of the country. From the 16th century until the beginning of the Weimar Republic, economic development was influenced by major technical and commercial innovations. During this time, the distinction between the upper and lower levels of society in connection with the middle class became less important. Rather, the expression stood for those entrepreneurs who were neither small craftsmen nor large industrialists. At the beginning to the middle of the 20th century, due to economic and political developments, the middle class was not of great importance; it was the large industrial companies that benefited here. Only in the years of the “economic miracle” (1949-1966) did the “new medium-sized companies” emerge. During this time, many entrepreneurs in West Germany took advantage of their opportunities due to the enormous global demand. They were finally able to establish themselves in the first economic crisis of the post-war period, when they were able to absorb the job losses in large industrial companies. At that time, the middle class was made up of owner families from small and medium-sized enterprises (SMEs). With the fall of the Wall in 1989, the companies nationalized in the former GDR were privatized and incorporated into the economic system of the Federal Republic of Germany.

The term “Mittelstand” has changed a lot over the years. Above all, the increasing importance of the characteristics of the owner and the family is clearly visible. The current definition of medium-sized companies reflects these developments.[3]

In the following section, medium-sized companies are delimited on the basis of quantitative and qualitative criteria. The quantitative characteristics are based on the concept of SMEs, while the qualitative characteristics take up the concepts of medium-sized companies and family businesses. A differentiated consideration of these terms, which are often used with the same meaning, is important here.[4]

2.1.2 Quantitative criteria

Different quantitative aspects can be used to evaluate the SME membership, which reflect the performance potential of a company.[5] In practice, the number of employees and the annual company turnover have established themselves as assessment parameters. This results in the definition of the Institute for SME Research Bonn (IfM):

Figure not included in this excerpt

Figure 1: IfM Bonn's definition of SMEs[6]

However, this definition, which is recognized in Germany, is not used at the international level. In 1995, the European Commission defined an SME definition which, in addition to the two indicators mentioned above, also takes into account the company's total assets. This was updated in accordance with the Commission recommendation in May 2003 and provides for the following delimitation criteria:

Figure not included in this excerpt

Figure 2: European Commission's definition of SMEs[7]

These size limits are also decisive in Germany for the allocation of funds for all SME programs in the European Union.[8]

2.1.3 Qualitative criteria

Medium-sized companies cannot be defined solely by economic size specifications, but are also characterized by social-psychological aspects that also enable them to be differentiated from large companies.[9]

The focus of the qualitative definition is the owner of the medium-sized company. He unites ownership and management and bears the risk and responsibility for all corporate decisions. Further characteristics for medium-sized companies are economic independence, a close relationship to the regional environment and business partners, a flat corporate hierarchy and thus personal interaction with employees.[10]

The IfM Bonn specifies the criterion “unity of ownership and management” and describes all businesses, at least half of which are held by up to 2 natural persons from the family circle and who are also active in the management, as family businesses.[11] Accordingly, all medium-sized companies are always owner-managed family businesses.[12] A definitive differentiation between the terms “medium-sized companies” and “family businesses” cannot be found in the literature to this day.[13]

Ultimately, decisive for the final definition of medium-sized companies is the interaction of both quantitative and qualitative aspects, which is considered in the following subsection.

2.1.4 Interaction between the two differentiation criteria

The interplay of the qualitative and quantitative characteristics can be used to distinguish medium-sized companies from large companies. Companies that meet both criteria represent the classic medium-sized companies. But also the large family businesses, referred to as “hidden champions” because of their extraordinarily strong market position, which do not meet the quantitative requirements but are essentially to be regarded as medium-sized companies, are also considered to be medium-sized companies in the broader sense.[14] Since the German middle class occupies a very strong position in a European and global comparison,[15] When defining medium-sized companies, the point of view of the Deloitte Mittelstandsinstitut (DMI), which sets the size criteria for medium-sized companies higher, must also be considered:

Figure not included in this excerpt

Figure 3: Quantitative definition of medium-sized companies according to DMI

Accordingly, according to DMI, medium-sized companies include not only owner-managed or family-run companies but also management-run companies with up to 3000 employees and / or an annual turnover of up to approx. 600 million euros or companies that meet both definition criteria.[16] Since the international activity of medium-sized companies is the focus of this thesis, the DMI's point of view is also taken into account here.

Finally, it should be noted that there is no uniform definition of the term “medium-sized companies”. There are different definitions of terms in the specialist literature. In principle, the quantitative limits in particular must be questioned, as these are heavily dependent on the industry in which the company operates.[17]

2.2 Economic Significance of German SMEs

Medium-sized companies are always in the focus of the state and politics, which is an indication of their high economic role for Germany. The importance of SMEs can be demonstrated by some statistical data.

On the basis of the IfM Bonn's definition of SMEs, over 99% of all German companies are medium-sized. In 2011 they generated around 2 trillion of the total turnover of all German companies, which corresponds to a share of around 37% and an increase of 8.1% compared to the previous year. Their contribution to the country's total net value added was almost 52% in 2010.

Medium-sized companies are particularly important when it comes to securing and creating new jobs. In 2011 they provided around 60% of all jobs subject to social security contributions in Germany. In addition, the SMEs are intensively involved in training work. Here they provided over 83% of all apprenticeship positions. With their contribution they make a decisive contribution to the low youth unemployment rate of 7.9%, which is an excellent figure in a European comparison. It is not for nothing that medium-sized companies are referred to as the “job engine” in Germany.[18] Especially in difficult economic phases it has already been shown several times that medium-sized companies tend to refrain from layoffs compared to large companies, which is of enormous importance for the employment market.[19]

Corporate investments are also important for sustained economic growth. The share of SMEs was 195 billion euros in 2011, which means an increase of 10% over the previous year. This should be seen as positive, especially against the background of the reluctance to invest in previous years and the now slower economic upturn.[20] The strength of innovation is also seen as an essential indicator of a company's long-term economic success and competitiveness.[21] In 2010, around 39% of all research and development expenditure was accounted for by small and medium-sized enterprises. Taking into account the fact that SMEs make up around 99% of all German companies, this contribution appears to be small. In this context, however, it would be inappropriate to conclude that small and medium-sized enterprises are not innovating enough. On the contrary, in recent years medium-sized companies have increased their R&D expenditure significantly more in percentage than large companies, and innovation success can also be seen with an innovator rate of over 65%.[22] For the “hidden champions” in particular, the topic of innovation is of existential importance because their success depends on being one step ahead of the imitators.

All in all, it can be said that the importance of SMEs for the German economy is extremely important. It is not for nothing that SME policy is a regular part of political programs that are intended to create favorable framework conditions for SMEs in order to support and promote this important group of companies.[23]

3 Internationalization of medium-sized companies

3.1 Definition of internationalization

In order to shed light on the international activities of medium-sized companies, it is first necessary to define the term internationalization. At the beginning it should be noted that the internationalization of the economic markets is not a trend phenomenon that has arisen especially in the last few decades, but rather has a long history behind it.[24]

The origins of internationalization can be found in the ancient Orient when the first trade in precious metals, clothing and cattle took place outside the local borders. At the same time, sea trade played a major role for the Egyptians. At this time Greeks and Romans were also active in the barter business “goods for goods” both in the cities of their own empire and outside of the empire's borders. With the introduction of precious metals as a means of payment, the "goods-for-money" business gained in importance. The trade extended over further parts of Europe, Africa and Asia. The organization and design of these transnational business relationships strongly depended on the influence of the church and the government on the economy in the respective countries. After the fall of the Roman Empire, foreign trade did not flourish again until the Middle Ages. In Germany, this period was coined by the term “Hanseatic League”, when the north German merchants formed trading communities in order to better represent their economic interests abroad. Cross-border trade also developed extremely successfully in the rest of Europe, so that Central Europe became the pulsating center of activity and replaced Southern Europe. From the 15th century onwards, overseas trade became more and more important. Countries known today as former colonial powers such as England, Portugal, Spain, France and the Netherlands played an important role during this period. With increasing industrialization, the markets opened up more and more, so that from the beginning of the 19th century there was more direct investment[25] came abroad.[26]

Today's understanding of the phenomenon “internationalization” is broadly defined in the literature, similar to the term “medium-sized”. According to Dülfer, any start-up of foreign business activities is understood as internationalization.[27] However, since the focus here is on the provision of services by a company and not every cross-border exchange of information is an indicator of internationalization, the definition of international activity of a company is understood to mean the regular exchange of goods and services to a significant extent with other countries.[28] Internationalization can be viewed as both a state and a process. The interpretation as a state determines the degree of internationalization of the company at a certain point in time. This is determined on the basis of various quantitative and qualitative parameters and shows the scope of foreign business activities in relation to domestic ones.[29] The point in time enables a statement to be made about the structural and behavioral status of the internationalizing company, but it is not an indicator of the importance of foreign activities for the economic development of the company.[30] From a dynamic point of view, internationalization is presented as a process. This approach is discussed in more detail in the following subsection.

The concept of internationalization must be distinguished from the concept of globalization, which is often equated in the specialist literature. While internationalization defines the expansion of economic activities beyond national borders, globalization is understood as the more comprehensive form of internationalization in the sense of greater spatial dispersion of international economic activities. Globalization is practically the advanced phase of the internationalization process.[31]

3.2 The internationalization process

The process of internationalization is understood to be a process over a period of time in which the internationalization project is developing. As a result, this process is shaped by certain goals and motivations of the company that speak for an international activity.[32] Different theoretical approaches appear in the literature that represent this dynamic process. A selection of the best-known is briefly presented here, without critical appreciation.

In his product life cycle model, Raymond Vernon depicts the export of goods and investment behavior abroad depending on the life phases of a new product. The intensity of exports varies due to changes in the demand structure, production processes and cost developments in the company[33] or direct investments are made. This allows certain economies of scale to be used.[34] Building on this, Aharoni deals primarily with the issue of direct investment in his behavioral decision theory. His research shows that decisions in the company are not made rationally. So, for incalculable risk considerations, managing directors often decide against investing abroad despite the attractive profit opportunities. Rather, in addition to profit expectations, the company needs other external incentives, such as customer recommendations or successful internationalization commitments from competitors. In this decision-making process, the company goes through different phases, from initiating the decision to invest abroad, to obtaining information, to subsequently reviewing the decision.[35] In addition to the decision-making process, Aharoni goes into the long-term internationalization process, which is a step-by-step, continuous process that depends on the ability of the organization to learn. This means that the more experience companies gain in foreign business, the lower the risk is classified, the higher the company's level of information and the foreign activities gradually become a matter of course.[36] Another theoretical approach is the Uppsala model by Johanson and Vahlne from 1977, which is probably the best known in the literature. This describes internationalization as a step-by-step process in which companies gradually increase their ties to foreign markets and move more and more away from their home markets. The central statement of the model is that internationalization is not based on objective decisions, but rather that it is more of a step-by-step process of adaptation to external framework conditions and entrepreneurial developments. The process is represented in a spiral, which is formed from static factors "market knowledge" and "market loyalty" and change factors "loyalty decisions" and "ongoing business activities". These factors influence each other and provide the impetus for further decisions. Increasing market knowledge thus has an impact on ongoing business activities, future investment decisions and the transfer of resources, which leads to greater market loyalty abroad. The further the companies have progressed in their learning process of internationalization, the greater their ties to the foreign market. The Uppsala model has been refined several times over the years.[37] Macharzina and Engelhard have also set up a so-called GAINS approach ("Gestalt Approach of International Business Strategies") as a further development of existing theories, in which the process of internationalization is viewed as an integral part of corporate development.[38] However, this approach is not considered further here, as it focuses primarily on large companies and not on SMEs.[39]

In summary, it can be said that there are various theories on internationalization that show different strategies for entering the market. A certain illustration of these models is reflected in the internationalization levels of Meissner and Gerber, which are shown in the following visualization:

[...]



[1] See Bröskamp / Frien (2011), pp. 1 and 18

[2] See Virnich (2007), p. 438f. and Bröskamp / Frien (2011), p. 33

[3] See Becker / Ulrich (2011a), pp. 15-18

[4] See Becker / Ulrich (2011a), p. 19

[5] See Ernst (1999), p. 56

[6] Own illustration based on IfM Bonn (2002a)

[7] Own illustration based on European Commission (2003)

[8] See Reinemann (2011), p. 3

[9] See Ernst (1999), p. 59

[10] See Reinemann (2011), p. 5f.

[11] See IfM Bonn (2002b)

[12] See Staub (2012), p. 117

[13] See Reinemann (2011), p. 6

[14] See Reinemann (2011), p. 8f.

[15] See Becker / Ulrich (2011a), p. 28 and p. 70 ff.

[16] See Becker / Staffel / Ulrich (2008), p. 20

[17] See Reinemann (2011), p. 9

[18] See IfM Bonn (2013), BMWi (2013) and KfW Bankengruppe (2012)

[19] See Staub (2012), p. 127

[20] See KfW Bankengruppe (2012)

[21] See Staub (2012), p. 129

[22] See IfM Bonn (2013)

[23] See Staub (2012), pp. 130ff.

[24] See Kutschker / Schmid (2002), p. 14

[25] Direct investments are capital investments abroad in the form of company investments (cf. Neumair / Schlesinger / Haas (2012), p. 75

[26] See Kutschker / Schmid (2002), pp. 7-14

[27] See Dülfer (1982), p. 50

[28] See Swoboda (2002), p. 6

[29] See Becker / Ulrich (2011b), p. 57 f.

[30] See Staub (2012), p. 338 f.

[31] See Neumair / Schlesinger / Haas (2012), p. 7

[32] See Becker / Ulrich (2011b), p. 59

[33] For a definition of the term, see Chapter 4.2.1.2

[34] See Swoboda (2002), p. 41ff. and Guserl (2013), pp. 85ff.

[35] See Aharoni (1966), p. 30ff.

[36] See Aharoni (1966), p. 175ff.

[37] See Swoboda (2002), p. 82ff., Johanson / Vahlne (1977), p. 26ff. and Macharzina / Wolf (2012), p. 913ff.

[38] See Guserl (2013) p. 129f.

[39] See Macharzina / Wolf (2012), p. 916

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