Numerous Small and Medium Enterprises (SMEs) Avert Expansion in Overseas Trade Operations

Small Businesses Step Back from Global Commerce

Numerous mid-sized enterprises are scaling back their participation in global trade activities. - Numerous Small and Medium Enterprises (SMEs) Avert Expansion in Overseas Trade Operations

Small and medium-sized enterprises (SMEs) in Germany have been taking a step back from the global market. In 2022, around 880,000 international SMEs dropped to 763,000 the following year, as revealed by an analysis by the KfW development bank. This percentage drop in cross-border businesses fell from 23% to 20%, a figure lower than the pre-COVID-19 crisis average.

Dirk Schumacher, KfW's chief economist, explains, "International business conditions have worsened significantly." Issues like persistent geopolitical conflicts in Ukraine, the Middle East, and escalating competition from China in key sectors, along with protectionist trade policies in the US, are hindering export capacities, according to Schumacher.

Furthermore, many SMEs are struggling with Germany's domestic challenges that impede their competitiveness. A KfW survey in January 2025 revealed that the downward trend in international business continued, with 21% of foreign SMEs reporting increased foreign sales and 25% experiencing a drop in sales.

Businesses with ties to the US - roughly 16% of German SMEs - are particularly affected. Before the announcement of President Donald Trump's tariff package, a survey found that 34% of these companies anticipated negative consequences, with an additional 9% expecting highly negative impacts on their own operations, according to the results.

However, Europe remains the primary sales market for German companies. KfW's analysis shows that German firms sold their goods most frequently to Austria and Switzerland in 2023, followed by the Benelux countries and France. Compared to the previous years, companies that continued their foreign engagements managed to increase the share of international business in their total revenue to 29%. This increased foreign sales for SMEs amounted to 698 billion euros.

• international market
• global commerce
• Germany
• KfW Group
• USA
• China
• Frankfurt am Main
• Donald Trump
• coronavirus
• Dirk Schumacher
• Ukraine

Factors at Play

While compelling evidence might be lacking, it's plausible that several factors contribute to SMEs' retreat from foreign business:

1. Geopolitical Tensions: Prolonged geopolitical disputes among US, China, and Europe can give rise to uncertainty and hardships for businesses. For instance, US tariffs on goods imported from China drive up manufacturing costs and make it difficult for German businesses in China to compete[2].
2. China's Competitiveness: China's status as a manufacturing powerhouse and growing influence as an innovation partner offer both benefits and threats to German businesses. While it brings opportunities, the increased competition may be pushing some companies to reconsider their global strategies[2].
3. US Trade Policies: The trade policies enacted by President Trump, such as tariffs and export controls, have raised concerns for German firms with the US market. These measures could potentially disrupt supply chains and increase operational costs, forcing some SMEs to re-evaluate their international engagements[2].

Despite these obstacles, some German businesses are adapting resilient, long-term strategies in regions like China and Vietnam. For example, German firms in China are planning increased investments, and those in Vietnam are expanding operations, showcasing a degree of adaptability in the face of complex global situations[2][3].

In summary, geopolitical tensions, China's economic might, and US trade policies present formidable challenges. Yet, many German SMEs are employing tactical approach and long-term commitment to navigate these hurdles, rather than retreating. However, individual company circumstances might cause some businesses to retreat while others sustain their international engagements.

• The geopolitical tensions between the US, China, and Europe, as well as the increased competition from China in key sectors, are driving many German SMEs to reconsider their global strategies, potentially leading to a retreat from the international market.
• The trade policies enacted by the US, such as tariffs and export controls, have posed challenges for German firms with the US market, prompting some companies to reassess their international engagements and adjust their business strategies accordingly.

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