This document discusses a study on how access to finance impacts small and medium-sized enterprises' (SMEs) aspirations for international expansion. The study uses data from over 4,000 middle market firms in the UK, Germany, France, and Italy. There has been limited previous research on the relationship between access to finance and exporting for SMEs. The study aims to address this gap and better understand how lack of access to finance can impact middle market firms' plans to enter new international markets like China.

1. Access to finance and international
expansion
Professor Nicos Nicolaou

2. • International expansion is critical for firm survival and growth (Oviatt
and McDougall, 1995).
• However, there has been limited research on how lack of finance
can impact SME aspirations for exports (Cassar, 2004; Crick,
2004).
• We also know very little about SME exports in one of the world’s
fastest growing markets, China.
• Do firms with an aspiration to expand into international markets find
finance more difficult to access?
Overview

3. • Our sample includes proprietary data of over 4,000 middle market firms
(interviews with senior executives) from the UK, Germany, France and Italy.
• Despite their importance, there have been very few studies on middle
market firms.
• Our data enables us to conduct a comparative analysis of the four largest
European economies and has significant implications for policy makers who
aim to develop the British Mittelstand.
• As John Longworth said at the 2015 annual BCC conference, “only if we fix
our business finance system will we have a British, home-grown Microsoft,
Google, Samsung, Miele, Siemens, L’Oreal or Tata in the years ahead”.
Overview

4. • Middle market firms
• Brief theoretical overview
• Data / questions
• Background analysis
Structure

5. • Very few studies have focused on the mid-market sector (Bresnen
and Fowler, 1996; Zahra, Neubaum, and Huse, 2000), despite its
importance to the European economy (EVCA, 2013; HSBC, 2015).
• Such companies make a major contribution to national economies,
adding over a trillion euros to Europe’s GDP and employing tens of
millions across the continent (EVCA, 2013; HSBC, 2015).
• Middle market is the engine of the UK national economy – “hidden
champions” (Simon, 2009)
• Agile enough to manage change and do not suffer from the
structural constraints and organizational inertia that characterise
large firms.
Middle Market firms

6. • “Middle market companies are the speedboats of our economy, in
contrast to Fortune 500 companies that act more like battleships
and aircraft carriers. Their smaller size of middle market companies
means they can change direction faster, adapt more aggressively,
innovate more nimbly, and potentially generate outsized returns to
their investors”.
• “The “middle market” is to the U.S. economy what North America
was to Christopher Columbus: a giant, incredibly important,
heretofore “undiscovered” but now unavoidable and centrally
important part of the world’s landscape” (Maney, 2011).
Middle Market firms

7. • The definitions for the mid-market are as follows for each country:
• Germany: €20m - €1bn in annual turnover
• UK: €20m - €1bn in annual turnover
• France: €10m - €500m in annual turnover
• Italy: €5m - €250m in annual turnover
• There are about 145,000 middle market firms in the EU4 – only
1.5% of total companies.
• They contribute one third of private sector GDP; 29% of employees
and 31% of revenue (Malshe, 2013).
Middle Market firms

8. • There has been limited research on how lack of finance can impact SME
aspirations for exports (Cassar, 2004; Crick, 2004).
• At a theoretical level, studies have argued that in the presence of sunk
entry costs, only those firms without financial constraints can become
exporters (Melitz, 2003, Chaney, 2016).
• At an empirical level, few studies have examined the relationship between
access to finance and exporting at the firm level with some inconsistent
results.
• Greenaway et al. (2007) examined whether a firm’s financial health and
exporting were linked. No ex ante effect found.
• Bernard et al. (2010) examined the relationship between access to finance
and exporting in 28 countries in Eastern Europe and Central Asia. No
association found.
Brief theoretical background

9. • Bellone et al. (2010) found that firms’ financial health increased the
probability of exporting.
• Minetti and Zhu (2011) analysed a sample of Italian firms and
found that credit rationed firms were less likely to export and likely
to export less. (survey-based measures of access to finance).
• Mulls (2015) examined a sample a Belgian manufacturing firms and
found that firms with lower credit constraints and better credit
ratings were likely to export more.
Brief theoretical background

10. • Inconsistent results – only one study used survey based measures
of access to finance.
• Examine contingencies – relationship influenced by age of firm,
industry, corporate entrepreneurship.
• Limited work on MMFs
Brief theoretical background

11. Descriptive statistics

12. Aspirations to expand in new
international markets
Is your business looking to enter new geographic markets, outside of its home country, in the next five years?
In which of these markets is your business hoping to start trading?

13. • 66% are exporters
Exporting
WHICH MARKETS OUTSIDE HOME MARKET ARE YOUR COMPANY’S TOP 3 MARKETS FOR EXPORTS?
Growth champions (reported at least 10% revenue growth), growers (reported 5-9% growth over the past
year), marginal growers (1-4%) and flat or declining (reported no or declining growth).

14. Challenges of exporting or entering new markets
To what extent, if at all, do the following represent a challenge for you as regards exporting or entering
new geographic markets?

15. Access to finance

16. Presence in China

17. • Brief
Operational activity in China
What presence, if any, do you have in China?

18. Current revenue and future forecasts in China

19. Reasons for staying away - China
What are the factors that currently put you off doing business in China?

20. • The project will examine the relationship between access to finance
and aspirations for international expansion.
• Little work on middle-market firms.
• Our data enables us to conduct a comparative analysis of the four
largest European economies and has significant implications for
understanding the British Mittelstand.
Summary