Technology is changing the way in which we do business. Increasingly, many small and medium sized businesses all over the globe recognise the need to invest in technology and reach new markets. SMEs make up 95% of the world’s businesses and according to recent research, firms that are integrated in global markets are more productive, pay higher wages and create more jobs. (Wagner, 2005, 2011)
Indeed, SMEs have recognised that investing in new technology is the best way to connect internationally and the most efficient vehicle for facilitating and controlling global trade, and in turn, driving growth. Recent research in the US undertaken by Western Union Business Solutions revealed that over the next six months 74% of larger SMEs, 63% of midsized SMEs, and nearly half of the smallest SMEs, plan to invest in new technologies.
Technology Connects Business Globally
Ambitious companies are turning to innovative technologies as a means of growth. The Western Union Business Solutions research revealed that mid-sized firms find their top cash flow challenge to be declining sales revenue.
Technology is enabling businesses to move away from paper and to operate faster online and to a much wider network globally. Moreover, companies are able to use new technologies to more tightly couple their business activities with those of their trading partners, increasing trade efficiencies and reducing counterparty risk. A prime example of where technology is driving real efficiencies in doing business globally is with trade payments, reducing the time it takes to make an international transfer from days to minutes. This kind of global access means businesses can view overseas markets as virtually local. Thus technology eases and facilitates the transition from localised business to international.
Digital Tools Empowering Risk Management
However, as technology brings global customers closer to home, it becomes increasingly necessary that SMEs address the financial risks and opportunities related to dealing with foreign currencies. According to the Western Union Business Solutions research, businesses are varied in their approach to dealing with exposure to foreign exchange volatility and risk.
For example, the rise of the value of the U.S. dollar will inevitably impact SMEs’ international operations in some way - already, more than 90% of businesses surveyed reported having seen some kind of effect. Larger SMEs seem to be the most prepared for such impacts: 42% surveyed reported already having a strategy to deal with the strengthening USD, whilst 47% are planning to implement such strategies. Meanwhile, just 4.3% of midsized SMEs — those with between $5 million and $20 million in annual revenue — have identified their strategies in this space.
Digital Cash Management to Grow finances
Managing cash flow amid foreign exchange fluctuations is of prime importance. Understandably, many businesses don’t have much time to dedicate to cash management, or to address the financial risks and opportunities associated with foreign currencies. Western Union Business Solutions found that larger SMEs spend an average of 26.4 hours on payment issues, while just eight hours a week are spent on this area by midsized SMEs and only four hours for the smallest of these companies.
Nonetheless, cash management is imperative if SMEs are to be more competitive in overseas markets. Just as digital platforms and other technologies have helped SMEs expand their offerings to a global customer base, so too can these tools help businesses to effectively manage their cash flow. Western Union Business Solutions found that nearly 60% of larger and micro SMEs stated that their top challenge is squeezed margins - thus the importance of planning and budgeting become increasingly apparent.
For businesses going global, it is essential that they can effectively manage their finances which involve cash flows denominated in foreign currencies. This can add significant complexity to a SMEs business and introduce financial risk resulting from fluctuations in currency values. Digital platforms allow businesses to see and manage all their international finances in one place, thereby enabling greater flexibility, control and insight of their business.
The rapid adoption of emerging technologies amongst SMEs bodes well for global trade growth. Companies will be able to build trusted connections with each other like never before, they will be empowered to make smarter business decisions and manage new challenges with confidence, which ultimately leads to business growth and success.