Small German Businesses Stepping Back from Global Commerce
Numerous Small and Medium-Sized Enterprises (SMEs) are pulling out of the international market. - Numerous Small and Medium-Sized Enterprises, or SMEs, are pulling back from international business endeavors.
Let's face it, a significant number of small and medium-sized enterprises (SMEs) in Germany are calling it quits on their international business ventures. Despite roughly 880,000 SMEs conducting business abroad in 2022, that number plummeted to 763,000 within a year, as per an analysis by the state development bank KfW. This represents a steep drop in the percentage of SMEs participating in international business, from around 23% to 20%, and dipping below the long-term average since before the COVID-19 pandemic.
Why's this happening? According to Dirk Schumacher, KfW's chief economist, the landscape for global trade has become increasingly treacherous. Geopolitical tensions in regions like Ukraine and the Middle East, growing competition from China in key industries, and America's protectionist trade policies are all hampering export capabilities. Additionally, many SMEs are finding it tough to thrive in the ever-more-challenging business environment within Germany itself.
A January 2025 survey by KfW showed that the downturn in international business has persisted. Roughly 21% of SMEs actively abroad in 2024 reported increasing foreign sales, while 25% reported a decrease. The outlook for the coming years is mixed.
Companies with business ties in the United States, accounting for about 16% of German SMEs, are particularly rattled. Before the reveal of President Donald Trump's tariff package, over a third of those companies (34%) anticipated rather negative, and another 9% very negative, consequences for their own businesses[3].
However, the European market remains dominant. According to KfW, German companies most commonly sold their products in Austria and Switzerland in 2023, followed by the Benelux countries and France. SMEs that continued their international ventures were able to bump up the share of international business in their overall revenue to 29%. With so many companies pulling out, the foreign sales of German SMEs dipped slightly to 698 billion euros[4].
- international business
- foreign trade
- Germany
- KfW Group
- USA
- China
- Frankfurt am Main
- Donald Trump
- coronavirus
- Dirk Schumacher
- Ukraine
Factors behind the trend:
- Economic Uncertainty and Pessimism:
- The German economy has stalled for two straight years, creating an aura of uncertainty that discourages SMEs from investing in foreign markets[5].
- Business sentiment surveys consistently show values below 100, indicating that more companies are pessimistic than optimistic about the future[1].
- Trade and Export Obstacles:
- The forecasted decline in export growth by 2.5% in 2025, marking the third consecutive year of contraction, dampens SMEs' enthusiasm for international trade[1].
- Only 19% of companies expect exports to rise, while 29% anticipate a decrease, demonstrating a cautious outlook on global business[1].
- Regulatory and Policy Concerns:
- Economic policy conditions are widely perceived as a major risk, with 59% of companies citing them as a significant obstacle[1].
- The German Supply Chain Act, while aimed at improving conditions, has raised compliance concerns for SMEs. SMEs are pushing for quick implementation of practical rules to ease these burdens[2].
- High Labor Costs and Domestic Demand:
- High labor costs and challenges in the domestic market pose significant challenges for SMEs, making it harder for them to expand internationally[1].
- Technological and Structural Challenges:
- Many German companies, particularly traditional manufacturers, have lagged behind in adopting new technologies like automation and AI. This deficiency makes them less competitive in the global market and more inclined to focus on domestic or regional markets[5].
- The steep decline in the number of small and medium-sized enterprises (SMEs) participating in international business in Germany is primarily due to trade and export obstacles, regulatory concerns, and the challenging business environment both domestically and globally.
- Economic uncertainty and pessimism, as well as high labor costs and technological deficiencies, are hampering SMEs' ability to thrive in the international business sector, causing many to reconsider or pull out of global commerce. The KfW Group's findings suggest that regulatory policies, such as the German Supply Chain Act, need to address SMEs' concerns to help them navigate the increasingly complex landscape of international business.
