Small to Medium-Sized Enterprises (SMEs) in Germany Abandoning International Business
Multiple mid-sized corporations decided to disengage from global trade activities - Numerous Small-to-Medium Enterprises Decrease Involvement in International Commerce
Mancin' German small to medium-sized enterprises (SMEs) are bailing out on their global business endeavors. A recent analysis by KfW, a state-owned development bank, reveals that the number of SMEs actively participating in international trade dropped from about 880,000 in 2022 to 763,000 in 2023. This shift corresponds to a decline in the percentage of SMEs engaged in cross-border business, falling from approximately 23% to 20%, and currently resting below the pre-COVID-19 crisis long-term average.
"The landscape for intercontinental commerce has grown significantly more hostile," asserts Dirk Schumacher, KfW's chief economist. "Escalating geopolitical disputes, such as those in Ukraine and the Middle East, intensified competition from China in key sectors, along with America's protectionist trade policies, are impeding the export capabilities of companies." Furthermore, many SMEs perceive the business environment within Germany as ever more unfavorable for their competitive edge.
A special survey conducted by KfW in January 2025 reveals that the negative trend in international business has persisted. According to this study, 21% of all SMEs active globally in 2024 reported increased foreign sales, while 25% reported reduced sales. The forecast for future years remains turbulent.
Companies with Ties to America Wary
SMEs with business relationships in the United States - roughly 16% of German SMEs - exhibit the greatest concern. Thirty-four percent of these companies anticipate negative, and an additional 9% expect severely detrimental repercussions from the new U.S. policy on their respective businesses, according to a survey conducted before the announcement of U.S. President Donald Trump's tariff package.
However, the primary sales markets for German companies are European. KfW data indicates that German businesses exported their goods most frequently to Austria and Switzerland in 2023, followed by the Benelux nations and France. SMEs that remained active globally saw the proportion of international business in their total income increase to 29%, according to the KfW study. Despite many firms withdrawing, the foreign sales of German SMEs decreased marginally to €698 billion.
- international business
- international trade
- Germany
- KfW Bankengruppe
- USA
- China
- Frankfurt am Main
- Donald Trump
- coronavirus
- Dirk Schumacher
- Ukraine
Factors Driving SME Exit from International Business
For several reasons, German SMEs are abandoning or trimming their involvement in international business, with key drivers including:
Economic Challenges and Pessimism
- Economic Insecurity: The German economy has grappled with sluggish growth, and businesses express gloominess about future prospects. This negativity is apparent in surveys showing more pessimists than optimists, with business sentiment values below 100.
- Export Decrease: Exports are predicted to decrease by 2.5% in 2025, marking the third consecutive year of contraction. This downturn affects SMEs' ability to maintain international operations.
Regulatory and Cost Pressures
- Economic Policy Risks: SMEs highlight economic policy conditions as a significant source of risk, with high labor costs and regulatory challenges being major burdens. The German Supply Chain Act, for example, mandates SMEs to ensure ethical compliance, which can be burdensome.
- Job Cuts and Cost Reduction Measures: Many German companies, including SMEs, are planning layoffs due to economic strains. This cost-cutting is a reaction to ongoing economic pressures and trade tensions.
Trade Tensions and Global Market Dynamics
- Trade Tensions: The possibility of new tariffs and trade disputes, such as those with the U.S., can make global trade more uncertain and costly for SMEs. Although recent tariff easing has improved sentiment, ongoing risks remain.
- Technological and Market Changes: The global move towards automation and AI is threatening traditional manufacturing sectors that are popular in Germany. SMEs may struggle to adapt quickly enough to remain competitive in international markets.
In essence, German SMEs are leaving the international stage because of a combination of economic uncertainties, regulatory pressures, and global market dynamics. These factors make it difficult for SMEs to maintain their global presence and competitiveness.
- The economic insecurity and pessimism in Germany, along with the predicted decrease in exports, are making it challenging for small to medium-sized enterprises (SMEs) to maintain their international operations.
- SMEs face economic policy risks, including high labor costs and regulatory challenges, such as the German Supply Chain Act, which require compliance and can be burdensome for these businesses.
