Smaller companies increasingly Stepping Away from Global Enterprises
In today's interconnected world, it's surprising to see a shift towards isolation among small and medium-sized enterprises (SMEs) in Germany. As per a recent analysis by KfW, the number of SMEs engaged in international business shrank from around 880,000 in 2022 to 763,000 in 2023. This reduction represents a drop in the share of SMEs active across borders, falling from approximately 23% to 20%, a figure below the long-term average before the COVID-19 crisis.
KfW's chief economist, Dirk Schumacher, attributes this trend to a series of unfavorable factors deterring foreign trade.
Challenging Export Conditions
Schumacher points to geopolitical tensions in regions like Ukraine and the Middle East, as well as rising export competition from China in key industries, as key contributors to the adversity faced by German SMEs. Additionally, US protectionist trade policies have exacerbated the difficulty for SMEs to compete on the global stage.
Domestic Challenges
The weak German economy, slated to stagnate in 2025, has restricts the financial resources available for SMEs to invest in international activities. Furthermore, businesses identify economic policy conditions as a major risk that can discourage expansion into new markets.
Declining Competitiveness
German industry, including SMEs, faces mounting pressure as global competitors gain ground. In April 2025, a substantial percentage of companies reported a decrease in their international competitiveness, further reducing their capacity to sustain international business activities.
Pessimistic Outlook
The overall business sentiment in Germany remains negative, with more companies anticipating a decline in exports rather than an increase. This pessimism serves as a barrier discouraging SMEs from seeking international business opportunities.
Internal Obstacles
High labor costs and difficulties in domestic demand further pose barriers for SMEs, limiting their resources and capacity to engage in international business activities.
In summary, a perfect storm of external trade tensions, domestic economic challenges, declining competitiveness, pessimistic business sentiment, and internal costs are combining to engineer the retreat of SMEs from global markets.
In the face of this perfect storm, many German SMEs are reconsidering their community policy and are focusing on local growth, due to the pessimistic outlook and the challenging export conditions they face. Amidst the downward trend in international business, these SMEs might prioritizeAligning their employment policy to address the high labor costs at home, while keeping a keen eye on the evolving finance landscape within the domestic business sphere.
