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The Rise of Micro-multinationals

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by Helen Sanders, Editor

Helen Sanders

Bigger than a start-up, but not yet at a level with established, large multinational corporations, mid-sized companies with a turnover of $50m – $250m, termed ‘micro-multinationals’ in HSBC’s new report, are increasingly taking advantage of growth opportunities beyond their home market and going international.

HSBC’s recent report, ‘The Rise of Micro-multinationals’ outlines some of the trends, opportunities and challenges amongst these mid-sized businesses, based on a combination of internal and external expertise, and other related research. As the report emphasizes, 40% of micro-multinationals headquartered in the UK have opened offices in new markets in the last five years, one of the highest rates in the world (source: FedEx Express). This trend is set to continue, with 83% of small to mid-sized businesses citing overseas expansion as their top priority (source: Radius Global CFO Survey). As Vivek Ramachandran, HSBC’s Global Head of Product & Proposition for the trade business comments,

“This is not simply about looking to trade with counterparties located in other parts of the world, it is about expanding their operations in new markets. This takes their business to the next level, from import/ export to a truly multinational business.”

He also notes that this is not a phenomenon restricted to UK or even European/ North American businesses,

“There are a large number of Asian-headquartered businesses pursuing similar expansion ambitions. Initially, this was most likely to be expansion within Asia but many are now looking further afield too.”

The opportunities for these micro-multinationals are substantial, as they are often quicker to innovate than their larger peers and competitors, and are better able to adopt new technology. They have also typically focused their value proposition around a product or competency in which they have particular specialist expertise.

However, international expansion brings costs, risks and resource implications, particularly understanding and meeting market, regulatory and cultural requirements, establishing new partnerships, and employing people with the right experience. There are also cash and liquidity issues to consider. Vivek Ramachandran continues,

“One of the important differences between micro- and larger multinationals is that they typically have smaller and less evolved treasury functions and platforms, which can create difficulties in managing cash, liquidity and working capital across markets. It is also important to optimise supply chain efficiency and stability, which is key to success in new markets.”

Although there are challenges, he also notes that micro-multinationals are well-positioned to overcome these difficulties,

“These businesses typically have the advantage of more centralised decision-making, and the ability to adopt best practices and the newest technology tools without painful migrations from legacy processes and systems.”

Vivek Ramachandran also illustrates that banks have an important role to play in leveraging these opportunities and overcoming challenges,

“At HSBC, one of our target markets is emerging micro-multinational businesses, and we are committed to providing the depth of solutions, advisory services and network coverage that they require.”

There has been a tendency amongst banks in recent years to focus their relationship management on large multinationals and implement a more cost-effective, self-service model for smaller businesses, but Vivek Ramachandran indicates that this should not be the case.

Vivek Ramachandran“These are the large multinational corporations of the future, the businesses that are inspiring growth and innovation and creating jobs in the markets that they enter. It’s important, therefore, that their banks give them the support they need to be successful, and support their cash, liquidity and working capital objectives throughout their journey from new market entrant to an established leader in their field. In addition to the solutions and services we offer, another key advantage of working with HSBC, as the world’s largest trade bank, is that there is a high likelihood that we bank these companies’ suppliers and customers, helping to create cohesive, mutually beneficial supply chains. According to our research, having one bank rather than two banks involved in a transaction results in payments being made an average of 8 days earlier.”

The report concludes that while changing trade patterns and new technology have played a formative role in the creation of the micro-multinational so far, new trends in global trade such as the rise of trade in services, will continue to shape commerce and further encourage growth of these smaller, more specialist businesses, leading to further demand for banking services for these economically-vital emerging enterprises.

The full report can be found at: https://globalconnections.hsbc.com/grid/uploads/micro_multinationals.pdf

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