Small & Medium Enterprises (SMEs) in Germany: A Shrinking Global Presence
The shrinking horizons of international business in Germany
Numerous domestic enterprises are retracting their involvement in foreign trade. - Numerous small and medium enterprises (SMEs) decide to disengage from international transactions
Small and Medium-sized Enterprises (SMEs) across Germany are scaling back their international ventures, and it's a concerning trend. According to KfW, a state-owned development bank, the number of SMEs engaged in cross-border trade dropped from 880,000 in 2022 to 763,000 by 2023, equating to around 20% of the SME sector.
The unfavorable landscape of foreign trade
"The climate for foreign trade has soured dramatically," asserts Dirk Schumacher, KfW's chief economist. Factors such as prolonged geopolitical tensions in regions like Ukraine and the Middle East, stiff export competition from China in critical sectors, and protectionist trade policies from the US have all contributed to the dampened export capabilities of companies. On top of that, many SMEs find the domestic business environment in Germany increasingly challenging for their competitiveness.
The grim picture for 2025 and beyond
A special survey by KfW in January 2025 revealed that the poor trajectory of international business had persisted. The survey found that 21% of SMEs actively abroad in 2024 reported an increase in foreign sales, while 25% reported falling sales. Although the outlook for future years remains mixed, many fear that more SMEs will retreat from international waters.
The anxiety of US trade policies under Trump
German SMEs with connections to the US – which currently account for approximately 16% of the sector – are particularly anxious. With the announcement of Donald Trump's tariff package, 34% anticipate negative consequences for their companies, and another 9% expect severe repercussions. Despite this, Europe remains the primary sales market for German companies, with most goods being shipped to countries like Austria, Switzerland, Benelux, and France.
The silver lining
However, it's not all doom and gloom. SMEs that continued their international expansion managed to boost the share of international business in their total turnover to 29%, according to the KfW study. The total foreign sales of German SMEs dipped slightly to 698 billion euros, but the resolve of those who stayed the course provides hope for the future.
- SMEs
- International business
- Export competition
- Germany
- KfW Bankengruppe
- USA
- China
- COVID-19
- Economic slowdown
- tariffs
- Donald Trump
- geopolitical tensions
- inflation
- interest rates
- market adaptation
- government support
- The declining international business among SMEs in Germany is primarily due to unfavorable factors such as stiff export competition from China, prolonged geopolitical tensions, and protectionist trade policies, resulting in a shrinking global presence for German SMEs.
- In an attempt to adapt to the challenging domestic and international business environment, some SMEs have revised their community policy and employment policy to focus more on domestic operations, leading to a shift in their overall business strategy.
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