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"Irish SMEs (Small and Medium Enterprises) are too dependent on the home market, Europe warns." (Source: Irish Independent, November 2015) Outline the benefits and challenges for Irish SMEs operating in foreign markets. - Leaving Cert Economics - Question c - 2016
Question c
"Irish SMEs (Small and Medium Enterprises) are too dependent on the home market, Europe warns." (Source: Irish Independent, November 2015) Outline the benefits and ... show full transcript
Worked Solution & Example Answer:"Irish SMEs (Small and Medium Enterprises) are too dependent on the home market, Europe warns." (Source: Irish Independent, November 2015) Outline the benefits and challenges for Irish SMEs operating in foreign markets. - Leaving Cert Economics - Question c - 2016
Step 1
Benefits for Irish SMEs operating in foreign markets
Answer
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Access to larger markets/ Increased sales and profits
By expanding into foreign markets, Irish SMEs can reach a larger customer base. This increase in sales opportunities often results in higher profits, as selling more goods boosts revenue.
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Economies of scale
As SMEs successfully increase production to meet the demand in foreign markets, they can benefit from economies of scale, reducing per-unit costs and overall improving operational efficiency.
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Diversifying risk
Entering various international markets can help SMEs mitigate risks associated with dependency on the Irish market. If domestic demand decreases, revenue from foreign markets can provide a buffer.
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Easier access to finance
Larger firms often find it easier to secure financing for international expansion. As SMEs establish a presence abroad, they may find similar opportunities for investment or grants.
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Government support and resources
Irish government initiatives provide assistance, like grants and resources, which can aid SMEs in navigating and entering foreign markets.
Step 2
Challenges for Irish SMEs operating in foreign markets
Answer
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Transport costs
Exporting goods from Ireland incurs significant transport costs, which can impact pricing and reduce competitiveness.
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Labour costs
High domestic labour costs can lead to increased production expenses, making it harder for Irish SMEs to compete in price-sensitive markets.
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Exchange rate risks
Fluctuations in foreign exchange rates can affect pricing and profits when dealing with currencies outside the Eurozone, creating financial challenges.
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Language skills
Navigating foreign markets often requires language proficiency, and the lack of these skills can hinder market penetration and communication.
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Bureaucratic hurdles
Regulatory challenges in unfamiliar markets can complicate expansion efforts. Issues such as compliance with local laws and regulations may restrict or delay business operations.