Internationalisation of SMEs

Inte

rnat

iona

lisat

ion

of S

MEs

Internationalisation of SMEs

Frédéric LernouxKris Boschmans Sylvain Bouyon Isabelle Martin

Didier Van Caillie

Prefaces by Antonio Tajani and Rudi Thomaes

How to succeed abroad

Introduction

Globalisation or internationalization has become a commonly understood concept. From an economic point of view, the world is increasingly becoming a big village in which the econ-omy of one country is more and more dependent on the situation in the rest of the world. There are many examples of the advance of globalisation. For example, the floods in Thailand resulted in a sharp price increase for computers all over the world. The German automo-tive industry is currently probably more dependent on demand and growth in China than on the economic situation back home. A crisis on the American housing market quickly led to a worldwide recession that probably hit Europe harder than the United States itself. And the result of an election in a small country like Greece has repercussions on share markets from London to Tokyo.

One of the most visible signs of globalisation is the development of world trade. For decades now, world trade has increased far more quickly than worldwide economic growth, which points to an increasingly globalised world (see figure 1). 2009 was a particular exception, with international trade decreasing by more than 10 per cent (compared with a contraction in GDP of ’only’ 2 per cent). However, this fall was more than made up for the following year. So sta-tistics show a picture in which international trade continues to increase in relative importance.

Figure 1 Developments in world trade and production (GDP) 1950 – 2010 (annual averages)

420

-2-4-6-8

141210

86

-10-12-14

Exports(Rating)

PIB

1950

-60

1960

-70

1970

-80

1980

-90

1990

-00

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2000

-09

Source: WTO 2011 (estimate)

2 Introduction INTSME

This progression in globalisation and the increasing importance of world trade has far-reach-ing consequences for both large and small companies. On the one hand, companies have to deal more and more with international competition, both in their own domestic markets and abroad. In some sectors, international competition has undoubtedly cost a great deal in terms of turnover and employment. On the other hand, it has also created enormous opportunities. It means that Belgian companies don’t have to focus solely on their domestic market of 11 million people. Imports make it possible for the business sector to reduce prices or bring bet-ter products to market. Foreign locations or cooperative links can give turnover a real boost and drive innovation.

All of this very much applies to Belgium. It is vital for a small and open economy such as ours not to underestimate the importance of foreign trade. In fact Belgium is one of the most glo-balised countries in the world. Issues such as market deregulation, the deregulation of trading practices and increasing market links have meant that SMEs are also being confronted with the effects of internationalization. It is also no wonder that increasing numbers of SMEs are involved in exports and imports or are operating internationally in some other way. The avail-able figures show that one-quarter of manufacturing SMEs have international operations. In fact, a survey by the European Commission even shows that one in three of the SMEs sur-veyed is involved in exporting, which is a good deal higher than the European average.

Yet doing business internationally is no easy task. Expanding abroad not only brings all sorts of opportunities with it, but also involves a host of challenges in terms of organisation, finances and management. Research shows that many companies are not making the move to trade with other countries precisely because of these challenges. And this is holding back our coun-try economically. A lack of knowledge plays a part in this, especially for SMEs. As a knowledge centre for the financing of SMEs, our aim is to make a contribution towards overcoming this obstacle by paying special attention to the funding aspect of the internationalization of SMEs.

In part one of this book, we review the status of Belgian SMEs on the international stage. We begin by analysing the various forms that internationalization can take. Although the empha-sis is often on exporting, SMEs can also internationalise by importing or by taking financial stakes in foreign groups, as well as by becoming involved in joint-ventures and the like. We then deal in turn with the strengths, weaknesses, opportunities and threats involved with the internationalization of Belgian SMEs. After that we look at the impact of the internationaliza-tion process on the business operations and management of an SME. Indeed, having an office abroad or implementing an export strategy or other form of internationalization requires a great deal of change to the company’s organisation, structure and management. This applies all the more to SMEs where the decision-making structures and management systems tend to be informal and not very developed.

Part two takes a closer look at the financial aspects of SMEs becoming internationalised. Doing business abroad often involves heavy financial commitments. We discuss the most commonly used ways in which SMEs can fund themselves in order to free up the resources they need. We then deal with the main payment instruments and methods used for for-eign trade and investments. Finally, this section also features an overview of the main ways in which SMEs can protect themselves against the risks that are inherent with doing business internationally.

Part three looks at existing government measures. The European, Federal, Flemish, Walloon and Brussels authorities all have a wide array of measures for supporting the international-ization of SMEs. In view of the fact that studies show that there is not a sufficient level of knowledge about these measures, we provide an easy-to-understand list of the main support

INTSME Introduction 3

measures and organisations on offer. In doing so, we restrict ourselves to talking about the support measures that have been set up specifically to support internationalization. We con-clude with an explanation of the main insights provided in this book.

Chapter 2

1. Strengths: Belgium as a trading nation and land of SMEs 27

2. The opportunities offered by internationalization 28

3. Internationalization: risks and barriers 32

4. Weaknesses: Belgium can do better 41

The internationalization of SMEs: A SWOT analysis

26 SMEs facing internationalization INTSME

We can summarise the position of Belgian SMEs in terms of internationalization and exports by way of a SWOT analysis (see figure 7).

Figure 7 SWOT analysis of the internationalization of SMEs

Strengths Weaknesses

Belgium �rmly established internationally

Not enough presence in fast- growing countries and sectors?

Increasing presence of SMEs Dependent on a limited number of large exportersYo ung companies are �nding their

way abroadToo little knowledge about

policy measures

SWOT

Opportunities Threats

Additional risksHigher growth in output and

employmentEspecially for distant markets

Lower chance of bankruptcy

Resulting in greater innovationand productivity

Too little self- con�dence in the business sector?

In section II.1 we will start off by delving more deeply into Belgium’s strengths. Our country’s position as a very open economy is well known. Less well known is that our SMEs and young companies are increasingly finding their way into markets abroad. Section II.2 provides a summary of the opportunities opening up to SMEs in becoming internationalised. Successful internationalization results in stronger growth and additional labour productivity and innova-tion. This in itself ultimately translates into a greater likelihood of survival.

There is also a flipside to the coin, as we will illustrate in section II.3. Conducting business across national borders means encountering obstacles, risks and barriers, which we will also list. Finally, in section II.4, we will examine our country’s weaknesses in more depth. For exam-ple, Belgium has a relatively poor presence in growth countries where, despite the good work being done by many SMEs, a small number of large companies tend to dominate.

Chapter 4

1. Internationalization and funding needs 66

2. The internal funding of international operations 69

3. External funding of international operations 70

Funding SMEs in the context of internationalization

66 Financial aspects of internationalisation INTSME

4.1 Internationalization and funding needs

An SME that is internationalising has to come to terms with new funding requirements that it will have to meet in order to avoid any finance difficulty on the national market.

Figure 22 illustrates the operating cycle of a company that conducts exports. The resulting funding needs show the Working Capital Requirement (WCR).

WCR = [stock + customer debts] – [short-term supplier debts]

This tends to be more important in the context of selling to other countries because of the dif-ferent parameters that are specific to international transactions and that contribute to growth in the operating cycle.

Figure 22 Export operating cycle

Request for

price quoteStarting the

order and

signing the

commercial

Pa ment y

of purchases,

intermediate goods

Receipt of

payment for the

selling price of

the goods

Receipt of

intermediate

products

Shipping of

goods, �nished

products

Response

time

Delivery lead

time

Payment time from

customers

Storage and

production

time

Payment time to

suppliersSource: figure based on figure 22.1 in the book J.-P. Smit and A. Van den Bosch (1998).

In international terms, payment times can be lengthy. Between the time when the foreign customer places its order and the time it pays for the goods, the exporting company needs to obtain the intermediate products required in the manufacturing process1, manufacture the goods ordered, clear the goods through customs and ship them to its foreign customer. The payment time depends on what is negotiated and the relationship of trust that exists between the supplier and its customer. It also depends on the method of payment used.

The volume of cash flow movements is higher for international trade than it is for national business. Stocks of raw materials and intermediate products inevitably rise as a result of the increase in production.

1. In the case of an intermediary exporting company, the operating cycle is shorter given that there is no production lead time. The company simply resells abroad the goods that it has bought from its supplier, without processing them beforehand.

INTSME Funding SMEs in the context of internationalization 67

New foreign customers increase the customer portfolio and customer debts also become more significant, depending on the payment times agreed.

Added to this are a whole series of other costs linked to internationalization. The company needs to be able to fund the process of prospecting for new markets (costs for market sur-veys, new business trips, trade shows, invitations from prospects, etc.), as well as running promotional campaigns, updating catalogues and pricelists or upgrading or changing the product so that it fits in with the foreign market. As with its business on the national market, it may be that the company has to pay deposits to its suppliers of raw materials. It will also have to cope with new debts (VAT, customs charges, etc.). In view of the many risks to which the company is exposed, it will need to take out insurance policies and then pay the associ-ated premiums.

In addition to its increased cash requirements, the company may also have to invest more in its production capacity or in new equipment needed for production focused on exporting. Then there’s the issue of recruiting staff able to work internationally, developing new prod-ucts and so on.

In the meantime, there may be unplanned items of expenditure. All of which means that the company has to be capable of managing delays in transport or customs clearance, settling any expensive disputes or legal proceedings in foreign jurisdictions, deal with unexpected tur-bulence on foreign markets, etc.

According to a survey by the Walloon Union of Businesses (UWE) conducted in 2010 among Walloon businesses, the indirect costs associated with entering and maintaining business on export markets represent the main difficulty encountered by Walloon companies that are already exporting or are on the point of doing so. With this type of ranking, these indirect costs are even ahead of direct costs, such competition on prices, exchange rate risks and bar-riers for gaining entrance to the export market. According to 74% of respondents, excessive costs in the area of prospecting for business, representation, distribution, etc. explain why they do not export. This survey also tells us that for 36% of respondents, funding difficulties constitute one of the obstacles encountered for exports (table 6) and for 38% it is one of the reasons why they do not export (table 7).


Table 6 Difficulties encountered in exporting by Walloon companies

Source: UWE (2010).

Table 7 Reasons why Walloon businesses are not exporting

Source: UWE (2010).

Undoubtedly, access to funding plays an essential role in the development of foreign trade. According to the World Trade Organisation (WTO), the funding issues associated with com-mercial loans were partly responsible for the collapse in world trade in 2009. The credit crunch has also weakened funding for trade, which is essentially short-term, low-risk funding, but requiring high levels of guarantee. Against according to the WTO, world trade depends 80% and even 90% on the funding of commerce.


A survey by the European Commission confirms the fact that a business needs sufficient cap-ital to be able to operate internationally and that a lack of capital may represent a major rea-son for not going international. As shown in figure 23, it would indeed seem that a lack of capital constitutes a major barrier to operating internationally, both within the markets in the European Union/European Economic Area and outside these markets, according to 54% and 44% respectively of the companies surveyed.

Figure 23 External barriers to the development of business in and outside the markets of the European Union (EU) and the European Economic Area (EEA)

To enable them to conduct business successfully internationally and best meet their funding requirements, it is vital first and foremost for SMEs to conduct a clear assessment and plan their revenue and expenditure, as well as to examine their funding capability closely. The sec-tion III.2. tackles the question of overall funding capability and internal funding. The section III.3. gives a brief description of the main methods of external funding for international busi-ness, with particular focus on export activities.

4.2 The internal funding of international operations

Using financial resources effectively and adopting good management practices are essen-tial for conducting business, both within the national market and on one or more interna-tional markets. By determining its funding capability in advance, i.e. the internal and external


resources that it can tap into to cover its cashflow and funding requirements, the company is able more easily to select the funding methods that best meet its needs.

The company can assess its funding capability based in particular on the following criteria:

• Profitability threshold: the level of sales on the foreign market must be sufficient to enable the company to cover its fixed and variable overheads.

• Using its self-funding capability: the SME needs to make sure it retains sufficient room to manoeuvre for the future.

• Allocating profits: by not distributing profits, shareholders can set the money aside to facilitate development abroad.

• Working capital: the company’s financial situation must be solid. It must have a min-imum amount of shareholder equity and long-term resources to embark on an inter-national business. If the company’s working capital is greater than its WCR (working capital requirement), the entire operating cycle can be funded by the business and the balance takes the form of cash. By contrast, if it is lower than the WCR, the company needs to call on external backers and borrow money in the short term.

• Financial independence: the company’s financial strategy cannot depend on external funds alone. This means that it has to hold the highest level of shareholder equity pos-sible. This is also a positive sign regarding the company’s financial strength in the eyes of external lenders.

• Borrowing capacity: the company must set its margin for manoeuvre when it asks its bank for a loan.

• Using export support: the company must have a minimum level of skills in-house in order to know about and use the various aid mechanisms made available by the pub-lic authorities.

By using internal sources of funding in the main and limiting the call on external sources, the company will not only reduce the costs generated by this type of funding (interest charges and commissions), but it also will retain a borrowing reserve for the future, in case there should be unexpected occurrences.

4.3 External funding of international operations

4.3.1 Funding for exports

To reduce its funding requirements, the exporting company can ask for deposits from its cus-tomers to be used as advance finance to manufacture the goods ordered. This advance fund-ing comes into play in particular when the manufacturing process of the product or service is a lengthy one. It only covers a proportion of between 10 and 30% of the total value of the contract. If that is not enough, the exporting company can apply to its bank for an advance funding loan.

As confirmed once again by the annual BeCeFi “Funding SMEs” survey 2011, banks remain the leading partners for SMEs when it comes to funding. Before shipping their products abroad, many companies negotiate a line of credit with their bank, or apply for a different type of commercial credit arrangement to meet their cashflow needs. We will examine the


forms of funding used most commonly in international commercial transactions. These are: cash credits, fixed-term advances, customer discount credit, export acceptance credit, docu-mentary credit, factoring, forfaiting2 and other forms of bank guarantees.

4.3.1.1 Cash credits

By granting an exporting company a cash advance, the bank makes a certain amount of money available, initially without a maturity date, authorising the company to overdraw its account up to that amount. During the term of the cash credit (which often corresponds in this context with the period between the order and payment of the goods), the company benefits from an ongoing cash reserve enabling it to fund its operating cycle more easily or to cover any unexpected expenditure.

Made out in euro or in a foreign currency, the amount granted is decided in agreement with the bank and usually varies based on the need for working capital. The term of a cash credit varies from between one month to one year and can be extended by several six-monthly peri-ods. The company can use its line of credit without having to provide any supporting docu-ments or be subjected to checks by the bank. The company also decides the pace at which it wishes to repay its cash credit and pays interest charges only on the amounts it draws down, every three months. These charges are determined based on a standard interest rate – the cash credit base rate – to which are added a margin, commission and establishment fees. A one-off charge is payable at the time the line of credit is opened. If the company withdraws an amount greater than the amount set, it will have to pay charges in proportion to the addi-tional overdraft. However, short-term drawings beyond the overdraft limit may be allowed under certain circumstances.

This form of credit has the advantage of being simple and flexible, but can be quite costly. This cost is explained on the one hand by the flexibility offered by this method of funding, because the bank does not know at the outset how much the company will draw down, and on the other by the risk run by the bank, which has no real control over the actual use of the facility.

4.3.1.2 Fixed-term advance or straight loan

A fixed-term advance (FTA) or straight loan is a short-term loan (less than a year) designed to finance or consolidate a temporary cash requirement. For exports, this cash advance enables the company to fill the gap between manufacture and payment of the goods by the customer.

The amount granted, which cannot be less than € 125,000, is made available in the compa-ny’s current account. Incorporated into a line of credit3, the loan is non-renewable in principle and must be repaid in one lump sum at term. At the same time, the bank debits the compa-ny’s account for the amount of the advance, plus any interest. The interest is calculated based on the Euribor rate, plus a variable margin that depends on the size of the company, its sol-vency and the amount borrowed.

A straight loan drawn up in foreign currency may be called a loan or a foreign currency advance.

2. This method of funding is uncommon for SMEs, except in trading.

3. This line of credit may be on its own and only be used for granting straight or mixed loans and mix the straight loan with another type of credit, such as a cash credit.

Chapter 6

1. Payment on receipt of invoice 90

2. Bank account in another country 90

3. Payment on delivery 91

4. Documentary credit collection or collection on delivery of documents 92

5. Documentary credit 95

6. Special documentary credits 107

7. Standby letter of credit 113

International methods of payment


A method of payment is the procedure for collecting money, enabling payment instruments to be collected with a greater or lesser degree of success.

6.1 Payment on receipt of invoice

This method payment is used when the transaction relates to a small amount, or when the customer and supplier have a high level of mutual trust. As a result, payment on receipt of the invoice is generally applied in the context of a longstanding partnership between two compa-nies, or as a method of settlement between the parent company and its subsidiary. Payment may be claimed simply by the importer receiving the invoice. It can also be made by bank transfer or bill of exchange.

The main advantages of this method are that the supplier is not required to produce any par-ticularly voluminous documentation in order to monitor the payment. Also, because there is little administrative work to be done, the costs associated with this method are very low.

However, the supplier has nothing to cover the risk of non-payment by the customer, whether this is on account of bankruptcy or a political risk, such as the outbreak of war. But despite everything, this method of payment may be envisaged if the export is guaranteed by cus-tomer credit risk insurance.

6.2 Bank account in another country

6.2.1 Principles

Assuming that the bank of the exporting SME has an arrangement with a bank located in the importer’s country, or has a subsidiary or branch located in that country, the exporting SME has the option of opening a bank account directly in the country in question.

6.2.2 How it Works

However, opening such a bank account requires the exporting SME to provide a certain num-ber of documents to its bank. In general, the documents required are:

• a copy of the company’s articles of association

• a copy of the identity cards of those individuals validly able to commit the company

• a copy of the company’s registration in the commercial register

• a specimen of the signatures that validly commit the company and a registration for VAT.

Once the account has been opened, the exporter will instruct its importers to send their cheques, transfers, bills of exchange and invoices to be paid to the service desk at the bank’s foreign subsidiary or branch. In most cases, the exporter is quickly informed by the bank of any payments made and can benefit from the repatriation of those amounts within the period it has negotiated with the bank.

INTSME International methods of payment 91

6.2.3 Pros and cons

This method has two main advantages. First, the purchaser is able to pay directly into a bank account located in its own country. Second, payments made from an account abroad usually incur lower charges than for international payments.

Nevertheless, this method does not cover the exporter for commercial risk, such as refusal to accept goods, financial risk, including bankruptcy of the importer, or any political risk associ-ated with the importer’s country. Also, opening an account abroad generates account-keep-ing fees and hence a minimum number of transactions is usually required to enable the SME to offset these charges.

6.3 Payment on delivery

6.3.1 How it works

With this method, the company carrying the goods receives a mandate from the exporter to act as financial intermediary: the carrier then handles collection of the amount owed and repatriates the funds in favour of the exporter. This means that the carrier only delivers the goods to the importer if the importer makes direct payment. Payment for the goods can then be carried out using banknotes and coins, bill of exchange or cheque.

From a legal point of view, it is important to remember that the contract for payment on deliv-ery and the contract for carriage of the goods are separate under the law. The contract for payment on delivery is only valid if the words “payment on delivery” are expressly stated on the invoice and if the carrier has clearly said that it accepts this statement. Once the carrier has confirmed acceptance, it becomes a guarantor vis-à-vis the supplier and as a result becomes personally responsible for payment of the goods. If payment is made by cheque, the carrier can either have the cheque made out to the supplier, or cash the cheque itself before settling the amount with its customer.

Figure 28 How payment on delivery works

Exporter Carriers of fowarders

Importer

(1) Shipping

(4) Payment

(2) Delivery

(3) Payment

Source: Inspired by Eur-Export

6.3.2 Pros and cons

Payment on delivery of goods definitely has the advantage of being easy; nevertheless, this method also has numerous risks. First, the supplier is not protected against commercial risk, because the buyer may refuse the goods if they are damaged or do not comply with what was ordered. The second type of risk is financial. For example, the carrier cannot be held responsi-ble for payment made by ’bad’ cheque. The supplier can protect itself against this specific risk by notifying the customer that payment by cheque is only possible with a certified cheque or


bank cheque. Finally, this type of contract provides no guarantee against political risk, such as it becoming impossible to transfer funds collected because of political unrest.

As a result, in Belgium, this method is usually used more in the context of mail order sales or where there is a longstanding relationship between the supplier and the customer. It is also limited, geographically, to countries in the European Union.

In terms of potential intermediaries, the post office may accept payment of goods on delivery, albeit on limited terms. Also, it is a common practice with some road hauliers and freight for-warders. However, sea and air carriers usually refuse to offer this type of service.

6.4 Documentary credit collection or collection on delivery of documents

6.4.1 Principles

Documentary collection or collection on the delivery of documents is a method based on the reliability of the banking system, where the exporter’s bank is authorised by the exporter to collect the amount owed or to accept a draft from the importer in exchange for the delivery of documents.

Documents may be commercial in nature, such as invoices or deeds of ownership. They may also be accompanied by financial documents intended to determine the payment instrument: bill of exchange; promissory note or cheque. Collecting financial documents that are not accompanied by commercial documents is called “simple collection”, while collecting com-mercial documents, whether accompanied by financial documents or not, is called “docu-mentary collection”.

6.4.2 How it works

The documentary collection method requires the intervention of four parties (figure 29):

• the remitter or initiator

• the remitting bank

• the presenting bank

• the drawee

The process begins with the exporter authorising its bank, the remitting bank, by giving it documents and instructions to collect. This exporter can use two different methods of docu-mentary collection: documents against acceptance and documents against payment. In the first of these, the exporter stipulates that the bank located abroad, which is the correspon-dent of the exporter’s bank, only remits the documents to the importer in return for the acceptance of a bill of exchange payable at a later date. The main risk of this method is that the exporter is not assured of receiving the payment. In practice, many exporters taking this option ask for a guarantee from the bank so that they are protected against the risk of the importer’s insolvency.

Chapter 7

1. Internal measures 118

2. Tools for covering or hedging risks 121

Covering risks


As described in section II.3.1, there are a great many risks associated with an internationaliza-tion strategy. These risks often make business managers hesitant about taking on a foreign ’adventure’, especially the danger of foreign debtors failing to pay. This applies in particular to trading in far-away destinations where the obstacles are perceived to be more difficult to overcome. Yet having said that, for many companies the biggest growth opportunities lie in foreign countries – and often in distant markets.

In addition, the risks described can also be restricted and covered to a large extent. In this sec-tion, we will delve more deeply into a number of techniques that can be use to do just that. First of all, by conducting a sound internal policy, companies themselves are able to achieve a great deal. Often this involves having a healthy understanding of how things work. By screen-ing potential foreign buyers or monitoring the payment record of existing customers, the risk of default can be limited significantly – without insurance companies and other external com-panies having to play a substantial role. In part one of this section, we will look more closely at a number of ways by which companies operating internationally can limit their risks with-out having to call in specialised partners.

In part two, we focus more closely on a number of external partners that companies can call on to restrict the risks associated with internationalization. Sometimes, SMEs have too little expertise in-house to be able to handle certain risks and, even more often, they are not capa-ble of spreading these risks sufficiently. For this reason, banks, insurance companies and other (financial) institutions are often able to offer solutions. This is because they specialise in these matters and are able to assess, cover and spread a large number of risks better than the aver-age SME, offering solutions in return for payment.

7.1 Internal measures

7.1.1 Diversification

Diversification is an initial way of hedging against all of the risks described above. Companies operating in a range of countries and regions are less seriously affected by, say, nationalisa-tion than companies that only operate in one specific market. If a company has a diversified customer base, it will be less badly affected by one customer that defaults on payment, just as another company that has a dispute with a foreign supplier can absorb the effect more easily if it has other suppliers to fall back on. Diversification, though, is not always possible in practice, particularly for SMEs. This means that it is often an impossible task to try and oper-ate simultaneously in many different countries or to limit dependency on one large customer.

7.1.2 Gathering information

As can be seen from section II.4.2, a lack of information can be a major obstacle in operat-ing internationally. Businesses often do not find themselves operating in other countries at all. Yet there are many organisations that can help bring internationalization about. One of the services provided by ’FIT’ (Flanders Investment and Trade) in Flanders, ’Awex’ in Wallonia and ’Brussels Invest & Export’ in Brussels consists of showing business managers the ropes when it comes to operating abroad. Other organisations, such as Chambers of Commerce or employer organisations, can also provide assistance in this area.

INTSME Covering risks 119

Conducting a market analysis will provide an insight into the specific nature of a foreign mar-ket. Analysis enables a company to find out about, or at least be aware of, a number of cul-tural, legal and business differences. For example, some countries place tariffs or regulatory obstacles in the way (such as product standards, import levies, rules about labelling and oth-ers). Companies also need to be aware of a number of cultural differences, as this can help reduce the chance of misunderstandings or poor communication.1

7.1.3 Debtor management/credit management2

Effective debtor management is a first way of providing protection against payment risk and other commercial risks. Having a properly operating credit management system in the busi-ness can provide a sturdy defence against payment defaults. But not every SME is very well versed in this area. Debtor management and credit management are the subject of count-less books and studies that point out how issues can differ sharply, depending on the cus-tomer portfolio, region and sector where the business is operating, as well as the size of the company and much more. Making an exhaustive analysis of these publications also falls out-side the scope of this book. We do, however, provide some general tips designed to show that having a debtor policy is not just something reserved for large companies and nor does it always require major resources and manpower. This means that there is also a place for a debtor policy in a smaller organisation.

A debtor policy consists first and foremost of making a number of practical arrangements that SMEs also have to be able to provide an answer for. Some of the questions that crop up include: What is the payment time permitted? Is a discount given for immediate payment? Is late-payment interest charged for customers who pay late? Are any credit limits set?3 When and how frequently are reminders sent out and at what cost for debtors with arrears? The general terms and conditions must be stated clearly on the purchase order (or order confir-mation), as well as on the invoice and so must be applied consistently.

A debtor policy also consists of gathering information about the customer base. This will enable the company to provide credit only to customers (and suppliers and other partners) in which it has sufficient trust. This gathering of information can be carried out fairly directly. Despite the fact that we live in the information era, personal contacts are still important, as can be seen from the many trips made by company managers to meet foreign customers and partners.

In addition, bodies such as Chambers of Commerce, banks or specialised institutions such as credit insurers, are able to provide more detailed information. In fact, there are extensive data-bases filled with business information about millions of companies all over the world that can be consulted in return for payment (either a one-off charge or via subscription). This data may

1. The list of cultural differences relevant for trading relations with countries as far away as China is a lengthy one and falls outside the scope of this book. Some of the areas that crop up frequently in the literature and from experience include: greater importance paid to hierarchy, a reluctance to answer ’no’ plainly to questions or requests, taking care to ensure that no one loses face, greater willingness to amend contracts when unforeseen developments occur – and more along the same lines.

2. Debtor management is a somewhat more limited term than credit management, although both terms are sometimes mixed up. Debtor management means dealing with badly paying customers, while credit management also has a preventive component; preventing customers from not paying.

3. A credit limit is a maximum total amount allowed for outstanding invoices owed by one customer. Setting a credit limit can restrict the level of maximum losses.


consist of company information, balance sheet details, the latest annual accounts, payment behaviour and more. It is important to note that these institutions offer no guarantee against non-payment from customers.

The information gathered makes it possible to produce an analysis of the customer’s credit-worthiness. If this creditworthiness is assessed as being too low, debtor credit may be refused, advance payment or cash payment may be required or other measures may be taken to reduce the risks. In some cases, especially when the risk of payment default is estimated to be too high and sufficient cover cannot be provided, it may happen that a sale is lost altogether.

In addition, having credit management in place means that the customer portfolio can also be examined and monitored at regular intervals. The creditworthiness of customers may change as time passes and hence sometimes needs to be assessed again. Payment history and out-standing invoices can provide an indication of a possible problem. In an ideal situation, com-panies should be well informed of any outstanding debtor balance, the average time it takes customers to pay and so on. Using specialised software can also be very useful here.

A final step in the procedure is triggered if the period set for payment is exceeded. Despite tak-ing every precaution, some customers will exceed these periods and, in the worst instances, not pay at all. In that case, reminders, warnings and official notices of default4 have to be sent out and possibly even collection agencies, bailiffs or lawyers brought in. Ideally, companies should be prepared for this and institute appropriate communication quickly once a payment problem with its customers has been established.

Some outside providers specialise in debtor management and (parts of) this particular area of management can also be outsourced. There are various ways of covering a debtor risk and we will deal with the most common methods in section 2 of this chapter.

7.1.4 Advance payments

Advance payments are another, simple way of reducing the payment risk, or even eliminat-ing it altogether. Advance payments can be partial or 100 per cent, and they can be made in instalments (e.g. half with order and half with delivery) or in a single payment. Advance pay-ments are more common in some sectors (such as capital goods) than in others. The same applies to highly unstable countries and for new customers. In both cases, the risk of payment default is assessed as being much higher, meaning that suppliers are more likely to ask for advance payments and customers are more likely to accept them. With longstanding custom-ers, where a relationship of trust has been built up, advance payments are less usual, espe-cially for 100 per cent of the price. Also, shorter terms of payment can also decrease the risk of non-payment of customers.

4. A debtor can always claim it didn’t receive the warning and/or is not aware of the problem. This can-not happen if an official notice of default is served. This registered letter will also state that this is the last chance for any payment problems to be settled amicably.

INTSME Covering risks 121

7.2 Tools for covering or hedging risks

In addition to the precautions that companies can take, there is also a wide range of other instruments and external partners that can assist companies in their internationalization pro-cess, aimed at mitigating the risks. We will discuss the main ones of these tools.

7.2.1 Term contract and foreign exchange option

Companies that operate internationally are often exposed to an exchange rate risk. An exporter to the United States that grants deferred payment for three months to a major cus-tomer will incur losses if the dollar appreciates against the euro during that period. Although this exporter will make a profit if the dollar goes down in value, SMEs would prefer not to run this type of risk.5 By insisting on invoicing in the company’s own currency, the risk is shifted to the other party6, but this is not always possible. If this is the case, there are various deriva-tive products available for offsetting this risk. We will outline the two most common ways of achieving this aim.

A term contract is an agreement between two parties to buy or sell a fixed amount of for-eign currency at an exchange rate set in advance, on a specific day in the future. By doing so, the company in question is able to buy security at a (usually) limited cost.7 Then, regardless of movements in the exchange rate in the interim, the company will receive a fixed amount paid at its own exchange rate.

Another, similar, possibility is to buy a foreign currency option in which the company buys the right to buy or sell a fixed amount of foreign currency at an exchange rate set in advance on a specific date in the future.8 The difference between this and a term contract is that no obligation is involved, but merely the right to buy the foreign currency on the due date. In other words, if the currency in question depreciates in value, the SME can pocket the profit, which is not the case with a term contract. For this reason, foreign currency options are more expensive.

There are also other financial products that accommodate the exchange rate risk, but which are less common than term contracts or foreign currency options. The instruments, for exam-ple, for absorbing fluctuations in rates and prices of certain raw materials are very similar and the economic risk can be limited by using these instruments.9

5. By adjusting its payment behaviour, the SME can still achieve an additional benefit through fluctuations in the exchange rate. More specifically, the SME can pay its invoices sooner if the foreign currency in ques-tion is expected to rise, or more slowly if it is expected to fall. This practice is called ’leading and lagging’.

6. An exchange rate clause can also be inserted into the contract, shifting the exchange rate risk to the other party. In practical terms, this means that on the date of payment, the amount invoiced is adjusted in line with changes to the exchange rate.

7. This practice is also known as ’hedging’. The bank or financial institution asks for payment in return for the risk it is running.

8. The right to sell a foreign currency at a value set in advance on the due date is called a ’put option’. A call option is when the right is to buy a foreign currency.

9. Some companies operating internationally would suffer heavy losses, for example, if the price of oil rose sharply, while companies that are financed mainly via a variable interest rate want to be covered if this rate suddenly goes up.

Part 3

Chapter 8. Public measures in Brussels 137

Chapter 9. Public measures in Flanders 149

Chapter 10. Public measures in Wallonia 169

Chapter 11. Public measures at the federal level 181

Chapter 12. aid from the European institutions 201

Public measures sustaining the internationalization

of SMEs

134 Public measures sustaining SME’s internationalisation INTSME

Since the Institutional Reform Act of 8th August 1988, the Regions have assumed responsi-bility for their own policy-making on international exchanges and exports, with each Region fairly quickly establishing an organisation with the task of promoting foreign trade1. After a number of developments in terms of structure and functions, these organisations are now known as Brussels Invest & Export (BIE), Flanders Investment & Trade (FIT) and the Walloon Foreign Export and Investment Agency (AWEX). However, prerogatives aimed at encouraging and assisting companies in their business activities abroad have been retained at the federal level. Responsible for transposing into law the European directives in the matter, this federal level also proposes a range of funding measures through Finexpo, the Belgian Investment Company (SBI/BMI) and the Belgian Export Credit Agency (ONDD).

At a regional level, therefore, Belgian companies are able to call on the relevant empowered organisations to obtain support in launching and/or developing their business internationally. This support may take the form of funding measures or non-financial aid, such as business assessment, information, advice, services, infrastructure, etc.

The Foreign Trade Agency (see box 3) takes constant stock of the number of Belgian compa-nies registered with these organisations. The table below provides an idea of the number of SMEs that call on the services of one of the three regional institutions that promote foreign trade. Of the 21,703 companies registered on Augustus 10th 2012, 17,678 employ between 0 and 250 salaried workers. 10,053 SMEs in Flanders have called on public aid, with a further 5,535 in Wallonia and 2,090 in the Brussels Capital Region.

table 8 Number of SMEs registered in the FTA’s Exporter Database (10/08/2012) per Region based on the number of people employed (p.e.)

Number of SMEs per region

0-10 p.e 11-50 p.e. 51-250 p.e. 0-250 p.e.

Flanders 5.951 2.923 1.179 10.053

Wallonia 3.534 1.554 447 5.535

Brussels Capital Region

1.526 449 115 2.090

Source: Foreign Trade Agency, FTA’s Exporter Database.

Despite everything, these figures are relatively low when compared with the total number of SMEs in Belgium and the number of Belgian companies that export. Given the financial services and products that they provide, these organisations genuinely deserve to be better known. By using their assistance, there is no doubt that a larger number of SMEs could take the road to internationalisation if they were better informed about the various measures that have been put in place to help them.

Even though the assistance that they provide cannot be qualified as public aid, the chambers of commerce in Belgium are an important and essential point of contact for SMEs wishing to obtain guidance in their international business plans and activities. Thos SMEs that are mem-bers of a chamber of commerce are able to benefit, at attractive rates, from all of the ser-vices offered by these private bodies, such as training in international commerce and foreign

1. AWEX in 1990 for Wallonia, Export Flanders and Brussels Export in 1991 for Flanders and the Brussels Capital Region.

INTSME 135

languages, information about foreign markets and export terms, as well as advice, docu-ments and the forms that need to be filled in, assistance with translations, etc.

This third section of the book is designed to make up for this lack of information. To achieve this aim, we take an exhaustive look at the regional, federal and European support measures that are available, detailing systematically wherever possible, the principle for each, as well as the eligibility criteria, the terms set, the extent of public support and the procedure to follow for businesses to be able to benefit.

Box 3 the Foreign trade agencyBefore the powers for foreign trade authorities were devolved to the Regions, the Belgian Foreign Trade Office (BFTO) was the benchmark institution for foreign trade.

The BFTO was then replaced by the Foreign Trade Agency (FTA), which was created in 2002 following the Cooperation Accord between the Federal Authorities and the Regions. The FTA now promotes international commerce through the services that it provides to its three regional partners (BIE, FIT, AWEX) and the Federal Public Service Foreign Affairs. The FTA acts as a forum for meetings between the Regional and Federal authorities.

Figure 38 Partners of the FTA

Flanders Investment & Trade(FIT)

Foreign Trade Agency (FTA)

Brussels Invest & Export(BIE)

Federal Public Service

Foreign Affairs, Foreign Trade

and Development Cooperation

Walloon Agency for Exports and Foreign Investment

(AWEX)

Belgianexporting companies

Source: FTA: http://www.abh-ace.be/fr/

The FTA provides indirect support to companies that operate abroad or that are ready to do so. The FTA organises four joint business missions each year in conjunc-tion with the Regions and the Federal Authorities. These commercial events enable companies to develop contacts with industrial players in other countries, as well as with foreign organisations and government bodies. The FTA also provides them with information, surveys, statistics and a wide range of other documentation rela-tive to foreign markets and all aspects of foreign trade.

http://www.abh-ace.be/fr/

Chapter 8

1. Measures proposed by Bruxelles Invest and Export 140

2. Measures proposed by Exportbru 145

Public measures in Brussels


As a result of cooperation agreements between regions signed in 2005, the network of eco-nomic attachés of some enumerated countries has been mutualized. The participation to eco-nomic missions and other actions abroad has been extended to companies vested in other regions as well. SMEs located in Brussels may thus ask support from Walloon and Flemish attachés in certain countries. They may participate to missions, trade fairs and exhibitions organized by the Flemish or the Walloon Regions if there is sufficient capacity for the entre-preneurs of the organizing region. Those agreements are reciprocal.

In terms of the aid offered directly by the Brussels Capital Region, the main public organ-isation providing support for the internationalization strategies of Belgian SMEs is “Brussels Invest and Export” (BIE)1. Financial assistance has also been available in this area since 2010 from Exportbru, one of the subsidiaries of the Brussels Regional Investment Company (BRIC).

Box 4 Brussels Invest and Export and Exportbru

Brussels Invest and ExportThe aim of “Brussels Invest and Export” (BIE), created from the merger between “Invest in Brussels” and “Bruxelles Export”, is twofold: 1) to provide support for exports through financial and non-financial aid for companies located in the Brussels Capital Region; and 2) to encourage foreign investments in this region of Belgium.

As part of its aid strategy for exports, BIE has a network of over 80 attachés and rep-resentatives located across continents. Their job is to provide free advice to SMEs looking to internationalise by implementing an export strategy. These attachés also return once a year to Brussels in order, in particular, to meet with Belgian SMEs seeking information about the foreign market they are targeting. SMEs can also make an appointment with one of these attachés directly through the BIE website.

BIE also organises a number of missions to other countries, the aims of which include assisting SMEs in Brussels to meet business partners abroad or to make themselves known in certain specific foreign markets.

Through the Brussels Young Exporters Programme BIE also supports undergradu-ates sent to universities abroad in order to conduct market belgian surveys that can be used by Belgium bussiness.

In terms of training, the “assistants import/export” programme enables support to be provided to Belgian companies to help them with the administrative processes they have to go through for their exports.

Another tool implemented by BIE is a database of Brussels-based companies that are potential exporters. One of the main aims of this database is to enable foreign companies to locate commercial partners based in Brussels.

Finally, probably the most significant contribution made by BIE is to make a range of financial aid available to Belgian SMEs aimed at enabling them to boost the development of their international business.

1. The BIE website can be accessed via http://www.invest-export.irisnet.be.

INTSME Public measures in Brussels 139

ExportbruCreated in April 2010, Exportbru is a subsidiary of the Brussels Regional Investment Company. The main aim of Exportbru is to promote and support the business devel-opment of SMEs from Brussels in international markets by granting them financial aid.

Exportbru offers three types of funding: financial support for prospection of new markets, for international expansion and for setting up a business abroad.

Chapter 9

1. SME portfolio 151

2. Subsidies from Flanders Investment and trade 154

3. Strategic enterprise: assistance with external consultancy or recruiting a knowledge manager 163

4. Flanders Fund International (FVI) 166

Public measures in Flanders


The Flemish government has developed a whole range of measures to support businesses in general and international expansion in particular. In this chapter, we detail the main measures that relate to internationalization.1 Because these measures are subject to revisions and adap-tations, we recommend viewing the ’more information’ section on the webpage, where you will find the latest details.

For an up-to-date and more comprehensive overview of all the support measures offered by the Flemish government, visit the site at subsidiedatabank.be. We have also taken the major-ity of the information from this subsidies database, as well as the Agentschap Ondernemen (Enterprise Flanders) website at http://www.agentschapondernemen.be/ and the Flanders Investment and Trade website at http://www.flandersinvestmentandtrade.com.

Box 5 Enterprise Flanders and FIT

ENTERPRISE FLANDERSEnterprise Flanders came into existence in 2009 through the merger of the Economy Agency and the Flanders Enterprise Agency (VLAO). Enterprise Flanders is respon-sible for implementing Flemish economic policy and overseeing operational prep-arations. It also provides guidance for businesses in finding their way through the Flemish government landscape.

If a business has questions about formalities, permits and the support measures available from the Flemish government, or needs guidance and supervision, then Enterprise Flanders is where it should address its questions. For more information about the subsidies, support and information that Enterprise Flanders has to offer, go to http://www.agentschapondernemen.be/.

FLANDERS INVESTMENT AND TRADE (FIT)Flanders Investment and Trade (FIT) was established by the Flemish government in 2005. The aim of FIT is to attract international companies to Flanders and to encour-age Flemish businesses to operate internationally. In doing so, special attention is paid to SMEs. FIT’s central office is located in Brussels, but there are also FIT offices in every province in Belgium, as well as at over 90 locations abroad, all over the world.

FIT offers Flemish companies a wide range of services, including (financial) support. In addition, FIT also informs businesses about interesting opportunities in projects abroad and provides practical information about doing business in other countries. FIT also has the contact details of foreign prospects and possible business partners. For more information about FIT, go to http://www.flandersinvestmentandtrade.be/site/wwwnl.nsf?opendatabase

1. In addition, there are also subsidies and measures for innovation, start-ups, investing and the like. It is not within the scope of this book to examine these areas in greater depth.

http://www.agentschapondernemen.be/


http://www.flandersinvestmentandtrade.com

http://www.flandersinvestmentandtrade.com


http://www.flandersinvestmentandtrade.be/site/wwwnl.nsf?opendatabase

http://www.flandersinvestmentandtrade.be/site/wwwnl.nsf?opendatabase

Chapter 10

1. Measures proposed by Sofinex 170

2. Measures proposed by the Walloon Agency for Exports and Foreign Investment (AWEX) 174

Public measures in Wallonia


The Walloon Region supports Walloon companies seeking either to guarantee, finance and insure their exports, or to invest abroad. The Region offers funding measures through the Société de Financement de l’Exportation et de l’Internationalization des entreprises wallonnes (Export and Internationalization Funding Company for Walloon Enterprises – Sofinex), as well as measures targeted at information, advice, expertise, follow-up and partnership through the Agence wallonne à l’Exportation et aux Investissements étrangers (Walloon Agency for Exports and Foreign Investment – AWEX).

Box 6 Sofinex and AWEX

Export and Internationalization Funding Company for Walloon Enterprises (SOFINEX)Sofinex is a subsidiary of AWEX, Sowalfin (Walloon Company of Financing and Guarantee for SMEs) and SRIW (Walloon Regional Investment Company), created in 2003 as a public limited company on the initiative of the Walloon Government. The aim of Sofinex is to encourage exports and investments or establishing branches abroad on condition that a positive impact on the Walloon economy and jobs can be demonstrated. It also responds to the funding needs of Walloon businesses involved in these activities by offering them a range of attractive financial instru-ments, such as credit guarantees, loans, capital participations, grants, etc.

Walloon Agency for Exports and Foreign Investment (AWEX)AWEX is a Walloon public body established to promote foreign trade and to receive foreign investors. AWEX also provides advice, expertise, supervision and subsidies to companies already operating internationally or about to start. The Agency has seven local advice bureaux in the region, as well as a worldwide network of busi-ness and commercial representatives.

10.1 Measures proposed by Sofinex

In terms of funding support for export and foreign investment activities, Sofinex offers a num-ber of different financial instruments to Walloon businesses:

• Direct funding

• Guarantees

• Agreements with the SBI/BMI

• Support for exports as part of cooperation agreements:

– Bilateral accords

– Agreements with international bodies

– The specific “Environment for Europe” programme

All Walloon companies with a registered or operating office in the Walloon Region are able to benefit from the funding mechanisms provided by Sofinex on condition that they are not in

Chapter 11

1. Measures provided by Finexpo 182

2. Measures proposed by the Belgian Investment Company 188

3. Measures proposed by the Belgian Export Credit Agency (ONDD) 191

Public measures at the federal level


SMEs looking to start up or develop their export business or to invest abroad may benefit from a range of federal funding support mechanisms offered through Finexpo, the Belgian Investment Company (SBI/BMI) and the Belgian Export Credit Agency (ONDD).

Box 7 Finexpo, SBI and ONDD

FINEXPOFinexpo is an inter-ministry advisory committee run by the Foreign Affairs and Finance Department, with responsibility for examining applications for export support funding. Finexpo aims to provide financial support for Belgian exports of capital goods and associated services, while at the same time contributing to the development of the countries benefiting from this aid. To achieve this aim, Finexpo provides Belgian exporting companies with financial instruments designed to reduce or stabilise the funding cost linked to export credit.

BELGIAN INVESTMENT COMPANY (SBI/BMI)Created in 1971, the SBI/BMI is a public limited company owned 64% by the Belgian State and 36% by banking institutions and private companies. Its mission is to pro-vide medium or long-term co-finance arrangements for investments made abroad by Belgian companies and more specifically by SMEs in the process of expanding or with a high growth potential. To do this, the SBI/BMI uses its own funds in addition to grants from Wallonia, Flanders and the Federal government, as well as direct and indirect financial resources from international bodies.

BELGIAN EXPORT CREDIT AGENCY (ONDD)The ONDD is Belgium’s public credit insurer. The aim of this autonomous public institution is to promote international trade relations by insuring banks and busi-nesses against the political and commercial risks associated with domestic and inter-national commercial transactions and direct foreign investments. The ONDD also insures against political risks relating to foreign direct investments and directly Finances commercial transactions of limited proportion.

11.1 Measures provided by Finexpo

Finexpo offers five financial instruments for supporting exports and related services that all small, medium-sized and large enterprises are able to call on in this area of business. These five instruments consist of:

• A financial instrument:

– Stabilised interest

• Four aid instruments:

– Discounted interest

– Discounted interest with additional grants

– Grants

Chapter 12

1. Principles 202

2. Multilateral aid tools 204

3. Bilateral aid tools 212

Aid from the European institutions


12.1 Principles

The European Union offers a range of tools to help the internationalization of SMEs. Unlike aid at a regional and federal level, the European Union offers very few direct funding opportu-nities to European SMEs wishing to internationalise. However, the aim of many aid measures put in place by the European Union is to help SMEs find a source of private or public fund-ing by providing advice in this area or by organising events designed, among other things, to place SMEs in contact with organisations that may provide funding for them.

In terms of assistance that involves more than mainly just financial considerations, numerous European programmes have been developed aimed at better preparing SMEs that wish to internationalise, or helping SMEs already involved in an internationalization strategy in differ-ent ways. This assistance takes the form of training courses or consultancy in areas as varied as marketing, law, gathering statistics, managing human resources in a foreign country, etc.

Regarding the structure of the European tools and programmes aimed at encouraging the internationalization of SMEs, these are hybrid in the main and usually offer assistance and advice on both financial and non-financial topics. However, a distinction can be made between those programmes and tools that have a multilateral approach, on the one hand, and pro-grammes and tools favouring a bilateral dimension on the other. The aim of the first group of programmes and tools is to stimulate the internationalization of SMEs from the European Union to any other countries located either within the EU or beyond.

The programmes and tools in the second category specialise in a specific country or region of the world, in many cases trying to focus on one or more of the specific features in the tar-get country that European SMEs in the first instance neither know at all or have any in-depth knowledge of. Hence, by way of an example, one of the main difficulties of operating in the Chinese market is the low level of protection for intellectual property rights. This problem is significantly less important in Japan or South Korea. However, the highly individual culture of these latter two countries, as is the case in China, has shaped business relations in a way that differs greatly from the European Union.

Some of these bilateral programmes also focus solely on a particular sector within the country or region under consideration. One of the reasons for specialising in this way is to make all of the knowledge about the sector being considered available to European SMEs from a group of highly specialised experts. Organising commercial events or trade fairs where representa-tives from the EU and the target country are able to meet may be greatly facilitated when the event organisers restrict themselves to a limited number of markets.

As a result, this chapter starts by presenting various multilateral European measures that may help support the internationalization of Belgian SMEs into other economies located within the EU or beyond. We will then focus our attention on the bilateral European aid measures that Belgian SMEs can take advantage of. These measures concentrate mainly on markets in Asia.

http://portal.enterprise-europe-network.ec.europa.eu/