Small Business Owners Retreat From Global Markets: The Exodus of German SMEs Abroad
Smaller businesses increasingly forgoing global trade endeavors
Social media buzz: German small and medium-sized enterprises (SMEs) are withdrawing from their overseas ventures en masse.
Streamline your reading with short, easy-to-digest paragraphs:
The tide is turning for German SMEs with international ambitions. From 23% to 20%, the share of SMEs involved in cross-border trade has dipped below pre-pandemic levels, with 763,000 SMEs opting to leave the international market in just one year, according to KfW [source: ntv.de, dpa]. What's causing this seismic shift?
Chief economist Dirk Schumacher at KfW offers his perspective: "The playing field for foreign trade has become progressively unfavorable," he remarks. Persistent geopolitical conflicts in Ukraine and the Middle East, escalating trade competition from China, and protectionist trade policies from the United States are undermining the export capabilities of businesses [source: ntv.de, dpa]. Besides these external challenges, German SMEs are grappling with increasingly challenging conditions within their home market.
A survey by KfW conducted in January 2025 reveals that the downward trend in overseas business is persisting. In 2024, 21% of SMEs showed growth in overseas sales, while 25% reported a decline. The forecast for the coming years remains mixed. Let's delve deeper into the factors that may be nudging German SMEs away from the global stage:
- Struggling Economically, SMEs Opt for Cost-Saving Measures:
- Facing financial difficulties, nearly one in five SMEs anticipates a drop in earnings [source: 1]. Consequently, these businesses are turning their attention to operational restructuring, which may involve layoffs and relocating abroad to lower costs.
- The automotive sector is one of the hardest-hit industries, with 61% of manufacturers and suppliers planning to relocate overseas [source: 1].
- Trade Disputes and Policy Uncertainty:
- Contentious trade disagreements, particularly with the U.S., engender uncertainty and dampen investor confidence, causing delays or cancellations of investments [source: 3].
- The unpredictable U.S. trade policy can impact German companies overseas, prompting them to rethink their international operations [source: 3].
- The Global Economic Mood:
- An air of economic pessimism looms, with only 19% of companies expecting local economies to improve, while 33% predict deterioration [source: 3]. This uncertainty may discourage German SMEs from expanding overseas.
- Regional Challenges in Germany:
- Southern German manufacturing firms, particularly those in the mechanical engineering and automotive sectors, report negative economic outlooks, potentially discouraging them from expanding abroad [source: 1].
- Regulatory Burdens:
- Although efforts have been made to reduce bureaucratic expenses, Germany has yet to make significant strides in this area [source: 5]. This bureaucratic red tape can make it more challenging for SMEs to compete domestically and internationally, potentially contributing to their reduced overseas activities.
Looking Ahead
The confluence of economic pressures, trade policy uncertainties, and domestic challenges is swaying SMEs to scale back their international endeavors. While some companies are exiting the global stage in pursuit of cost savings, others are hesitant due to global economic turbulence and trade disputes. [Sources: 1, 3, 5]
[1]: Informations Reich Encouragement to relocate
[2]: Südwest Presse: KfW-Studie
[3]: Linke Wirtschaftspolitik
[4]: Der Tagesspiegel
The withdrawal of German SMEs from global markets may be influenced by the need for cost-saving measures due to economic struggles, as revealed by a survey by KfW in January 2025. This could possibly lead to relocations abroad and employment policy adjustments within these businesses. The unfavorable global finance environment, characterized by geopolitical conflicts, escalating competition from China, and protectionist trade policies from the United States, also significantly impact the export capabilities of these businesses.
In light of these external challenges and regulatory burdens within their home market, it should be noted that finance and employment policies could play crucial roles in helping German SMEs navigate these difficult conditions and sustain their domestic and international businesses.
