KfW Research: Many SMEs are retreating from international activities

• Number of businesses operating outside Germany’s borders has fallen sharply
• SMEs’ foreign turnover dropped by 6.5 per cent on a price-adjusted basis in 2023
• Growing concern about US market

Many SMEs in Germany are retreating from their international activities. Whereas in 2022 some 880,000 of the approx. 3.8 million SMEs were active abroad, a year later that was only around 763,000. The share of SMEs with international operations thus decreased from around 23 per cent to 20 per cent, which is below the pre-pandemic long-term average. These are the findings of the new Internationalisation Report released by KfW Research.

Those SMEs that continued doing business abroad were able to increase the foreign share of overall turnover. On average, they generated 29 per cent of their total turnover outside Germany’s borders, 2 percentage points more than in 2022. The foreign turnover of these enterprises also increased in absolute terms – by around 12 per cent to more than EUR 1 million on average.

But this rise was not enough to offset the decline in the number of internationally active businesses. Overall, international turnover of Germany’s SMEs fell by 0.4 per cent in nominal terms to EUR 698 billion. The drop was an even steeper -6.5 per cent on a price-adjusted basis.

“The conditions for external trade have deteriorated significantly,”

said Dr Dirk Schumacher, Chief Economist of KfW.

“Ongoing geopolitical tensions around Ukraine and the Middle East, growing competition from Chinese exporters in key industries and the protectionist trade policies of the US are weighing on businesses’ export outlook. In addition, many SMEs view the location conditions in Germany as increasingly hampering their competitiveness. Policy measures must address this issue”.

A special survey of German SMEs by KfW Research in January 2025 revealed that their international activities remain weak. Whereas 21 per cent of all SMEs with international activities recorded growing foreign turnover in 2024, 25 per cent reported a decrease. It is true that 38 per cent of SMEs with foreign activities believe it is likely that their international business will grow moderately in the next three years, whereas only one per cent of them expect strong growth. However, 20 per cent also expect declining turnover abroad and a further 8 per cent anticipate a sharp drop.

Enterprises with business activities in the US are relatively concerned. At present, a good 16 per cent of German SMEs have customers, suppliers, competitors or locations of their own in the United States. Of these businesses, 34 per cent expect rather negative impacts and a further 9 per cent even expect very negative impacts from the new US policies, although the survey was taken even before US President Donald Trump announced his radical tariff policy.

In 2023, German enterprises sold most of their products in Austria and Switzerland, followed by the Benelux states and France. Exports to the United Kingdom plummeted as a result of Brexit. The Scandinavian region has also lost a great deal of importance. This is likely due in part to the exchange rate development. Most SMEs have retreated from the Russian market. Only one per cent of internationally active enterprises export to that country, compared with 11 per cent eight years ago.

The current study can be downloaded from: KfW Internationalisation Report | KfW

The KfW Internationalisation Report is based on the data from the most recent survey wave of the KfW SME Panel (16 February to 21 June 2024) and a supplementary survey on international business activities (13 to 21 January 2025). Each year since 2002, KfW Research surveys small and medium-sized enterprises from all economic sectors and size classes for the KfW SME Panel. Details: KfW SME Panel | KfW

KfW supports SMEs with a number of promotional programmes on behalf of the Federal Government. More information is available at Strengthening the SME sector (German only).