Trade finance as a barrier to SME internationalisation: special reference to African trade with China
Van Heerden, Yvette
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The importance of small and medium-sized enterprises (SMEs) in the economy should not be overlooked. The main function of SMEs is to contribute to the economic activities in a country, through the provision of goods and services to the public or other firms. These goods and services could be traded internationally, thus increasing a country's export performance. It is important for economic growth that SMEs grow within their respective economies. One way that SMEs can achieve growth is through internationalisation. Firms are internationalising faster than ever before (because of advances in telecommunications and transportation) and internationalisation theories that can provide practical guidance to firms are more important today than in the past. A firm's ability to internationalise no longer only depends on the quality of the product, the delivery terms and competitive prices. Internationalisation increasingly depends on the ability and willingness of financial institutions to grant credit. Obtaining trade finance has become a major hindrance to SME internationalisation, especially in Africa. By overcoming the difficulties in obtaining trade finance, African SMEs will be able to expand into foreign markets. The purpose of this study is to determine how African SMEs can overcome trade finance barriers to internationalisation. SMEs can do so by mitigating the risks involved in every international transaction and by becoming "trade finance ready". A trade finance facility that is well suited for African SMEs (because it revolves around identifying and mitigating the risks involved with their international transactions) is structured trade and commodity finance. In trading with China, African SMEs can obtain structured trade and commodity finance from a specialist financial institution that focuses on the Chinese market (which is the focus of this study). China Construction Bank (Johannesburg branch), through their association with Rand-Asia Trade Finance, provides structured trade and commodity finance to African SMEs. The key to receiving structured trade and commodity finance is that these SMEs, together with China Construction Bank (Jhb) and Rand-Asia Trade Finance have to mitigate the risks involved with their international transactions so that the SMEs can become "trade finance ready" .