KfW Internationalisation Report:

• 42 % of German SMEs affected by supply chain disruptions
• Manufacturing and construction hit hardest
• One fourth of all small and medium-sized enterprises are raising prices
• Foreign turnover recovered slightly in 2021 after sharp drop in previous year – uncertain outlook for 2022

Russia’s war of aggression against Ukraine and the sanctions imposed in response have caused new disruptions to global supply chains, which were already under great pressure from the pandemic. According to the KfW Internationalisation Report, this continues to put high pressure on German SMEs as well. The share of SMEs affected by material shortages dropped from 48 % last September to 42 % in March of this year. But this drop is due solely to the services sector, which is much less reliant on inputs than other economic sectors. By contrast, the share of manufacturing and construction enterprises affected by supply bottlenecks remains at a high 78 %, while in wholesale and retail the share has even grown by 5 percentage points to 68% since autumn.

Overall, 29 % of the 3.8 million SMEs in Germany source commodities, inputs or services from abroad. They are being hit particularly hard by the disruptions to global value chains. Eight in ten of these enterprises alone are grappling with supply bottlenecks. SMEs that procure inputs from the United Kingdom, China or Russia are even more affected than those that import from other European countries. Around 90 % of them are experiencing material shortages. However, the percentage of businesses that procure commodities, inputs or services of any kind from those countries is quite low. Only 11 % of SMEs procure inputs from China. The share of enterprises that rely on commodities, inputs or services from the UK or Russia is even lower, at 3 % each.

Price adjustments are one of the most typical consequences of material shortages. One in four SMEs have recently raised their prices. Supply bottlenecks thus remain a major driver of inflation, along with energy prices. Further effects of disrupted supply chains are higher procurement costs (23 %), production disruptions (22 %), delivery delays (21 %), inventory buildups (11 %) and refusals of orders (9 %). By contrast, negative impacts on employment remain limited (3 %) and are concentrated in the construction and manufacturing sectors.

Supply chain disruptions and the impacts of the pandemic have also made a mark on Germany’s exports and thus on the foreign turnovers of small and medium-sized enterprises in the past two years. In 2020 they plummeted by EUR 63 billion or around 11 % on the previous year. To be sure, the decline was slightly less dramatic than expected. But at EUR 533 billion in the first year of the pandemic, SMEs’ foreign turnovers were at the lowest level in more than ten years. Manufacturing lost its position as the driver of SME exports in 2020 (-12 % to EUR 229 billion). But the declines in the services sector were even more massive (-21 % to EUR 152 billion), with turnovers in the tourism and travel industry falling particularly sharply. The change was mainly the result of the average foreign turnovers of internationally active enterprises. They fell steeply while the share of internationally active businesses among all SMEs remained steady overall at around 21 %.

“Exports of SMEs are likely to have recovered somewhat in 2021. On the basis of our surveys we expect an increase of a good 6 % to EUR 566 billion. That volume is still below the pre-crisis level”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. How the international operations of small and medium-sized enterprises will develop in the course of 2022 is difficult to predict. There is great uncertainty as to how long the disruptions to global supply chains will last. Russia’s war of aggression against Ukraine and the sanctions imposed in response also pose risks. “To be sure, hardly more than 2 % of German SMEs export goods to Russia, and even fewer to Ukraine, but a sharp economic downturn in Europe would significantly affect foreign demand for their products. Uncertainty also remains with a view to the pandemic. The year 2022 is therefore likely to be challenging again for internationally oriented small and medium-sized enterprises in Germany. However, new opportunities for growth are also presenting themselves, for example in the field of environmental and climate technologies. That is where German enterprises are well positioned in international competition”, said Köhler-Geib. “Businesses and policymakers will have to adapt to a changed external environment. Besides efficiency, supply chain resilience is another factor that will likely be very important in future.”

The KfW Internationalisation Report can be downloaded from: KfW-Internationalisierungsbericht | KfW

The dataset:

The KfW Internationalisation Report is based on the data of the most recent survey wave of the KfW SME Panel (15 February 2021–25 June 2021) and two supplementary surveys on the impacts of supply bottlenecks (1-10 September 2021 and 7-14 March 2022). The KfW SME Panel (KfW-Mittelstandspanel) has been conducted since 2003 as a tracking survey of small and medium-sized enterprises in Germany. The basic population of the KfW SME Panel includes all private-sector companies from all industries with annual turnovers of up to EUR 500 million. With a database of up to 15,000 companies a year, the KfW SME Panel is the only representative survey of the German SME sector, making it the most important source of data on issues relevant to the SME sector. Details: www.kfw.de/mittelstandspanel