KfW Research: German SMEs generated record high international turnover in 2022

• Price-adjusted growth was 8% year-on-year
• Non-European business is proving to be a driver of growth
• Appetite for foreign investment remains low

In the difficult year 2022, international business proved to be a strong pillar for Germany’s SMEs, according to the new KfW Internationalisation Report released by KfW Research. The report revealed that on average, internationally active SMEs achieved around 27 % of their turnover abroad. SMES’ overall international turnover increased year-over-year by around 14 %, or EUR 84 billion, to EUR 701 billion. Taking into account the high inflation rate, that was a plus of 8 % on a price-adjusted basis. The number of internationally active businesses grew by a notable 89,000 to 879,000 in total. Thus, nearly one in four small and medium-sized enterprises (SMEs) in Germany generated turnover abroad – the highest level in 13 years.

There can be no doubt that Europe remains the most important foreign sales market for German SMEs. Their European turnover amounted to EUR 483 billion, or 69% of their total international turnover. Never before have German SMEs generated higher turnover in Europe.

However, they achieved the highest growth rates in non-European sales markets (+ 16 %), which therefore turned out to be a driver of turnover growth in 2022. Turnover of SMEs in regions outside Europe increased by EUR 29 billion to now EUR 217 billion. That was also around EUR 26 billion more than in the year 2019, before the COVID-19 pandemic.

The bulk of internationally active businesses relies on exports as a way of serving foreign markets. Only few enterprises take the extra step to direct investment. In the period from 2019 to 2022, a mere 1.7 % of all small and medium-sized enterprises invested abroad. What is worth noting is that China became less important as an investment destination for SMEs than in previous years. Only 3 % of all SMEs investing abroad are active in China. The US, on the other hand, gained in attractiveness. More than 14 % of all SMEs that invested in the 2019–2022 period did so in the US.

By far the most important motive for SMEs to invest abroad is to tap into new sales markets. This was one of the key motives for around 60 % of all businesses that invested abroad. Other motives included a lower tax burden (29 %) and fewer regulatory requirements in the destination countries (31 %).

“Given the many different burdens from the multiple crises in the year 2022, the positive development of SMEs’ international business activities is very good news”,

said Dr Fritzi Köhler-Geib, Chief Economist of KfW.

“But it was only later that the full impact of the implemented interest rate turnaround was fully felt. The global economic environment worsened considerably in 2023. Overall, the global recovery remains subdued, and global demand for capital goods and intermediate goods is still muted. Since the start of the year 2024”, however, there have been signs of growing confidence among German enterprises, including SMEs. Export activities are picking up pace again. The foreseeable interest rate reductions later in the year will give new momentum to international demand and stimulate foreign trade. That will also benefit SMEs.”

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